Great Southern
bancorp, inc.
2011 Annual Report for Shareholders
Understanding
what really matters.
1
general information
annual meeting
Corporate Headquarters
1451 E. Battlefield
Springfield, MO 65804
(800) 749-7113
MaILING address
P.O. Box 9009, Springfield, MO 65808
dIVIdeNd reINVestMeNt
For details on the automatic reinvestment of
dividends in common stock of the
Company call Registrar & Transfer Company
at (800) 368-5948 or visit www.rtco.com.
ForM 10-K
The Annual Report on Form 10-K filed with
the Securities and Exchange Commission may
be obtained from the Company’s website at
GreatSouthernBank.com or without charge by
request to:
Rex Copeland
Treasurer
Great Southern Bancorp, Inc.
P.O. Box 9009, Springfield, MO 65808
INVestor reLatIoNs
Kelly Polonus
Great Southern Bank
P.O. Box 9009, Springfield, MO 65808
audItors
BKD, LLP
P.O. Box 1190
Springfield, MO 65801-1190
LeGaL CouNseL
Silver, Freedman & Taff, L.L.P.
3299 K St., NW, Suite 100
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, NJ 07016
The 23rd Annual Meeting of Shareholders will be held at 10:00 a.m. CDT
on Wednesday, May 16, 2012, at the Great Southern Operations Center,
218 S. Glenstone, Springfield, Missouri.
corporate profile
In 1923, Great Southern Bank was started with a $5,000 investment
and has since grown to the company it is today. Our footprint spans
five states and we serve more than 237,000 customers by providing
them with a comprehensive line of products and services. With more
than 1200 dedicated associates, we provide exceptional service to our
customers and it is our goal to understand what matters most in every
interaction we have with them.
With $3.8 billion in total assets, we are headquartered in Springfield,
Mo., and operate 105 retail banking centers in Missouri, Arkansas,
Kansas, Iowa and Nebraska. Customers can expect the most convenient
banking services possible. This includes longer banking center hours,
a large network of ATMs, and telephone, Internet and mobile banking
services. Beyond traditional banking services, Great Southern also offers
investment, insurance and travel services.
stock information
Great Southern Bancorp, Inc., the holding company for Great
Southern Bank, is a public company and its common stock (ticker: GSBC)
is listed on the NASDAQ Global Select Market.
As of December 31, 2011, there were 13,479,856 total shares of
common stock outstanding and approximately 2300 shareholders of
record.
The last sale price of the Company’s common stock on December
31, 2011, was $23.59.
HigH/Low Stock Price
2011
2010
2009
High
Low
High
Low
High
First Quarter
$24.44
Second Quarter 22.36
Third Quarter
20.43
Fourth Quarter 24.32
$19.27
16.69
15.01
15.65
$24.50
26.32
22.22
24.60
$20.35
20.30
19.37
21.05
$15.26
22.96
24.47
24.60
Low
$9.04
13.16
18.33
20.68
DiviDenD DecLarationS
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
$.18
.18
.18
.18
2010
$.18
.18
.18
.18
2009
$.18
.18
.18
.18
Dear
Shareholders
In 2011, our team of more
than 1200 associates
worked diligently to serve
the ever-changing needs
of our customers in our
five-state franchise.
Our resulting solid financial
performance in 2011, in a still lackluster
economy, underscored our associates’
dedication to our customers and the
communities we serve.
As we go about our daily business
of serving customers, our focus on
what really matters to our customers,
our associates, our communities and
our shareholders has served us well.
Especially in today’s fast paced and
information-laden society, understanding
what matters naturally provides
perspective about how we should invest
and prioritize our resources. Economic
conditions of the last four years and
increasing regulatory demands have also
done a lot to reiterate the importance of
this perspective. When we’re successful
at first understanding what really matters,
Joseph W. Turner
President and
Chief Executive Officer
William V. Turner
Chairman of the Board
Understanding ** 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.
we can fulfill our Company’s mission of
building winning relationships with our
customers, associates, communities and
shareholders. The pages immediately
following this message illustrate some
examples of ways we try to provide
solutions regarding those things in life
that we can impact that really matter
to you.
with business prospects primarily in
Springfield and southwest Missouri to a
company serving customers throughout
Missouri and four other states, including
the large markets of Des Moines and
Sioux City, Iowa, St. Louis and Kansas
City, Mo., Omaha, Neb., and Rogers,
located in the Northwest Arkansas
region.
Four years ago, as the economy
began its sharp decline, we reprioritized
and repositioned the Company to enable
us to take advantage of opportunities
that would likely occur in the
marketplace. Now four years later, we
are emerging from this economic cycle
a stronger and more diverse company.
Three FDIC-assisted acquisitions, two in
2009 and one in 2011, along with solid
organic growth, have transformed our
Company into a regional bank. At the
end of 2008, we operated 39 banking
centers, exclusively in Missouri, with
$2.7 billion in assets. Today we operate
105 banking centers in five states with
$3.8 billion in assets. In a relatively short
period of time, we grew from a company
2011 Matters
The biggest Company headline in
2011 was the October FDIC-assisted
acquisition of the former Sun Security
Bank, which operated 27 locations in
15 counties in central and southern
Missouri, as well as the St. Louis area.
Great Southern entered into a purchase
and assumption agreement, including
a loss sharing agreement, with the
FDIC to purchase substantially all of the
assets and assume substantially all of
the deposits and other liabilities of Sun
Security. Operational integration was
successfully completed in January 2012,
and we are very pleased with the quality
of our new customer relationships and
our new associates. The only overlapping
market that was part of this acquisition
was in Stockton, Mo., and in January
2012, the former Sun Security Bank
location there was consolidated into the
existing Great Southern facility. Thanks
to the stellar work of the former Sun
Security associates, deposit retention has
been outstanding, with current overall
deposit levels at the former Sun Security
locations actually higher than pre-
acquisition levels.
In 2011, the Company’s retail
presence in terms of locations in the
St. Louis region doubled in size. The
Sun Security transaction added two
banking centers in St. Charles County,
and a de novo opening in the suburb of
Affton to the south increased the total
number of banking centers to six in the
region. In February 2012, our seventh
facility opened in O’Fallon, also in St.
Charles County. The Affton and O’Fallon
locations were former bank offices and
provided expedient entries into these
communities. In terms of deposit growth,
our St. Louis locations are among our top
what really matters.
2
Our 2011
numbers
reflect a year of growth as well as
increased strength and diversity.
† Figure stated is as if the Company was publicly traded for
all of the fiscal year 1990 (conversion was in Dec. 1989).
performers in the Company’s banking
center network. We look forward to
continued success in this region.
in the first few weeks of the launch, which
greatly exceeded our already optimistic
expectations.
Another headline was the launch of
our free smartphone mobile application
for iPhone and Android users. Customers
can access account information, make
transfers, pay bills, as well as easily locate
any Great Southern banking center or
ATM throughout the Great Southern
franchise. The desire of our customers to
use their mobile devices to access their
accounts was substantiated by the high
volume of downloads of the application
These 2011 achievements and many
other successes and interactions with
our customers culminated in our solid
financial performance in 2011. While we
are pleased with our overall results, we
know there is much work to be done,
especially in the areas of continued
resolution of non-performing assets and
operational expense containment.
For the year ended 2011, net income
available to common shareholders
was $26.3 million, or $1.93 per diluted
common share. The Company ended
the year with assets of $3.8 billion.
The capital position of the Company
remained strong with all regulatory
capital ratios significantly exceeding the
“well capitalized” thresholds established
by regulators. Total stockholders’ equity
was $324.6 million (8.6% of total assets).
Common stockholders’ equity was
$266.6 million (7.0% of total assets),
equivalent to a book value of $19.78 per
common share. Common shareholders
received a total dividend of $.72 per
Expanding
our reach
gives us room to grow.
And grow.
With our FDIC-assisted acquisitions of former
TeamBank and Vantus Bank in 2009, former
Sun Security Bank in 2011, plus additional new
locations, our Company has grown from 39
banking centers to 105 today.
3
By looking ahead to
opportunities
we’ve become a
stronger company today.
* The graph above compares the cumulative total stockholder return on GSBC
Common Stock to the cumulative total returns of the NASDAQ U.S. Stock Index
and the NASDAQ Financial Stocks Index for the period from December 31, 2006
through December 31, 2011. The graph assumes that $100 was invested in GSBC
Common Stock on December 31, 2006 and that all dividends were reinvested.
common share in 2011. We’re pleased
that we have paid consecutive quarterly
dividends to common shareholders
since 1990.
During 2011, deposit growth was
strong, with total deposits increasing by
approximately $368 million, including
the acquired Sun Security deposits.
We were successful in attracting new
checking account customers throughout
the Company’s footprint and saw a
continued favorable shift in our deposit
mix toward transaction accounts.
Lending activity and loan demand
increased modestly in 2011. Total gross
loans, including FDIC-covered loans,
increased $241 million mainly due to
loans acquired in the Sun Security
transaction, as well as increases in
multi-family residential mortgage
loans, commercial real estate loans and
commercial business loans.
The resolution of non-performing
assets continues to be a priority. Overall,
non-performing assets have decreased
slightly from the end of 2010. Non-
performing assets, excluding FDIC-
covered assets, at December 31, 2011
were $74.4 million, a decrease of $3.9
million from $78.3 million at December
31, 2010. Non-performing assets as a
percentage of total assets were 1.96% at
December 31, 2011, compared to 2.30%
at December 31, 2010. We discuss
non-performing assets in detail in the
“Management’s Discussion and Analysis”
section of this Annual Report. While our
objective is obviously to decrease our
levels of classified and non-performing
assets, we expect non-performing assets,
loan loss provisions and net charge-offs
may continue to remain at somewhat
elevated levels and may potentially
fluctuate from period to period.
What Matters in 2012
We expect that 2012 will bring
both opportunities and challenges.
Although there are some signs of modest
improvement, uncertainty continues
in the economy and it will likely take
some time before we see meaningful
sustained economic growth. This kind
of environment brings about various
opportunities and challenges and the
Company is positioned to respond.
Our strategic direction for 2012 is
straightforward. We’ll work as a team
across all business lines to attract new
customers and deepen relationships with
existing customers in all of our markets.
We have built a strong franchise, which
provides many opportunities to increase
our customer base. To be successful,
we must know our customers – know
what matters to them – and then deliver
the best solutions to address their
needs. That’s how we build winning
relationships.
We remain ready and willing
to lend to creditworthy borrowers.
Sound lending is vital to our country’s
economic recovery and our future
success. We will continue to adhere
to our lending principles in a way that
balances our commitment to customers
with our responsibility to manage risk
appropriately and deliver value for
investors. In 2012, we will also continue
to work to reduce our problem assets.
We believe that our Company has
benefited greatly as a result of the three
FDIC-assisted transactions completed to
date. We know that this unique window
of opportunity will close as the banking
industry heals itself, and the majority of
the weaker players will be consolidated
through FDIC-assisted transactions or
other types of transactions in the next
few years. Bidding on FDIC deals has
4
What really Matters?
Serve the full range of financial needs for individuals and businesses.
Attract the best associates to serve our customers.
Support the communities where we do business.
Create long-term value for our shareholders.
become highly competitive. Based on
the current bidding environment, we’ll
continue to analyze the playing field and
may submit bids in situations that we
believe make long-term financial and
operational sense for our Company.
Several initiatives and projects are
already underway or planned for 2012.
Two existing banking centers – one in
Springfield, Mo., and one in Olathe, Kan.
– will be replaced with new structures
at better locations. Both facilities are
expected to open in the second quarter
of 2012. We are beginning construction
soon on a new banking center in Omaha,
Neb., with an anticipated opening in
the fourth quarter of 2012. The new
banking center will be located in a high
growth area of Omaha. We currently
operate three banking centers in this
metropolitan area.
Customer preferences and
expectations continue to evolve.
We understand that our customers
will choose to access our services in
multiple ways, whether it is through
the banking center, ATM, telephone,
computer, tablet or mobile device.
It is critical that we keep pace with
technological advances both in our
society and industry. Consumers
across all age groups are adopting
various technological tools with more
ease, speed and higher expectations.
Demand for these tools will only get
stronger. In 2012, we plan to provide
customers an online platform to apply
for consumer and small business loans,
which complements our existing online
mortgage platform. Text banking and
other online convenience services are
also in the works.
In 2012, we will greatly expand our
focus on providing services to small
business customers. Teams of associates
from all business lines will proactively
target new small business customers with
both lending and depository products.
Our actions will be based on what we
learned from a Company-sponsored
small business focus group, which
provided perspective on the unique
needs and desires of small business
owners.
Headwinds to revenue growth caused
by a stagnant economy and regulatory
pressures will place a premium on
efficiency and expense containment. This
will be a major focus in 2012. In light of
our significant growth in the last three
years, we are planning to perform a
formal operational review to ensure that
our operations are effective and efficient.
With our excellent team of bankers,
strong capital and liquidity position,
favorable deposit base and expanding
franchise footprint located in vibrant
communities across the Midwest, we
are in a great position to make 2012
another outstanding year. As we build
on the foundation we have laid, we
want to thank our associates for their
tremendous focus and effort over the
past year; our customers for giving us
the opportunity to serve their needs;
and our shareholders for your continued
faith in the bright future of our Company.
We welcome your feedback as we
move forward.
Sincerely,
William V. Turner
Joseph W. Turner
5
Highlights
Customers can now apply online for
residential loans in as little as 20 minutes.
Reflecting Our True Self
This was a year of growth and change
for our Company. We grew in number
of banking centers and in loans and
deposits. And, with an eye on customer
convenience, introduced new products
and services: Click & Loan, the Great
Southern Mobile App, and the expansion
of VIP Services, to name a few, all make
customer access easier.
Considering all these changes along
with overall expansion since 2008, it was
the perfect time to refresh the Great
Southern brand with a look, a message
and an approach to better reflect who we
are today.
products and services, we developed
our “Understanding what really matters”
campaign. Our goal is to really listen to
our customers in every interaction, to
better understand their needs. So when it
came to advertising, we turned the tables
a bit. Our message comes from the voice
and perspective of our customers – what
matters to them and how we improve
their life. Whether it’s buying the right
home, saving for retirement or securing
a small business line of credit, consumers
see a line of products built to suit their
lifestyles and improve their lives.
Click & Loan
We began with updating our logo and
In 2011, we introduced our Click
introducing lighter, fresher colors for a
more modern look.
To highlight the breadth of our
& Loan program, which gives our
customers the option to apply for a
residential loan online. Customers can
view rates, learn about loan options, and
then complete a loan application online,
usually in less than 20 minutes.
This is yet another step towards the
simplification of the banking process for
our customers and adds another channel
of banking access to use whenever and
wherever it is most convenient.
Loyalty Line of Credit
Loyalty means something special at
Great Southern. It is our goal to reward
customers just for being customers, and
the Home Equity Loyalty Line of Credit
was launched with this goal in mind.
The low introductory rate, locked in for
two years with no closing costs, enabled
hundreds of our customers to complete
home improvement projects, consolidate
debt, take vacations, pay tuition expenses
Launching a
NEW look
to reflect our modern company.
Our brand refresh started with our logo. We kept our iconic
sun, a symbol of who we are, and added a new font and color.
The result - clean, modern, strong - expresses how we’ve
progressed and where we’re going in the future.
6
Great Southern
bancorp, inc.
2011 Improving
the banking
experience
with fast,
convenient access.
Our Mobile Banking App has received rave reviews.
Anyone can use it to locate our banking centers,
ATMs and contact information. Online Banking
customers can also access their account information
to check balances, transfer funds and monitor their
accounts, anytime they want.
and much more. This special relationship
rate was offered to Great Southern
customers that have two or more Great
Southern loan or deposit products.
ReadyFUND$
This year we made available
ReadyFUND$ Payroll processing,
used by many employers to pay their
employees. Payroll funds are directly
deposited into each employee’s personal
account or to a ReadyFUND$ Payroll
Card. ReadyFUND$ gives the employer
the ability to provide electronic payment
to 100% of employees while saving
considerable expense compared to
writing paper checks and reducing the
possibility of lost checks, fraudulent
activity, stop payment and check reissue
fees. ReadyFUND$ saves our business
customers time and money, and it is
convenient for their employees since
funds are available on a regular pay
schedule, even during vacations or other
time off.
attain what matters most to them, Great
Southern helped customers across the
franchise in an historically low interest
rate environment.
Our Residential Lending Team posted
Mobile Banking App
In 2011, we unveiled our Great
Southern Mobile Banking App. The app
was made available in the iTunes and
Android marketplaces and can be used
by any smartphone user who has access
to the markets from their phone.
With the face of the banking industry
constantly shifting, this exciting product
helps us keep up with current trends in
the industry.
Record Lending Numbers
In an effort to help our customers
record numbers for our Company in
2011, producing $218,024,338 (1581
loans) which is an increase of nearly $10
million and 36 more loans from 2010.
Director of Residential Lending Steve
King believes it’s all about focusing on
the customer and hard work. “Even
in the busiest time, our Residential
Lending Team strives to stay focused,
continues to work hard and do what is
right for the customer and our Company.
Also, we would like to say thank you to
our customers for allowing us to help
them with one of the most important
purchases they will make in their lives.”
Giving voice to
Our Customers
brings a fresh point of view.
Focusing on the end result for customers
– like being able to afford the perfect house –
provides us a new vantage point for anticipating
their needs, while making the message more
relevant to the consumer.
7
Helping
Our Communities
means more than a
simple donation.
In cooperation with two local builders, Great Southern Community
Development Company (CDC) built six new homes for displaced
Joplin, Mo. residents. A local lumber company graciously provided
building materials at cost.
Company Expansion and
Relocation
In addition to the St. Louis area
Sun Security acquisition locations, the
Company expanded its network even
further with the opening of two new
banking centers in Affton and O’Fallon,
Mo. Not only did these additions expand
our presence in the market, they gave
us a customer-convenient lineup of
locations in the St. Louis region.
In the quest for greater efficiency and
better customer service, we relocated
our South Campbell banking center
and began construction to relocate
the Kansas and Kearney facility in
Springfield, Mo. Ground breaking for
the banking center relocation in Olathe,
Kan. also occured in 2011. The new
banking centers are nearly double the
size of their predecessor locations and
offer customers a better overall banking
experience. Both Kansas and Kearney
and Olathe relocations are scheduled
for completion in the second quarter
of 2012.
Also in Springfield, Great Southern
Insurance made the move to a larger,
more contemporary location making
them more visible and more accessible
to their customers.
VIP Banking Expansion
VIP Banking provides highly
personalized service for clients with
diverse business and personal financial
needs. Our VIP Bankers take away
banking worries that ultimately saves
these customers time and money.
With VIP service expanding into the
Sioux City, Iowa market in 2011, Great
Southern’s VIP Bankers now serve
clients in six markets that also include
Springfield, St. Louis, Kansas City, Des
Moines and Rogers, Ark.
Small Business Lending Fund
Great Southern announced that it
had exited the Troubled Asset Relief
Program (TARP) in 2011 and had entered
the Small Business Lending Fund (SBLF).
The purpose of SBLF is to increase
small business lending and to create
jobs and economic growth by providing
Leadership
Team
*Denotes Executive Officer
Steve Mitchem*
Chief Lending
Officer
Tammy
Baurichter
Controller
Debbie Flowers
Director of Credit
Risk Administration
Joe Turner*
President and
Chief Executive
Officer
8
Lin Thomason*
Director of
Information Services
With the use of websites such as Facebook, Twitter and LinkedIn,
we found a new way to market our Company, converse with our
customers and followers, and help manage our online reputation.
Our existence in these channels is more important than just marketing
ourselves. We utilize these channels to listen to our customers and
participate in any conversations about us and to promote our brand.
Making the most of
points of contact
allows us to be relevant
and responsive.
banks, including Great Southern, a
reasonable cost of capital. The SBLF is
an opportunity for Great Southern to
enhance our ability to meet the credit
needs of the small businesses in our
communities.
Community Involvement
There is a Japanese proverb that
says, “Brothers are like both hands.”
They should help each other in good
times as well as in bad. When nature
showed her dark side in many of our
communities last year, Great Southern
was there showing our commitment
to help make our communities better
places to live, work and do business.
Great Southern donated over $300,000
to communities, including those hit
by tornados and flooding, along with
thousands of volunteer hours that
helped put folks back on their feet.
Even more dollar donations were kicked
in by employee fundraisers through
Great Southern’s Caring and Sharing
Community Partnership program.
In one afternoon, the city of Joplin,
Mo., and the lives of many were changed
forever when, on May 22, an F5 tornado
ripped through the city. Our customers,
associates and communities-at-large
generously donated money and time
to help with the tornado disaster relief
efforts. Great Southern presented nearly
$55,000 to the American Red Cross.
Another $500 worth of supplies was
contributed to a temporary day care
center, and many associates volunteered
their time to help with clean-up efforts.
Recovery home loans and auto loans
helped residents get their lives back
on track.
Also in May, the Siouxland area of
western Iowa was hit with extensive
flooding that destroyed many homes
and businesses. Great Southern donated
to the American Red Cross for Missouri
River Flood Relief, and to the United
Way of Siouxland for the Siouxland
Recovery Fund. Great Southern offered
special loans for rebuilding and repairing
flood damage as Siouxland repaired,
replaced and recovered.
Kris Conley
Director of Retail
Services
Bryan Tiede
Director of Risk
Management
Doug Marrs*
Director of
Operations
Rex Copeland*
Chief Financial
Officer
Kelly Polonus
Director of
Communications
and Marketing
Matt Snyder
Director of Human
Resources
9
Directors of
Great Southern
Bancorp, Inc. and
Great Southern Bank
Back row
Front Row
Earl A. Steinert, Jr.
Board Member
Co-owner, EAS Investment
Enterprises, Inc./CPA
William E. Barclay
Board Member
Retired – Springfield, Mo.
Larry D. Frazier
Board Member
Retired – Hollister, Mo.
Joseph W. Turner
President and
Chief Executive Officer
Grant Q. Haden
Board Member
Attorney and Managing Partner,
Haden, Cowherd and Bullock LLC
Thomas J. Carlson
Board Member
President, Mid America
Management, Inc.
William V. Turner
Chairman of the Board
Julie T. Brown
Board Member
Shareholder, Carnahan, Evans,
Cantwell & Brown, P.C.
Selected conSolidated Financial data
2011
2010
December 31,
2009
(Dollars in Thousands)
2008
2007
Summary Statement of
Condition Information:
Assets
Loans receivable, net
Allowance for loan losses
Available-for-sale securities
Foreclosed assets held for sale, net
Deposits
Total borrowings
Stockholders’ equity (retained
earnings substantially restricted)
Common stockholders’ equity
Average loans receivable
Average total assets
Average deposits
Average stockholders’ equity
Number of deposit accounts
Number of full-service offices
$3,790,012
2,153,081
41,232
875,411
67,621
2,963,539
485,853
324,587
266,644
2,007,914
3,496,860
2,671,710
316,486
189,288
105
$3,411,505
1,899,386
41,487
769,546
60,262
2,595,893
495,554
304,009
247,529
2,019,361
3,528,043
2,661,164
309,558
171,278
75
$3,641,119
2,091,394
40,101
764,291
41,660
2,713,961
591,908
298,908
242,891
2,028,067
3,403,059
2,483,264
274,684
173,842
72
$2,659,923
1,721,691
29,163
647,678
32,659
1,908,028
500,030
234,087
178,507
1,842,002
2,522,004
1,901,096
183,625
95,784
39
$2,431,732
1,820,111
25,459
425,028
20,399
1,763,146
461,517
189,871
189,871
1,774,253
2,340,443
1,784,060
185,725
95,908
38
The tables on pages 10, 11 and 12 set forth selected consolidated financial information and other financial data of the Company. The selected balance sheet and statement
of operations data, insofar as they relate to the years ended December 31, 2011, 2010, 2009, 2008 and 2007, are derived from our Consolidated Financial Statements, which
have been audited by BKD, LLP. See Item 6. “Selected Consolidated Financial Data,” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and Item 8. “Financial Statements and Supplementary Information” in the Company’s Annual Report on Form 10-K. Results for past periods are not necessarily
indicative of results that may be expected for any future period.
10
Selected conSolidated Financial data
Summary Statement of Operations Information:
Interest income:
Loans
Investment securities and other
Interest expense:
Deposits
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
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 on sales of
available-for-sale securities
Realized impairment of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain recognized on business acquisitions
Accretion (amortization) of income/expense related to
business acquisition
Other income
Noninterest expense:
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Advertising
Office supplies and printing
Telephone
Legal, audit and other professional fees
Expense on foreclosed assets
Other operating expenses
Income (loss) before income taxes
Provision (credit) for income taxes
Net income (loss)
Preferred stock dividends and discount accretion
Non-cash deemed preferred stock dividend
Net income (loss) available to common shareholders
2011
For the Year Ended December 31,
2009
2008
2010
(In Thousands)
2007
$ 171,201 $ 145,832
27,359
173,191
27,466
198,667
$ 123,463
32,405
155,868
$ 119,829 $ 142,719
21,152
163,871
24,985
144,814
26,370
5,242
2,965
569
35,146
163,521
35,336
128,185
8,915
18,063
3,524
483
(615)
651
(10)
16,486
38,427
5,516
3,329
578
47,850
125,341
35,630
89,711
8,284
18,652
3,765
8,787
---
767
---
---
54,087
5,352
6,393
773
66,605
89,263
35,800
53,463
6,775
17,669
2,889
2,787
(4,308)
672
1,184
89,795
(37,797)
2,560
12,260
(10,427)
2,124
31,952
2,733
2,588
122,784
48,836
16,162
3,170
4,938
1,490
1,337
2,471
3,837
11,846
10,576
104,663
35,782
5,513
30,269
2,798
1,212
44,842
14,341
3,303
4,562
1,932
1,522
2,333
2,867
4,914
8,288
88,904
32,759
8,894
23,865
3,403
---
$ 26,259 $ 20,462
40,450
12,506
2,789
5,716
1,488
1,195
1,828
2,778
4,959
4,486
78,195
98,052
33,005
65,047
3,353
---
$ 61,694
60,876
5,001
5,892
1,462
73,231
71,583
52,200
19,383
8,724
15,352
1,415
44
(7,386)
819
6,981
---
---
2,195
28,144
76,232
6,964
7,356
1,914
92,466
71,405
5,475
65,930
9,933
15,153
1,037
13
(1,140)
962
1,632
---
---
1,829
29,419
31,081
8,281
2,240
2,223
1,073
820
1,396
1,739
3,431
3,422
55,706
(8,179)
(3,751)
(4,428)
242
---
30,161
7,927
2,230
1,473
1,446
879
1,363
1,247
608
4,373
51,707
43,642
14,343
29,299
---
---
(4,670) $ 29,299
$
11
Selected conSolidated Financial data
Per Common Share Data:
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Cash dividends declared
Book value per common share
Average shares outstanding
Year-end actual shares outstanding
Average fully diluted shares outstanding
Earnings Performance Ratios:
Return on average assets(1)
Return on average stockholders’ equity(2)
Non-interest income to average total assets
Non-interest expense to average total assets
Average interest rate spread(3)
Year-end interest rate spread
Net interest margin(4)
Efficiency ratio(5)
Net overhead ratio(6)
Common dividend pay-out ratio(7)
Asset Quality Ratios (8):
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
Balance Sheet Ratios:
Loans to deposits
Average interest-earning assets as a percentage
of average interest-bearing liabilities
Capital Ratios:
Average common stockholders’ equity to average assets
Year-end tangible common stockholders’ equity to assets
Great Southern Bancorp, Inc.:
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage ratio
Great Southern Bank:
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage ratio
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividend Requirement (9):
Including deposit interest
Excluding deposit interest
2011
At and For the Year Ended December 31,
2008
2009
2010
(Number of shares in thousands)
2007
$
1.95 $
1.93
0.72
19.78
13,462
13,480
13,626
1.52
1.46
0.72
18.40
13,434
13,454
14,046
$
4.61
4.44
0.72
18.12
13,390
13,406
13,382
$
(0.35) $
(0.35)
0.72
13.34
13,381
13,381
13,381
2.16
2.15
0.68
14.17
13,566
13,400
13,654
0.87%
11.67
0.35
2.99
5.06
3.68
5.17
59.54
2.64
37.31
0.68%
9.42
0.91
2.52
3.81
3.81
3.93
56.52
1.61
49.32
1.91%
29.72
3.61
2.30
2.98
3.56
3.03
36.88
(1.31)
16.22
2.33%
3.31
149.95
2.09
1.96
1.25
2.48%
3.93
141.02
2.05
2.30
1.52
2.35%
2.99
151.38
1.44
1.79
1.24
(0.18)%
(2.47)
1.12
2.21
2.74
3.02
3.01
55.86
1.09
N/A
1.66%
3.69
87.84
2.63
2.48
1.90
1.25%
15.78
1.25
2.21
2.71
3.00
3.24
51.28
0.95
31.63
1.38%
2.99
71.77
0.35
2.30
1.92
72.65%
73.17%
77.06%
90.23%
103.23%
110.55
108.22
102.17
108.98
112.71
7.4%
6.9
7.2%
7.1
6.4%
6.5
7.1%
6.7
7.9%
7.7
14.8
16.1
9.2
14.1
15.3
8.6
16.8
18.0
9.5
14.6
15.8
8.3
15.0
16.3
8.6
12.9
14.2
7.4
13.8
15.1
10.1
10.7
11.9
7.8
10.6
11.9
9.1
10.4
11.7
9.0
1.78x
3.30x
1.53x
2.99x
2.30x
6.29x
0.88x
0.33x
1.47x
3.69x
(1) Net income (loss) divided by average total assets.
(2) Net income (loss) divided by average stockholders’ equity.
(3) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest income plus
non-interest income.
(6) Non-interest expense less non-interest income divided by average
total assets.
(7) Cash dividends per common share divided by earnings per
common share.
(8) Excludes assets covered by FDIC loss sharing agreements.
(9) In computing the ratio of earnings to fixed charges and preferred
stock dividend requirement: (a) earnings have been based on
income before income taxes and fixed charges, and (b) fixed
charges consist of interest and amortization of debt discount and
expense including amounts capitalized and the estimated interest
portion of rents.
12
201
1 Financial Information
Contents
1 Management’s Discussion and Analysis of Financial Condition
4
and Results of Operations.
50 Report of Independent Registered Public Accounting Firm.
51 Consolidated Statements of Financial Condition.
53 Consolidated Statements of Income.
54 Consolidated Statements of Stockholders’ Equity.
56 Consolidated Statements of Cash Flows.
59 Notes to Consolidated Financial Statements.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward-looking Statements
When used in this Annual Report and in other 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," "intends" 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,
(i) expected cost savings, synergies and other benefits from the Company’s merger and acquisition activities, including but not limited
to the recently completed FDIC-assisted transaction involving Sun Security Bank, might not be realized within the anticipated time
frames or at all, the possibility that the amount of the gain the Company ultimately recognizes from the Sun Security Bank transaction
will be materially different from the preliminary gain recorded, and costs or difficulties relating to integration matters, including but
not limited to customer and employee retention, might be greater than expected; (ii) changes in economic conditions, either nationally
or in the Company’s market areas; (iii) fluctuations in interest rates; (iv) the risks of lending and investing activities, including
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for
loan losses; (v) the possibility of other-than-temporary impairments of securities held in the Company’s securities portfolio; (vi) the
Company’s ability to access cost-effective funding; (vii) fluctuations in real estate values and both residential and commercial real
estate market conditions; (viii) demand for loans and deposits in the Company’s market areas; (ix) legislative or regulatory changes
that adversely affect the Company’s business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer
Protection Act and its implementing regulations, and the new overdraft protection regulations and customers’ responses thereto; (x)
monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the
financial services industry; (xi) results of examinations of the Company and the Bank by their regulators, including the possibility that
the regulators may, among other things, require the Company to increase its allowance for loan losses or to write-down assets; (xii) the
uncertainties arising from the Company’s participation in the Small Business Lending Fund, including uncertainties concerning the
potential future redemption by us of the U.S. Treasury’s preferred stock investment under the program, including the timing of,
regulatory approvals for, and conditions placed upon, any such redemption; (xiii) costs and effects of litigation, including settlements
and judgments; and (xiv) competition. The Company wishes to advise readers that the factors listed above and other risks described
from time to time in the company’s filings with the SEC 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.
Allowance for Loan Losses and Valuation of Foreclosed Assets
The Company believes 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 of, including, among others, expected default probabilities, loss once loans
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. In addition, the Bank’s regulators
could require additional provisions for loan losses as part of their examination process. The Bank's latest annual regulatory
examination was completed in December 2011.
14
Additional discussion of the allowance for loan losses is included in the Company’s 2011 Annual Report on Form 10-K under "Item 1.
Business - Allowances for Losses on Loans and Foreclosed Assets." Inherent in this process is the evaluation of individual significant
credit relationships. From time to time certain credit relationships may deteriorate due to payment performance, cash flow of the
borrower, value of collateral, or other factors. In these instances, management may have to revise its loss estimates and assumptions
for these specific credits due to changing circumstances. In some cases, additional losses may be realized; in other instances, the
factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released
from the particular credit. For the periods included in these financial statements, management's overall methodology for evaluating the
allowance for loan losses has not changed significantly.
In addition, the Company considers that the determination of the valuations of foreclosed assets held for sale involves a high degree of
judgment and complexity. The carrying value of foreclosed assets reflects management’s best estimate of the amount to be realized
from the sales of the assets. While the estimate is generally based on a valuation by an independent appraiser or recent sales of similar
properties, the amount that the Company realizes from the sales of the assets could differ materially from the carrying value reflected
in these financial statements, resulting in losses that could adversely impact earnings in future periods.
Carrying Value of FDIC-covered Loans and Indemnification Asset
The Company considers that the determination of the carrying value of loans acquired in the March 20, 2009, September 4, 2009 and
October 7, 2011 FDIC-assisted transactions and the carrying value of the related FDIC indemnification assets involve a high degree of
judgment and complexity. The carrying value of the acquired loans and the FDIC indemnification assets reflect management’s best
ongoing estimates of the amounts to be realized on each of these assets. The Company determined initial fair value accounting
estimates of the assumed assets and liabilities in accordance with FASB ASC 805, Business Combinations. However, the amount that
the Company realizes on these assets could differ materially from the carrying value reflected in its financial statements, based upon
the timing of collections on the acquired loans in future periods. Because of the loss sharing agreements with the FDIC on these assets,
the Company should not incur any significant losses. To the extent the actual values realized for the acquired loans are different from
the estimates, the indemnification asset will generally be impacted in an offsetting manner due to the loss sharing support from the
FDIC. Subsequent to the initial valuation, the Company continues to monitor identified loan pools and related loss sharing assets for
changes in estimated cash flows projected for the loan pools, anticipated credit losses and changes in the accretable yield. Analysis of
these variables requires significant estimates and a high degree of judgment. See Note 5 of the accompanying audited financial
statements for additional information.
Goodwill and Intangible Assets
Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently
if circumstances indicate their value may not be recoverable. Goodwill is tested for impairment using a process that estimates the fair
value of each of the Company’s reporting units compared with its carrying value. The Company defines reporting units as a level
below each of its operating segments for which there is discrete financial information that is regularly reviewed. As of December 31,
2011, the Company has two reporting units to which goodwill has been allocated – the Bank and the Travel division (which is a
division of a subsidiary of the Bank). If the fair value of a reporting unit exceeds its carrying value, then no impairment is recorded. If
the carrying value amount exceeds the fair value of a reporting unit, further testing is completed comparing the implied fair value of
the reporting unit’s goodwill to its carrying value to measure the amount of impairment. Intangible assets that are not amortized will
be tested for impairment at least annually by comparing the fair values to those assets to their carrying values. At December 31, 2011,
goodwill consisted of $379,000 at the Bank reporting unit and $878,000 at the Travel reporting unit. Other identifiable intangible
assets that are subject to amortization are amortized on a straight-line basis over periods ranging from three to seven years. At
December 31, 2011, the amortizable intangible assets consisted of core deposit intangibles of $5.7 million at the Bank reporting unit
and $15,000 of non-compete agreements at the Travel reporting unit. These amortizable intangible assets are reviewed for impairment
if circumstances indicate their value may not be recoverable based on a comparison of fair value. See Note 1 of the accompanying
audited financial statements for additional information.
For purposes of testing goodwill for impairment, the Company used a market approach to value its reporting units. The market
approach applies a market multiple, based on observed purchase transactions for each reporting unit, to the metrics appropriate for the
valuation of the operating unit. Significant judgment is applied when goodwill is assessed for impairment. This judgment may include
developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating
general economic and market conditions.
Based on the Company’s goodwill impairment testing, management does not believe any of its goodwill or other intangible assets are
impaired as of December 31, 2011. While the Company believes no impairment existed at December 31, 2011, different conditions or
assumptions used to measure fair value of reporting units, or changes in cash flows or profitability, if significantly negative or
unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.
15
Current Economic Conditions
The current economic environment presents financial institutions with unprecedented circumstances and challenges which, in some
cases, have resulted in large declines in the fair value of investments and other assets, constraints on liquidity and significant credit
quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. The Company’s
financial statements have been prepared using values and information currently available to the Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could
change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, or capital that could negatively
impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
Current economic conditions have impacted the markets in which we operate. Throughout our market areas, the economic downturn
negatively affected consumer confidence and elevated unemployment levels. Consequently, average prices for existing home sales in
the Midwest, which includes our market areas, were down 3.2% in 2011 over 2010 according to the National Association of Realtors.
In turn, this can potentially increase related losses upon foreclosure due to depressed values. Higher vacancy rates have negatively
impacted cash flows on commercial real estate loans. Retail, office and industrial types of commercial real estate properties had
vacancy rates that averaged 10.7%, 16.4% and 11.3%, respectively, in the Company’s primary markets for 2011 according to real
estate services firms CBRE and Cassidy Turley. These vacancy rates in the Company’s primary markets are up from averages of
9.6%, 15.1% and 8.8%, respectively, for 2007, prior to the economic downturn. According to real estate services firms Colliers
International, Jones Lang LaSalle and Cassidy Turley, national averages were 10.9%, 17.6% and 9.1%, respectively, for 2011, up
from 10.0%, 15.0% and 8.2% for 2007, prior to the economic downturn. Increased vacancy rates for commercial real estate properties
can correlate to fewer commercial land development sales because of the risk involved in developing these types of properties when
similar completed properties have vacancies. The Missouri unemployment rate declined during the year ended December 31, 2011
from 9.6% at December 31, 2010 to 8.0% at December 31, 2011, on a preliminary basis, and was below the national average of 8.5%
at December 31, 2011. The Iowa and Kansas unemployment rates also declined during the year ended December 31, 2011 from 6.1%
and 6.8% at December 31, 2010, respectively, to 5.6% and 6.3% at December 31, 2011, respectively. Loan types specifically
impacted by certain market areas in Missouri include loans secured by condominiums and condominium development in the St. Louis,
Central Missouri and Branson market areas. Borrowers with loans secured by condominiums and condominium development are now
changing business strategies to remarket units for rent as opposed to sale. The St. Louis market area has experienced the highest level
of unemployment among our market areas, with unemployment rates at 8.3%, on a preliminary basis, and 9.4% at December 31, 2011
and 2010, respectively. However, we have a minimal level of one- to four-family residential and consumer loans in this market and
the negative impact of the economy specific to this area has generally been in condominium loans as previously discussed. The
unemployment rate for the Springfield market area was below the national average, on a preliminary basis, at 6.8% at December 31,
2011, and overall lending activity has improved somewhat but is still below historic levels.
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, as well as provisions for loan losses and the level of non-interest income and non-interest
expense. Net interest income is the difference between the interest income the Bank earns on its loans and investment portfolio, and
the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest
income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid
on these balances. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income.
In the year ended December 31, 2011, Great Southern's total assets increased $378.5 million, or 11.1%, from $3.41 billion at
December 31, 2010, to $3.79 billion at December 31, 2011. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2011 and December 31, 2010.”
Loans. In the year ended December 31, 2011, Great Southern's net loans increased $247.2 million, or 13.2%, from $1.88 billion at
December 31, 2010, to $2.12 billion at December 31, 2011. The increase was primarily due to the loans acquired in the Sun Security
Bank FDIC-assisted transaction during 2011 which totaled $144.6 million at December 31, 2011. Excluding loans covered by loss
sharing agreements, commercial real estate loans also increased $109.6 million, or 20.7%, other commercial loans increased $50.5
million, or 27.2%, and multi-family residential loans increased $32.9 million, or 15.6%. Commercial construction loans also
increased but the increase was primarily offset by decreases in subdivision construction and land development loans. Partially
offsetting these increases was a decrease in net loans acquired through the 2009 FDIC-assisted transactions of $52.9 million, or 17.4%,
primarily because of loan repayments. As loan demand is affected by a variety of factors, including general economic conditions, and
because of the competition we face and our focus on pricing discipline and credit quality, we cannot be assured that our loan growth
will match or exceed the level of increases achieved in prior years. The net loan growth experienced during the year ended December
16
31, 2011, excluding the Sun Security Bank FDIC-assisted transaction, may continue into 2012. However, based upon the current
lending environment and economic conditions, the Company does not expect to grow the overall loan portfolio significantly at this
time. The Company's strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.
Of the total loan portfolio at December 31, 2011 and 2010, 79.0% and 79.5%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2011 and 2010, commercial real estate and commercial construction
loans were 46.5% and 45.7% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions),
respectively. Commercial real estate and commercial construction loans generally afford the Bank an opportunity to increase the yield
on, and the proportion of interest rate sensitive loans in its portfolio. They do, however, present somewhat greater risk to the Bank
because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At December 31,
2011 and 2010, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 27% and 29% of the Bank’s
total loan portfolio (excluding loans acquired through FDIC-assisted transactions), respectively. The Company’s headquarters are
located in Springfield and we have operated in this market since 1923. Because of our large presence and experience in the
Springfield MSA, many lending opportunities exist. However, if the economic conditions of the Springfield MSA were worse than
those of other market areas in which we operate or the national economy overall, the performance of these loans could decline
comparatively. At December 31, 2011 and 2010, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
20% and 17% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions), respectively. The
Company’s expansion into the St. Louis MSA in May 2009 provided an opportunity to not only expand its markets and provide
diversification from the Springfield MSA, but also provided access to a larger economy with increased lending opportunities despite
higher levels of competition. Loans made in the St. Louis MSA are primarily commercial real estate, commercial business and multi-
family residential loans which are less likely to be impacted by the higher levels of unemployment rates, as mentioned above under
“Current Economic Conditions,” than if the focus were in one- to four-family residential and consumer loans. For further discussions
of the Bank’s loan portfolio, and specifically, commercial real estate and commercial construction loans, see “Item 1. Business –
Lending Activities” in the Company’s 2011 Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio (excluding loans acquired through FDIC-assisted transactions) has increased
from 21% in 2007 to 49% in 2011 due to customer preference for fixed rate loans during this period of low interest rates. Of the total
amount of fixed rate loans in our portfolio, 74% mature within one to five years and therefore are not considered to create significant
long-term interest rate risk for the Company. Fixed rate loans make up only a portion of our balance sheet and our overall interest rate
risk strategy. As of December 31, 2011, our internal interest rate risk models indicated a one-year interest rate sensitivity gap that is
fairly neutral. For further discussion of our interest rate sensitivity gap and the processes used to manage our exposure to interest rate
risk, see “Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest
Rate Changes.” For discussion of the risk factors associated with interest rate changes, see “Risk Factors – We may be adversely
affected by interest rate changes” in the Company’s 2011 Annual Report on Form 10-K.
While our policy allows us to lend up to 95% of the appraised value on single-family properties and up to 90% on two- to four-family
residential properties, originations of loans with loan-to-value ratios at that level are minimal. When they are made at those levels,
private mortgage insurance is typically required for loan amounts above the 80% level or our analyses determined minimal risk to be
involved and therefore these loans are not considered to have more risk to us than other residential loans. We consider these lending
practices to be consistent with or more conservative than what we believe to be the norm for banks our size. At December 31, 2011
and December 31, 2010, an estimated 0.6% and 1.1%, respectively, of total owner occupied one- to four-family residential loans had
loan-to-value ratios above 100% at origination. At December 31, 2011 and December 31, 2010, an estimated 0.4% and 0.9%,
respectively, of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2011 troubled debt restructurings totaled $58.1 million, or 2.7% of total loans, up $37.8 million from $20.4 million,
or 1.1% of total loans, at December 31, 2010. At December 31, 2009, troubled debt restructurings totaled $11.6 million, or 0.5% of
total loans. At December 31, 2008 and 2007, the Company had no loans that were modified in troubled debt restructurings. This
increase over the past five years is primarily due to the economic downturn and the resulting increased number of borrowers
experiencing financial difficulty. Concessions granted to borrowers experiencing financial difficulties may include a reduction in the
interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
While the types of concessions made have not changed as a result of the economic recession, the number of concessions granted has
increased as reflected in the increase in troubled debt restructurings. During the year ended December 31, 2011, twelve loans totaling
$41.0 million were each restructured into multiple new loans. During the year ended December 31, 2010, four loans totaling $8.2
million were each restructured into multiple new loans. For further information on troubled debt restructurings, see Note 4 of the
accompanying audited financial statements.
The loss sharing agreements with the FDIC are subject to limitations on the types of losses covered and the length of time losses are
covered, and are conditioned upon the Bank complying with its requirements in the agreements with the FDIC, including requirements
regarding servicing and other loan administration matters. The loss sharing agreements extend for ten years for single family real
estate loans and for five years for other loans. At December 31, 2011, approximately seven years remain on the loss sharing
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agreement for single family real estate loans acquired from TeamBank and the remaining loans are expected to repay within two to
eleven years. At December 31, 2011, approximately eight years remain on the loss sharing agreement for single family real estate
loans acquired from Vantus Bank and the remaining loans are expected to repay within two to thirteen years. At December 31, 2011,
approximately ten years remain on the loss sharing agreement for single family real estate loans acquired from Sun Security Bank and
the remaining loans are expected to repay within eight years. At December 31, 2011, approximately two years remain on the loss
sharing agreement for non-single family loans acquired from TeamBank and the remaining loans are expected to repay within two to
three years. At December 31, 2011, approximately three years remain on the loss sharing agreement for non-single family loans
acquired from Vantus Bank and the remaining loans are expected to repay within two to five years. At December 31, 2011,
approximately five years remain on the loss sharing agreement for non-single family loans acquired from Sun Security Bank and the
remaining loans are expected to repay within three years. While the expected repayments for certain of the acquired loans extend
beyond the terms of the loss sharing agreements, the Bank has identified and will continue to identify problem loans and will make
every effort to resolve them within the time limits of the agreements. The Company may sell any loans remaining at the end of the
loss sharing agreement subject to the approval of the FDIC. Acquired loans are currently included in the analysis and estimation of
the allowance for loan losses. However, when the loss sharing agreements end, the allowance for loan losses related to any acquired
loans retained in the portfolio may need to increase. The loss sharing agreements and their related limitations are described in detail in
Note 5 of the accompanying audited financial statements.
The level of non-performing loans and foreclosed assets affects our net interest income and net income. While we did not have an
overall high level of charge-offs on our non-performing loans prior to 2008, we generally do not accrue interest income on these loans
and do not recognize interest income until the loans are repaid or interest payments have been made for a period of time sufficient to
provide evidence of performance on the loans. Generally, the higher the level of non-performing assets, the greater the negative
impact on interest income and net income. We expect the loan loss provision, non-performing assets and foreclosed assets will
generally remain elevated and will fluctuate from period to period. In addition, expenses related to the credit resolution process could
also remain elevated.
Available-for-sale Securities. In the year ended December 31, 2011, available-for-sale securities increased $105.9 million, or 13.8%,
from $769.5 million at December 31, 2010, to $875.4 million at December 31, 2011. The increase was due in part to the acquisition
of securities totaling $45.3 million through the Sun Security Bank FDIC-assisted transaction during 2011. The increase was also due
to net purchases of mortgage-backed securities which increased $42.5 million from $599.2 million at December 31, 2010 to $641.7
million at December 31, 2011. These securities were purchased for pledging to secure public-fund deposits and customer reverse
repurchase agreements and also to earn higher yields as compared to holding the funds in cash and cash equivalents.
Cash and Cash Equivalents. Cash and cash equivalents totaled $380.2 million at December 31, 2011 a decrease of $49.8 million, or
11.6%, from $430.0 million at December 31, 2010. The decrease in cash and cash equivalents during 2011 was due to increased loan
funding, purchases of available-for-sale securities and redemption of brokered deposits, partially offset by the cash received from the
FDIC in the Sun Security Bank FDIC-assisted transaction.
Foreclosed Assets. Foreclosed assets totaled $67.6 million at December 31, 2011, an increase of $7.3 million, or 12.1%, from $60.3
million at December 31, 2010. Foreclosed assets, excluding those covered by loss sharing agreements with the FDIC, increased from
$20.4 million, or 0.8% of total assets, at December 31, 2007 to $46.9 million, or 1.2% of total assets, at December 31, 2011.
Foreclosed assets began increasing in 2007 as the United States economy slowed due to a severe economic recession in 2008 and 2009.
During 2010 and 2011, economic growth was slow and residential and commercial real estate markets recovered only slightly, if at all.
The levels of net additions to foreclosed assets during 2011, while still elevated, were lower than in the last four years. Because sales
of foreclosed properties have been slower than additions, total foreclosed assets increased in each of the last four years. The trend of
higher additions and lower sales due to the economy is magnified in the subdivision construction and land development categories
where properties are more speculative in nature and market activity has been very slow. See “Non-performing Assets – Foreclosed
Assets” for additional information on the Company’s foreclosed assets.
Deposits. The Company attracts deposit accounts through its retail branch network, correspondent banking and corporate services
areas, and brokered deposits. The Company then utilizes these deposit funds, along with Federal Home Loan Bank (FHLBank)
advances and other borrowings, to meet loan demand or otherwise fund its activities. In the year ended December 31, 2011, total
deposit balances increased $367.6 million, or 14.2%. The increase was primarily due to the addition of the $280.9 million of core
deposits assumed from Sun Security Bank in the FDIC-assisted transaction during 2011. Including the deposits assumed from Sun
Security Bank, interest-bearing transaction accounts increased $325.1 million, non-interest-bearing checking accounts increased $73.2
million and retail certificates of deposit increased $68.1 million. Total brokered deposits decreased $98.7 million, primarily because
of $106.2 million of brokered deposits that matured or were called by the Company during 2011. Included in total brokered deposits
at December 31, 2011 and December 31, 2010, were Great Southern Bank customer deposits totaling $216.3 million and $218.8
million, respectively, that are part of the CDARS program which allows bank customers to maintain balances in an insured manner
that would otherwise exceed the FDIC deposit insurance limit. The FDIC considers these customer accounts to be brokered deposits
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due to the fees paid in the CDARS program. The Company did not actively try to grow CDARS customer deposits during the current
period and decreased interest rates offered on these deposits during year ended December 31, 2011.
Our deposit balances may fluctuate from time to time depending on customer preferences and our relative need for funding. In 2010,
we experienced an overall decline in deposits which corresponded with the decrease in loans receivable. Because of overall low loan
demand and increased liquidity levels in 2010, when compared to historic trends, we chose to allow our deposit balances to decrease.
As discussed previously regarding 2011, this was primarily done by redeeming brokered CDs without replacement and by allowing
higher-cost CDARS accounts to decrease by offering lower rates or redeeming them. The transition in deposit types from time
deposits to transaction deposits benefits our net interest margin by generally reducing our cost of funds. We do not consider our retail
certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal
interest penalty. When loan demand begins trending upward, we can increase rates paid on deposits to increase deposit balances and
may again utilize brokered deposits to provide necessary funding. Because the Federal Funds rate is already very low, there may be a
negative impact on the Company’s net interest income due to the Company’s inability to lower its funding costs significantly in the
current low interest rate environment, although interest rates on assets may decline further.
The Sun Security Bank and other core deposits added during 2011 helped the Company lower overall funding costs. However,
because market interest rates are already very low, it may be difficult for the Company to further lower its funding costs significantly,
while interest rates on assets may decline further. The level of competition for deposits in our markets is high. While it is our goal to
gain checking account and retail certificate of deposit market share in our branch footprint, we cannot be assured of this in future
periods. Increasing rates paid can help to attract deposits if needed; however, this method could negatively impact the Company’s net
interest margin.
Our ability to fund growth in future periods may also be dependent on our ability to continue to access brokered deposits and
FHLBank advances. In times when our loan demand has outpaced our generation of new deposits, we have utilized brokered deposits
and FHLBank advances to fund these loans. These funding sources have been attractive to us because we can create variable rate
funding, if desired, which more closely matches the variable rate nature of much of our loan portfolio. While we do not currently
anticipate that our ability to access these sources will be reduced or eliminated in future periods, if this should happen, the limitation
on our ability to fund additional loans would adversely affect our business, financial condition and results of operations.
Net Interest Income and Interest Rate Risk Management. Our net interest income may be affected positively or negatively by
market interest rate changes. A large portion of our loan portfolio is tied to the "prime rate" of interest and adjusts immediately when
this rate adjusts (subject to the effect of loan interest rate floors, which are discussed below). We monitor our sensitivity to interest
rate changes on an ongoing basis (see "Quantitative and Qualitative Disclosures About Market Risk"). In addition, our net interest
income may be impacted by changes in the cash flows expected to be received from acquired loan pools. As described in Note 5 of
the accompanying audited financial statements, the Company’s evaluation of cash flows expected to be received from acquired loan
pools is on-going and increases in cash flow expectations are recognized as increases in accretable yield through interest income.
Decreases in cash flow expectations are recognized as impairments through the allowance for loan losses.
The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. The FRB last cut
interest rates on December 16, 2008. Great Southern has a significant portfolio of loans which are tied to a "prime rate" of interest.
Some of these loans are tied to some national index of "prime," while most are indexed to "Great Southern prime." The Company has
elected to leave its “Great Southern prime rate” of interest at 5.00%. This does not affect a large number of customers, as a majority of
the loans indexed to “Great Southern prime” are already at interest rate floors which are provided for in individual loan documents.
But for the interest rate floors, a rate cut by the FRB generally would have an anticipated immediate negative impact on the
Company’s net interest income due to the large total balance of loans which generally adjust immediately as the Federal Funds rate
adjusts. Loans at their floor rates are subject to the risk that borrowers will seek to refinance elsewhere at the lower market rate,
however. Because the Federal Funds rate is already very low, there may also be a negative impact on the Company's net interest
income due to the Company's inability to lower its funding costs significantly in the current environment, although interest rates on
assets may decline further. Conversely, interest rate increases would normally result in increased interest rates on our prime-based
loans. The interest rate floors in effect may limit the immediate increase in interest rates on these loans, until such time as rates rise
above the floors. However, the Company may have to increase rates paid on deposits to maintain deposit balances. The impact of the
low rate environment on our net interest margin in future periods is expected to be fairly neutral. As our time deposits mature in
future periods, we expect to be able to continue to reduce rates somewhat as they renew. However, any margin gained by these rate
reductions is likely to be offset by reduced yields from our investment securities as payments are made on our mortgage-backed
securities and the proceeds are reinvested at lower rates. Similarly, interest rates on adjustable rate loans may reset lower according to
their contractual terms and new loans may be originated at lower market rates. For further discussion of the processes used to manage
our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to
Us Associated with Interest Rate Changes.”
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The negative impact of declining loan interest rates has been mitigated by the positive effects of the Company’s loans which have
interest rate floors. At December 31, 2011, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $703 million with rates that change immediately with changes to the prime
rate of interest. Of this total, $659 million also had interest rate floors. These floors were at varying rates, with $68 million of these
loans having floor rates of 7.0% or greater and another $509 million of these loans having floor rates between 5.0% and 7.0%. In
addition, there were $82 million of these loans with floor rates between 3.25% and 5.0%. At December 31, 2011, all $659 million of
these loans were at their floor rates. The loan yield for the total loan portfolio was approximately 261, 278 and 300 basis points higher
than the national "prime rate of interest" at December 31, 2011, 2010 and 2009, respectively, partly because of these interest rate
floors. While interest rate floors have had an overall positive effect on the Company’s results during this period, they do subject the
Company to the risk that borrowers will elect to refinance their loans with other lenders. To the extent economic conditions improve,
the risk that borrowers will seek to refinance their loans increases.
Non-Interest Income and Operating Expenses. The Company's profitability is also affected by the level of its non-interest income
and operating expenses. Non-interest income consists primarily of service charges and ATM fees, commissions earned by our travel,
insurance and investment divisions, accretion income (net of amortization) related to the FDIC-assisted acquisitions, late charges and
prepayment fees on loans, gains on sales of loans and available-for-sale investments and other general operating income. In 2011 and
2009, non-interest income was also affected by the gains recognized on the FDIC-assisted transactions. In 2011 and 2010, increases in
the cash flows expected to be collected from the FDIC-covered loan portfolios resulted in amortization (expense) recorded relating to
reductions of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as indemnification assets.
Non-interest income may also be affected by the Company's interest rate derivative activities, if the Company chooses to implement
derivatives. Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to
foreclosed assets, postage, FDIC deposit insurance, advertising and public relations, telephone, professional fees, office expenses and
other general operating expenses. Details of the current period changes in non-interest income and non-interest expense are provided
under “Results of Operations and Comparison for the Years Ended December 31, 2011 and 2010.”
Business Initiatives
As part of its long-term strategic plan, the Company anticipates opening two to three banking centers per year as conditions warrant.
In December 2011, the Company opened a new banking center in Affton, Mo., a suburb of St. Louis. In addition, a new banking
center in O’Fallon, Mo., opened in February 2012. Great Southern Travel moved its St. Peters office into the O’Fallon office as well.
The Affton and O’Fallon facilities were former offices of other banks and provided expedient entries into these two St. Louis markets.
With the addition of these two locations, Great Southern operates seven banking centers in the St. Louis metro area.
Construction is nearing completion on a new banking center on West Kearney in north Springfield that will replace a leased location
approximately one block east of the site. The current banking center’s customer transaction volume is one of the highest in the
Company’s franchise. The banking center is expected to open in the second quarter of 2012.
Construction is well underway on a new banking center on West 135th Street in Olathe, Kan., in an established retail business district.
This new banking center will replace the Company’s current banking center at 11120 South Lone Elm Road, which is located in a
lesser developed area of Olathe. Great Southern Travel also expects to move its current Olathe office to the new facility. A second
quarter 2012 opening is anticipated.
Great Southern Insurance, a wholly-owned subsidiary of Great Southern Bank, moved in November 2011 from its former office at 430
South Avenue in Springfield to an office complex on East Battlefield in southeast Springfield. The new leased space offers better
access for customers as the full-service insurance agency looks to grow its retail and commercial insurance business.
In January 2012, the Company launched a new smartphone application for iPhone and Android users providing customers another
channel for accessing their accounts.
Effect of Federal Laws and Regulations
General. 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.
Legislation Impacting the Financial Services Industry. On July 21, 2010, sweeping financial regulatory reform legislation entitled the
“Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act
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implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, will provide
increased consumer financial protection, amend capital requirements for financial institutions, change the assessment base for federal
deposit insurance, repeal the federal prohibitions on the payment of interest on demand deposits, amend the account balance limit for
federal deposit insurance protection, and increase the authority of the Federal Reserve Board.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate
the overall financial impact on the Company and the financial services industry more generally. Provisions in the legislation that affect
deposit insurance assessments, and payment of interest on demand deposits could increase the costs associated with deposits.
Provisions in the legislation that require revisions to the capital requirements of the Company and the Bank could require the
Company and the Bank to seek additional sources of capital in the future.
A provision of the Dodd-Frank Act, commonly referred to as the “Durbin Amendment,” directed the FRB to analyze the debit card
payments system and fix the interchange rates based upon their estimate of actual costs. The FRB has established the interchange rate
for all debit transactions for issuers with over $10 billion in assets, effective October 1, 2011, at $0.21 per transaction. An additional
five basis points of the transaction amount and an additional $0.01 may be collected by the issuer for fraud prevention and recovery,
provided the issuer performs certain actions. Although the Bank is currently exempt from the provisions of the rule on the basis of
asset size, there is some uncertainty about the impact there will be on the interchange rates for issuers below the $10 billion level of
assets.
In December 2010 and January 2011, the Basel Committee on Banking Supervision published the final texts of reforms on capital and
liquidity generally referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large,
internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new
regulations applicable to other banks in the United States, including Great Southern. For banks in the United States, among the
provisions concerning capital are: (i) a minimum ratio of common equity to risk-weighted assets reaching 4.5%, plus an additional
2.5% as a capital conservation buffer, by 2019 after a phase-in period; (ii) a minimum ratio of Tier 1 capital to risk-weighted assets
reaching 6.0% by 2019 after a phase-in period; (iii) a minimum ratio of total capital to risk-weighted assets, plus the additional 2.5%
capital conservation buffer, reaching 10.5% by 2019 after a phase -in period; (iv) an additional countercyclical capital buffer to be
imposed by applicable national banking regulators periodically at their discretion, with advance notice; and (v) restrictions on capital
distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.
Although Basel III is described as a “final text,” it is subject to the resolution of certain issues and to further guidance and
modification, as well as to adoption by United States banking regulators, including decisions as to whether and to what extent it will
apply to United States banks that are not large, internationally active banks.
FDIC-Assisted Acquisition of Certain Assets and Liabilities
On October 7, 2011, Great Southern Bank entered into a purchase and assumption agreement, including a loss sharing agreement, with
the FDIC to purchase substantially all of the assets and assume substantially all of the deposits and other liabilities of Sun Security
Bank, a full-service bank headquartered in Ellington, Mo. Established in 1970, Sun Security Bank operated 27 locations in 15
counties in central and southern Missouri. Only one market, Stockton, Mo., overlapped between the Sun Security Bank and Great
Southern footprints, with both institutions operating one branch in this market. Assets with a fair value of approximately $248.9
million were acquired, including $163.7 million of loans, $45.3 million of investment securities, $26.1 million of cash and cash
equivalents, $9.1 million of foreclosed assets, $3.0 million of FHLB stock, and $1.8 million of other assets. Liabilities with a fair
value of $345.8 million were assumed, including $280.9 million of deposits, $64.3 million of FHLB advances and $632,000 of other
liabilities. A customer-related core deposit intangible asset of $2.5 million was also recorded. As a result of the excess of liabilities
over assets, the Bank received $40.8 million in cash from the FDIC. The Bank also expects to receive $2.7 million from the FDIC in
the future due to adjustments identified by the FDIC as part of their normal closing procedures. Under the loss sharing agreement, the
FDIC has agreed to cover 80% of the losses on the loans (excluding approximately $4 million of consumer loans) and foreclosed
assets purchased subject to certain limitations. The Company recorded an FDIC indemnification asset of $67.4 million as a result of
this loss sharing agreement.
The former Sun Security Bank franchise is currently operating under the Great Southern name. While the real estate, furniture and
fixtures of the branch locations currently being operated were not included in the October 7, 2011 transaction, the Bank has committed
to purchase the majority of them from the FDIC. The exact cost of this purchase will be determined at a later date based on current
appraisals, but the Company expects the cost to be approximately $6.5 million. Since the acquisition, banking center customer
deposits have remained stable and the current retention rate is over 99%. The Bank converted the Sun Security Bank operational
systems into Great Southern’s systems on January 27, 2012, which allowed all Great Southern and former Sun Security Bank
customers to conduct business at any banking center throughout the Great Southern five-state franchise.
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The Company recorded a preliminary one-time gain of $16.5 million (pre-tax) based upon the initial estimated fair value of the assets
acquired and liabilities assumed in accordance with FASB ASC 805, Business Combinations, during the year ended December 31,
2011. FASB ASC 805 allows a measurement period of up to one year to adjust initial fair value estimates as of the acquisition date.
The Company will continue to evaluate the fair value estimates and, if necessary, they may be adjusted during the measurement period.
Additional income will be recognized in future periods as loans are collected from customers and as reimbursements of losses are
collected from the FDIC, but we cannot estimate the timing of this income due to the variables associated with this transaction. Based
on the level of discounts expected to be accreted into income in future years and the loss sharing agreement with the FDIC, none of
the acquired Sun Security Bank loans are considered non-performing, as we have a reasonable expectation to recover both the
discounted book balances of such loans as well as a yield on the discounted book balances.
Sun Security Bank presented an attractive franchise for the Company to acquire because it provided immediate core deposit growth at
a low cost of funds. Also attractive was the opportunity it presented for expansion into non-overlapping yet complementary markets
through banking centers which, for the most part, held strong market positions. Only one market, Stockton, Mo., overlapped between
the Sun Security Bank and Great Southern footprints, with both institutions operating one branch in this market. The Company also
benefits from reduced credit risk due to the loss sharing agreement with the FDIC that was part of the transaction. See also Note 5 and
Note 29 of the accompanying audited financial statements.
Recent Accounting Pronouncements
See Note 1 to the accompanying audited financial statements for a description of recent accounting pronouncements including the
respective dates of adoption and expected effects on the Company’s financial position and results of operations.
Comparison of Financial Condition at December 31, 2011 and December 31, 2010
During the year ended December 31, 2011, total assets increased by $378.5 million to $3.8 billion. The increase was primarily due to
increases in loans and investment securities as well as the loans, investment securities and FDIC indemnification asset that were
acquired in the Sun Security Bank FDIC-assisted transaction. The increase was also due to increases in prepaid expenses and other
assets and premises and equipment, partially offset by decreases in cash and cash equivalents.
Net loans increased $247.3 million to $2.1 billion at December 31, 2011, due in part to the Sun Security Bank loans acquired in the
2011 FDIC-assisted transaction which had a balance of $144.6 million at December 31, 2011. Commercial real estate loans increased
$109.6 million, or 20.7%, commercial business loans increased $50.5 million, or 27.2%, and multi-family residential loans increased
$32.9 million, or 15.6%. Commercial construction loans also increased, but the increase was primarily offset by decreases in
subdivision construction and land development loans. Partially offsetting these increases was a decrease in net loans acquired through
the 2009 FDIC-assisted transactions of $52.9 million, or 17.4%, primarily because of loan repayments. The net loan growth
experienced during the year ended December 31, 2011, excluding the Sun Security Bank FDIC-assisted transaction, may continue into
2012. The increase in loans during 2011 was primarily due to financing loans which had been previously financed by other lenders
rather than overall economic improvement. The Company's strategy continues to be focused on maintaining credit risk and interest
rate risk at appropriate levels given the current credit and economic environments.
Related to the loans purchased in the 2011 and 2009 FDIC-assisted transactions, the Company recorded indemnification assets which
represent payments expected to be received from the FDIC through loss sharing agreements. The total balance of the FDIC
indemnification asset increased $7.1 million to $108.0 million at December 31, 2011. The increase was due to the FDIC
indemnification asset recorded through the Sun Security Bank FDIC-assisted transaction of $67.4 million which was reduced $9.2
million to $58.2 million at December 31, 2011 due to amounts billed to the FDIC for losses recognized. Partially offsetting this
increase was a $51.1 million decrease in the FDIC indemnification assets related to the 2009 FDIC-assisted transactions due to actual
payments received from the FDIC as well as expected improved cash flows to be collected from the loan obligors, resulting in
reductions in payments expected to be received from the FDIC. The expected improved cash flows are further discussed in the
“Interest Income – Loans” section below.
Securities available for sale increased $105.9 million as compared to December 31, 2010. The increase was due in part to the
acquisition of securities totaling $45.3 million through the Sun Security Bank FDIC-assisted transaction during 2011. The increase
was also due to purchases of mortgage-backed securities which increased $42.5 million from $599.2 million at December 31, 2010 to
$641.7 million at December 31, 2011. These securities were purchased for pledging to secure public-fund deposits and customer
reverse repurchase agreements and also to earn higher yields as compared to holding the funds in cash and cash equivalents. While
there is no specifically stated goal, the available-for-sale securities portfolio has in recent periods been approximately 20% to 25% of
total assets. The available-for-sale securities portfolio was 23.1% and 22.6% of total assets at December 31, 2011 and December 31,
2010, respectively.
22
Prepaid expenses and other assets increased $32.8 million as compared to December 31, 2010, primarily due to a $19.3 million
increase in federal and state tax credit investments. The majority of the increase in tax credit investments was due to investments in
federal low-income housing tax credits. These credits are typically purchased at 70-90% of the amount of the credit and are generally
utilized to offset taxes payable over a 10-year period. For further information on the Company’s investments in tax credits, see Note 8
of the accompanying audited financial statements.
The Company’s net premises and equipment increased $15.8 million as compared to December 31, 2010. This increase was due
primarily to the expansion of the Company’s operations center and new locations added in response to the growth of the Company and
to provide for future growth. During the year ended December 31, 2011, a building was purchased in Springfield, Mo. to house the
residential lending operation and a new banking center with larger facilities and better access was constructed to replace a leased
banking center in Springfield, Mo. At December 31, 2011, construction was near completion on a new banking center in Olathe, Kan.
that will relocate an existing banking center to a more established retail business district. In addition, a new banking center in
Springfield, Mo. is under construction to relocate a banking center with one of the Company’s highest transaction volumes to provide
more drive-thru lanes and better access. Also contributing to the increase in net premises and equipment was a $1.2 million upgrade
of existing ATMs for compliance with recent regulations issued under the Americans with Disabilities Act. In future periods, when
these upgrades are complete, depreciation expense is expected to increase.
During the year ended December 31, 2011, cash and cash equivalents decreased $49.7 million to $380.2 million. The decrease during
2011 was due to increased loan funding, purchases of available-for-sale securities and redemption of brokered deposits, partially offset
by the cash received from the FDIC in the Sun Security Bank FDIC-assisted transaction.
Total liabilities increased $357.9 million from $3.11 billion at December 31, 2010 to $3.47 billion at December 31, 2011. The increase
was primarily attributable to increases in deposits and FHLBank advances, partially offset by decreases in securities sold under
repurchase agreements with customers. In the year ended December 31, 2011, total deposit balances increased $367.6 million, or
14.2%. The increase was primarily due to the addition of the $280.9 million of deposits assumed from Sun Security Bank in the
FDIC-assisted transaction during 2011. Including the deposits assumed from Sun Security Bank, interest-bearing transaction accounts
increased $325.1 million, non-interest-bearing checking accounts increased $73.2 million and retail certificates of deposit increased
$68.1 million. Since the second quarter of 2010, the Company’s transaction account balances have trended upward while retail
certificates of deposit have trended downward because of customer preference to have immediate access to funds during the current
low interest rate environment. However, the addition of the Sun Security deposits in the fourth quarter of 2011 resulted in the increase
in retail certificates of deposit at December 31, 2011. Total brokered deposits, excluding the CDARS customer accounts, were $48.3
million at December 31, 2011, down from $144.5 million at December 31, 2010. The decrease was the result of $106.2 million of
brokered deposits that matured or were called by the Company during the period while only $10.0 million of new brokered deposits
were added. At December 31, 2011 and 2010, Great Southern Bank customer deposits totaling $216.3 million and $218.8 million,
respectively, were part of the CDARS program which allows bank customers to maintain balances in an insured manner that would
otherwise exceed the FDIC deposit insurance limit. The FDIC counts these deposits as brokered, but these are deposit accounts that
we generate with customers in our local markets.
FHLBank advances increased $30.9 million from the December 31, 2010 level. The increase was due to the addition of $64.3 million
of advances assumed in the Sun Security Bank FDIC-assisted transaction in 2011 primarily offset by the repayment of two advances
totaling $30.0 million during the year. The level of FHLBank advances can fluctuate depending on growth in the Company's loan
portfolio and other funding needs and sources of funds available to the Company. Most of the Company’s FHLBank advances are
fixed-rate advances that cannot be repaid prior to maturity without incurring significant penalties.
Securities sold under reverse repurchase agreements with customers decreased $40.4 million from December 31, 2010 as these
balances fluctuate over time and rates paid on these accounts decreased.
Total stockholders' equity increased $20.6 million from $304.0 million at December 31, 2010 to $324.6 million at December 31, 2011.
The Company recorded net income of $30.3 million for the year ended December 31, 2011, common and preferred dividends declared
were $12.2 million and accumulated other comprehensive income increased $8.2 million. The increase in accumulated other
comprehensive income resulted from increases in the fair value of the Company's available-for-sale investment securities. In addition,
total stockholders’ equity increased $797,000 due to stock option exercises.
On August 18, 2011, the Company received an investment of $57.9 million in its preferred stock from the United States Department of
the Treasury (Treasury) under the Small Business Lending Fund (SBLF). Simultaneously with the receipt of the SBLF funds, the
Company redeemed the $58.0 million of shares of preferred stock issued to the Treasury in December 2008 under the Capital
Purchase Program (CPP), a part of the Troubled Asset Relief Program. The Company also repurchased the common stock warrant
representing 909,091 shares held by the Treasury that was issued as a part of the Company’s participation in the CPP for a price of
$6.4 million, or $7.08 per warrant share. For further details of these transactions, see “Capital Resources.”
23
Prior to our redemption of the CPP preferred stock, we were generally precluded from purchasing shares of the Company’s common
stock without the Treasury's consent. Our participation in the SBLF program does not preclude us from purchasing shares of the
Company’s common stock, provided that after giving effect to such purchase, (i) the dollar amount of the Company’s Tier 1 capital
would be at least equal to the “Tier 1 Dividend Threshold” under the terms of the SBLF preferred stock and (ii) full dividends on all
outstanding shares of SBLF preferred stock for the most recently completed dividend period have been or are contemporaneously
declared and paid. See “Capital Resources.” The Company has historically utilized stock buy-back programs from time to time as
long as it believed that repurchasing the stock contributed to the overall growth of shareholder value. The number of shares of stock
repurchased and the price 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 market price of the stock.
Results of Operations and Comparison for the Years Ended December 31, 2011 and 2010
General
Net income increased $6.4 million, or 26.8%, during the year ended December 31, 2011, compared to the year ended December 31,
2010. Net income was $30.3 million for the year ended December 31, 2011 compared to $23.9 million for the year ended December
31, 2010. This increase was primarily due to an increase in net interest income of $38.2 million, or 30.5%, and a decrease in provision
for income taxes of $3.4 million, or 38.0%, partially offset by a decrease in non-interest income of $19.7 million, or 61.6%, and an
increase in non-interest expense of $15.8 million, or 17.7%. Non-interest income for the year ended December 31, 2011 included a
gain recognized on business acquisition of $16.5 million, and also included net amortization expense of the FDIC indemnification
asset of $37.8 million. Net income available to common shareholders was $26.3 million for the year ended December 31, 2011
compared to $20.5 million for the year ended December 31, 2010.
Total Interest Income
Total interest income increased $25.5 million, or 14.7%, during the year ended December 31, 2011 compared to the year ended
December 31, 2010. The increase was primarily due to a $25.4 million, or 17.4%, increase in interest income on loans, while interest
income on investments and other interest-earning assets increased $107,000, or 0.4%. Interest income on loans increased primarily
due to increases in expected cash flows to be received from the FDIC-acquired loan pools and the resulting adjustments to accretable
yield as discussed below in “Interest Income – Loans” and in Note 5 of the accompanying audited financial statements. Interest
income from investment securities and other interest-earning assets was not significantly different in 2011 compared to 2010.
Interest Income - Loans
During the year ended December 31, 2011 compared to the year ended December 31, 2010, interest income on loans increased due to
higher average interest rates, partially offset by slightly lower average balances. Interest income increased $26.2 million as the result
of higher average interest rates on loans. The average yield on loans increased from 7.22% during the year ended December 31, 2010
to 8.53% during the year ended December 31, 2011. This increase was due to additional yield accretion recognized in conjunction
with the fair value of the loan pools acquired in the 2009 FDIC-assisted transactions. On an on-going basis the Company estimates the
cash flows expected to be collected from the acquired loan pools. The cash flows estimate for the 2009 FDIC-assisted transactions had
increased each quarter since the third quarter of 2010, based on the payment histories and reduced loss expectations of the loan pools,
resulting in a total of $86.0 million of adjustments to be spread on a level-yield basis over the remaining expected lives of the loan
pools. The increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements
with the FDIC, which are recorded as indemnification assets. Therefore, the expected indemnification assets for the 2009 FDIC-
assisted transactions have also been reduced each quarter since the third quarter of 2010, resulting in a total of $75.7 million of
adjustments to be amortized on a comparable basis over the remainder of the loss sharing agreements or the remaining expected life of
the loan pools, whichever is shorter. The adjustments increased interest income by $49.2 million and decreased non-interest income
by $43.8 million during the year ended December 31, 2011, for a net impact of $5.4 million to pre-tax income. Because the
adjustments will be recognized over the estimated remaining lives of the loan pools and the remainder of the loss sharing agreements,
respectively, they will impact future periods as well. The remaining accretable yield adjustment that will affect interest income is
$17.4 million and the remaining adjustment to the indemnification assets that will affect non-interest income (expense) is $(14.7)
million. Of the remaining adjustments, we expect to recognize $12.2 million of interest income and $(10.4) million of non-interest
income (expense) in the next year. Additional adjustments may be recorded in future periods as the Company continues to estimate
expected cash flows from the acquired loan pools. For further discussion about these adjustments, see Note 5 of the accompanying
audited financial statements. Apart from the yield accretion, the average yield on loans was 6.08% for the year ended December 31,
2011, down from 6.26% for the year ended December 31, 2010, as a result of both normal amortization of higher-rate loans and new
loans that were made at current lower market rates.
Interest income decreased $831,000 as a result of lower average loan balances which decreased from $2.02 billion during the year
ended December 31, 2010 to $2.01 billion during the year ended December 31, 2011. The lower average balances were primarily due
to decreases in outstanding construction loans as many projects were completed in the past 12 to 18 months and demand for new
24
construction loans has declined. Partially offsetting the decreases in construction loans were increased average balances of
commercial real estate loans, commercial business loans and other residential multi-family loans.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments increased $2.7 million as a result of an increase in average balances from $760.9 million during the
year ended December 31, 2010, to $841.3 million during the year ended December 31, 2011. Average balances of securities increased
due to purchases made for pledging to secure public-fund deposits. Interest income on investments decreased $2.6 million as a result
of a decrease in average interest rates from 3.53% during the year ended December 31, 2010 to 3.20% during the year ended
December 31, 2011. The majority of the Company’s securities in 2010 and 2011 were mortgage-backed securities which are backed
by hybrid ARMs that have fixed rates of interest for a period of time (generally one to ten years) and then adjust annually. The actual
amount of securities that reprice and the actual interest rate changes on these securities are subject to the level of prepayments on these
securities and the changes that actually occur in market interest rates (primarily treasury rates and LIBOR rates). Mortgage-backed
securities are also subject to reduced yields due to more rapid prepayments in the underlying mortgages. As a result, premiums on
these securities may be amortized against interest income more quickly, thereby reducing the yield recorded. Interest income on other
interest-earning assets changed little as slightly higher average rates were offset by lower average balances. Average balances of
interest-earning deposits decreased due to increased loan funding, purchases of available-for-sale securities and redemption of
brokered deposits, partially offset by the cash received from the FDIC in the Sun Security Bank FDIC-assisted transaction.
The Company’s interest-earning deposits and non-interest-earning cash equivalents currently earn very low or no yield and therefore
negatively impact the Company’s net interest margin. At December 31, 2011, the Company had cash and cash equivalents of $380.2
million compared to $430.0 million at December 31, 2010. See "Net Interest Income" for additional information on the impact of this
interest activity.
Total Interest Expense
Total interest expense decreased $12.7 million, or 26.5%, during the year ended December 31, 2011, when compared with the year
ended December 31, 2010, due to a decrease in interest expense on deposits of $12.1 million, or 31.4%, a decrease in interest expense
on short-term and structured repo borrowings of $364,000, or 10.9%, a decrease in interest expense on FHLBank advances of
$274,000, or 5.0% and a decrease in interest expense on subordinated debentures issued to capital trust of $9,000, or 1.6%.
Interest Expense - Deposits
Interest on demand deposits decreased $2.0 million due to a decrease in average rates from 0.92% during the year ended December 31,
2010, to 0.72% during the year ended December 31, 2011. The average interest rates decreased due to lower overall market rates of
interest since 2010 and because the Company chose to pay lower rates during 2011 when compared to 2010. Market rates of interest
on checking and money market accounts have been decreasing since late 2007 when the FRB began reducing short-term interest rates.
Interest on demand deposits increased $1.5 million due to an increase in average balances from $923 million during the year ended
December 31, 2010, to $1.11 billion during the year ended December 31, 2011. The increase in average balances of demand deposits
was primarily a result of customer preference to transition from time deposits to demand deposits as well as organic growth in the
Company’s deposit base, particularly in interest-bearing checking accounts. Demand deposits assumed in the Sun Security Bank
FDIC-assisted transaction during the fourth quarter of 2011 also contributed to the increase in average balances. Average noninterest-
bearing demand balances increased from $254 million for the year ended December 31, 2010, to $307 million for the year ended
December 31, 2011.
Interest expense on time deposits decreased $7.4 million as a result of a decrease in average rates of interest from 2.02% during the
year ended December 31, 2010, to 1.47% during the year ended December 31, 2011. A large portion of the Company’s certificate of
deposit portfolio matures within one year and so it reprices fairly quickly; this is consistent with the portfolio over the past several
years. Interest expense on deposits decreased $4.2 million due to a decrease in average balances of time deposits from $1.48 billion
during the year ended December 31, 2010, to $1.25 billion during the year ended December 31, 2011. As previously mentioned, the
decrease in average balances of time deposits was partly the result of customer preference to transition from time deposits to demand
deposits. Also contributing to the decrease was the redemption of $106.2 million of brokered deposits since 2010 while just $10
million of new brokered deposits were added due to the Company’s existing liquidity levels. Time deposits assumed in the Sun
Security Bank FDIC-assisted transaction during the fourth quarter of 2011 somewhat offset the decrease in average balances.
The Dodd-Frank Act repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository
institutions to pay interest on business transaction and other accounts beginning July 21, 2011. Although the ultimate impact of this
legislation on the Company has not yet been determined, the Company expects interest costs associated with demand deposits may
increase as a result of competitor responses to this change, although no significant increases in costs have occurred through December
31, 2011.
25
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2011 compared to the year ended December 31, 2010, interest expense on FHLBank advances
decreased due to lower average interest rates and lower average balances. Interest expense on FHLBank advances decreased $158,000
due to a decrease in average interest rates from 3.40% in the year ended December 31, 2010, to 3.29% in the year ended December 31,
2011. Interest expense on FHLBank advances decreased $116,000 due to a decrease in average balances from $162 million during the
year ended December 31, 2010, to $159 million during the year ended December 31, 2011. Most of the remaining advances are fixed-
rate and are subject to penalty if paid off prior to maturity.
Interest expense on short-term borrowings and structured repurchase agreements decreased $400,000 due to a decrease in average
balances from $345 million during the year ended December 31, 2010, to $304 million during the year ended December 31, 2011.
Interest expense on short-term borrowings and structured repurchase agreements increased $36,000 due to an increase in average rates
on short-term borrowings and structured repurchase agreements from 0.97% in the year ended December 31, 2010, to 0.98% in the
year ended December 31, 2011. The decrease in balances of short-term borrowings was primarily due to decreases in securities sold
under repurchase agreements with the Company's deposit customers which tend to fluctuate.
Interest expense on subordinated debentures issued to capital trust decreased $9,000 due to a decrease in average rates from 1.87% in
the year ended December 31, 2010, to 1.84% in the year ended December 31, 2011. These debentures are not subject to an interest
rate swap; however, they are variable-rate debentures and bear interest at an average rate of three-month LIBOR plus 1.57%, adjusting
quarterly.
Net Interest Income
Net interest income for the year ended December 31, 2011 increased $38.2 million to $163.5 million compared to $125.3 million for
the year ended December 31, 2010. Net interest margin was 5.17% for the year ended December 31, 2011, compared to 3.93% in 2009,
an increase of 124 basis points. The Company’s margin was positively impacted primarily by the increases in expected cash flows to
be received from the loan pools acquired in the 2009 FDIC-assisted transactions and the resulting increases to accretable yield which
was discussed previously in “Interest Income – Loans” and is discussed in Note 5 of the accompanying audited financial statements.
The impact of these changes on the years ended December 31, 2011 and 2010 were increases in interest income of $49.2 million and
$19.5 million, respectively, and increases in net interest margin of 156 basis points and 61 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin increased 29 basis points during the year ended December 31,
2011, primarily due to a change in the deposit mix over the last year. Since December 31, 2010, lower-cost checking accounts
increased as customers added to existing accounts or new customer accounts were opened while higher-cost brokered deposits
decreased. Since December 31, 2010, the Company redeemed $106.2 million of brokered deposits due to the Company’s existing
liquidity levels. For most of 2011, retail certificates of deposit continued to decrease, and those that were renewed or replaced
generally had lower market rates of interest. In the fourth quarter of 2011, retail certificates of deposit increased due to the Sun
Security Bank FDIC-assisted transaction. However, those assumed deposits generally paid lower rates of interest than existing retail
certificates of deposit. Partially offsetting the decrease in rates on deposits was a decrease in yields on loans, excluding the yield
accretion income discussed above, when compared to 2010.
The Company's overall interest rate spread increased 125 basis points, or 32.8%, from 3.81% during the year ended December 31,
2010, to 5.06% during the year ended December 31, 2011. The increase was due to an 86 basis point increase in the weighted average
yield on interest-earning assets and a 39 basis point decrease in the weighted average rate paid on interest-bearing liabilities. The
Company's overall net interest margin increased 124 basis points, or 31.6%, from 3.93% for the year ended December 31, 2010, to
5.17% for the year ended December 31, 2011. In comparing the two years, the yield on loans increased 131 basis points while the
yield on investment securities and other interest-earning assets increased four basis points. The rate paid on deposits decreased 48
basis points, the rate paid on FHLBank advances decreased 11 basis points, the rate paid on short-term borrowings increased one basis
point, and the rate paid on subordinated debentures issued to capital trust decreased three basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses decreased $294,000, from $35.6 million during the year ended December 31, 2010, to $35.3
million during the year ended December 31, 2011. The allowance for loan losses decreased $255,000, or 0.6%, to $41.2 million at
December 31, 2011, compared to $41.5 million at December 31, 2010. Net charge-offs were $35.6 million in the year ended
December 31, 2011, versus $34.2 million in the year ended December 31, 2010. Ten relationships made up $25.4 million of the net
charge-off total for the year ended December 31, 2011. General market conditions, and more specifically, housing supply, absorption
rates and unique circumstances related to individual borrowers and projects also contributed to the level of provisions and charge-offs
26
in both 2010 and 2011. As properties were categorized as potential problem loans, non-performing loans or foreclosed assets,
evaluations were made of the value of these assets with corresponding charge-offs as appropriate.
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 and/or
requirements for an increase in loan loss provision expense. Management long ago 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 collectability of the portfolio. More recently, additional procedures have been implemented to provide for
more frequent management review of the loan portfolio based on loan size, loan type, delinquencies, on-going correspondence with
borrowers, and problem loan work-outs. 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.
Loans acquired in the March 20, 2009, September 4, 2009 and October 7, 2011, FDIC-assisted transactions are covered by loss
sharing agreements between the FDIC and Great Southern Bank which afford Great Southern Bank at least 80% protection from
losses in the acquired portfolio of loans. The FDIC loss sharing agreements are subject to limitations on the types of losses covered
and the length of time losses are covered and are conditioned upon the Bank complying with its requirements in the agreements with
the FDIC. These limitations are described in detail in Note 5 of the accompanying audited financial statements. The acquired loans
were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated
estimated credit losses at the acquisition dates. These loan pools are systematically reviewed by the Company to determine the risk of
losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to those
used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools
which include the larger loan relationships and those loan pools which exhibit higher risk characteristics. Review of the acquired loan
portfolio also includes meetings with customers, review of financial information and collateral valuations to determine if any
additional losses are apparent. At December 31, 2011 and 2010, an allowance for loan losses was established for one loan pool
exhibiting risks of loss totaling $30,000. The loan pool was acquired through the Vantus Bank FDIC-assisted transaction and because
of the loss sharing agreement, only 20% of the anticipated $30,000 loss would be ultimately borne by the Bank. At December 31,
2010, an allowance for loan losses was established for one other loan pool exhibiting risks of loss estimated at $800,000. This loan
pool was charged-off during 2011 at an amount of $730,000 (which was the remaining balance of the loan pool), of which $584,000
was covered by the loss sharing agreement.
The Bank's allowance for loan losses as a percentage of total loans, excluding loans supported by the FDIC loss sharing agreements,
was 2.33% and 2.48% at December 31, 2011 and 2010, respectively. Management considers the allowance for loan losses adequate to
cover losses inherent in the Company's loan portfolio at December 31, 2011, based on recent reviews of the Company's loan portfolio
and current economic conditions. If economic conditions remain weak or deteriorate further, it is possible that additional loan loss
provisions would be required, thereby adversely affecting future results of operations and financial condition.
Non-performing Assets
Former TeamBank, Vantus Bank and Sun Security Bank non-performing assets, including foreclosed assets, are not included in the
totals and in the discussion of non-performing loans, potential problem loans and foreclosed assets below due to the respective loss
sharing agreements with the FDIC, which cover at least 80% of principal losses that may be incurred in these portfolios. In addition,
these covered assets were recorded at their estimated fair values as of March 20, 2009, for TeamBank, September 4, 2009, for Vantus
Bank and October 7, 2011, for Sun Security Bank. The overall performance of the TeamBank and Vantus Bank FDIC-covered loan
pools has been better than original expectations as of the acquisition dates. Because of the recent acquisition date for the Sun Security
Bank FDIC-covered loan pools, initial performance expectations have not materially changed.
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
time to time and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate. Non-
performing assets, excluding FDIC-covered assets, at December 31, 2011 were $74.4 million, a decrease of $3.9 million from $78.3
million at December 31, 2010. Non-performing assets as a percentage of total assets were 1.96% at December 31, 2011, compared to
2.30% at December 31, 2010.
Compared to December 31, 2010, non-performing loans decreased $1.9 million to $27.5 million and foreclosed assets decreased $2.0
million to $46.9 million. Construction and land development loans comprised $9.5 million, or 34.6%, of the total $27.5 million of
non-performing loans at December 31, 2011. Commercial real estate loans comprised $6.2 million, or 22.6%, of the total $27.5
million of non-performing loans at December 31, 2011.
27
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2011, was as follows:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Non-
Potential
Foreclosed
Ending
Balance,
January 1
Additions
Performing
Problem Loans
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
578 $
1,695 $
(245) $
-- $
(1,166) $
(102) $
(574) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
1,860
5,668
--
5,608
4,203
6,074
3,832
1,597
14,534
2,326
--
7,901
189
20,903
2,038
1,497
(531)
(667)
--
(163)
--
(5,966)
(1,161)
(318)
(246)
(667)
--
--
--
(1,911)
(3)
(126)
(4,847)
(2,931)
--
(3,618)
(3,186)
(3,619)
(106)
(129)
(3,543)
(898)
--
(1,234)
(906)
(8,200)
(671)
(371)
(566)
(176)
--
(1,181)
(300)
(1,077)
(457)
(1,144)
186
6,661
2,655
--
7,313
--
6,204
3,472
1,006
Total
$
29,420 $
51,083 $
(9,051) $
(2,953) $
(19,602) $
(15,925) $
(5,475) $
27,497
At December 31, 2011, the subdivision construction category of non-performing loans included 11 loans. The largest relationship in
this category, which was added during the year, totaled $3.6 million, or 54.3% of the total category, and was collateralized by property
in central Arkansas. The one- to four-family residential category included 71 loans, 44 of which were added during the year. None of
the loans added to the one- to four-family residential category during 2011 were included in borrower relationships that were larger
than $700,000. The commercial real estate category included nine loans, five of which were added during the year. The largest
relationship in this category, which was added during the year, totaled $2.5 million, or 41.9% of the total category, and was
collateralized by property in Springfield, Mo.
Foreclosed Assets. Of the total $67.6 million of foreclosed assets at December 31, 2011, $20.7 million represents the fair value of
foreclosed assets acquired in the FDIC-assisted transactions in 2009 and 2011. These acquired foreclosed assets are subject to the loss
sharing agreements with the FDIC and, therefore, are not included in the following table and discussion of foreclosed assets. Activity
in foreclosed assets during the year ended December 31, 2011, was as follows:
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
(In Thousands)
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
$
2,510
19,816
10,620
3,997
2,896
4,178
4,565
--
318
1,166 $
4,081
7,528
--
3,849
3,986
6,288
106
2,489
(1,912) $
(3,940)
(806)
(1,250)
(4,434)
(305)
(7,578)
(21)
(1,596)
194 $
--
--
--
22
--
--
--
--
(328) $
(4,384)
(3,708)
--
(484)
(6)
(985)
--
--
1,630
15,573
13,634
2,747
1,849
7,853
2,290
85
1,211
Total
$
48,900
$
29,493 $
(21,842) $
216 $
(9,895) $
46,872
At December 31, 2011, the subdivision construction category of foreclosed assets included 53 properties, the largest of which was
located in the St. Louis, Mo. metropolitan area and had a balance of $3.8 million, or 27.1% of the total category. Of the total dollar
amount in the subdivision construction category, 19.9% is located in Branson, Mo. The land development category of foreclosed
assets included 24 properties, the largest of which had a balance of $2.8 million, or 20.4% of the total category. Of the total dollar
28
amount in the land development category, 35.2% was located in northwest Arkansas, including the largest property previously
mentioned.
As discussed below in the non-interest expense section, the $9.9 million in write-downs of foreclosed assets was primarily the result of
management’s evaluation of the foreclosed assets portfolio and decision to more aggressively market certain properties by reducing
the asking prices. Management obtained broker pricing or used recent appraisals that were discounted based on internal experience
selling or attempting to sell similar properties to determine the new asking prices. The majority of these write-downs were made in
the subdivision construction and land development categories where properties are more speculative in nature and market activity has
been very slow.
Potential Problem Loans. Potential problem loans decreased $1.3 million during the year ended December 31, 2011 from $55.6
million at December 31, 2010 to $54.3 million at December 31, 2011. Potential problem loans are loans which management has
identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in
complying with current repayment terms. These loans are not reflected in non-performing assets, but are considered in determining the
adequacy of the allowance for loan losses. Activity in the potential problem loans category during the year ended December 31, 2011,
was as follows:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Potential
Non-
Foreclosed
Ending
Balance,
January 1
Additions
Problem
Performing
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
714 $
842 $
(339) $
(426) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
6,473
11,476
1,851
8,786
5,674
14,729
5,923
23
5,709
837
--
5,160
9,139
23,469
6,107
231
(1,131)
(1,724)
(1,200)
(1,621)
(3,850)
(1,267)
(3,707)
(62)
(3,600)
--
--
(1,504)
(189)
(6,732)
(1,095)
(12)
-- $
--
(3,832)
--
--
--
(2,669)
(1,361)
--
--
$
(647) $
(861)
(2,867)
(651)
(890)
(3,125)
(785)
(1,714)
--
(566)
(199)
--
(2,266)
(9)
(946)
(835)
(135)
144
6,024
3,691
--
7,665
7,640
25,799
3,318
45
Total
$
55,649 $
51,494 $
(14,901) $
(13,558) $
(7,862) $
(10,893) $
(5,603) $
54,326
At December 31, 2011, the commercial real estate category of potential problem loans included 20 loans. The largest two
relationships in this category, which were added during the year, had balances of $7.4 million and $5.4 million, respectively, or 49.8%
of the total category. Both relationships were collateralized by properties in southwest Missouri. The one- to four-family residential
category included 60 loans, 47 of which were added during the year. The largest relationship in this category, which was added
during the year and included six loans, totaled $1.9 million, or 25.1% of the total category, and was collateralized by over 35 separate
properties in southwest Missouri. Another relationship in this category, which was added during the year and included 19 loans,
totaled $1.1 million, or 14.8% of the total category, and was collateralized by over 30 separate properties in southwest Missouri. The
other residential category included four loans, three of which were added during the year. The largest two relationships in this
category, which were added during the year, had balances of $3.9 million and $3.6 million, respectively, or 98.7% of the total category.
The relationships were collateralized by apartment buildings in southwest Missouri and central Missouri, respectively.
Non-Interest Income
Non-interest income for the year ended December 31, 2011 was $12.3 million compared with $32.0 million for the year ended
December 31, 2010. The decrease of $19.7 million, or 61.6%, was primarily the result of the following items:
Amortization of indemnification asset: As previously described under “Net Interest Income,” due to the increase in cash flows
expected to be collected from the TeamBank and Vantus Bank FDIC-covered loan portfolios, $43.8 million of amortization (expense)
was recorded in the year ended December 31, 2011 relating to reductions of expected reimbursements under the loss sharing
agreements with the FDIC, which are recorded as indemnification assets. This amortization (expense) amount was up $26.7 million
from the $17.1 million that was recorded in the year ended December 31, 2010 relating to reductions of expected reimbursements
under the loss sharing agreements with the FDIC.
29
Gains on securities: Fewer securities were sold during the year ended December 31, 2011, and, therefore, gains recognized on sales
were $483,000, down $8.3 million from $8.8 million recognized for the year ended December 31, 2010.
Securities impairments: During the year ended December 31, 2011, losses totaling $615,000 were recorded as a result of impairment
write-downs in the value of an investment in a non-agency CMO. The Company continues to hold this security in the available-for-
sale category. Based on analyses of the securities portfolio during 2010, no impairment write-downs were necessary.
Partially offsetting the above decreases in non-interest income was the preliminary one-time gain of $16.5 million (pre-tax) recorded
in relation to the Sun Security Bank FDIC-assisted acquisition during the year ended December 31, 2011, compared to the same
period in 2010.
Non-Interest Expense
Total non-interest expense increased $15.8 million, or 17.7%, from $88.9 million in the year ended December 31, 2010, to $104.7
million in the year ended December 31, 2011. The Company’s efficiency ratio for the year ended December 31, 2011, was 59.54%,
up from 56.52% in 2010 due to increased non-interest expenses as described below. The Company’s ratio of non-interest expense to
average assets increased from 2.52% for the year ended December 31, 2010, to 2.99% for the year ended December 31, 2011. The
following were key items related to the increase in non-interest expense for the year ended December 31, 2011 as compared to the
year ended December 31, 2010:
Sun Security Bank FDIC-assisted transaction: Non-interest expense increased $3.1 million for the year ended December 31, 2011
when compared to the year ended December 31, 2010, due to the FDIC-assisted acquisition of the former Sun Security Bank on
October 7, 2011. Of this amount, $1.3 million related to non-recurring acquisition-related expenses, primarily related to salaries and
benefits ($539,000) and occupancy and equipment expenses ($538,000).
Salaries and benefits: As a result of integrating the operations of Sun Security Bank and the Company’s overall growth, the number of
associates employed by the Company in operational and lending areas increased 4.4% from December 31, 2010 to December 31, 2011.
This personnel increase, which excludes associates added from the former Sun Security Bank, as well as general merit increases for
existing associates, was responsible for $3.1 million of the increase in salaries and benefits paid during the year ended December 31,
2011 when compared with the year ended December 31, 2010.
Amortization of tax credits: The Company has invested in certain federal low-income housing tax credits and federal new market tax
credits. These credits are typically purchased at 70-90% of the amount of the credit and are generally utilized to offset taxes payable
over ten-year and seven-year periods, respectively. During the year ended December 31, 2011, tax credits used to reduce the
Company’s tax expense totaled $4.7 million, up $3.4 million from $1.3 million for the year ended December 31, 2010. These tax
credits resulted in corresponding amortization of $4.0 million during the year ended December 31, 2011, up $2.8 million from $1.2
million for the year ended December 31, 2010. The net result of these transactions was an increase to non-interest expense and a
decrease to income tax expense, which positively impacted the Company’s effective tax rate, but negatively impacted the Company’s
non-interest expense and efficiency ratio.
Foreclosure-related expenses: Since the economic recession began in 2008, real estate markets have not experienced full recovery and
the Company has had continued higher levels of foreclosed assets. Sales of certain types of foreclosed properties have been slow and
as a result, the most recent asking prices for certain properties, which were based on estimated fair values, no longer reflected
reasonable selling prices. During the year ended December 31, 2011, the asking prices and recorded values for most properties in
foreclosed assets, excluding those covered by FDIC loss sharing agreements, were reviewed and, in some cases, management and the
Board of Directors decided to take a more aggressive approach to market some of these properties. In the instances where the asking
prices were reduced, the carrying values of the assets were adjusted down to reflect the new estimated selling prices. In reviewing the
values of the properties, the Company either used broker pricing or obtained new appraisals and discounted them based on our internal
experience with similar properties. The result of this review was a $9.4 million write-down in the carrying value of foreclosed assets
during the year ended December 31, 2011, primarily resulting in a $6.9 million increase in foreclosure-related expenses over the year
ended December 31, 2010. Prior to the write-downs, the book values of the properties totaled $26.3 million.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income was 15.4% and 27.1% for the years ended December 31, 2011 and 2010,
respectively. The effective tax rates (as compared to the statutory federal tax rate of 35.0%) were primarily affected by the tax credits
noted above and by higher balances and rates of tax-exempt investment securities and loans which reduce the Company’s effective tax
rate. For future periods, the Company expects the effective tax rate to be approximately 17%-25% of pre-tax net income due to
expected continued utilization of tax credits. The Company’s effective tax rate may fluctuate as it is impacted by the level and timing
of its utilization of tax credits and the level of tax-exempt investments and loans.
30
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and
the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period.
Interest income on loans includes interest received on non-accrual loans on a cash basis. Interest income on loans includes the
amortization of net loan fees which were deferred in accordance with accounting standards. Fees included in interest income were
$2.3 million, $2.0 million and $1.8 million for 2011, 2010 and 2009, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
31
Dec. 31,
2011(2)
Yield/
Rate
5.25%
5.48
5.66
5.35
5.64
7.11
5.92
5.86
3.43
0.23
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Year Ended
December 31, 2009
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 321,325
256,170
690,413
265,102
194,622
210,857
69,425
$ 25,076
15,536
54,698
33,966
20,953
16,898
4,074
7.80%
6.06
7.92
12.81
10.77
8.01
5.87
$ 336,418
219,983
677,760
320,500
173,837
223,101
67,762
$ 22,156
13,036
49,301
26,101
15,250
16,096
3,892
6.59%
5.93
7.27
8.77
8.14
7.21
5.74
$ 292,409
136,668
605,149
567,405
156,236
205,768
64,432
$ 17,224
8,528
39,066
31,269
10,044
13,033
4,299
5.89%
6.24
6.46
5.51
6.43
6.33
6.67
2,007,914
171,201
8.53
2,019,361
145,832
7.22
2,028,067
123,463
6.09
841,308
311,493
26,962
504
3.20
0.16
760,924
407,377
26,858
501
3.53
0.12
743,334
174,509
31,914
491
4.29
0.28
4.75
3,160,715
198,667
6.29
3,187,662
173,191
5.43
2,945,910
155,868
5.29
75,019
261,126
$3,496,860
77,074
263,307
$3,528,043
250,422
206,727
$3,403,059
0.61
1.29
0.94
1.03
1.99
2.99
$ 1,111,045
1,253,937
2,364,982
7,975
18,395
26,370
0.72
1.47
1.12
$ 922,885
1,484,580
2,407,465
8,468
29,959
38,427
0.92
2.02
1.60
$ 611,136
1,650,913
2,262,049
6,600
47,487
54,087
1.08
2.88
2.39
303,944
2,965
0.98
344,861
3,329
0.97
399,587
6,393
1.60
30,929
159,148
569
5,242
1.84
3.29
30,929
162,378
578
5,516
1.87
3.40
30,929
190,903
773
5,352
2.50
2.80
1.07
2,859,003
35,146
1.23
2,945,633
47,850
1.62
2,883,468
66,605
2.31
306,728
14,693
3,180,424
316,436
$3,496,860
253,699
19,153
3,218,485
309,558
$3,528,043
221,215
23,692
3,128,375
274,684
$3,403,059
3.68%
$163,521
5.06%
5.17%
$125,341
3.81%
3.93%
$89,263
2.98%
3.03%
110.6%
108.2%
102.2%
Interest-earning assets:
Loans receivable:
One- to four-family
residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
Total loans receivable
Investment securities (1)
Other interest-earning assets
Total interest-earning
assets
Non-interest-earning assets:
Cash and cash equivalents
Other non-earning assets
Total assets
Interest-bearing liabilities:
Interest-bearing demand and
savings
Time deposits
Total deposits
Short-term borrowings and
repurchase agreements
Subordinated debentures
issued to capital trust
FHLB advances
Total interest-bearing
liabilities
Non-interest-bearing
liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Net interest income:
Interest rate spread
Net interest margin*
Average interest-earning
assets to average interest-
bearing liabilities
* Defined as the Company's net interest income divided by total interest-earning assets.
(1) Of the total average balances of investment securities, average tax-exempt investment securities were $106.8 million, $70.3 million and $68.3 million for 2011,
2010 and 2009, respectively. In addition, average tax-exempt industrial revenue bonds were $43.8 million, $46.0 million and $38.0 million in 2011, 2010 and
2009, respectively. Interest income on tax-exempt assets included in this table was $6.8 million $5.3 million and $3.8 million for 2011, 2010 and 2009,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $6.4 million, $4.7 million and $3.0 million for 2011, 2010 and
2009, respectively.
(2) The yield/rate on loans at December 31, 2011 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See
“Net Interest Income” for a discussion of the effect on 2011 results of operations.
32
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-
earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii)
changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated
on a tax equivalent basis.
Year Ended
December 31, 2011 vs.
December 31, 2010
Year Ended
December 31, 2010 vs.
December 31, 2009
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
$
Interest-earning assets:
26,200
Loans receivable
Investment securities
(2,594)
Other interest-earning assets 137
23,743
Total interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
Short-term borrowings and
( 2,038)
(7,370)
( 9,408)
structured repo
Subordinated debentures
issued to capital trust
FHLBank advances
Total interest-bearing
liabilities
Net interest income
$
36
( 9)
(158)
$
$
( 831)
2,698
(134)
1,733
25,369
104
3
25,476
$
22,901
(5,795)
(386)
16,720
$
$
(532)
739
396
603
1,545
(4,194)
(2,649)
(400)
--
(116)
(493)
(11,564)
(12,057)
(1,108)
(13,104)
(14,212)
2,976
(4,424)
(1,448)
(364)
(9)
(274)
(2,278)
(786)
(3,064)
(195)
1,034
--
(870)
(195)
164
22,369
(5,056)
10
17,323
1,868
(17,528)
(15,660)
( 9,539)
33,282
$
(3,165)
4,898
$
(12,704)
38,180
$
(15,651)
32,371
$
(3,104)
3,707
$
(18,755)
36,078
Results of Operations and Comparison for the Years Ended December 31, 2010 and 2009
General
Net income decreased $41.1 million during the year ended December 31, 2010, compared to the year ended December 31, 2009. Net
income was $23.9 million for the year ended December 31, 2010 compared to $65.0 million for the year ended December 31, 2009.
This decrease was primarily due to a decrease in non-interest income of $90.8 million, or 74.0%, and an increase in non-interest
expense of $10.7 million, or 13.7%, partially offset by an increase in net interest income of $36.1 million, or 40.4%, and a decrease in
provision for income taxes of $24.1 million or 73.0%. Non-interest income for the year ended December 31, 2009 included gains
recognized on business acquisitions of $89.8 million. Net income available to common shareholders was $20.5 million for the year
ended December 31, 2010 compared to $61.7 million for the year ended December 31, 2009.
Total Interest Income
Total interest income increased $17.3 million, or 11.1%, during the year ended December 31, 2010 compared to the year ended
December 31, 2009. The increase was due to a $22.4 million, or 18.1%, increase in interest income on loans, offset in part by a $5.0
million, or 15.6%, decrease in interest income on investments and other interest-earning assets. Interest income on loans increased
primarily due to increases in expected cash flows to be received from the 2009 FDIC-acquired loan pools and the resulting
adjustments to accretable yield as discussed below in “Interest Income – Loans” and in Note 5 of the accompanying audited financial
statements. Interest income from investment securities and other interest-earning assets decreased due to lower average rates of
interest, partially offset by higher average balances. The lower average investment yields were primarily a result of lower yields on
mortgage-backed securities as interest rates reset downward. Prepayments on the mortgages underlying these securities resulted in
amortization of premiums which also reduced yields. An increase in the amount of SBA loan pools held, which earn lower average
33
rates than the overall securities portfolio, contributed to lower investment yields as well. SBA loan pools are held for their variable
interest rate characteristics and guarantee by the federal government, which makes them relatively low-risk investments.
Interest Income - Loans
During the year ended December 31, 2010 compared to the year ended December 31, 2009, interest income on loans increased due to
higher average interest rates, partially offset by slightly lower average balances. Interest income increased $22.9 million as the result
of higher average interest rates on loans. The average yield on loans increased from 6.09% during the year ended December 31, 2009
to 7.22% during the year ended December 31, 2010. This increase was due to additional yield accretion recognized in conjunction
with the fair value of the loan pools acquired in the 2009 FDIC-assisted transactions. On an on-going basis the Company estimates the
cash flows expected to be collected from the acquired loan pools. This cash flows estimate increased during the third and fourth
quarters of 2010 based on the payment histories and reduced loss expectations of the loan pools, resulting in a total of $58.9 million of
adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools. The increases in expected cash
flows also reduced the amount of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as
indemnification assets. Therefore, the expected indemnification assets were also reduced during the third and fourth quarters of 2010
resulting in a total of $51.9 million of adjustments to be amortized on a comparable basis over the remainder of the loss sharing
agreements or the remaining expected life of the loan pools, whichever is shorter. The adjustments increased interest income by $19.5
million and decreased non-interest income by $17.1 million during the year ended December 31, 2010, for a net impact of $2.3 million
to pre-tax income. Because the adjustments will be recognized over the estimated remaining lives of the loan pools and the remainder
of the loss sharing agreements, respectively, they will impact future periods as well. The majority of the remaining $39.4 million of
accretable yield adjustment affecting interest income and $34.7 million of adjustment to the indemnification assets affecting non-
interest income is expected to be recognized over the next year, with $32.1 million of interest income and $(28.6) million of non-
interest income (expense) expected to be recognized in the next year. For further discussion about these adjustments, see Note 5 of the
accompanying audited financial statements.
Apart from the yield accretion discussed above, average loan rates were very similar in 2009 compared to 2010, as a result of market
rates of interest, primarily the "prime rate" of interest, remaining flat during this period. During 2008, the “prime rate” decreased
4.00% to a rate of 3.25% at December 31, 2008, where the prime rate has remained. A large portion of the Bank's loan portfolio
adjusts with changes to the "prime rate" of interest. The Company has a portfolio of prime-based loans which have interest rate floors.
Beginning in 2008, the declining interest rates put these loan rate floors in effect and established a loan rate which was higher than the
contractual rate would have otherwise been. Great Southern has a significant portfolio of loans which are tied to a “prime rate” of
interest. Some of these loans are tied to some national index of “prime,” while most are indexed to “Great Southern prime.” The
Company has elected to leave its “prime rate” of interest at 5.00% in light of the current highly competitive funding environment for
deposits and wholesale funds. This does not affect a large number of customers, as a majority of the loans indexed to “Great Southern
prime” are already at interest rate floors, which are provided for in individual loan documents. In the year ended December 31, 2010,
the average yield on loans was 7.22% versus an average prime rate for the period of 3.25%, or a difference of a positive 397 basis
points. In the year ended December 31, 2009, the average yield on loans was 6.09% versus an average prime rate for the period of
3.25%, or a difference of a positive 284 basis points.
Interest income decreased $532,000 as a result of lower average loan balances which decreased from $2.03 billion during the year
ended December 31, 2009 to $2.02 billion during the year ended December 31, 2010. The lower average balance resulted primarily
from decreases in outstanding construction loans as many projects were completed in the past 12 to 18 months and demand for new
construction loans has declined.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments and other interest-earning assets decreased as a result of lower average interest rates during the year
ended December 31, 2010, when compared to the year ended December 31, 2009. Interest income decreased $6.2 million as a result of
a decrease in average interest rates from 3.53% during the year ended December 31, 2009, to 2.34% during the year ended December
31, 2010. The majority of the Company’s securities in 2009 and 2010 were mortgage-backed securities which are backed by hybrid
ARMs that have fixed rates of interest for a period of time (generally one to ten years) and then adjust annually. The actual amount of
securities that reprice and the actual interest rate changes on these securities are subject to the level of prepayments on these securities
and the changes that actually occur in market interest rates (primarily treasury rates and LIBOR rates). Mortgage-backed securities are
also subject to reduced yields due to more rapid prepayments in the underlying mortgages. As a result, premiums on these securities
may be amortized against interest income more quickly, thereby reducing the yield recorded. An increase in SBA loan pools during
2010 also contributed to the decrease in average interest rates because these securities earn lower yields than the overall securities
portfolio. Interest income increased $1.1 million as a result of an increase in average balances from $918 million during the year
ended December 31, 2009, to $1.17 billion during the year ended December 31, 2010. This increase was primarily in interest-earning
deposits as a result of the 2009 FDIC-assisted transactions and because of net loan repayments and lower overall loan demand.
Available-for-sale SBA loan pools also contributed to the increase, where securities were needed for liquidity and pledging against
deposit accounts under customer repurchase agreements.
34
In 2009 and 2010, the Company had increased interest-earning deposits and non-interest-earning cash equivalents, as additional
liquidity was maintained due to uncertainty in the economy and low loan demand. These deposits and cash equivalents earn very low
(or no) yield and therefore negatively impact the Company’s net interest margin. At December 31, 2010, the Company had cash and
cash equivalents of $430.0 million compared to $444.6 million at December 31, 2009.
Total Interest Expense
Total interest expense decreased $18.8 million, or 28.2%, during the year ended December 31, 2010, when compared with the year
ended December 31, 2009, due to a decrease in interest expense on deposits of $15.7 million, or 29.0%, a decrease in interest expense
on short-term and structured repo borrowings of $3.1 million, or 47.9%, and a decrease in interest expense on subordinated debentures
issued to capital trust of $195,000, or 25.2%, partially offset by an increase in interest expense on FHLBank advances of $164,000, or
3.1%.
Interest Expense - Deposits
Interest on demand deposits increased $3.0 million due to an increase in average balances from $611 million during the year ended
December 31, 2009, to $923 million during the year ended December 31, 2010. The increase in average balances of demand deposits
was primarily a result of the FDIC-assisted transactions completed in 2009, as well as organic growth in the Company’s deposit base,
particularly in interest-bearing checking accounts. Also contributing to the increase was the transition in the Company’s overall
deposit mix from time deposits to demand deposits during the end of 2009 and throughout 2010. Average noninterest-bearing demand
balances increased from $221 million for the year ended December 31, 2009, to $254 million for the year ended December 31, 2010.
Interest on demand deposits decreased $1.1 million due to a decrease in average rates from 1.08% during the year ended December 31,
2009, to 0.92% during the year ended December 31, 2010. The average interest rates decreased due to lower overall market rates of
interest throughout 2009 and 2010. Market rates of interest on checking and money market accounts have been decreasing since late
2007 when the FRB began reducing short-term interest rates.
Interest expense on time deposits decreased $13.1 million as a result of a decrease in average rates of interest from 2.88% during the
year ended December 31, 2009, to 2.02% during the year ended December 31, 2010. A large portion of the Company’s certificate of
deposit portfolio matures within one year and so it reprices fairly quickly; this is consistent with the portfolio over the past several
years. Interest expense on deposits decreased $4.4 million due to a decrease in average balances of time deposits from $1.65 billion
during the year ended December 31, 2009, to $1.48 billion during the year ended December 31, 2010. The decrease in average
balances of time deposits was primarily a result of decreases in brokered certificates, CDARS customer deposits and CDARS
purchased funds as the Company began redeeming them or replacing them with lower rate deposits in the latter quarters of 2009. In
2010, in some cases, the Company elected not to replace these funds as they matured due to growth in lower-cost demand deposits.
Included in the brokered deposits total at December 31, 2010, was $222.2 million which is part of CDARS. This total includes $218.8
million in CDARS customer deposit accounts and $3.4 million in CDARS purchased funds. Included in the brokered deposits total at
December 31, 2009, was $455.0 million which was part of CDARS. This total includes $359.1 million in CDARS customer deposit
accounts and $95.9 million in CDARS purchased funds. CDARS customer deposit accounts are accounts that are just like any other
deposit account on the Company’s books, except that the account total exceeds the FDIC deposit insurance maximum. When a
customer places a large deposit with a CDARS Network bank, that bank uses CDARS to place the funds into deposit accounts issued
by other banks in the CDARS Network. This occurs in increments of less than the standard FDIC insurance maximum, so that both
principal and interest are eligible for complete FDIC protection. Other Network members do the same thing with their customers'
funds.
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2010 compared to the year ended December 31, 2009, interest expense on FHLBank advances
increased due to higher average interest rates, partially offset by lower average balances. Interest expense on FHLBank advances
increased $1.0 million due to an increase in average interest rates from 2.80% in the year ended December 31, 2009, to 3.40% in the
year ended December 31, 2010. Interest expense on FHLBank advances decreased $870,000 due to a decrease in average balances
from $191 million during the year ended December 31, 2009, to $162 million during the year ended December 31, 2010. Average
rates on advances increased because of the addition of advances assumed in the FDIC-assisted transaction completed in March of
2009. Certain of the advances assumed were paid off toward the end of 2009, causing the decrease in average balances while most of
the remaining advances are fixed-rate and are subject to penalty if paid off prior to maturity.
Interest expense on short-term borrowings and structured repurchase agreements decreased $2.3 million due to a decrease in average
rates on short-term borrowings and structured repurchase agreements from 1.60% in the year ended December 31, 2009, to 0.97% in
the year ended December 31, 2010. The average interest rates decreased due to lower overall market rates of interest in 2010
compared to 2009. Interest expense on short-term borrowings and structured repurchase agreements decreased $786,000 due to a
decrease in average balances from $400 million during the year ended December 31, 2009, to $345 million during the year ended
35
December 31, 2010. The decrease in balances of short-term borrowings was primarily due to decreases in securities sold under
repurchase agreements with the Company's deposit customers which tend to fluctuate.
Interest expense on subordinated debentures issued to capital trust decreased $195,000 due to decreases in average rates from 2.50%
in the year ended December 31, 2009, to 1.87% in the year ended December 31, 2010. As LIBOR rates decreased from the prior year,
the interest rates on these instruments also adjusted lower. The average rate of interest on these subordinated debentures decreased in
2010 as these liabilities pay a variable rate of interest that is indexed to LIBOR. These debentures are not subject to an interest rate
swap; however, they are variable-rate debentures and bear interest at an average rate of three-month LIBOR plus 1.57%, adjusting
quarterly.
Net Interest Income
Net interest income for the year ended December 31, 2010 increased $36.0 million to $125.3 million compared to $89.3 million for
the year ended December 31, 2009. Net interest margin was 3.93% for the year ended December 31, 2010, compared to 3.03% in 2009,
an increase of 90 basis points. The Company’s margin was positively impacted primarily by the increase in expected cash flows to be
received from the 2009 FDIC-acquired loan pools and the resulting increase to accretable yield which was discussed previously in
“Interest Income – Loans” and is discussed in Note 5 of the accompanying audited financial statements. The impact of this change on
the year ended December 31, 2010 was an increase in interest income of $19.5 million and an increase in net interest margin of 61
basis points. Also contributing to the increase in net interest income was a change in the deposit mix and the ability to reduce interest
rates on maturing time deposits. The addition of the TeamBank and Vantus Bank core deposits during 2009 provided a relatively
lower-cost funding source, which allowed the Company to reduce some of its higher-cost funds. In the latter quarters of 2009, the
Company redeemed brokered deposits or replaced them with lower rate deposits and as retail certificates of deposit matured they were
renewed or replaced with retail certificates of deposit with lower market rates of interest. The transition from time deposits to
transaction deposits continued into 2010 as lower-cost checking accounts increased while the Company reduced its higher-cost
CDARS accounts. The Company has reduced rates paid on repurchase agreements which also contributed to the decrease in interest
expense. Partially offsetting the reduced cost of funds, yields earned on investment securities are down over the last year because the
majority of the Company’s portfolio is made up of adjustable-rate mortgage-backed securities which both repriced downward and
experienced higher prepayments resulting in increased amortization of related premiums that offset interest earned. Excluding the
income recorded from the accretable yield adjustment mentioned above, the yield on loans increased 17 basis points during the year
ended December 31, 2010, when compared to the year ended December 31, 2009, primarily due to increased average balances on
residential and commercial real estate loans.
The Company's overall interest rate spread increased 83 basis points, or 27.9%, from 2.98% during the year ended December 31, 2009,
to 3.81% during the year ended December 31, 2010. The increase was due to a 69 basis point decrease in the weighted average rate
paid on interest-bearing liabilities and a 14 basis point increase in the weighted average yield on interest-earning assets. The
Company's overall net interest margin increased 90 basis points, or 29.7%, from 3.03% for the year ended December 31, 2009, to
3.93% for the year ended December 31, 2010. In comparing the two years, the yield on loans increased 113 basis points while the
yield on investment securities and other interest-earning assets decreased 119 basis points. The rate paid on deposits decreased 79
basis points, the rate paid on FHLBank advances increased 60 basis points, the rate paid on short-term borrowings decreased 63 basis
points, and the rate paid on subordinated debentures issued to capital trust decreased 63 basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses decreased $170,000, from $35.8 million during the year ended December 31, 2009, to $35.6
million during the year ended December 31, 2010. The allowance for loan losses increased $1.4 million, or 3.5%, to $41.5 million at
December 31, 2010, compared to $40.1 million at December 31, 2009. Net charge-offs were $34.2 million in the year ended
December 31, 2010, versus $24.9 million in the year ended December 31, 2009. Eight relationships made up $22.0 million of the net
charge-off total for the year ended December 31, 2010. General market conditions, and more specifically, housing supply, absorption
rates and unique circumstances related to individual borrowers and projects also contributed to the level of provisions and charge-offs
in both 2009 and 2010. As properties were categorized as potential problem loans, non-performing loans or foreclosed assets,
evaluations were made of the value of these assets with corresponding charge-offs as appropriate.
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.
36
Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or
requirements for an increase in loan loss provision expense. Management long ago 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 collectability of the portfolio. More recently, additional procedures have been implemented to provide for
more frequent management review of the loan portfolio based on loan size, loan type, delinquencies, on-going correspondence with
borrowers, and problem loan work-outs. 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.
Loans acquired in the March 20, 2009 and September 4, 2009, FDIC-assisted transactions are covered by loss sharing agreements
between the FDIC and Great Southern Bank which afford Great Southern Bank significant protection from losses in the acquired
portfolio of loans. The acquired loans were grouped into pools based on common characteristics and were recorded at their estimated
fair values, which incorporated estimated credit losses at the acquisition dates. These loan pools are systematically reviewed by the
Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in
determining risk of loss are similar to the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools
which include the larger loan relationships and those loan pools which exhibit higher risk characteristics. Review of the acquired loan
portfolio also includes meetings with customers, review of financial information and collateral valuations to determine if any
additional losses are apparent. At December 31, 2010, allowances for loan losses were established for two loan pools exhibiting risks
of loss totaling $830,000. These loan pools were acquired through the Vantus Bank FDIC-assisted transaction and because of the loss
sharing agreement, only 20% of the anticipated $830,000 loss would be ultimately borne by the Bank.
The Bank's allowance for loan losses as a percentage of total loans, excluding loans supported by the FDIC loss sharing agreements,
was 2.48% and 2.35% at December 31, 2010 and 2009, respectively. Management considers the allowance for loan losses adequate to
cover losses inherent in the Company's loan portfolio at December 31, 2010, based on recent reviews of the Company's loan portfolio
and current economic conditions. If economic conditions remain weak or deteriorate significantly, it is possible that additional loan
loss provisions would be required, thereby adversely affecting future results of operations and financial condition.
Non-performing Assets
Former TeamBank and Vantus Bank non-performing assets, including foreclosed assets, are not included in the totals and in the
discussion of non-performing loans, potential problem loans and foreclosed assets below due to the respective loss sharing agreements
with the FDIC, which substantially cover principal losses that may be incurred in these portfolios. In addition, these covered assets
were recorded at their estimated fair values as of March 20, 2009, for TeamBank and September 4, 2009, for Vantus Bank.
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
time to time and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate. Non-
performing assets at December 31, 2010 were $78.3 million, an increase of $13.3 million from December 31, 2009. Non-performing
assets, excluding FDIC-covered assets, as a percentage of total assets were 2.30% at December 31, 2010, compared to 1.79% at
December 31, 2009. Compared to December 31, 2009, non-performing loans increased $2.9 million to $29.4 million at December 31,
2010, while foreclosed assets increased $10.4 million to $48.9 million at December 31, 2010. Construction loans comprised $8.1
million, or 27.6%, of the total $29.4 million of non-performing loans at December 31, 2010. Commercial real estate loans comprised
$6.1 million, or 20.6%, of the total $29.4 million of non-performing loans at December 31, 2010.
37
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2010, was as follows:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Non-
Potential
Foreclosed
Ending
Balance,
January 1
Additions
Performing
Problem Loans
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
374 $
1,065 $
-- $
-- $
(124) $
(643) $
(94) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
2,328
5,982
--
6,237
479
8,575
1,240
1,275
2,583
11,431
--
10,605
6,405
11,068
6,242
1,592
--
--
--
(692)
(221)
(256)
--
--
(6)
--
--
(468)
--
(383)
(71)
(96)
(1,810)
(5,883)
--
(7,023)
(1,959)
(3,735)
(5)
(77)
(1,108)
(5,195)
--
(1,623)
(361)
(3,227)
(2,291)
(286)
(127)
(667)
--
(1,428)
(140)
(5,968)
(1,283)
(811)
578
1,860
5,668
--
5,608
4,203
6,074
3,832
1,597
Total
$
26,490 $
50,991 $
(1,169) $
(1,024) $
(20,616) $
(14,734) $
(10,518) $
29,420
At December 31, 2010, the commercial real estate category of non-performing loans included 14 loans. The largest two loans in this
category were added during the year and were $1.4 million and $1.0 million, respectively, making up 40.4% of the total. The land
development category of non-performing loans included 11 loans, the largest of which had a balance of $2.0 million or 35.3% of the
total.
Foreclosed Assets. Of the total $60.3 million of foreclosed assets at December 31, 2010, $11.4 million represents the fair value of
foreclosed assets acquired in the FDIC-assisted transactions in 2009. These acquired foreclosed assets are subject to the loss sharing
agreements with the FDIC and, therefore, are not included in the following table and discussion of foreclosed assets. Activity in
foreclosed assets during the year ended December 31, 2010, was as follows:
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
(In Thousands)
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Consumer
$
$
1,214
20,208
3,010
5,526
5,633
703
1,440
777
1,765 $
1,924
14,476
7,192
8,173
7,254
4,094
1,263
(439) $
(2,128)
(6,997)
(8,979)
(9,894)
(2,979)
(639)
(1,712)
176 $
796
131
296
7
--
--
--
(206) $
(984)
--
(38)
(1,023)
(800)
(330)
(10)
2,510
19,816
10,620
3,997
2,896
4,178
4,565
318
Total
$
38,511
$
46,141 $
(33,767) $
1,406 $
(3,391) $
48,900
The subdivision construction category of foreclosed assets included 53 properties, the largest of which had a balance of $5.4 million or
27.2% of the total at December 31, 2010. The land development category of foreclosed assets included 15 loans, the largest of which
was added during the period and had a balance of $4.3 million or 40.4%.
Potential Problem Loans. Potential problem loans increased $5.1 million during the year ended December 31, 2010 from $50.5
million at December 31, 2009 to $55.6 million at December 31, 2010. Potential problem loans are loans which management has
identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in
complying with current repayment terms. These loans are not reflected in non-performing assets, but are considered in determining the
38
adequacy of the allowance for loan losses. Activity in the potential problem loans category during the year ended December 31, 2010,
was as follows:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Potential
Non-
Foreclosed
Ending
Balance,
January 1
Additions
Problem
Performing
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
2,122 $
3,657 $
(958) $
(963) $
(762) $
(609) $
(1,773) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
4,624
17,608
2,160
6,750
11,188
3,652
2,397
11
11,355
16,990
1,851
8,194
11,308
18,862
6,774
12
(195)
(100)
--
(1,532)
(5,565)
--
(93)
--
(1,245)
(9,096)
--
(2,585)
(4,558)
(5,378)
(2,200)
--
(235)
(8,308)
(1,555)
(1,199)
(5,167)
(366)
(54)
--
(173)
(4,577)
(605)
(619)
(514)
(663)
(163)
--
(7,658)
(1,041)
--
(223)
(1,018)
(1,378)
(738)
--
714
6,473
11,476
1,851
8,786
5,674
14,729
5,923
23
Total
$
50,512 $
79,003 $
(8,443) $
(26,025) $
(17,646) $
(7,923) $
(13,829) $
55,649
At December 31, 2010, the commercial real estate category of potential problem loans included 11 loans, three of which were added
during the year, with balances totaling $10.4 million or 70.4% of the total. The three loans added were collateralized by a
retail/apartment building in St. Louis, Mo., a hotel in Kansas City, Mo. and a warehouse/office building in Springfield, Mo. The land
development category of potential problem loans included 10 loans, the largest of which was added during the year and had a balance
of $3.8 million or 33.3% of the total.
Non-Interest Income
Non-interest income for the year ended December 31, 2010 was $32.0 million compared with $122.8 million for the year ended
December 31, 2009. The $90.8 million decrease was primarily the result of the following items:
FDIC-assisted transactions: A total of $89.8 million of one-time pre-tax gains was recorded during 2009 related to the fair value
accounting estimates of the assets acquired and liabilities assumed in the FDIC-assisted transactions involving TeamBank and Vantus
Bank.
Amortization of indemnification asset: As previously described, due to the increase in cash flows expected to be collected from the
FDIC-covered loan portfolios acquired in 2009, $17.1 million of amortization (expense) was recorded in the 2010 period relating to a
reduction of expected reimbursements under the FDIC loss sharing agreements, which are recorded as indemnification assets.
Partially offsetting the above decreases in non-interest income for 2010 as compared with 2009 were the following items:
Securities impairments: During 2009, a $4.3 million loss was recorded as a result of an impairment write-down in the value of certain
available-for-sale equity investments, investments in bank trust preferred securities and an investment in a non-agency CMO. The
Company continues to hold a majority of these securities in the available-for-sale category. Based on analyses of the securities
portfolio during 2010, no additional impairment write-downs were necessary.
Gains on securities: Gains of $8.8 million were recorded during 2010 due to sales of securities, an increase of $6.0 million over 2009.
Service charges and ATM fees: An increase of $980,000 was recorded during 2010 compared to 2009, primarily due to customers
added in the FDIC-assisted transactions in 2009.
Gains on sales of single-family loans: An increase of $880,000 in gains was recorded due to an increased number of fixed-rate loans
originated and then sold in the secondary market during 2010 compared to 2009.
Commissions: Commission income increased $1.5 million during the year ended December 31, 2010, compared to 2009, primarily
due to increased activity for Great Southern Travel. Approximately 20% of the increase was a non-recurring incentive commission
related to airline ticket sales.
39
Non-Interest Expense
Total non-interest expense increased $10.7 million, or 13.7%, from $78.2 million in the year ended December 31, 2009, to $88.9
million in the year ended December 31, 2010. The Company’s efficiency ratio for the year ended December 31, 2010, was 56.52%
compared to 36.88% in 2009. The difference in the ratios from the current year to the prior year was primarily due to the TeamBank
and Vantus Bank-related one-time gains recorded in 2009. The Company’s ratio of non-interest expense to average assets increased
from 2.30% for the year ended December 31, 2009, to 2.52% for the year ended December 31, 2010. The following were key items
related to the increase in non-interest expense for the year ended December 31, 2010 as compared to the year ended December 31,
2009:
Vantus Bank FDIC-assisted transaction: The Company’s increase in non-interest expense in 2010 compared to 2009 included
expenses related to the September 2009 FDIC-assisted acquisition of the assets and liabilities of Vantus Bank and its ongoing
operation. In the year ended December 31, 2010, non-interest expense associated with Vantus Bank increased $3.6 million from the
same period in 2009. The largest expense increases were in the areas of salaries and benefits and occupancy and equipment expenses.
In addition, other non-interest expenses related to the operation of other areas of the former Vantus Bank, such as lending and certain
support functions, were absorbed in other pre-existing areas of the Company, resulting in increased non-interest expense.
New banking centers: The Company’s increase in non-interest expense during 2010 compared to 2009 was also related to the
continued internal growth of the Company. The Company opened its second banking center in Lee’s Summit, Mo., in late September
2009 and its first retail banking center in Rogers, Ark., in May 2010. New banking centers were also opened in Des Peres, Mo. in
September 2010 and in Forsyth, Mo. in December 2010, both of which complement existing banking centers in their respective market
areas. In the year ended December 31, 2010, non-interest expenses associated with the operation of these locations increased
$920,000 over the same period in 2009. For additional information on the Company’s growth, see the “Business Initiatives” section
of this report.
Salaries and benefits: As a result of integrating the operations of TeamBank and Vantus Bank and the administration of the loss
sharing portfolios as well as overall growth, the number of associates employed by the Company in operational and lending areas
increased 12.8% over 2009. This in turn increased salaries and benefits paid by $3.2 million in 2010 compared to 2009.
Amortization of low-income housing tax credits: The Company has invested in certain federal low-income housing tax credits. These
credits are typically purchased at 80-90% of the amount of the credit and are generally utilized to offset taxes payable over a ten-year
period. A portion of these credits totaling $1.3 million were used in 2010 to reduce the Company’s tax expense which resulted in
corresponding amortization of $1.1 million to reduce the investment in these credits. The net result of these transactions was an
increase to non-interest expense and a decrease to income tax expense, which positively impacted the Company’s effective tax rate.
FDIC settlements for real estate, furniture and fixtures: During the three months ended December 31, 2010, the Company completed
its final settlements with the FDIC for the purchase of the real estate, furniture and fixtures of the branch locations currently being
operated as a result of the FDIC-assisted transactions which took place during 2009. The net settlement expenses recorded as a result
of these and other outstanding operating items were $660,000.
Net occupancy expense: As the Company’s operations expanded in the last year, so did the costs incurred to use and maintain
buildings and equipment. Excluding the occupancy expenses mentioned above, net occupancy expenses increased $239,000 during
2010 compared to 2009.
Partially offsetting the above increases in non-interest expense was an FDIC-imposed special assessment on all insured depository
institutions based on assets minus Tier 1 capital as of June 30, 2009. The Company recorded an expense of $1.7 million during 2009
related to the special assessment. No special assessment was imposed in 2010.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income was 27.1% for the year ended December 31, 2010. The effective tax rate
(as compared to the statutory federal tax rate of 35.0%) was primarily affected by the tax credits noted above and by higher balances
and rates of tax-exempt investment securities and loans which reduce the Company’s effective tax rate. The Company’s effective tax
rate was 33.7% for the year ended December 31, 2009. The effective tax rate (as compared to the statutory federal tax rate of 35.0%)
was primarily affected by balances and rates of tax-exempt investment securities and loans. For future periods, the Company expects
the effective tax rate to be approximately 30% of pre-tax net income. The Company’s effective tax rate may fluctuate as it is impacted
by the level and timing of its utilization of tax credits.
40
Liquidity
Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely
manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These
obligations include the credit needs of customers, funding deposit withdrawals and the day-to-day operations of the Company. Liquid
assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the
Company's management of the ability to generate liquidity primarily through liability funding, management believes that the
Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At
December 31, 2011, the Company had commitments of approximately $158.4 million to fund loan originations, $233.3 million of
unused lines of credit and unadvanced loans, and $21.3 million of outstanding letters of credit.
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2011. Additional information regarding these contractual obligations is discussed further in Notes 9, 10, 11, 12, 13, 14 and 17 of the
accompanying audited financial statements.
Deposits without a stated maturity
Time and brokered certificates of deposit
Federal Home Loan Bank advances
Short-term borrowings
Structured repurchase agreements
Subordinated debentures
Operating leases
Dividends declared but not paid
Payments Due In:
One Year or
Less
Over One to
Five
Years
Over Five
Years
Total
(In Thousands)
$ 1,694,540
973,459
22,993
217,397
---
---
1,142
2,799
$
---
282,670
60,009
---
53,090
---
2,348
---
$
---
12,870
101,435
---
---
30,929
1,089
---
$ 1,694,540
1,268,999
184,437
217,397
53,090
30,929
4,579
2,799
$2,912,330
$398,117
$146,323
$3,456,770
The Company's primary sources of funds are customer deposits, FHLBank advances, other borrowings, loan repayments, unpledged
securities, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes
particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not
to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements
deposits with less expensive alternative sources of funds.
At December 31, 2011 and 2010, the Company had these available secured lines and on-balance sheet liquidity:
Federal Home Loan Bank line
Federal Reserve Bank line
Interest-Bearing and Non-Interest-
Bearing Deposits
Unpledged Securities
December 31, 2011
December 31, 2010
$262.1 million
$353.6 million
$380.2 million
$90.9 million
$243.9 million
$271.0 million
$430.0 million
$22.6 million
Statements of Cash Flows. During the years ended December 31, 2011, 2010 and 2009, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during 2010 and 2009 and negative cash
flows from investing activities during 2011. The Company experienced negative cash flows from financing activities during 2011,
2010 and 2009.
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, impairments of investment securities,
depreciation, gains on the purchase of additional business units 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
41
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 $108.0 million, $85.0 million and $38.8 million during the
years ended December 31, 2011, 2010 and 2009, respectively.
During the year ended December 31, 2011, investing activities used cash of $154.4 million primarily due to the net increase in loans
and investment securities for the year. During the year ended December 31, 2010, investing activities provided cash of $123.7 million
primarily due to the repayment of loans. During the year ended December 31, 2009, investing activities provided cash of $382.1
million, primarily due to the cash received from the FDIC-assisted acquisitions and the repayment of loans.
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, changes in short-term borrowings, and dividend payments to
stockholders. In 2011, the change in cash flows from financing activities was also impacted by the issuance of preferred stock through
the Company’s participation in the SBLF program as well as the redemption of preferred stock and the repurchase of common stock
warrants which were both issued in conjunction with the Company’s participation in the CPP. Financing activities used cash flows of
$3.3 million for the year ended December 31, 2011, primarily due to reductions of brokered deposit balances and reductions in
customer repurchase agreements primarily offset by increases in transaction deposits. Financing activities used cash flows of $223.2
million during the year ended December 31, 2010, primarily due to reductions in customer repurchase agreements, reductions of
brokered deposit balances and reductions of CDARS purchased funds and CDARS customer accounts. Financing activities used cash
flows of $144.2 million during the year ended December 31, 2009, primarily due to the repayment of advances from the FHLBank and
reduction of brokered deposit balances. Financing activities in the future are expected to primarily include changes in deposits,
changes in FHLBank advances, changes in short-term borrowings and dividend payments to stockholders.
Capital Resources
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.
At December 31, 2011, the Company's total stockholders' equity was $324.6 million, or 8.6% of total assets. At December 31, 2011,
common stockholders' equity was $266.6 million, or 7.0% of total assets, equivalent to a book value of $19.78 per common share.
Total stockholders’ equity at December 31, 2010, was $304.0 million, or 8.9% of total assets. At December 31, 2010, common
stockholders' equity was $247.5 million, or 7.3% of total assets, equivalent to a book value of $18.40 per common share.
At December 31, 2011, the Company’s tangible common equity to total assets ratio was 6.9% as compared to 7.1% at December 31,
2010. The Company’s tangible common equity to total risk-weighted assets ratio was 11.5% at December 31, 2011, compared to
12.5% at December 31, 2010.
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 risk-based capital ratio of 8.00%, and a minimum 4.00% Tier 1
leverage ratio. On December 31, 2011, the Bank's Tier 1 risk-based capital ratio was 14.1%, total risk-based capital ratio was 15.3%
and the Tier 1 leverage ratio was 8.6%. As of December 31, 2011, the Bank was "well capitalized" as defined by the Federal banking
agencies' capital-related regulations. The FRB has established capital regulations for bank holding companies that generally parallel
the capital regulations for banks. On December 31, 2011, the Company's Tier 1 risk-based capital ratio was 14.8%, total risk-based
capital ratio was 16.1% and the Tier 1 leverage ratio was 9.2%. As of December 31, 2011, the Company was "well capitalized" under
the capital ratios described above.
On December 5, 2008, the Company completed a transaction to participate in the Treasury’s voluntary Capital Purchase Program
(CPP). The CPP, a part of the Emergency Economic Stabilization Act of 2009, was designed to provide capital to healthy financial
institutions, thereby increasing confidence in the banking industry and increasing the flow of financing to businesses and consumers.
At the time the Company was approved to participate in the CPP in December 2008, it exceeded all “well-capitalized” regulatory
benchmarks and, as indicated above, it continues to exceed these benchmarks. The Company received $58.0 million from the
Treasury through the sale of 58,000 shares of the Company's newly authorized Fixed Rate Cumulative Perpetual Preferred Stock,
Series A (the “CPP Preferred Stock”). The Company also issued to the U.S. Treasury a warrant to purchase 909,091 shares of
common stock at $9.57 per share. The amount of preferred shares sold represented approximately 3% of the Company's risk-weighted
assets at September 30, 2008.
On August 18, 2011, the Company entered into a Small Business Lending Fund-Securities Purchase Agreement (“Purchase
Agreement”) with the Secretary of the Treasury, pursuant to which the Company sold 57,943 shares of the Company’s Senior Non-
Cumulative Perpetual Preferred Stock, Series A (the “SBLF Preferred Stock”) to the Secretary of the Treasury for a purchase price of
$57,943,000. The SBLF Preferred Stock was issued pursuant to Treasury’s SBLF program, a $30 billion fund established under the
42
Small Business Jobs Act of 2010 that was created to encourage lending to small businesses by providing Tier 1 capital to qualified
community banks and holding companies with assets of less than $10 billion. As required by the Purchase Agreement, the proceeds
from the sale of the SBLF Preferred Stock were used to redeem the 58,000 shares of CPP Preferred Stock, issued to the Treasury
pursuant to the CPP, at a redemption price of $58.0 million plus the accrued dividends owed on the preferred shares.
The SBLF Preferred Stock qualifies as Tier 1 capital. The SBLF Preferred Stock is entitled to receive non-cumulative dividends,
payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, as a percentage of
the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the SBLF Preferred Stock is
outstanding, based upon changes in the level of “Qualified Small Business Lending” or “QSBL” (as defined in the Purchase
Agreement) by the Bank over the adjusted baseline level calculated under the terms of the SBLF Preferred Stock ($158,271,000). The
initial dividend rate through September 30, 2011, was 5% and the dividend rate for the fourth quarter of 2011 was 2.6%. Based upon
the increase in the Bank’s level of QSBL over the baseline level, the dividend rate for the first and second quarters of 2012 is expected
to be approximately 1.0%. For the third through ninth calendar quarters after the closing, the dividend rate may be adjusted to
between one percent (1%) and five percent (5%) per annum based on the level of qualifying loans. For the tenth calendar quarter
through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%)
based upon the level of qualifying loans. After four and one half years from issuance, the dividend rate will increase to 9% (including
a quarterly lending incentive fee of 0.5%).
The SBLF Preferred Stock is non-voting, except in limited circumstances. In the event that the Company misses five dividend
payments, whether or not consecutive, the holder of the SBLF Preferred Stock will have the right, but not the obligation, to appoint a
representative as an observer on the Company’s Board of Directors. In the event that the Company misses six dividend payments,
whether or not consecutive, and if the then outstanding aggregate liquidation amount of the SBLF Preferred Stock is at least
$25,000,000, then the holder of the SBLF Preferred Stock will have the right to designate two directors to the Board of Directors of
the Company.
The SBLF Preferred Stock may be redeemed at any time at the Company’s option, at a redemption price of 100% of the liquidation
amount plus accrued but unpaid dividends to the date of redemption for the current period, subject to the approval of its federal
banking regulator.
On September 21, 2011, the Company completed the repurchase of the warrant held by the Treasury that was issued as a part of its
participation in the CPP. The 10-year warrant was issued on December 5, 2008 and entitled the Treasury to purchase 909,091 shares
of Great Southern Bancorp, Inc. common stock at an exercise price of $9.57 per share. The repurchase was completed for a price of
$6.4 million, or $7.08 per warrant share, which was based on the fair market value of the warrant as agreed upon by the Company and
the Treasury.
Dividends. During the year ended December 31, 2011, the Company declared and paid common stock cash dividends of $0.72 per
share (37.1% of net income per common share). During the year ended December 31, 2010, the Company declared and paid common
stock cash dividends of $0.72 per share (49.3% of net income per common share). The Board of Directors meets regularly to consider
the level and the timing of dividend payments. The dividend declared but unpaid as of December 31, 2011, was paid to stockholders
on January 13, 2012. In addition, the Company paid preferred dividends as described below.
As a result of the issuance of preferred stock to the Treasury pursuant to the CPP in December 2008, during the year ended December
31, 2011, the Company paid preferred stock cash dividends of $725,000 on each of February 15, 2011, May 16, 2011 and August 15,
2011. In addition, previously accrued but unpaid preferred stock cash dividends of $24,167 were paid on August 18, 2011 in
conjunction with the redemption of the CPP Preferred Stock on the same date. During the year ended December 31, 2010, the
Company paid preferred stock cash dividends of $725,000 on each of February 16, 2010, May 17, 2010, August 16, 2010, and
November 15, 2010. The redemption of the CPP Preferred Stock resulted in a non-cash deemed preferred stock dividend that reduced
net income available to common shareholders in the year ended December 31, 2011 by $1.2 million. This amount represents the
difference between the repurchase price and the carrying amount of the CPP Preferred Stock, or the accelerated accretion of the
applicable discount on the CPP Preferred Stock.
The terms of the SBLF Preferred Stock impose limits on the ability of the Company to pay dividends and repurchase shares of
common stock. Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or
paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities
(including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay
dividends on the SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares
ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.
Under the terms of the SBLF Preferred Stock, the Company may only declare and pay a dividend on the common stock or other stock
junior to the SBLF Preferred Stock, or repurchase shares of any such class or series of stock, if, after payment of such dividend, or
43
after giving effect to such repurchase, (i) the dollar amount of the Company’s Tier 1 Capital would be at least equal to the “Tier 1
Dividend Threshold” and (ii) full dividends on all outstanding shares of SBLF Preferred Stock for the most recently completed
dividend period have been or are contemporaneously declared and paid. As of December 31, 2011, we satisfied this condition.
The “Tier 1 Dividend Threshold” means 90% of $272,747,865, which was the Company’s consolidated Tier 1 capital as of June 30,
2011, less the $58 million in TARP preferred stock then-outstanding and repaid on August 18, 2011, plus the $57,943,000 in SBLF
Preferred Stock issued and minus the net loan charge-offs by the Bank since August 18, 2011. The Tier 1 Dividend Threshold is
subject to reduction, beginning on the first day of the eleventh dividend period following the date of issuance of the SBLF Preferred
Stock, by $5,794,300 (ten percent of the aggregate liquidation amount of the SBLF Preferred Stock initially issued, without regard to
any subsequent partial redemptions) for each one percent increase in qualified small business lending from the adjusted baseline level
under the terms of the SBLF preferred stock (i.e., $158,271,000) to the ninth dividend period.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. Our ability to
repurchase common stock is currently restricted under the terms of the SBLF preferred stock as noted above, under “-Dividends” and
was previously precluded due to our participation in the CPP beginning in December 2008. Therefore, during the years ended
December 31, 2011 and 2010, the Company did not repurchase any shares of its common stock. During the years ended December 31,
2011 and 2010, the Company issued 25,856 shares of stock at an average price of $12.05 per share and 47,597 shares of stock at an
average price of $14.09 per share, respectively, to cover stock option exercises.
Management has historically utilized stock buy-back programs from time to time as long as repurchasing the stock contributed to the
overall growth of shareholder value. The number of shares of stock repurchased and the price 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 DISCLOSURES 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's assets tend to reprice more quickly than its liabilities.
Our Risk When Interest Rates Change
The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market
interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by
changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates
and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
How We Measure the Risk to Us Associated with Interest Rate Changes
In an attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor Great Southern's
interest rate risk. In monitoring interest rate risk we regularly analyze and manage assets and liabilities based on their payment streams
and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates.
The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be
sustained despite fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing 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, 2011, Great Southern's internal interest rate risk models indicate a one-year interest rate sensitivity gap that is
neutral to slightly negative. Generally, a rate increase by the FRB (which does not appear likely in the very near term based on current
economic conditions and recent comments by FRB officials) would be expected to have an immediate negative impact on Great
44
Southern’s net interest income. As the Federal Funds rate is now very low, the Company’s interest rate floors have been reached on
most of its “prime rate” loans. In addition, Great Southern has elected to leave its “Great Southern Prime Rate” at 5.00% for those
loans that are indexed to “Great Southern Prime” rather than “Wall Street Journal Prime.” While these interest rate floors and prime
rate adjustments have helped keep the rate on our loan portfolio higher in this very low interest rate environment, they will also reduce
the positive effect to our loan rates when market interest rates, specifically the “prime rate,” begin to increase. The interest rate on
these loans will not increase until the loan floors are reached and the “Wall Street Journal Prime” interest rate exceeds 5.00%. If rates
remain generally unchanged in the short-term, we expect that our cost of funds will continue to decrease somewhat as we continue to
redeem some of our wholesale funds. In addition, a significant portion of our retail certificates of deposit mature in the next few
months and we expect that they will be replaced with new certificates of deposit at somewhat lower interest rates.
Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
Directors sets the asset and liability policies of Great Southern which are implemented by the asset and liability committee. The asset
and liability committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior management.
The purpose of the asset and liability committee is to communicate, coordinate and control asset/liability management consistent with
Great Southern's business plan and board-approved policies. The asset and liability committee establishes and monitors the volume
and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The
objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk
and profitability goals. The asset and liability committee meets on a monthly basis to review, among other things, economic conditions
and interest rate outlook, current and projected liquidity needs and capital positions and anticipated changes in the volume and mix of
assets and liabilities. At each meeting, the asset and liability committee 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 or
increase 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 equity that are authorized by the Board of Directors of Great Southern.
In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to
time to assist in its interest rate risk management. Prior to December 31, 2009, the Company used interest-rate swap derivatives,
primarily as an asset/liability management strategy, in order to hedge against the effects of changes in the fair value of its liabilities for
fixed rate brokered certificates of deposit caused by changes in market interest rates. The swap agreements generally provided 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 paid
or received interest monthly, quarterly, semiannually or at maturity. In the fourth quarter of 2011, the Company began executing
interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate
swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the
Company minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this
program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting
swaps are recognized directly in earnings. These interest rate derivatives result from a service provided to certain qualifying customers
and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book
with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.
45
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2011. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
Maturities
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale equity securities
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
Total financial assets
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand
Weighted average rate
Federal Home Loan Bank
Weighted average rate
Short-term borrowings
Weighted average rate
Structured repurchase agreements
Weighted average rate
Subordinated debentures
Weighted average rate
$
$
$
$
December 31,
2012
2013
2014
2015
2016
Thereafter
Total
(Dollars In Thousands)
$
292,338
0.23%
---
---
33,871
2.91%
$
$$
$ 840
0.75%
441,061
5.58%
$
---
---
---
---
5,069
6.04%
---
---
$ 117,991
5.45%
$
$
---
---
---
---
8,489
6.18%
---
---
88,934
5.33%
$
---
---
---
---
9,374
6.14%
---
---
$ 27,349
---
---
---
---
$ 10,154
6.07%
---
---
$ 49,663
5.51%
5.32%
171,479
$ 100,692
$ 164,008
$ 92,744
$ 86,677
5.95%
---
---
6.11%
---
---
5.72%
---
---
6.07%
---
---
5.82%
---
---
---
---
1,831
---
806,623
3.36%
1,025
7.38%
245,382
4.85%
214,521
7.05%
12,088
2.79%
$
$
$
$
$
$
$
$
$
$
$
$
$
292,338
0.23%
1,831
---
873,580
3.44%
1,865
4.39%
970,380
5.34%
830,121
6.21%
12,088
2.79%
939,589
$ 223,752
$ 261,431
$ 129,467
$ 146,494
$ 1,281,470
$
2,982,203
973,459
$ 196,846
$
34,443
$ 31,209
$ 20,172
$
1.16%
$ 1,363,727
$
$
$
0.61%
330,813
---
24,946
4.41%
217,397
0.22%
---
---
---
---
$
$
$
1.46%
---
---
---
---
2,049
5.68%
---
---
3,090
4.68%
---
---
2.19%
---
---
---
---
2,073
5.47%
---
---
---
---
---
---
2.54%
---
---
---
---
$ 11,776
3.87%
---
---
$ 50,000
4.34%
---
---
2.21%
---
---
---
---
$ 41,545
4.03%
---
---
---
---
---
---
$
$
12,870
1.81%
---
---
---
---
102,048
3.93%
---
---
---
---
30,929
1.99%
$
$
$
$
$
$
$
1,268,999
1.29%
1,363,727
0.61%
330,813
---
184,437
4.02%
217,397
0.22%
53,090
4.36%
30,929
1.99%
2011
Fair Value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
292,338
1,831
873,580
2,101
972,594
827,779
12,088
1,272,334
1,363,727
330,813
189,793
217,397
60,471
30,929
Total financial liabilities
$ 2,910,342
$ 201,985
$
36,516
$ 92,985
$ 61,717
$
145,847
$
3,449,392
_______________
(1)
Available-for-sale debt securities include approximately $703 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan
pools which pay interest and principal monthly to the Company. Of this total, $650 million represents securities that have variable rates of interest after a
fixed interest period. These securities will experience rate changes at varying times over the next ten years. This table does not show the effect of these
monthly repayments of principal or rate changes.
46
Repricing
December 31,
2012
2013
2014
2015
(Dollars In Thousands)
2016
Thereafter
Total
2011
Fair Value
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale equity securities
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
$
$
292,338
0.23%
---
---
120,771
2.40%
$ 840
$
$
$
0.75%
883,001
5.35%
171,479
5.95%
12,088
2.79%
$
$
$
---
---
---
---
171,433
2.80%
---
---
13,092
5.09%
100,692
6.11%
---
---
$
$
$
---
---
---
---
78,333
2.94%
---
---
40,791
5.62%
164,008
5.72%
---
---
$
$
$
---
---
---
---
180,941
3.05%
---
---
3,893
5.54%
92,744
6.07%
---
---
$
$
$
---
---
---
---
96,813
3.41%
---
---
16,440
5.57%
86,677
5.82%
---
---
$
$
$
$
$
---
---
1,831
---
225,289
5.06%
1,025
7.38%
13,163
3.79%
214,521
7.05%
---
---
$
$
$
$
$
$
$
292,338
0.23%
1,831
---
873,580
3.44%
1,865
4.39%
970,380
5.34%
830,121
6.21%
12,088
2.79%
$
$
$
$
$
$
$
292,338
1,831
873,580
2,101
972,594
827,779
12,088
Total financial assets
$ 1,480,517
$
285,217
$
283,132
$
277,578
$
199,930
$
455,829
$ 2,982,203
Financial Liabilities:
Time deposits(3)
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand(2)
Weighted average rate
Federal Home Loan Bank advances
Weighted average rate
Short-term borrowings
Weighted average rate
Structured repurchase agreements
Weighted average rate
Subordinated debentures
Weighted average rate
Total financial liabilities
$ 2,800,458
Periodic repricing GAP
$ (1,319,941)
$
973,459
$
196,846
$
34,443
$
31,209
$
20,172
$
12,870
$ 1,268,999
$ 1,272,334
1.16%
$ 1,363,727
0.61%
---
---
164,946
4.01%
217,397
0.22%
50,000
4.34%
30,929
1.99%
$
$
$
$
1.46%
---
---
---
---
2,049
5.68%
---
---
3,090
4.68%
---
---
201,985
83,232
$
$
$
2.19%
---
---
---
---
2,073
5.47%
---
---
---
---
---
---
36,516
246,616
$
$
$
2.54%
---
---
---
---
11,776
3.87%
---
---
---
---
---
---
42,985
234,593
$
$
$
2.21%
---
---
---
---
1,545
5.14%
---
---
---
---
---
---
21,717
178,213
$
$
$
$
$
$
$
$
1.81%
---
---
330,813
---
2,048
5.14%
---
---
---
---
---
---
1.29%
$ 1,363,727
$ 1,363,727
$
$
$
$
$
0.61%
330,813
---
184,437
4.02%
217,397
0.22%
53,090
4.36%
30,929
1.99%
$
$
$
$
$
330,813
189,793
217,397
60,471
30,929
345,731
$ 3,449,392
110,098
$
(467,189)
Cumulative repricing GAP
$ (1,319,941)
$ (1,236,709) $ (990,093) $ (755,500) $ (577,287) $
(467,189)
_______________
(1) Available-for-sale debt securities include approximately $703 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan pools
which pay interest and principal monthly to the Company. Of this total, $650 million represents securities that have variable rates of interest after a fixed interest
period. These securities will experience rate changes at varying times over the next ten years. This table does not show the effect of these monthly repayments of
principal or rate changes.
(2) Non-interest-bearing demand is included in this table in the column labeled "Thereafter" since there is no interest rate related to these liabilities and therefore there
is nothing to reprice.
(3) Time deposits include the effects of the Company's interest rate swaps on brokered certificates of deposit. These derivatives qualify for hedge accounting
treatment.
47
48
Great Southern Bancorp, Inc.
Accountantsʼ Report and Consolidated Financial Statements
December 31, 2011 and 2010
49
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of income,
stockholders’ equity and cash flows for each of the years in the three-year period ended December 31,
2011. The Company’s management is responsible for these financial statements. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. Our audits included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management and 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, 2011 and 2010, and
the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2011, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Great Southern Bancorp, Inc.’s internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 9, 2012, expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
Springfield, Missouri
March 9, 2012
BKD, LLP
50
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2011 and 2010
(In Thousands, Except Per Share Data)
Assets
Cash
2011
2010
$
87,911
$
69,756
Interest-bearing deposits in other financial institutions
248,569
360,215
Federal funds sold
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
43,769
—
380,249
429,971
875,411
769,546
1,865
1,125
28,920
22,499
Loans receivable, net of allowance for loan losses of $41,232
and $41,487 at December 31, 2011 and 2010, respectively
2,124,161
1,876,887
FDIC indemnification asset
108,004
100,878
Interest receivable
Prepaid expenses and other assets
Foreclosed assets held for sale, net
Premises and equipment, net
Goodwill and other intangible assets
Federal Home Loan Bank stock
Current and deferred income taxes
13,848
85,175
67,621
84,192
6,929
12,628
52,390
60,262
68,352
5,395
12,088
11,572
1,549
—
Total assets
$ 3,790,012
$ 3,411,505
See Notes to Consolidated Financial Statements
51
Liabilities and Stockholdersʼ Equity
Liabilities
Deposits
Federal Home Loan Bank advances
Securities sold under reverse repurchase agreements with
customers
Short-term borrowings
Structured repurchase agreements
Subordinated debentures issued to capital trust
Accrued interest payable
Advances from borrowers for taxes and insurance
Accrued expenses and other liabilities
Current and deferred income taxes
Total liabilities
2011
2010
$ 2,963,539
184,437
$ 2,595,893
153,525
216,737
660
53,090
30,929
2,277
1,572
12,184
—
3,465,425
257,180
778
53,142
30,929
3,765
1,019
10,395
870
3,107,496
Commitments and Contingencies
—
—
Stockholders’ Equity
Capital stock
Serial preferred stock - CPP, $.01 par value; authorized
1,000,000 shares; issued and outstanding 2011 – 0 shares,
2010 – 58,000 shares
Serial preferred stock – SBLF, $.01 par value; authorized
1,000,000 shares; issued and outstanding 2011 – 57,943
shares, 2010 - 0 shares
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding
2011 – 13,479,856 shares, 2010 – 13,454,000 shares
Common stock warrants; 2011 – 0 shares,
2010 – 909,091 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive gain
Unrealized gain on available-for-sale securities, net of
income taxes of $6,684 and $2,273 at December 31,
2011 and 2010, respectively
Total stockholders’ equity
—
56,480
57,943
134
—
17,183
236,914
—
134
2,452
20,701
220,021
12,413
324,587
4,221
304,009
Total liabilities and stockholders’ equity
$ 3,790,012
$ 3,411,505
52
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2011, 2010 and 2009
(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 repurchase agreements
Subordinated debentures issued to capital trust
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 on sales of available-for-sale securities
Realized impairment of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain recognized on business acquisitions
Accretion (amortization) of income/expense related to business
acquisitions
Other income
Noninterest Expense
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Advertising
Office supplies and printing
Telephone
Legal, audit and other professional fees
Expense on foreclosed assets
Other operating expenses
Income Before Income Taxes
Provision for Income Taxes
Net Income
Preferred stock dividends and discount accretion
Non-cash deemed preferred stock dividend
Net Income Available to Common Shareholders
Earnings Per Common Share
Basic
Diluted
See Notes to Consolidated Financial Statements
53
2011
2010
2009
$
$
171,201
27,466
198,667
$
145,832
27,359
173,191
123,463
32,405
155,868
26,370
5,242
2,965
569
35,146
163,521
35,336
128,185
8,915
18,063
3,524
483
(615)
651
(10)
16,486
(37,797)
2,560
12,260
48,836
16,162
3,170
4,938
1,490
1,337
2,471
3,837
11,846
10,576
104,663
35,782
5,513
30,269
2,798
1,212
38,427
5,516
3,329
578
47,850
125,341
35,630
89,711
8,284
18,652
3,765
8,787
—
767
—
—
(10,427)
2,124
31,952
44,842
14,341
3,303
4,562
1,932
1,522
2,333
2,867
4,914
8,288
88,904
32,759
8,894
23,865
3,403
—
54,087
5,352
6,393
773
66,605
89,263
35,800
53,463
6,775
17,669
2,889
2,787
(4,308)
672
1,184
89,795
2,733
2,588
122,784
40,450
12,506
2,789
5,716
1,488
1,195
1,828
2,778
4,959
4,486
78,195
98,052
33,005
65,047
3,353
—
$
$
$
26,259
$
20,462
$
61,694
1.95
1.93
$
$
1.52
1.46
$
$
4.61
4.44
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholdersʼ Equity
Years Ended December 31, 2011, 2010 and 2009
(In Thousands, Except Per Share Data)
CPP
Comprehensive Preferred
Income
Stock
SBLF
Preferred
Stock
Balance, January 1, 2009
$
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.72 per share
Preferred stock discount accretion
Preferred stock dividends accrued (5%)
Change in unrealized gain on available-for-sale
securities, net of income taxes of $6,266
Reclassification of treasury stock per Maryland law
$
$
$
$
Balance, December 31, 2009
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.72 per share
Preferred stock discount accretion
Preferred stock dividends accrued (5%)
Change in unrealized gain on available-for-sale
securities, net of income taxes of $(3,919)
Reclassification of treasury stock per Maryland law
Balance, December 31, 2010
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.72 per share
Preferred stock discount accretion
CPP preferred stock dividends accrued (5%)
SBLF preferred stock dividends accrued (3.4%)
CPP preferred stock redeemed
SBLF preferred stock issued
Common stock warrants repurchased
Change in unrealized gain on available-for-sale
securities, net of income taxes of $4,411
Reclassification of treasury stock per Maryland law
$
—
65,047
—
—
—
—
11,637
—
76,684
—
23,865
—
—
—
—
(7,279)
—
16,586
—
30,269
—
—
—
—
—
—
—
—
8,192
—
$
55,580
—
—
—
437
—
—
—
56,017
—
—
—
463
—
—
—
56,480
—
—
—
1,520
—
—
(58,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
57,943
—
—
—
Balance, December 31, 2011
$
38,461
$
0
$
57,943
See Notes to Consolidated Financial Statements
54
Common
Stock
Common
Stock
Warrants
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
$
134
—
—
—
—
—
—
—
134
—
—
—
—
—
—
—
134
—
—
—
—
—
—
—
—
—
—
—
$
2,452
—
—
—
—
—
—
—
2,452
—
—
—
—
—
—
—
2,452
—
—
—
—
—
—
—
—
(2,452)
—
—
$
19,811
—
369
—
—
—
—
—
20,180
—
521
—
—
—
—
—
20,701
—
466
—
—
—
—
—
—
(3,984)
—
—
$
156,247
65,047
—
(9,642)
(437)
(2,916)
—
326
208,625
23,865
—
(9,676)
(463)
(2,940)
—
610
220,021
30,269
—
(9,697)
(1,520)
(1,772)
(718)
—
—
—
—
331
$
(137)
—
—
—
—
—
11,637
—
11,500
—
—
—
—
—
(7,279)
—
4,221
—
—
—
—
—
—
—
—
—
8,192
—
$
—
—
326
—
—
—
—
(326)
—
—
610
—
—
—
—
(610)
—
—
331
—
—
—
—
—
—
—
—
(331)
234,087
65,047
695
(9,642)
—
(2,916)
11,637
—
298,908
23,865
1,131
(9,676)
—
(2,940)
(7,279)
—
304,009
30,269
797
(9,697)
—
(1,772)
(718)
(58,000)
57,943
(6,436)
8,192
—
$
134
$
0
$
17,183
$
236,914
$
12,413
$
0
$
324,587
55
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(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
Compensation expense for stock option
grants
Provision for loan losses
Net gains on loan sales
Net realized (gains) losses and impairment
on available-for-sale securities
(Gain) loss on sale of premises and
equipment
Loss on sale/write-down of foreclosed
assets
Gain on purchase of additional business
units
Amortization (accretion) of deferred
income, premiums and discounts
(Gain) loss on derivative interest rate
products
Deferred income taxes
Changes in
Interest receivable
Prepaid expenses and other assets
Accrued expenses and other liabilities
Income taxes refundable/payable
Net cash provided by operating
activities
2011
2010
2009
$
30,269
191,333
(195,081)
$
23,865
179,472
(189,269)
$
65,047
194,599
(196,726)
5,099
4,361
486
35,336
(3,524)
132
202
13,712
(16,486)
3,571
2,087
461
35,630
(3,765)
2,723
756
337
35,800
(2,889)
(8,787)
1,521
(44)
588
—
(47)
2,855
(89,795)
48,627
15,063
(6,626)
10
(9,304)
373
(3)
(18)
2,474
—
(5,451)
2,954
39,303
(1,595)
(9,128)
(1,184)
24,875
1,916
923
(4,584)
9,267
107,998
84,955
38,768
See Notes to Consolidated Financial Statements
56
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
Proceeds from sale of student loans
Cash received from purchase of additional
business units
Purchase of additional business units
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 maturities, calls and repayments
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 held-to-maturity securities
(Purchase) redemption of Federal Home Loan
Bank stock
2011
2010
2009
$
(172,883) $
(2,100)
799
110,669
(12,164)
22,291
$
103,995
(23,252)
9,407
66,837
(1)
(19,425)
1,007
21,774
(267)
100
21,001
—
(26)
(29,850)
354
31,791
(1,669)
45,165
296,829
265,769
—
(15,121)
266
18,155
(502)
70
110,739
151,731
(224,614)
(840)
199,113
(508,464)
(30,000)
229,069
(283,453)
(40,000)
2,462
(349)
6,924
Net cash provided by (used in) investing
activities
(154,419)
123,690
382,066
See Notes to Consolidated Financial Statements
57
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(In Thousands)
2011
2010
2009
Financing Activities
Net decrease in certificates of deposit
Net increase in checking and savings accounts
Repayments of Federal Home Loan Bank advances
Net increase (decrease) in short-term borrowings
Redemption of CPP preferred stock
Proceeds from issuance of SBLF preferred stock
Repurchase of common stock warrants
Advances to borrowers for taxes and insurance
Dividends paid
Stock options exercised
$
(144,072) $
231,875
(32,293)
(40,561)
(58,000)
57,943
(6,436)
169
(12,237)
311
(332,387) $
216,535
(17,028)
(78,224)
—
—
—
(249)
(12,567)
670
(277,165)
224,577
(103,148)
23,679
—
—
—
(103)
(12,376)
358
Net cash used in financing activities
(3,301)
(223,250)
(144,178)
Increase (Decrease) in Cash and Cash
Equivalents
(49,722)
(14,605)
276,656
Cash and Cash Equivalents, Beginning of Year
429,971
444,576
167,920
Cash and Cash Equivalents, End of Year
$
380,249
$
429,971
$
444,576
See Notes to Consolidated Financial Statements
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Operating Segments
Great Southern Bancorp, Inc. (“GSBC” or the “Company”) operates as a one-bank holding
company. GSBC’s business primarily consists of the operations of Great Southern Bank (the
“Bank”), which provides a full range of financial services, as well as travel and insurance services
through wholly owned subsidiaries of the Bank, to customers primarily located in Missouri, Iowa,
Kansas, Nebraska and Arkansas. The Company and the Bank are subject to the regulation of
certain federal and state agencies and undergo periodic examinations by those regulatory agencies.
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,
construction loans, commercial business loans and consumer loans and funding these loans through
attracting deposits from the general public, accepting brokered deposits and borrowing from the
Federal Home Loan Bank and others. The operating results of this segment are regularly reviewed
by management to make decisions about resource allocations and to assess performance. Revenue
from segments below the reportable segment threshold is attributable to three operating segments
of the Company. These segments include insurance services, travel services and investment
services. Selected information is not presented separately for the Company’s reportable segment,
as there is no material difference between that information and the corresponding information in
the consolidated financial statements.
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 and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans, the valuation of loans acquired with indication of
impairment, the valuation of the FDIC indemnification asset and other-than-temporary impairments
(OTTI) and fair values of financial instruments. In connection with the determination of the
allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains
independent appraisals for significant properties. The valuation of the FDIC indemnification asset
is determined in relation to the fair value of assets acquired through FDIC-assisted transactions for
which cash flows are monitored on an ongoing basis.
Principles of Consolidation
The consolidated financial statements include the accounts of Great Southern Bancorp, Inc., its
wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiaries, Great Southern
Real Estate Development Corporation, GSB One LLC (including its wholly owned subsidiary,
GSB Two LLC), Great Southern Financial Corporation, Great Southern Community Development
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Company, LLC (including its wholly owned subsidiary, Great Southern CDE, LLC), GS, LLC,
GSSC, LLC, GS-RE Holding, LLC (including its wholly owned subsidiary, GS RE Management,
LLC), GS-RE Holding II, LLC, VFP Conclusion Holding, LLC and VFP Conclusion Holding II,
LLC. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain prior periods’ amounts have been reclassified to conform to the 2011 financial statements
presentation. These reclassifications had no effect on net income.
Federal Home Loan Bank Stock
Federal Home Loan Bank common 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, carried at cost and evaluated for impairment.
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.
For debt securities with fair value below carrying value when the Company does not intend to sell a
debt security, and it is more likely than not the Company will not have to sell the security before
recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-than-
temporary impairment is amortized prospectively over the remaining life of the security on the
basis of the timing of future estimated cash flows of the security.
The Company’s consolidated statements of income as of and subsequent to December 31, 2011,
reflect the full impairment (that is, the difference between the security’s amortized cost basis and
fair value) on debt securities that the Company intends to sell or would more likely than not be
required to sell before the expected recovery of the amortized cost basis. For available-for-sale
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
and held-to-maturity debt securities that management has no intent to sell and believes that it more
likely than not will not be required to sell prior to recovery, only the credit loss component of the
impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other
comprehensive income. The credit loss component recognized in earnings is identified as the
amount of principal cash flows not expected to be received over the remaining term of the security
as projected based on cash flow projections.
For equity securities, when the Company has decided to sell an impaired available-for-sale security
and the Company does not expect the fair value of the security to fully recover before the expected
time of sale, the security is deemed other-than-temporarily impaired in the period in which the
decision to sell is made. The Company recognizes an impairment loss when the impairment is
deemed other than temporary even if a decision to sell has not been made.
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 commitments to sell individual
mortgage loans are generally obtained 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. Past due status is based on the
contractual terms of a loan. Generally, loans are placed on nonaccrual status at 90 days past due
and interest is considered a loss, unless the loan is well secured and in the process of collection.
Payments received on nonaccrual loans are applied to principal until the loans are returned to
accrual status. Loans are returned to accrual status when all payments contractually due are
brought current, payment performance is sustained for a period of time, generally six months, and
future payments are reasonably assured. With the exception of consumer loans, charge-offs on
loans are recorded when available information indicates a loan is not fully collectible and the loss
is reasonably quantifiable. Consumer loans are charged-off at specified delinquency dates
consistent with regulatory guidelines.
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.
61
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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 economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision
as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general component covers
nonclassified loans and is based on historical charge-off experience and expected loss given default
derived from the Company’s internal risk rating process. Other adjustments may be made to the
allowance for pools of loans after an assessment of internal or external influences on credit quality
that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable 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. The Company determines which loans
are reviewed for impairment based on various analyses including annual reviews of large loan
relationships, calculations of loan debt coverage ratios as financial information is obtained, weekly
past-due meetings, quarterly reviews of all loans over $1.0 million and quarterly reviews of watch
list credits by management. In accordance with regulatory guidelines, impairment in the consumer
loan portfolio is primarily identified by past-due status. 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 surrounding 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. Payments made on impaired loans are
treated in accordance with the accrual status of the loan. If loans are performing in accordance
with their contractual terms but the ultimate collectability of principal and interest is questionable,
payments are applied to principal only. Impairment is measured on a loan-by-loan basis for
commercial 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.
62
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Large groups of smaller balance homogenous loans are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify consumer loans for impairment disclosures
unless they have been specifically identified through the classification process.
Loans Acquired in Business Combinations
Loans acquired in business combinations with evidence of credit deterioration since origination and
for which it is probable that all contractually required payments will not be collected are considered
to be credit impaired. Evidence of credit quality deterioration as of purchase dates may include
information such as past-due and nonaccrual status, borrower credit scores and recent loan to value
percentages. Acquired credit-impaired loans are accounted for under the accounting guidance for
loans and debt securities acquired with deteriorated credit quality (FASB ASC 310-30) and initially
measured at fair value, which includes estimated future credit losses expected to be incurred over
the life of the loans. Accordingly, allowances for credit losses related to these loans are not carried
over and recorded at the acquisition dates. Loans acquired through business combinations that do
not meet the specific criteria of FASB ASC 310-30, but for which a discount is attributable, at least
in part to credit quality, are also accounted for under this guidance. As a result, related discounts
are recognized subsequently through accretion based on the expected cash flows of the acquired
loans. For purposes of applying FASB ASC 310-30, loans acquired in business combinations are
aggregated into pools of loans with common risk characteristics.
The expected cash flows of the acquired loan pools in excess of the fair values recorded is referred
to as the accretable yield and is recognized in interest income over the remaining estimated lives of
the loan pools. The Company continues to evaluate the fair value of the loans including cash flows
expected to be collected. Increases in the Company’s cash flow expectations are recognized as
increases to the accretable yield while decreases are recognized as impairments through the
allowance for loan losses.
FDIC Indemnification Asset
Through two FDIC-assisted transactions during 2009 and one during 2011, the Bank acquired
certain loans and foreclosed assets which are covered under loss sharing agreements with the
FDIC. These agreements commit the FDIC to reimburse the Bank for a portion of realized losses
on these covered assets. Therefore, as of the dates of acquisition, the Company calculated the
amount of such reimbursements it expects to receive from the FDIC using the present value of
anticipated cash flows from the covered assets based on the credit adjustments estimated for each
pool of loans and the estimated losses on foreclosed assets. In accordance with FASB ASC 805,
each FDIC Indemnification Asset was initially recorded at its fair value, and is measured separately
from the loan assets and foreclosed assets because the loss sharing agreements are not contractually
embedded in them or transferrable with them in the event of disposal. The balance of the FDIC
Indemnification Asset increases and decreases as the expected and actual cash flows from the
covered assets fluctuate, as loans are paid off or impaired and as loans and foreclosed assets are
sold. There are no contractual interest rates on these contractual receivables from the FDIC;
however, a discount was recorded against the initial balance of the FDIC Indemnification Asset in
conjunction with the fair value measurement as this receivable will be collected over the terms of
the loss sharing agreements. This discount will be accreted to income over future periods. These
acquisitions and agreements are more fully discussed in Note 5.
63
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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 less estimated cost to sell 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 expense on
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 useful lives of the
assets. Leasehold improvements are capitalized and amortized using the straight-line and
accelerated methods over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
Long-Lived Asset Impairment
The Company evaluates the recoverability of the carrying value of long-lived assets whenever
events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset
is tested for recoverability and the undiscounted estimated future cash flows expected to result from
the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset
cost is adjusted to fair value and an impairment loss is recognized as the amount by which the
carrying amount of a long-lived asset exceeds its fair value.
No asset impairment was recognized during the years ended December 31, 2011, 2010 and 2009.
Goodwill and Intangible Assets
Goodwill is tested at least annually for impairment. If the implied fair value of goodwill is lower
than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its
implied fair value. Subsequent increases in goodwill value are not recognized in the financial
statements.
Intangible assets are being amortized on the straight-line basis over periods ranging from three to
seven years. Such assets are periodically evaluated as to the recoverability of their carrying value.
64
13
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Goodwill – Travel agency acquisitions
Deposit intangibles
$
Branch acquisitions
TeamBank
Vantus Bank
Sun Security Bank
Noncompete agreements
December 31,
2011
2010
(In Thousands)
$
379
878
51
1,789
1,452
2,365
15
379
876
138
2,210
1,763
—
29
$
6,929
$
5,395
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.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or
through sale of financial assets. Under the servicing assets and liabilities accounting guidance
(FASB ASC 860-50), servicing rights resulting from the sale or securitization of loans originated
by the Company are initially measured at fair value at the date of transfer. In 2009, the Company
acquired mortgage servicing rights as part of two FDIC-assisted transactions. These mortgage
servicing assets were initially recorded at their fair values as part of the acquisition valuation. The
initial fair values recorded for the mortgage servicing assets, acquired in 2009, totaled $923,000.
Mortgage servicing assets were $292,000 and $637,000 at December 31, 2011 and 2010,
respectively. The Company has elected to measure the mortgage servicing rights for mortgage
loans using the amortization method, whereby servicing rights are amortized in proportion to and
over the period of estimated net servicing income. The amortized assets are assessed for
impairment or increased obligation based on fair value at each reporting date.
65
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Fair value is based on a valuation model that calculates the present value of estimated future net
servicing income. The valuation model incorporates assumptions that market participants would
use in estimating future net servicing income, such as the cost to service, the discount rate, the
custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and
losses. These variables change from quarter to quarter as market conditions and projected interest
rates change, and may have an adverse impact on the value of the mortgage servicing right and may
result in a reduction to noninterest income.
Each class of separately recognized servicing assets subsequently measured using the amortization
method are evaluated and measured for impairment. Impairment is determined by stratifying rights
into tranches based on predominant characteristics, such as interest rate, loan type and investor
type. Impairment is recognized through a valuation allowance for an individual tranche, to the
extent that fair value is less than the carrying amount of the servicing assets for that tranche. The
valuation allowance is adjusted to reflect changes in the measurement of impairment after the
initial measurement of impairment. At December 31, 2011 and 2010, no valuation allowance was
recorded. Fair value in excess of the carrying amount of servicing assets is not recognized.
Stockholders’ Equity
At the 2004 Annual Meeting of Stockholders, the Company’s stockholders approved the
Company’s reincorporation to the State of Maryland. This reincorporation was completed in June
2004. Under Maryland law, there is no concept of “Treasury Shares.” Instead, shares purchased
by the Company constitute authorized but unissued shares under Maryland law. Accounting
principles generally accepted in the United States of America state that accounting for treasury
stock shall conform to state law. The cost of shares purchased by the Company has been allocated
to common stock and retained earnings balances.
Earnings Per Share
Basic earnings per share are computed based on the weighted average number of shares
outstanding during each year. Diluted earnings per share are computed using the weighted average
common shares and all potential dilutive common shares outstanding during the period.
66
15
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Earnings per share (EPS) were computed as follows:
2011
2010
(In Thousands, Except Per Share Data)
2009
Net income
Net income available to common
shareholders
$
$
30,269
$
23,865
$
65,047
26,259
$
20,462
$
61,694
Average common shares outstanding
13,462
13,434
13,390
Average common share stock options
and warrants outstanding
164
612
492
Average diluted common shares
13,626
14,046
13,882
Earnings per common share – basic
Earnings per common share – diluted
$
$
1.95
1.93
$
$
1.52
1.46
$
$
4.61
4.44
Options to purchase 479,098, 498,674 and 573,393 shares of common stock were outstanding at
December 31, 2011, 2010 and 2009, respectively, but were not included in the computation of
diluted earnings per share for that year because the options’ exercise price was greater than the
average market price of the common shares for the years ended December 31, 2011, 2010 and
2009, respectively.
Stock Option Plans
The Company has stock-based employee compensation plans, which are described more fully in
Note 22. In accordance with FASB ASC 718, Compensation – Stock Compensation, compensation
cost related to share-based payment transactions is recognized in the Company’s consolidated
financial statements based on the grant-date fair value of the award using the modified prospective
transition method. For the years ended December 31, 2011, 2010 and 2009, share-based
compensation expense totaling $486,000, $461,000 and $337,000, respectively, was included in
salaries and employee benefits expense in the consolidated statements of income.
On December 31, 2005, the Board of Directors of the Company approved the accelerated vesting of
certain outstanding out-of-the-money unvested options (Options) to purchase shares of the
Company’s common stock held by the Company’s officers and employees. Options to purchase
183,935 shares which would otherwise have vested from time to time over the next five years
became immediately exercisable as a result of this action. The accelerated Options had a weighted
average exercise price of $31.49. The closing market price on December 30, 2005, was $27.61.
67
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company also placed a restriction on the sale or other transfer of shares (including pledging
the shares as collateral) acquired through the exercise of the accelerated Options prior to the
original vesting date. With the acceleration of these Options, the compensation expense, net of
taxes, that was recognized in the Company’s income statements for 2009 and 2010 was reduced by
approximately $103,000 and $103,000, respectively. On December 31, 2005, the accelerated
Options represented approximately 41% of the unvested Company options and 27% of the total of
all outstanding Company options.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be
cash equivalents. At December 31, 2011 and 2010, cash equivalents consisted of interest-bearing
deposits in other financial institutions and federal funds sold. At December 31, 2011, nearly all of the
interest-bearing deposits were uninsured with most of these balances held at the Federal Home Loan
Bank or the Federal Reserve Bank. The federal funds sold were held at a commercial bank.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance
(FASB ASC 740, Income Taxes). The income tax accounting guidance results in two components
of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid
or refunded for the current period by applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. The Company determines deferred income taxes
using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they
occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more likely
than not means a likelihood of more than 50 percent; the terms examined and upon examination
also include resolution of the related appeals or litigation processes, if any. A tax position that
meets the more-likely-than-not recognition threshold is initially and subsequently measured as the
largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon
settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition
threshold considers the facts, circumstances and information available at the reporting date and is
subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of evidence available, it is more likely than not that some portion or all of a
deferred tax asset will not be realized. At December 31, 2011 and 2010, no valuation allowance
was established.
68
17
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiaries.
Derivatives and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives
and hedging activities with the intent to provide users of financial statements with an enhanced
understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity
accounts for derivative instruments and related hedged items and (c) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash flows.
Further, qualitative disclosures are required that explain the Company’s objectives and strategies
for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses
on derivative instruments, and disclosures about credit-risk-related contingent features in derivative
instruments. For detailed disclosures on derivatives and hedging activities, see Note 18.
As required by FASB ASC 815, the Company records all derivatives in the statement of financial
condition at fair value. The accounting for changes in the fair value of derivatives depends on the
intended use of the derivative, whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied
the criteria necessary to apply hedge accounting. Currently, none of the Company’s derivatives are
designated in qualifying hedging relationships. As such, all changes in fair value of the
Company’s derivatives are recognized directly in earnings.
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, 2011 and 2010, respectively, was $106.2 million and
$79.5 million.
Recent Accounting Pronouncements
In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-12 to amend
FASB ASC Topic 220, Comprehensive Income. The Update defers the effective date for
amendments to the presentation of reclassifications of items out of accumulated other
comprehensive income in ASU No. 2011-05. The Update is effective for the Company January 1,
2012, and is not expected to have a material impact on the Company’s financial position or results
of operations.
69
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
In September 2011, the FASB issued ASU No. 2011-09 to amend FASB ASC Subtopic 715-80,
Compensation – Retirement Benefits – Multiemployer Plans: Disclosures about an Employer’s
Participation in a Multiemployer Plan. The Update requires employers with multiemployer
pension plans to provide additional disclosures. The new disclosures require qualitative and
quantitative information about the plans such as detailed identification of the plans in which
employers participate, the level of participation in the plans as indicated by contribution amounts
and whether those contribution amounts represent more than five percent of total contributions
made by all contributing employers, detailed information about the financial health of the plans and
the nature of employer commitments to the plans. Further disclosure is required for plans without
additional publicly available information outside of the employer’s disclosures such as the plan’s
annual report on a U.S. Form 5500. The Update was effective for the Company December 31,
2011, and resulted in increased disclosures of the Company’s participation in the Pentegra Defined
Benefit Plan for Financial Institutions, described more fully in Note 21.
In September 2011, the FASB issued ASU No. 2011-08 to amend FASB ASC Topic 350,
Intangibles – Goodwill and Other: Testing Goodwill for Impairment. The purpose of the Update is
to simplify how entities test goodwill for impairment. The amendments allows entities the option
of considering qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. The results of this consideration are then used to
determine whether the two-step goodwill impairment test described in Topic 350 must be
performed. The more-likely-than-not threshold is defined as having a likelihood of more than 50
percent. The Update is effective for the Company January 1, 2012. While early adoption is
permitted, the Company did not choose to do so. The Update is not expected to have a material
impact on the Company’s financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05 to amend FASB ASC Topic 220, Comprehensive
Income: Presentation of Comprehensive Income. The purpose of the Update is to improve the
comparability, consistency and transparency of financial reporting related to other comprehensive
income. It eliminates the option to present the components of other comprehensive income as part
of the statement of stockholders’ equity. Instead, the components of other comprehensive income
must either be presented with net income in a single continuous statement of comprehensive income
or as a separate but consecutive statement following the statement of income. The Update is
effective for the Company January 1, 2012, on a retrospective basis for interim and annual reporting
periods, and is not expected to have a material impact on the Company’s financial position or
results of operations.
In May 2011, the FASB issued ASU No. 2011-04 to amend FASB ASC Topic 820, Fair Value
Measurement: Amendments to Achieve Common Fair Value Measurements and Disclosure
Requirements in U.S. GAAP and IFRSs. The Update amends the GAAP requirements for
measuring fair value and for disclosures about fair value measurements to improve consistency
between GAAP and IFRSs by changing some of the wording used to describe the requirements,
clarifying the intended application of certain requirements and changing certain principles. The
Update is effective for the Company January 1, 2012, on a prospective basis for interim and annual
reporting periods, and is not expected to have a material impact on the Company’s financial
position or results of operations.
70
19
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
In April 2011, the FASB issued ASU No. 2011-03 to amend FASB ASC Topic 860, Transfers and
Servicing. ASC 860 outlines when the transfer of financial assets under a repurchase agreement
may or may not be accounted for as a sale. Whether the transferring entity maintains effective
control over the transferred financial assets provides the basis for such a determination. The
previous requirement that the transferor must have the ability to repurchase or redeem the financial
assets before the maturity of the agreement is removed from the assessment of effective control by
this Update. The Update is effective for the Company January 1, 2012, on a prospective basis for
interim and annual reporting periods, and is not expected to have a material impact on the
Company’s financial position or results of operations.
In April 2011, the FASB issued ASU No. 2011-02 to amend FASB ASC Subtopic 310-40,
Receivables – Troubled Debt Restructurings by Creditors. The statement clarifies guidance used
by creditors to identify troubled debt restructurings and to result in more consistent application of
GAAP for debt restructurings. The guidance was effective for the Company on July 1, 2011. The
adoption of this guidance did not have a material impact on the Company’s financial position or
results of operations.
In January 2011, the FASB issued ASU No. (ASU) 2011-01, Receivables (Topic 310): Deferral of
the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The
Update temporarily delayed the effective date for disclosures on troubled debt restructurings
required by ASU 2010-20. The guidance was effective for the Company on July 1, 2011. The
adoption of this guidance did not have a material impact on the Company’s financial position or
results of operations.
In December 2010, the FASB issued ASU 2010-28, Intangibles – Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The Update modifies step one of the impairment test for reporting
units with zero or negative carrying amounts. Entities with such reporting units must now perform
step two of the impairment test when qualitative factors indicate it is more likely than not that
impairment exists. The amendment was effective for the Company January 1, 2011. The adoption
of this Update did not have a material impact on the Company’s financial position or results of
operations.
In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowances for Credit Losses. This Update
requires expanded disclosures to help financial statement users understand the nature of credit risks
inherent in a creditor’s portfolio of financing receivables; how that risk is analyzed and assessed in
arriving at the allowance for credit losses; and the changes, and reasons for those changes, in both
the receivables and the allowance for credit losses. The disclosures should be prepared on a
disaggregated basis and provide a roll-forward schedule of the allowance for credit losses and
detailed information on financing receivables including, among other things, recorded balances,
nonaccrual status, impairments, credit quality indicators, details for troubled debt restructurings
and an aging of past due financing receivables. Disclosures required as of the end of a reporting
period were effective for the Company December 31, 2010, and did not have a material impact on
71
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
the Company’s financial position or results of operations. Disclosures required for activity
occurring during a reporting period were effective for the Company January 1, 2011. This portion
of the Update did not have a material impact on the Company’s financial position or results of
operations.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value
Measurements (FASB ASU 2010-09), which amends FASB ASC Subtopic 820-10, Fair Value
Measurements and Disclosures. This Update requires new disclosures to show significant transfers
in and out of Level 1 and Level 2 fair value measurements as well as discussion regarding the
reasons for the transfers. It also clarifies existing disclosures requiring fair value measurement
disclosures for each class of assets and liabilities. The Update describes a class as being a subset of
assets and liabilities within a line item on the statement of financial condition which will require
management judgment to designate. Use of the terminology “classes of assets and liabilities”
represents an amendment from the previous terminology “major categories of assets and liabilities.”
Clarification is also provided for disclosures of Level 2 and Level 3 recurring and nonrecurring fair
value measurements requiring discussion about the valuation techniques and inputs used. These
provisions of the Update were effective January 1, 2010. Another new disclosure requires an
expanded reconciliation of activity in Level 3 fair value measurements to present information about
purchases, sales, issuances and settlements on a gross basis rather than netting the amounts in one
number. This requirement was effective for the Company January 1, 2011. The adoption of this
Update did not have a material impact on the Company’s financial position or results of operations.
Note 2:
Investments in Debt and Equity Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
Amortized
Cost
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
$
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Small Business Administration
$
loan pools
States and political subdivisions
Corporate bonds
Equity securities
20,000
5,220
628,729
55,422
145,663
50
1,230
60
—
13,728
1,070
5,478
245
601
$
$
—
380
802
—
903
—
—
Fair
Value
20,060
4,840
641,655
56,492
150,238
295
1,831
$
856,314
$
21,182
$
2,085
$
875,411
72
21
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Small Business Administration
loan pools
States and political subdivisions
Corporate bonds
Equity securities
Amortized
Cost
$
$
4,000
8,311
590,085
60,063
99,314
49
1,230
763,052
December 31, 2010
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
$
$
—
183
10,879
851
378
—
893
13,184
$
$
20
814
1,753
—
4,075
28
—
6,690
$
$
Fair
Value
3,980
7,680
599,211
60,914
95,617
21
2,123
769,546
Additional details of the Company’s collateralized mortgage obligations and mortgage-backed
securities at December 31, 2011, are described as follows:
Collateralized mortgage obligations
Nonagency variable
Mortgage-backed securities
FHLMC fixed
FHLMC hybrid ARM
Total FHLMC
FNMA fixed
FNMA hybrid ARM
Total FNMA
GNMA fixed
GNMA hybrid ARM
Total GNMA
Total fixed
Total hybrid ARM
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
$
$
$
$
5,220
$
— $
380
$
4,840
18,667 $
50,517
1,577 $
3,220
69,184
21,071
41,614
62,685
9,826
487,034
496,860
4,797
1,504
2,556
4,060
372
4,499
4,871
$
—
—
—
—
—
—
1
801
802
20,244
53,737
73,981
22,575
44,170
66,745
10,197
490,732
500,929
628,729 $
13,728 $
802
$
641,655
49,564 $
579,165
3,453 $
10,275
$
1
801
53,016
588,639
628,729 $
13,728 $
802
$
641,655
73
22
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The amortized cost and fair value of available-for-sale securities at December 31, 2011, 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.
One year or less
After one through five years
After five through ten years
After ten years
Securities not due on a single maturity date
Equity securities
Amortized
Cost
Fair
Value
(In Thousands)
$
1,566
1,580
13,135
204,854
633,949
1,230
$
1,568
1,608
13,497
210,412
646,495
1,831
$
856,314
$
875,411
The amortized cost and fair values of securities classified as held to maturity were as follows:
Amortized
Cost
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
1,865
$
236
$
—
$
2,101
Amortized
Cost
December 31, 2010
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
1,125
$
175
$
—
$
1,300
74
23
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The held-to-maturity securities at December 31, 2011, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
One year or less
After five through ten years
Amortized
Cost
Fair
Value
(In Thousands)
$
$
840
1,025
$
1,865
$
904
1,197
2,101
The amortized cost and fair values of securities pledged as collateral was as follows at
December 31, 2011 and 2010:
2011
2010
Amortized
Cost
Fair
Value
Amortized
Cost
(In Thousands)
Fair
Value
$
463,832
$
475,622
$
388,456
$
393,261
235,323
237,576
263,778
264,450
65,658
1,600
67,498
1,678
66,755
5,527
68,202
5,621
$
766,413
$
782,374
$
724,516
$
731,534
Public deposits
Collateralized borrowing
accounts
Structured repurchase
agreements
Other
Certain investments in debt securities are reported in the financial statements at an amount less than
their historical cost. Total fair value of these investments at December 31, 2011 and 2010,
respectively, was approximately $172.6 million and $298.8 million which is approximately 19.67%
and 38.77% of the Company’s available-for-sale and held-to-maturity investment portfolio,
respectively.
Based on evaluation of available evidence, including recent changes in market interest rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these debt securities are temporary.
75
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table shows the Company’s gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2011 and 2010:
Description of Securities
Less than 12 Months
Fair
Value
Unrealized
Losses
2011
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
Collateralized mortgage
obligations
Mortgage-backed securities
States and political
subdivisions
$
3,760
61,720
$
6,436
(110)
(365)
(44)
$
1,460 $
91,824
(270)
(437)
$
5,220
153,544
$
7,381
(859)
13,817
(380)
(802)
(903)
$
71,916
$
(519)
$ 100,665 $
(1,566)
$ 172,581
$
(2,085)
Description of Securities
U.S. government agencies
Collateralized mortgage
obligations
Mortgage-backed securities
States and political
subdivisions
Corporate bonds
Less than 12 Months
Fair
Value
Unrealized
Losses
2010
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
3,980
$
(20)
$
— $
—
$
3,980
$
(20)
—
231,524
56,221
8
—
(1,753)
(2,328)
(24)
1,809
—
5,257
14
(814)
—
1,809
231,524
(1,747)
(4)
61,478
22
(814)
(1,753)
(4,075)
(28)
$ 291,733
$
(4,125)
$
7,080 $
(2,565)
$ 298,813
$
(6,690)
Other-than-Temporary Impairment
Upon acquisition of a security, the Company decides whether it is within the scope of the
accounting guidance for beneficial interests in securitized financial assets or will be evaluated for
impairment under the accounting guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental
impairment guidance for a subset of the debt securities within the scope of the guidance for
investments in debt and equity securities. For securities where the security is a beneficial interest
in securitized financial assets, the Company uses the beneficial interests in securitized financial
asset impairment model. For securities where the security is not a beneficial interest in securitized
financial assets, the Company uses the debt and equity securities impairment model. The Company
does not currently have securities within the scope of this guidance for beneficial interests in
securitized financial assets.
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company routinely conducts periodic reviews to identify and evaluate each investment security
to determine whether an other-than-temporary impairment has occurred. The Company considers
the length of time a security has been in an unrealized loss position, the relative amount of the
unrealized loss compared to the carrying value of the security, the type of security and other factors.
If certain criteria are met, the Company performs additional review and evaluation using observable
market values or various inputs in economic models to determine if an unrealized loss is other than
temporary. The Company uses quoted market prices for marketable equity securities and uses
broker pricing quotes based on observable inputs for equity investments that are not traded on a
stock exchange. For nonagency collateralized mortgage obligations, to determine if the unrealized
loss is other than temporary, the Company projects total estimated defaults of the underlying assets
(mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the
marketplace (severity) in order to determine the projected collateral loss. The Company also
evaluates any current credit enhancement underlying these securities to determine the impact on
cash flows. If the Company determines that a given security position will be subject to a write-
down or loss, the Company records the expected credit loss as a charge to earnings.
During 2011, the Company determined that the impairment of a nonagency collateralized mortgage
obligation with a book value of $1.8 million had become other than temporary. Consequently, the
Company recorded a total of $615,000 of pre-tax charges to income. During 2010, no securities
were determined to have impairment that had become other than temporary. During 2009, the
Company determined that the impairment of certain available-for-sale securities with a book value
of $8.5 million had become other than temporary. Consequently, the Company recorded a $4.3
million pre-tax charge to income during 2009. This total charge included $2.9 million related to
the nonagency collateralized mortgage obligation that was also determined to be impaired during
2011.
Credit Losses Recognized on Investments
Certain debt securities have experienced fair value deterioration due to credit losses, as well as due
to other market factors, but are not otherwise other-than-temporarily impaired.
The following table provides information about debt securities for which only a credit loss was
recognized in income and other losses are recorded in other comprehensive income.
Credit losses on debt securities held
Beginning of year
Additions related to other-than-temporary losses
not previously recognized
Additions related to increases in credit losses on debt
securities for which other-than-temporary
impairment losses were previously recognized
Reductions due to sales
Accumulated Credit Losses
2011
2010
(In Thousands)
$
2,983 $
2,983
—
615
—
—
—
—
End of year
77
$
3,598 $
2,983
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 3: Other Comprehensive Income (Loss)
Net unrealized gain (loss) on available-for-sale
securities
Noncredit component of unrealized gain (loss) on
available-for-sale debt securities for which a
portion of an other-than-temporary impairment
has been recognized
Other-than-temporary impairment loss recognized
in earnings on available-for-sale debt securities
Less reclassification adjustment for gain
included in net income
Other comprehensive income (loss), before tax
effect
Tax expense (benefit)
2011
Year Ended December 31,
2010
(In Thousands)
2009
$
12,881
$
(2,000)
$
24,307
820
(411)
(375)
(615)
—
(3,775)
483
8,787
2,254
12,603
4,411
(11,198)
(3,919)
17,903
6,266
Change in unrealized gain (loss) on available-for-
sale securities, net of income taxes
$
8,192
$
(7,279)
$
11,637
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The components of accumulated other comprehensive income, included in stockholders’ equity at
December 31, 2011 and 2010, are as follows:
Net unrealized gain on available-for-sale securities
Net unrealized gain (loss) on available-for-sale debt
securities for which a portion of an other-than-
temporary impairment has been recognized in income
Tax expense
2011
2010
(In Thousands)
$
19,063 $
7,279
34
19,097
6,684
(785)
6,494
2,273
Net-of-tax amount
$
12,413 $
4,221
Note 4: Loans and Allowance for Loan Losses
Classes of loans at December 31, 2011 and 2010, included:
2011
2010
(In Thousands)
$
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of discounts (TeamBank)
FDIC-supported loans, net of discounts (Vantus Bank)
FDIC-supported loans, net of discounts
(Sun Security Bank)
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
$
23,976
61,140
68,771
119,589
91,994
145,781
639,857
243,742
236,384
59,750
59,368
77,540
47,114
128,875
123,036
144,626
2,271,543
(103,424)
(41,232)
(2,726)
29,102
86,649
95,573
68,018
98,099
136,984
530,277
210,846
185,865
64,641
48,992
77,331
46,852
144,633
160,163
—
1,984,025
(63,108)
(41,487)
(2,543)
79
$
2,124,161
$
1,876,887
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Classes of loans by aging were as follows:
December 31, 2011
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Total Loans > 90 Days and
Current Receivable Still Accruing
Total Loans
(In Thousands)
$
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of
discounts (TeamBank)
FDIC-supported loans, net of
discounts (Vantus Bank)
FDIC-supported loans,
net of discounts
(Sun Security Bank)
Less FDIC-supported loans,
net of discounts
$
2,082
4,014
—
—
833
117
6,323
—
426
—
455
1,508
45
2,422
562
342
388
4
—
—
—
535
—
10
—
56
641
29
862
57
$
186 $
6,661
2,655
—
2,610 $
11,063
2,659
21,366
50,077
66,112
— 119,589
$
$
23,976
61,140
68,771
119,589
3,888
4,721
87,273
91,994
3,425
6,204
—
1,362
2,110
117
715
174
3,542
13,062
—
1,798
2,110
628
2,864
248
142,239
626,795
243,742
234,586
57,640
58,740
74,676
46,866
145,781
639,857
243,742
236,384
59,750
59,368
77,540
47,114
19,215
22,499
106,376
128,875
5,999
6,618
116,418
123,036
5,628
24,415
6,851
9,775
40,299
93,010
52,778
127,200
91,848
2,144,343
144,626
2,271,543
8,612
7,770
65,513
81,895
314,642
396,537
Total
$
15,803
$
2,005
$ 27,497 $ 45,305 $ 1,829,701 $ 1,875,006
$
80
29
—
—
—
—
40
—
—
—
—
—
10
356
—
—
5
150
561
155
406
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Total Loans > 90 Days and
Current Receivable Still Accruing
Total Loans
$
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of
discounts (TeamBank)
FDIC-supported loans, net of
discounts (Vantus Bank)
Less FDIC-supported loans,
net of discounts
(In Thousands)
$
— $
578 $
839 $
1,015
—
—
1,860
5,668
—
3,156
8,398
—
28,263
83,493
87,175
68,018
$
29,102
86,649
95,573
68,018
$
914
2,724
8,494
89,605
98,099
2,130
8,546
4,011
355
—
35
318
160
2,831
6,074
4,202
1,642
2,190
94
1,417
140
7,046
17,369
8,213
2,347
2,190
556
3,066
452
129,938
512,908
202,633
183,518
62,451
48,436
74,265
46,400
136,984
530,277
210,846
185,865
64,641
48,992
77,331
46,852
3,731
13,285
19,735
124,898
144,633
261
281
2,730
—
4,856
2,085
2,749
—
350
—
427
1,331
152
2,719
2,277
20,218
1,414
22,629
9,399
52,104
13,090
94,951
147,073
1,889,074
160,163
1,984,025
4,996
5,145
22,684
32,825
271,971
304,796
Total
$
15,222
$
17,484
$ 29,420 $ 62,126 $ 1,617,103 $ 1,679,229
$
—
—
—
—
—
—
—
—
—
—
22
565
—
—
—
587
—
587
81
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Nonaccruing loans are summarized as follows:
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family
$
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
December 31,
2011
2010
(In Thousands)
$
186
6,661
2,655
—
3,848
3,425
6,204
—
1,362
2,110
107
359
174
578
1,860
5,668
—
2,724
2,831
6,074
4,202
1,642
2,190
72
852
140
Total
$
27,091
$
28,833
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 $5,063 for 2011, $5,804 for
2010 and $5,577 for 2009
2011
2010
(In Thousands)
2009
$
41,487
35,336
$
40,101
35,630
$
29,163
35,800
(35,591)
(34,244)
(24,862)
Balance, end of year
$
41,232
$
41,487
$
40,101
82
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table presents the activity in the allowance for loan losses by portfolio segment for the
year ended December 31, 2011. Also presented are the balance in the allowance for loan losses and
the recorded investment in loans based on portfolio segment and impairment method as of
December 31, 2011:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
Allowance for loan losses
Balance January 1, 2011
$
Provision charged to expense
Losses charged off
Recoveries
$
11,483
7,995
(8,333)
279
$
3,866
5,693
(8,018)
1,547
$
14,336
17,859
(13,862)
57
5,852
1,020
(4,103)
213
$
$
3,281
1,459
(2,842)
1,076
$
2,669
1,310
(3,496)
1,891
41,487
35,336
(40,654)
5,063
Balance December 31, 2011
$
11,424
$
3,088
$
18,390
$
2,982
$
2,974
$
2,374
$
41,232
Ending balance:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired and
accounted for under ASC
310-30
$
$
$
Loans
Individually evaluated for
4,989
$
89
$
3,584
$
594
6,435
$
2,999
$
14,806
$
2,358
$
$
736
$
38
$
10,030
2,238
$
2,336
$
31,172
—
$
—
$
—
$
30
$
—
$
—
$
30
impairment
$
39,519
$
20,802
$
99,254
$
27,592
$
10,720
$
839
$ 198,726
Collectively evaluated for
impairment
Loans acquired and
accounted for under ASC
310-30
$
283,371
$
222,940
$
600,353
$
160,768
$
225,665
$
183,183
$ 1,676,280
$
109,909
$
25,877
$
157,805
$
40,215
$
28,784
$
33,947
$ 396,537
83
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table presents the balance in the allowance for loan losses and the recorded investment
in loans based on portfolio segment and impairment method as of December 31, 2010:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
Allowance for loan losses
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired and
$
$
accounted for under ASC
310-30
$
Loans
Individually evaluated for
4,353
$
1,714
$
3,089
$
2,083
$
784
$
37
$
12,060
7,100
$
2,152
$
11,247
$
3,769
$
1,697
$
2,632
$
28,597
—
$
—
$
—
$
30
$
800
$
— $
830
impairment
$
40,562
$
25,246
$
72,379
$
45,334
$
8,340
$
622
$ 192,483
Collectively evaluated for
impairment
Loans acquired and
accounted for under ASC
310-30
$
310,272
$
185,600
$ 522,539
$
118,257
$
177,525
$
172,553
$ 1,486,746
$
75,727
$
23,277
$ 128,704
$
22,858
$
15,215
$
39,015
$ 304,796
The portfolio segments used in the preceding two tables correspond to the loan classes used in all
other tables in Note 4 as follows:
The one- to four-family residential and construction segment includes the one- to four-
family residential construction, subdivision construction, owner occupied one- to four-
family residential and non-owner occupied one- to four-family residential classes
The other residential segment corresponds to the other residential class
The commercial real estate segment includes the commercial real estate and industrial
revenue bonds classes
The commercial construction segment includes the land development and commercial
construction classes
The commercial business segment corresponds to the commercial business class
The consumer segment includes the consumer auto, consumer other and home equity lines
of credit classes
The weighted average interest rate on loans receivable at December 31, 2011 and 2010, was 5.86%
and 6.03%, respectively.
84
33
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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 $170.3 million and $207.5
million at December 31, 2011 and 2010, respectively. In addition, available lines of credit on these
loans were $11.7 million and $5.0 million at December 31, 2011 and 2010, respectively.
A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC
310-10-35-16), when based on current information and events, it is probable the Company will be
unable to collect all amounts due from the borrower in accordance with the contractual terms of the
loan. Impaired loans include not only nonperforming loans but also include loans modified in
troubled debt restructurings where concessions have been granted to borrowers experiencing
financial difficulties.
The following summarizes information regarding impaired loans at and during the years ended
December 31, 2011 and 2010:
December 31, 2011
Year Ended
December 31, 2011
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
$
873
12,999
7,150
—
917
14,730
7,317
—
$
12
2,953
594
—
5,481
6,105
11,259
49,961
12,102
4,679
2,110
147
579
174
11,768
55,233
12,102
5,483
2,190
168
680
184
776
1,249
3,562
89
736
22
3
22
12
$
1,939 $
10,154
9,983
308
4,748
9,658
34,403
9,475
4,173
2,137
192
544
227
39
282
379
—
76
425
1,616
454
125
—
6
10
1
Total
$ 107,514
$ 116,877
$
10,030
$
87,941 $
3,413
85
34
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010
Year Ended
December 31, 2010
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
$
$
$
1,947
9,894
17,957
1,851
2,371
10,560
21,006
1,851
5,205
5,620
residential
Commercial real estate
Other residential
Commercial business
Consumer auto
Consumer other
Home equity lines of credit
11,785
25,782
9,768
9,722
125
429
148
12,267
26,392
9,869
12,495
137
481
166
258
2,326
1,925
158
542
1,227
3,045
1,714
828
4
14
19
$
1,724 $
7,850
18,760
458
3,612
8,182
10,615
8,123
2,630
30
93
109
83
415
534
31
69
386
603
140
114
1
4
1
Total
$
94,613
$ 103,215
$
12,060
$
62,186 $
2,381
At December 31, 2011 and 2010, all impaired loans had specific valuation allowances. Interest of
approximately $388,000 was received on average impaired loans of approximately $23.5 million
for the year ended December 31, 2009. For impaired loans which were nonaccruing, interest of
approximately $2.4 million, $2.0 million and $1.9 million would have been recognized on an
accrual basis during the years ended December 31, 2011, 2010 and 2009, respectively.
Included in certain loan categories in the impaired loans are troubled debt restructurings that were
classified as impaired. Troubled debt restructurings are loans that are modified by granting
concessions to borrowers experiencing financial difficulties. These concessions could include a
reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance
or other actions intended to maximize collection. The types of concessions made are factored into
the estimation of the allowance for loan losses for troubled debt restructurings primarily using a
discounted cash flows or collateral adequacy approach.
At December 31, 2011, the Company had $9.0 million of construction loans, $17.0 million of
residential mortgage loans, $31.3 million of commercial real estate loans, $671,000 of commercial
business loans and $156,000 of consumer loans that were modified in troubled debt restructurings
and impaired. Of the total troubled debt restructurings at December 31, 2011, $50.8 million were
accruing interest and $32.2 million were classified as substandard using the Company’s internal
grading system which is described below. During the previous 12 months, one commercial
business loan totaling $423,000 was modified as a troubled debt restructuring and had payment
defaults subsequent to the modifications. When loans modified as troubled debt restructuring have
subsequent payment defaults, the defaults are factored in to the determination of the allowance for
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
loan losses to ensure specific valuation allowances reflect amounts considered uncollectible. At
December 31, 2010, the Company had $6.5 million of construction loans, $5.5 million of
residential mortgage loans, $8.2 million of commercial real estate loans, $57,000 of other
commercial loans and $150,000 of consumer loans that were modified in troubled debt
restructurings and impaired. Of the total troubled debt restructurings, $16.5 million were accruing
interest at December 31, 2010.
The Company reviews the credit quality of its loan portfolio using an internal grading system that
classifies loans as “Satisfactory,” “Watch,” “Special Mention” and “Substandard.” Substandard
loans are characterized by the distinct possibility that the Bank will sustain some loss if certain
deficiencies are not corrected. Special mention loans possess potential weaknesses that deserve
management’s close attention but do not expose the Bank to a degree of risk that warrants
substandard classification. Loans classified as watch are being monitored because of indications of
potential weaknesses or deficiencies that may require future classification as special mention or
substandard. Loans not meeting any of the criteria previously described are considered
satisfactory. The FDIC-covered loans are evaluated using this internal grading system. However,
since these loans are accounted for in pools and are currently covered through loss sharing
agreements with the FDIC, all of the loan pools were considered satisfactory at December 31, 2011
and 2010, respectively. See Note 5 for further discussion of the acquired loan pools and loss
sharing agreements. The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2011
Special
Mention
(In Thousands)
Substandard
Total
One- to four-family residential
construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of discounts
(TeamBank)
FDIC-supported loans, net of discounts
(Vantus Bank)
FDIC-supported loans, net of discounts
$
$
21,436
45,754
41,179
119,589
$
2,354
2,701
20,902
—
86,725
1,018
129,458
542,712
222,940
225,664
57,640
59,237
77,006
46,940
128,875
123,036
5,232
51,757
13,262
5,403
—
—
—
—
—
—
—
—
245
—
—
249
13,384
—
638
—
—
—
—
—
—
$
$
186
12,685
6,445
—
23,976
61,140
68,771
119,589
4,251
91,994
10,842
32,004
7,540
4,679
2,110
131
534
174
—
—
145,781
639,857
243,742
236,384
59,750
59,368
77,540
47,114
128,875
123,036
(Sun Security Bank)
Total
144,626
$ 2,072,817
—
$ 102,629
$
—
14,516
$
—
81,581
144,626
$ 2,271,543
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
One- to four-family residential
construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of discounts
(TeamBank)
FDIC-supported loans, net of discounts
(Vantus Bank)
Total
Satisfactory
Watch
December 31, 2010
Special
Mention
(In Thousands)
Substandard
Total
$
$
27,620
69,907
57,486
60,770
92,385
120,360
460,088
185,600
177,525
62,451
48,883
76,966
46,704
144,633
160,163
$
549
8,408
20,834
5,397
766
6,471
46,805
15,478
812
—
—
—
—
—
—
—
—
—
—
—
—
2,574
—
—
—
—
—
—
—
—
$
$
933
8,334
17,253
1,851
29,102
86,649
95,573
68,018
4,948
98,099
10,153
20,810
9,768
7,528
2,190
109
365
148
—
—
136,984
530,277
210,846
185,865
64,641
48,992
77,331
46,852
144,633
160,163
$ 1,791,541
$ 105,520
$
2,574
$
84,390
$ 1,984,025
Certain of the Bank’s real estate loans are pledged as collateral for borrowings as set forth in
Notes 10 and 12.
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. Except for the interest rates on loans
secured by personal residences, in the opinion of management, all loans included in such
transactions were made on substantially the same terms as those prevailing at the time for
comparable transactions with unrelated parties. Generally, residential first mortgage loans and
home equity lines of credit to all employees and directors have been granted at interest rates equal
to the Bank’s cost of funds, subject to annual adjustments in the case of residential first mortgage
loans and monthly adjustments in the case of home equity lines of credit. At December 31, 2011
and 2010, loans outstanding to these directors and executive officers are summarized as follows:
88
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Balance, beginning of year
New loans
Payments
Balance, end of year
December 31,
2011
2010
(In Thousands)
$
$
$
12,933
2,607
(13,246)
14,892
2,293
(4,252)
2,294
$
12,933
Note 5: Acquired Loans, Loss Sharing Agreements and FDIC Indemnification
Assets
TeamBank
On March 20, 2009, Great Southern Bank entered into a purchase and assumption agreement with
loss share with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits
(excluding brokered deposits) and acquire certain assets of TeamBank, N.A., a full service
commercial bank headquartered in Paola, Kansas.
The loans, commitments and foreclosed assets purchased in the TeamBank transaction are covered
by a loss sharing agreement between the FDIC and Great Southern Bank. Under the loss sharing
agreement, the Bank shares in the losses on assets covered under the agreement (referred to as
covered assets). On losses up to $115.0 million, the FDIC agreed to reimburse the Bank for 80% of
the losses. On losses exceeding $115.0 million, the FDIC agreed to reimburse the Bank for 95% of
the losses. Realized losses covered by the loss sharing agreement include loan contractual balances
(and related unfunded commitments that were acquired), accrued interest on loans for up to
90 days, the book value of foreclosed real estate acquired, and certain direct costs, less cash or other
consideration received by Great Southern. This agreement extends for ten years for 1-4 family real
estate loans and for five years for other loans. The value of this loss sharing agreement was
considered in determining fair values of loans and foreclosed assets acquired. The loss sharing
agreement is subject to the Bank following servicing procedures as specified in the agreement with
the FDIC. The expected reimbursements under the loss sharing agreement were recorded as an
indemnification asset at their preliminary estimated fair value on the acquisition date. Based upon
the acquisition date fair values of the net assets acquired, no goodwill was recorded.
The Bank recorded a preliminary one-time gain of $27.8 million (pre-tax) based upon the initial
estimated fair value of the assets acquired and liabilities assumed in accordance with FASB ASC
805, Business Combinations. FASB ASC 805 allows a measurement period of up to one year to
adjust initial fair value estimates as of the acquisition date. Subsequent to the initial fair value
estimate calculations in the first quarter of 2009, additional information was obtained about the fair
value of assets acquired and liabilities assumed as of March 20, 2009, which resulted in adjustments
to the initial fair value estimates. Most significantly, additional information was obtained on the
credit quality of certain loans as of the acquisition date which resulted in increased fair value
estimates of the acquired loan pools. The fair values of these loan pools were adjusted and the
89
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
provisional fair values finalized. These adjustments resulted in a $16.1 million increase to the
initial one-time gain of $27.8 million. Thus, the final gain was $43.9 million related to the fair
value of the acquired assets and assumed liabilities. This gain was included in Noninterest Income
in the Company’s Consolidated Statement of Income for the year ended December 31, 2009.
The Bank originally recorded the fair value of the acquired loans at their preliminary fair value of
$222.8 million and the related FDIC indemnification asset was originally recorded at its
preliminary fair value of $153.6 million. As discussed above, these initial fair values were adjusted
during the measurement period, resulting in a final fair value at the acquisition date of $264.4
million for acquired loans and $128.3 million for the FDIC indemnification asset. A discount was
recorded in conjunction with the fair value of the acquired loans and the amount accreted to yield
during 2011 and 2010 was $2.5 million and $2.4 million, respectively.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $235.5 million, including $111.8 million of
investment securities, $83.4 million of cash and cash equivalents, $2.9 million of foreclosed assets
and $3.9 million of FHLB stock. Liabilities with a fair value of $610.2 million were also assumed,
including $515.7 million of deposits, $80.9 million of FHLB advances and $2.3 million of
repurchase agreements with a commercial bank. A customer-related core deposit intangible asset of
$2.9 million was also recorded. In addition to the excess of liabilities over assets, the Bank
received approximately $42.4 million in cash from the FDIC and entered into the loss sharing
agreement with the FDIC.
Vantus Bank
On September 4, 2009, Great Southern Bank entered into a purchase and assumption agreement
with loss share with the FDIC to assume all of the deposits and acquire certain assets of Vantus
Bank, a full service thrift headquartered in Sioux City, Iowa.
The loans, commitments and foreclosed assets purchased in the Vantus Bank transaction are
covered by a loss sharing agreement between the FDIC and Great Southern Bank. Under the loss
sharing agreement, the Bank shares in the losses on assets covered under the agreement (referred to
as covered assets). On losses up to $102.0 million, the FDIC agreed to reimburse the Bank for 80%
of the losses. On losses exceeding $102.0 million, the FDIC agreed to reimburse the Bank for 95%
of the losses. Realized losses covered by the loss sharing agreement include loan contractual
balances (and related unfunded commitments that were acquired), accrued interest on loans for up
to 90 days, the book value of foreclosed real estate acquired, and certain direct costs, less cash or
other consideration received by Great Southern. This agreement extends for ten years for 1-4
family real estate loans and for five years for other loans. The value of this loss sharing agreement
was considered in determining fair values of loans and foreclosed assets acquired. The loss sharing
agreement is subject to the Bank following servicing procedures as specified in the agreement with
the FDIC. The expected reimbursements under the loss sharing agreement were recorded as an
indemnification asset at their preliminary estimated fair value of $62.2 million on the acquisition
date. Based upon the acquisition date fair values of the net assets acquired, no goodwill was
recorded. The transaction resulted in a preliminary one-time gain of $45.9 million, which was
included in Noninterest Income in the Company’s Consolidated Statement of Income for the year
ended December 31, 2009. During 2010, the Company continued to analyze its estimates of the fair
90
39
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
values of the loans acquired and the indemnification asset recorded. The Company finalized its
analysis of these assets without adjustments to the initial fair value estimates. The Bank recorded
the fair value of the acquired loans at their estimated fair value of $247.0 million and the related
FDIC indemnification asset was recorded at its estimated fair value of $62.2 million. A discount
was recorded in conjunction with the fair value of the acquired loans and the amount accreted to
yield during 2011 and 2010 was $928,000 and $1.2 million, respectively.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $47.2 million, including $23.1 million of investment
securities, $12.8 million of cash and cash equivalents, $2.2 million of foreclosed assets and $5.9
million of FHLB stock. Liabilities with a fair value of $444.0 million were also assumed, including
$352.7 million of deposits, $74.6 million of FHLB advances, $10.0 million of borrowings from the
Federal Reserve Bank and $3.2 million of repurchase agreements with a commercial bank. A
customer-related core deposit intangible asset of $2.2 million was also recorded. In addition to the
excess of liabilities over assets, the Bank received approximately $131.3 million in cash from the
FDIC and entered into the loss sharing agreement with the FDIC.
Sun Security Bank
On October 7, 2011, Great Southern Bank entered into a purchase and assumption agreement with
loss share with the FDIC to assume all of the deposits and acquire certain assets of Sun Security
Bank, a full service bank headquartered in Ellington, Missouri.
The loans and foreclosed assets purchased in the Sun Security Bank transaction are covered by a loss
sharing agreement between the FDIC and Great Southern Bank. Under the loss sharing agreement,
the FDIC has agreed to cover 80% of the losses on the loans (excluding approximately $4 million of
consumer loans) and foreclosed assets purchased subject to certain limitations. Realized losses
covered by the loss sharing agreement include loan contractual balances (and related unfunded
commitments that were acquired), accrued interest on loans for up to 90 days, the book value of
foreclosed real estate acquired, and certain direct costs, less cash or other consideration received by
Great Southern. This agreement extends for ten years for 1-4 family real estate loans and for five
years for other loans. The value of this loss sharing agreement was considered in determining fair
values of loans and foreclosed assets acquired. The loss sharing agreement is subject to the Bank
following servicing procedures as specified in the agreement with the FDIC. The expected
reimbursements under the loss sharing agreement were recorded as an indemnification asset at their
preliminary estimated fair value of $67.4 million on the acquisition date. Based upon the acquisition
date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a
preliminary one-time gain of $16.5 million, which was included in Noninterest Income in the
Company’s Consolidated Statement of Income for the year ended December 31, 2011. The Bank
recorded the fair value of the acquired loans at their estimated fair value of $163.7 million. The
Company continues to analyze its estimates of the fair values of the loans acquired and the
indemnification asset recorded. The Company has not yet finalized its analysis of these assets and,
therefore, adjustments to the recorded carrying values may occur.
91
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $85.2 million, including $45.3 million of investment
securities, $26.1 million of cash and cash equivalents, $9.1 million of foreclosed assets, $3.0
million of FHLB stock and $1.8 million of other assets. Liabilities with a fair value of $345.8
million were also assumed, including $280.9 million of deposits, $64.3 million of FHLB advances
and $632,000 of other liabilities. A customer-related core deposit intangible asset of $2.5 million
was also recorded. Net of the excess of assets over liabilities, the Bank received approximately
$40.8 million in cash from the FDIC. The Bank also expects to receive $2.7 million from the FDIC
in the future due to adjustments identified by the FDIC as part of their normal closing procedures.
Fair Value and Expected Cash Flows
At the time of these acquisitions, the Company determined the fair value of the loan portfolios
based on several assumptions. Factors considered in the valuations were projected cash flows for
the loans, type of loan and related collateral, classification status, fixed or variable interest rate,
term of loan, current discount rates and whether or not the loan was amortizing. Loans were
grouped together according to similar characteristics and were treated in the aggregate when
applying various valuation techniques. Management also estimated the amount of credit losses that
were expected to be realized for the loan portfolios. The discounted cash flow approach was used
to value each pool of loans. For nonperforming loans, fair value was estimated by calculating the
present value of the recoverable cash flows using a discount rate based on comparable corporate
bond rates. This valuation of the acquired loans is a significant component leading to the valuation
of the loss sharing assets recorded.
The amount of the estimated cash flows expected to be received from the acquired loan pools in
excess of the fair values recorded for the loan pools is referred to as the accretable yield. The
accretable yield is recognized as interest income over the estimated lives of the loans. The
Company continues to evaluate the fair value of the loans including cash flows expected to be
collected. Increases in the Company’s cash flow expectations are recognized as increases to the
accretable yield while decreases are recognized as impairments through the allowance for loan
losses. During the years ended December 31, 2011 and 2010, increases in expected cash flows
related to the loan portfolios acquired in 2009 resulted in adjustments to the accretable yield to be
spread over the estimated remaining lives of the loans on a level-yield basis. The increases in
expected cash flows also reduced the amount of expected reimbursements under the loss sharing
agreements. This resulted in corresponding adjustments during the years ended December 31,
2011 and 2010, to the indemnification assets to be amortized on a level-yield basis over the
remainder of the loss sharing agreements or the remaining expected lives of the loan pools,
whichever is shorter. The amounts of these adjustments were as follows:
92
41
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Year Ended
December 31, December 31,
2011
2010
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
27,069
$
58,951
Decrease in FDIC indemnification asset
as a result of accretable yield increase
(23,821)
(51,888)
The adjustments impacted the Company’s Consolidated Statements of Income as follows:
Interest income
Noninterest income
Year Ended
December 31, December 31,
2011
2010
(In Thousands)
$
49,208
(43,835)
$
19,452
(17,134)
Net impact to pre-tax income
$
5,373
$
2,318
Prior to January 1, 2010, the Company’s estimate of cash flows expected to be received from the
acquired loan pools related to TeamBank and Vantus Bank had not materially changed, other than
the adjustment of the provisional fair value measurements of the former TeamBank loan portfolio.
At December 31, 2011, the Company’s preliminary estimate of cash flows expected to be received
from the loan pools acquired in the Sun Security Bank acquisition had not materially changed.
The loss sharing asset is measured separately from the loan portfolio because it is not contractually
embedded in the loans and is not transferable with the loans should the Bank choose to dispose of
them. Fair value was estimated using projected cash flows available for loss sharing based on the
credit adjustments estimated for each loan pool (as discussed above) and the loss sharing
percentages outlined in the Purchase and Assumption Agreement with the FDIC. These cash flows
were discounted to reflect the uncertainty of the timing and receipt of the loss sharing
reimbursement from the FDIC. The loss sharing asset is also separately measured from the related
foreclosed real estate.
93
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
TeamBank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the
TeamBank transaction at December 31, 2011 and 2010. Gross loan balances (due from the
borrower) were reduced approximately $271.5 million since the transaction date because of $192.4
million of repayments by the borrower, $13.6 million of transfers to foreclosed assets and $65.5
million of charge-downs to customer loan balances.
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss remaining
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2011
Loans
Foreclosed
Assets
(In Thousands)
$
164,284
$
16,225
(1,363)
(6,093)
—
—
(128,875)
(10,342)
27,953
80%
22,404
5,726
(2,719)
5,883
80%
4,712
—
—
FDIC indemnification asset
$
25,411
$
4,712
94
43
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss remaining
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2010
Loans
Foreclosed
Assets
(In Thousands)
$
219,289
$
15,921
(3,875)
(21,071)
—
—
(144,633)
(5,463)
49,710
85%
42,275
20,011
(6,077)
10,458
78%
8,204
—
—
FDIC indemnification asset
$
56,209
$
8,204
Vantus Bank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the Vantus
Bank transaction at December 31, 2011 and 2010. Gross loan balances (due from the borrower)
were reduced approximately $182.3 million since the transaction date because of $153.1 million of
repayments by the borrower, $4.1 million of transfers to foreclosed assets and $25.1 million of
charge-downs to customer loan balances.
95
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss remaining
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2011
Loans
Foreclosed
Assets
(In Thousands)
$
149,215
$
3,410
(503)
(11,267)
(123,036)
14,409
80%
11,526
9,014
(1,946)
—
—
(2,069)
1,341
80%
1,073
—
—
FDIC indemnification asset
$
18,594
$
1,073
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss remaining
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
FDIC indemnification asset
96
December 31, 2010
Loans
Foreclosed
Assets
(In Thousands)
$
208,080
$
9,944
(1,431)
(18,428)
(160,163)
28,058
80%
22,445
14,743
(3,850)
33,338
$
$
—
—
(5,899)
4,045
80%
3,236
—
(109)
3,127
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Sun Security Bank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the Sun
Security Bank transaction at December 31, 2011 and October 7, 2011 (the transaction date). At
December 31, 2011, the Company concluded that the assumptions utilized to determine the
preliminary fair value of loans, foreclosed assets and the FDIC indemnification asset had not
materially changed. Expected cash flows and the present value of future cash flows related to these
assets also did not materially change since the analysis performed at acquisition on October 7,
2011. Gross loan balances (due from the borrower) were reduced approximately $23.0 million
since the transaction date because of $19.6 million of repayments by the borrower and $3.4 million
of charge-downs to customer loan balances.
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss remaining
Accretable discount on FDIC indemnification asset
FDIC indemnification asset
$
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount)
Book value of assets
Anticipated realized loss
Assumed loss sharing recovery percentage
Expected loss sharing value
Accretable discount on FDIC indemnification asset
FDIC indemnification asset
$
97
December 31, 2011
Loans
Foreclosed
Assets
(In Thousands)
$
217,549
$
20,964
(2,658)
—
(144,626)
(8,338)
70,265
79%
55,382
(5,457)
49,925
$
12,626
80%
10,101
(1,811)
8,290
October 7, 2011
Loans
Foreclosed
Assets
(In Thousands)
$
240,510
(2,798)
(163,674)
$
74,038
79%
58,230
(5,844)
52,386
$
30,186
—
(9,056)
21,130
80%
16,904
(1,906)
14,998
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The carrying amount of assets covered by the loss sharing agreement related to the Sun Security
Bank transaction at October 7, 2011 (the acquisition date), consisted of impaired loans required to
be accounted for in accordance with FASB ASC 310-30, other loans not subject to the specific
criteria of FASB ASC 310-30, but accounted for under the guidance of FASB ASC 310-30 (FASB
ASC 310-30 by Policy Loans) and other assets as shown in the following table:
FASB
ASC
310-30
Loans
FASB ASC
310-30
by
Policy
Loans
Other
Total
(In Thousands)
$
32,444 $
—
131,230 $
—
— $
9,056
163,674
9,056
—
—
67,384
67,384
Loans
Foreclosed assets
Estimated loss
reimbursement
from the FDIC
Total covered
assets
$
32,444 $
131,230 $
76,440 $
240,114
On the acquisition date, the preliminary estimate of the contractually required payments receivable
for all FASB ASC 310-30 loans acquired was $96.1 million, the cash flows expected to be
collected were $36.5 million including interest, and the estimated fair value of the loans was $32.4
million. These amounts were determined based upon the estimated remaining life of the
underlying loans, which include the effects of estimated prepayments. At October 7, 2011, a
majority of these loans were valued based on the liquidation value of the underlying collateral,
because the expected cash flows were primarily based on the liquidation of underlying collateral
and the timing and amount of the cash flows could not be reasonably estimated. Because of the
short time period between the closing of the transaction and December 31, 2011, certain amounts
related to the FASB ASC 310-30 loans are preliminary estimates. The Company has not yet
finalized its analysis of these loans and, therefore, adjustments to the estimated recorded carrying
values may occur.
On the acquisition date, the preliminary estimate of the contractually required payments receivable
for all FASB ASC 310-30 by Policy Loans acquired in the acquisition was $144.4 million, of
which $13.2 million of cash flows were not expected to be collected, and the estimated fair value of
the loans was $131.2 million.
A majority of these loans were valued as of their acquisition dates based on the liquidation value of
the underlying collateral, because the expected cash flows were primarily based on the liquidation
of underlying collateral and the timing and amount of the cash flows could not be reasonably
estimated.
98
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Changes in the accretable yield for acquired loan pools were as follows for the years ended
December 31, 2011 and 2010:
TeamBank
Vantus Bank
(In Thousands)
Sun Security
Bank
$
Balance, January 1, 2009
Additions
Accretion
Balance, December 31, 2009
Accretion
Reclassification from nonaccretable difference(1)
Balance, December 31, 2010
Additions
Accretion
Reclassification from nonaccretable difference(1)
—
44,221
(12,921)
31,300
(24,250)
29,715
36,765
—
(40,010)
17,907
$
$
—
45,022
(5,999)
39,023
(23,848)
20,621
35,796
—
(30,908)
17,079
—
—
—
—
—
—
—
14,990
(2,221)
—
Balance, December 31, 2011
$
14,662
$
21,967
$
12,769
(1) Represents increases in estimated cash flows expected to be received from the acquired loan
pools, primarily due to lower estimated credit losses. The numbers also include changes in
expected accretion of the loan pools for TeamBank and Vantus Bank for the year ended
December 31, 2011, totaling $3.5 million and $4.4 million, respectively, and for the year ended
December 31, 2010, totaling $1.8 million and $6.8 million, respectively.
Note 6: Foreclosed Assets Held for Sale
Major classifications of foreclosed assets at December 31, 2011 and 2010, were as follows:
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
FDIC-supported foreclosed assets, net of discounts
99
2011
2010
(In Thousands)
$
$
1,630
15,573
13,634
2,747
1,849
7,853
2,290
85
1,211
46,872
20,749
67,621
$
$
2,510
19,816
10,620
3,997
2,896
4,178
4,565
—
318
48,900
11,362
60,262
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Expenses applicable to foreclosed assets for the years ended December 31, 2011, 2010 and 2009,
included the following:
2011
2010
(In Thousands)
2009
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental
income
$
(1,504) $
10,437
(1,045)
3,169
$
2,913
2,790
(1,915)
3,894
2,980
$
11,846
$
4,914
$
4,959
Note 7: Premises and Equipment
Major classifications of premises and equipment at December 31, 2011 and 2010, stated at cost,
were as follows:
2011
2010
(In Thousands)
$
$
22,635
55,425
37,681
115,741
31,549
20,026
46,055
32,796
98,877
30,525
$
84,192
$
68,352
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
Note 8:
Investments in Limited Partnerships
Investments in Affordable Housing Partnerships
The Company has invested in certain limited partnerships that were formed to develop and operate
apartments and single-family houses designed as high-quality affordable housing for lower income
tenants throughout Missouri and contiguous states. At December 31, 2011, the Company had
eleven investments, with a net carrying value of $28.7 million. At December 31, 2010, the
Company had nine investments, with a net carrying value of $12.4 million. Due to the Company’s
inability to exercise any significant influence over any of the investments in Affordable Housing
Partnerships, they all are accounted for using the cost method. Each of the partnerships must meet
the regulatory requirements for affordable housing for a minimum 15-year compliance period to
fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the
credits may be denied for any period in which the projects are not in compliance and a portion of
the credits previously taken may be subject to recapture with interest.
100
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The remaining federal affordable housing tax credits to be utilized over a maximum of 15 years
were $50.5 million as of December 31, 2011, assuming no tax credit recapture events occur and all
projects currently under construction are completed as planned. Amortization of the investments in
partnerships is expected to be approximately $38.1 million, assuming all projects currently under
construction are completed and funded as planned. The Company’s usage of federal affordable
housing tax credits approximated $2.6 million, $1.3 million and $351,000 during 2011, 2010 and
2009, respectively. Investment amortization amounted to $1.9 million, $1.2 million and $160,000
for the years ended December 31, 2011, 2010 and 2009, respectively.
Investments in Community Development Entities
The Company has invested in certain limited partnerships that were formed to develop and operate
business and real estate projects located in low-income communities. At December 31, 2011, the
Company had three investments, with a net carrying value of $7.1 million. Due to the Company’s
inability to exercise any significant influence over any of the investments in qualified Community
Development Entities, they are all accounted for using the cost method. Each of the partnerships
provide federal New Market Tax Credits over a seven-year credit allowance period. In each of the
first three years, credits totaling five percent of the original investment are allowed on the credit
allowance dates and for the final four years, credits totaling six percent of the original investment
are allowed on the credit allowance dates. Each of the partnerships must be invested in a qualified
Community Development Entity on each of the credit allowance dates during the seven-year period
to utilize the tax credits. If the Community Development Entities cease to qualify during the seven-
year period, the credits may be denied for any credit allowance date and a portion of the credits
previously taken may be subject to recapture with interest. The investments in the Community
Development Entities cannot be redeemed before the end of the seven-year period.
The remaining federal New Market Tax Credits to be utilized over a maximum of seven years were
$10.5 million as of December 31, 2011. Amortization of the investments in partnerships is
expected to be approximately $7.1 million. The Company’s usage of federal New Market Tax
Credits approximated $1.7 million, $1.1 million and $0 during 2011, 2010 and 2009, respectively.
Investment amortization amounted to $1.1 million, $727,000 and $0 for the years ended
December 31, 2011, 2010 and 2009, respectively.
Investments in Limited Partnerships for State Tax Credits
From time to time, the Company has invested in certain limited partnerships that were formed to
provide certain state tax credits. The Company has primarily syndicated these tax credits and the
impact to the Consolidated Statements of Income has not been material.
101
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 9: Deposits
Deposits at December 31, 2011 and 2010, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2010
2011
(In Thousands, Except
Interest Rates)
—
$
330,813
$
257,569
0.61% - 0.83%
0% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,363,727
1,694,540
1,060,841
158,696
17,228
26,526
5,708
1,268,999
1,038,620
1,296,189
838,619
298,029
28,398
126,001
8,657
1,299,704
$
2,963,539
$
2,595,893
The weighted average interest rate on certificates of deposit was 1.29% and 1.85% at December 31,
2011 and 2010, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater
than $100,000 was approximately $446.2 million and $395.8 million at December 31, 2011 and
2010, 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 $264.6 million and $363.3 million at December 31, 2011 and 2010,
respectively.
At December 31, 2011, scheduled maturities of certificates of deposit were as follows:
2012
2013
2014
2015
2016
Thereafter
Retail
Brokered
(In Thousands)
Total
$
721,751
184,955
33,475
31,209
20,172
12,870
$
251,708
11,891
968
—
—
—
$
973,459
196,846
34,443
31,209
20,172
12,870
$ 1,004,432
$
264,567
$ 1,268,999
102
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
A summary of interest expense on deposits for the years ended December 31, 2011, 2010 and 2009,
is as follows:
2011
2010
(In Thousands)
2009
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
7,975
18,467
(72)
$
8,468
30,065
(106)
6,600
47,592
(105)
$
26,370
$
38,427
$
54,087
Note 10: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2011 and 2010, consisted of the
following:
December 31, 2011
December 31, 2010
Due In
Amount
2011
2012
2013
2014
2015
2016
2017 and thereafter
$
—
22,993
281
335
10,065
40,070
101,435
Weighted
Average
Interest
Rate
Weighted
Average
Interest
Rate
Amount
(In Thousands)
—%
$
4.41
5.68
5.47
3.87
4.03
3.93
32,293
22,993
281
335
10,065
25,070
61,435
4.28%
4.41
5.68
5.47
3.87
3.81
3.68
175,179
4.02
152,472
3.96
Unamortized fair value adjustment
9,258
1,053
$
184,437
$
153,525
103
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Included in the Bank’s FHLB advances at December 31, 2011, is a $20.0 million advance with a
maturity date of July 12, 2012. The interest rate on this advance is 4.17%. The advance has a call
provision that allows the Federal Home Loan Bank of Topeka to call the advance quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $10.0 million advance with a
maturity date of October 26, 2015. The interest rate on this advance is 3.86%. The advance has a
call provision that allows the Federal Home Loan Bank of Topeka to call the advance quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $15.0 million advance with a
maturity date of August 8, 2016. The interest rate on this advance is 4.39%. The advance has a
call provision that allows the Federal Home Loan Bank of Des Moines to call the advance
quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $25.0 million advance with a
maturity date of December 7, 2016. The interest rate on this advance is 3.81%. The advance has a
call provision that allows the Federal Home Loan Bank of Des Moines to call the advance
quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $30.0 million advance with a
maturity date of March 29, 2017. The interest rate on this advance is 4.07%. The advance has a
call provision that allows the Federal Home Loan Bank of Des Moines to call the advance
quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $25.0 million advance with a
maturity date of June 20, 2017. The interest rate on this advance is 4.57%. The advance has a call
provision that allows the Federal Home Loan Bank of Des Moines to call the advance quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $15.0 million advance with a
maturity date of September 6, 2017. The interest rate on this advance is 3.91%. The advance has a
call provision that allows the Federal Home Loan Bank of Des Moines to call the advance
quarterly.
Included in the Bank’s FHLB advances at December 31, 2011, is a $30.0 million advance with a
maturity date of November 24, 2017. The interest rate on this advance is 3.20%. The advance has
a call provision that allows the Federal Home Loan Bank of Des Moines to call the advance
quarterly.
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges,
liens and encumbrances as collateral for outstanding advances. No investment securities were
specifically pledged as collateral for advances at December 31, 2011 and 2010. Loans with
carrying values of approximately $768.9 million and $636.4 million were pledged as collateral for
outstanding advances at December 31, 2011 and 2010, respectively. The Bank had potentially
available $262.1 million remaining on its line of credit under a borrowing arrangement with the
FHLB of Des Moines at December 31, 2011.
104
53
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 11: Short-Term Borrowings
Short-term borrowings at December 31, 2011 and 2010, are summarized as follows:
Note payable – Community Development
Equity Funds
Securities sold under reverse repurchase agreements
2011
2010
(In Thousands)
$
660
216,737
$
778
257,180
$
217,397
$
257,958
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 condition. 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 0.22% and 0.26% at December 31,
2011 and 2010, respectively. Short-term borrowings averaged approximately $250.8 million and
$291.7 million for the years ended December 31, 2011 and 2010, respectively. The maximum
amounts outstanding at any month end were $277.7 million and $328.6 million, respectively,
during those same periods.
Note 12: Federal Reserve Bank Borrowings
At December 31, 2011, the Bank had $353.6 million available under a line of credit borrowing
arrangement with the Federal Reserve Bank. The line is secured primarily by commercial loans.
Note 13: Structured Repurchase Agreements
In September 2008, the Company entered into a structured repo borrowing transaction for $50
million. This borrowing bears interest at a fixed rate of 4.34% if three-month LIBOR remains at
2.81% or less on quarterly interest reset dates; if LIBOR is above the 2.81% rate on quarterly
interest reset dates, then the Company’s borrowing rate decreases by 2.5 times the difference in
LIBOR (up to 250 basis points). This borrowing matures September 15, 2015, and has a call
provision that allows the repo counterparty to call the borrowing quarterly beginning
September 15, 2011. The Company pledges investment securities to collateralize this borrowing.
105
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
As part of the September 4, 2009, FDIC-assisted transaction involving Vantus Bank, the Company
assumed $3.0 million in repurchase agreements with commercial banks. These agreements were
recorded at their estimated fair value which was derived using a discounted cash flow calculation
that applies interest rates currently being offered on similar borrowings to the scheduled contractual
maturity on the outstanding borrowing. As of September 4, 2009, the fair value of the repurchase
agreements was $3.2 million with an effective interest rate of 2.84%. These borrowings bear
interest at a fixed rate of 4.68% and are due in 2013. The Company pledges investment securities
to collateralize the borrowings in an amount of at least 110% of the total borrowings outstanding.
At both December 31, 2011 and 2010, the book value of these repurchase agreements was $3.1
million.
Note 14: Subordinated Debentures Issued to Capital Trusts
In November 2006, Great Southern Capital Trust II (Trust II), a statutory trust formed by the
Company for the purpose of issuing the securities, issued a $25.0 million aggregate liquidation
amount of floating rate cumulative trust preferred securities. The Trust II securities bear a floating
distribution rate equal to 90-day LIBOR plus 1.60%. The Trust II securities are redeemable at the
Company’s option beginning in February 2012, and if not sooner redeemed, mature on February 1,
2037. The Trust II securities were sold in a private transaction exempt from registration under the
Securities Act of 1933, as amended. The gross proceeds of the offering were used to purchase
Junior Subordinated Debentures from the Company totaling $25.8 million and bearing an interest
rate identical to the distribution rate on the Trust II securities. The initial interest rate on the Trust
II debentures was 6.98%. The interest rate was 2.03% and 1.89% at December 31, 2011 and 2010,
respectively.
In July 2007, Great Southern Capital Trust III (Trust III), a statutory trust formed by the Company
for the purpose of issuing the securities, issued a $5.0 million aggregate liquidation amount of
floating rate cumulative trust preferred securities. The Trust III securities bear a floating
distribution rate equal to 90-day LIBOR plus 1.40%. The Trust III securities are redeemable at the
Company’s option beginning October 2012, and if not sooner redeemed, mature on October 1,
2037. The Trust III securities were sold in a private transaction exempt from registration under the
Securities Act of 1933, as amended. The gross proceeds of the offering were used to purchase
Junior Subordinated Debentures from the Company totaling $5.2 million and bearing an interest
rate identical to the distribution rate on the Trust III securities. The initial interest rate on the Trust
III debentures was 6.76%. The interest rate was 1.77% and 1.69% at December 31, 2011 and 2010,
respectively.
106
55
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
At December 31, 2011 and 2010, subordinated debentures issued to capital trusts are summarized
as follows:
2011
2010
(In Thousands)
Subordinated debentures
$
30,929
$
30,929
Note 15:
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2011 and 2010,
retained earnings included approximately $17.5 million for which no deferred income tax liability
had been recognized. This amount represents an allocation of income to bad debt deductions for
tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount
would have to be recaptured and would create income for tax purposes only, which would be
subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability
on the above amount was approximately $6.5 million at December 31, 2011 and 2010.
During the years ended December 31, 2011, 2010 and 2009, the provision for income taxes
included these components:
2011
2010
(In Thousands)
2009
Taxes currently payable
Deferred income taxes
Income tax expense
$
$
14,817
(9,304)
$
14,345
(5,451)
$
8,130
24,875
5,513
$
8,894
$
33,005
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
Interest on nonperforming loans
Accrued expenses
Excess of cost over fair value of net assets acquired
Realized impairment on available-for-sale
$
securities
Write-down of foreclosed assets
107
December 31,
2011
2010
(In Thousands)
$
14,431
439
1,005
155
2,088
5,661
23,779
14,521
454
867
190
1,873
3,004
20,909
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Deferred tax liabilities
Tax depreciation in excess of book depreciation
FHLB stock dividends
Partnership tax credits
Prepaid expenses
Unrealized gain on available-for-sale securities
Difference in basis for acquired assets and
liabilities
Other
Net deferred tax liability
December 31,
2011
2010
(In Thousands)
$
$
(1,292)
(2,005)
(3,085)
—
(6,684)
(15,235)
(233)
(28,534)
(4,755)
$
$
(871)
(138)
(1,287)
(524)
(2,273)
(18,511)
(353)
(23,957)
(3,048)
Reconciliations of the Company’s effective tax rates to the statutory corporate tax rates were as
follows:
Tax at statutory rate
Nontaxable interest and
dividends
Tax credits
State taxes
Other
2011
35.0%
(6.2)
(14.8)
0.7
0.7
15.4%
2010
35.0%
(5.0)
(3.9)
0.8
0.2
27.1%
2009
35.0%
(1.6)
—
—
0.3
33.7%
The Company and its consolidated subsidiaries have not been audited recently by the Internal
Revenue Service or the State of Missouri with respect to income or franchise tax returns, and as
such, tax years through December 31, 2005, have been closed without audit. The Company,
through one of its subsidiaries, is a partner in two partnerships currently under Internal Revenue
Service examinations for 2006 and 2007. As a result, the Company’s 2006 and subsequent tax
years remain open for examination. It is too early in the examination process to predict the
outcome of the underlying partnership examinations; however, the Company does not expect
significant adjustments to its financial statements from these examinations.
Note 16: Disclosures About Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements, defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:
108
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are
quoted unadjusted prices in active markets for identical assets that the Company has the
ability to access at the measurement date. An active market for the asset is a market in
which transactions for the asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
Other observable inputs (Level 2): Inputs that reflect the assumptions market participants
would use in pricing the asset or liability developed based on market data obtained from
sources independent of the reporting entity including quoted prices for similar assets,
quoted prices for securities in inactive markets and inputs derived principally from or
corroborated by observable market data by correlation or other means.
Significant unobservable inputs (Level 3): Inputs that reflect significant assumptions of a
source independent of the reporting entity or the reporting entity’s own assumptions that
are supported by little or no market activity or observable inputs.
Financial instruments are broken down as follows by recurring or nonrecurring measurement
status. Recurring assets are initially measured at fair value and are required to be remeasured at
fair value in the financial statements at each reporting date. Assets measured on a nonrecurring
basis are assets that, due to an event or circumstance, were required to be remeasured at fair value
after initial recognition in the financial statements at some time during the reporting period.
The following is a description of inputs and valuation methodologies used for assets recorded at
fair value on a recurring basis and recognized in the accompanying statements of financial
condition at December 31, 2011 and 2010, as well as the general classification of such assets
pursuant to the valuation hierarchy.
Available-for-Sale Securities
Investment securities available for sale are recorded at fair value on a recurring basis. The fair
values used by the Company are obtained from an independent pricing service, which represent
either quoted market prices for the identical asset or fair values determined by pricing models, or
other model-based valuation techniques, that consider observable market data, such as interest rate
volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading
systems. Recurring Level 1 securities include exchange traded equity securities. Recurring Level
2 securities include U.S. government agency securities, mortgage-backed securities, corporate debt
securities, collateralized mortgage obligations, state and municipal bonds and U.S. government
agency equity securities. Inputs used for valuing Level 2 securities include observable data that
may include dealer quotes, benchmark yields, market spreads, live trading levels and market
consensus prepayment speeds, among other things. Additional inputs include indicative values
derived from the independent pricing service’s proprietary computerized models. There were no
Recurring Level 3 securities at both December 31, 2011 and 2010.
109
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices.
Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the
valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
Fair Value Measurements Using
December 31, 2011
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Small Business Administration loan
pools
States and political subdivisions
Corporate bonds
Equity securities
Mortgage servicing rights
December 31, 2010
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Small Business Administration loan
pools
States and political subdivisions
Corporate bonds
Equity securities
Mortgage servicing rights
$
Fair Value
20,060
4,840
641,655
56,492
150,238
295
1,831
292
3,980
7,680
599,211
60,914
95,617
21
2,123
637
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
(In Thousands)
$
—
—
—
—
—
—
387
—
—
—
—
—
—
—
630
—
20,060
4,840
641,655
56,492
150,238
295
1,444
—
3,980
7,680
599,211
60,914
95,617
21
1,493
—
—
—
—
—
—
—
—
292
—
—
—
—
—
—
—
637
110
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following is a reconciliation of the beginning and ending balances of recurring fair value
measurements recognized in the accompanying statements of financial condition using significant
unobservable (Level 3) inputs.
Balance, January 1, 2010
Additions
Amortization
Balance, December 31, 2010
Additions
Amortization
Mortgage
Servicing
Rights
(In Thousands)
$
1,132
50
(545)
637
21
(366)
292
Balance, December 31, 2011
$
Following is a description of the valuation methodologies used for assets measured at fair value on
a nonrecurring basis and recognized in the accompanying statements of financial condition, as well
as the general classification of such assets pursuant to the valuation hierarchy.
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair
value of mortgage loans held for sale is based on what secondary markets are currently offering for
portfolios with similar characteristics. As such, the Company classifies mortgage loans held for
sale as Nonrecurring Level 2. Write-downs to fair value typically do not occur as the Company
generally enters into commitments to sell individual mortgage loans at the time the loan is
originated to reduce market risk. The Company typically does not have commercial loans held for
sale. At December 31, 2011 and 2010, the aggregate fair value of mortgage loans held for sale
exceeded their cost. Accordingly, no mortgage loans held for sale were marked down and reported
at fair value.
111
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Impaired Loans
A loan is considered to be impaired when it is probable that all of the principal and interest due
may not be collected according to its contractual terms. Generally, when a loan is considered
impaired, the amount of reserve required under FASB ASC 310, Receivables, is measured based on
the fair value of the underlying collateral. The Company makes such measurements on all material
loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair
value of collateral used by the Company is determined by obtaining an observable market price or
by obtaining an appraised value from an independent, licensed or certified appraiser, using
observable market data. This data includes information such as selling price of similar properties
and capitalization rates of similar properties sold within the market, expected future cash flows or
earnings of the subject property based on current market expectations, and other relevant factors.
All appraised values are adjusted for market-related trends based on the Company’s experience in
sales and other appraisals of similar property types as well as estimated selling costs. Each quarter
management reviews all collateral dependent impaired loans on a loan-by-loan basis to determine
whether updated appraisals are necessary based on loan performance, collateral type and guarantor
support. At times, the Company measures the fair value of collateral dependent impaired loans
using appraisals with dates prior to one year from the date of review. These appraisals are
discounted by applying current, observable market data about similar property types such as sales
contracts, estimations of value by individuals familiar with the market, other appraisals, sales or
collateral assessments based on current market activity until updated appraisals are obtained.
Depending on the length of time since an appraisal was performed and the data provided through
our reviews, these appraisals are typically discounted 10-40%. The policy described above is the
same for all types of collateral dependent impaired loans.
The Company records impaired loans as Nonrecurring Level 3. If a loan’s fair value as estimated
by the Company is less than its carrying value, the Company either records a charge-off for the
portion of the loan that exceeds the fair value or establishes a reserve within the allowance for loan
losses specific to the loan. Loans for which such charge-offs or reserves were recorded during the
years ended December 31, 2011 and 2010, are shown in the table below (net of reserves).
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are initially recorded at fair value less estimated cost to sell at the
date of foreclosure. 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. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.
The foreclosed assets represented in the table below have been re-measured during the years ended
December 31, 2011 and 2010, subsequent to their initial transfer to foreclosed assets.
112
61
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following tables present the fair value measurement of assets measured at fair value on a
nonrecurring basis and the level within the fair value hierarchy in which the fair value
measurements fall at December 31, 2011 and 2010:
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
December 31, 2011
Impaired loans
Foreclosed assets held
for sale
December 31, 2010
Impaired loans
Foreclosed assets held
for sale
$
36,981
$
—
$
—
$
36,981
14,042
80,407
10,360
—
—
—
—
—
—
14,042
80,407
10,360
The following disclosure relates to financial assets for which it is not practicable for the Company
to estimate the fair value at December 31, 2011 and 2010.
FDIC Indemnification Asset
As part of the Purchase and Assumption Agreements, the Bank and the FDIC entered into loss
sharing agreements. These agreements cover realized losses on loans and foreclosed real estate
subject to certain limitations which are more fully described in Note 5.
Under the TeamBank agreement, the FDIC agreed to reimburse the Bank for 80% of the first
$115 million in realized losses and 95% for realized losses that exceed $115 million. The
indemnification asset was originally recorded at fair value on the acquisition date (March 20, 2009)
and at December 31, 2011 and 2010, the carrying value was $30.1 million and $64.4 million,
respectively.
Under the Vantus Bank agreement, the FDIC agreed to reimburse the Bank for 80% of the first
$102 million in realized losses and 95% for realized losses that exceed $102 million. The
indemnification asset was originally recorded at fair value on the acquisition date (September 4,
2009) and at December 31, 2011 and 2010, the carrying value of the FDIC indemnification asset
was $19.7 million and $36.5 million, respectively.
113
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Under the Sun Security Bank agreement, the FDIC agreed to reimburse the Bank for 80% of
realized losses. The indemnification asset was originally recorded at fair value on the acquisition
date (October 7, 2011) and at December 31, 2011, the carrying value of the FDIC indemnification
asset was $58.2 million.
From the dates of acquisition, each of the three agreements extend ten years for 1-4 family real
estate loans and five years for other loans. The loss sharing assets are measured separately from
the loan portfolios because they are not contractually embedded in the loans and are not
transferable with the loans should the Bank choose to dispose of them. Fair values on the
acquisition dates were estimated using projected cash flows available for loss sharing based on the
credit adjustments estimated for each loan pool and the loss sharing percentages. These cash flows
were discounted to reflect the uncertainty of the timing and receipt of the loss sharing
reimbursements from the FDIC. The loss sharing assets are also separately measured from the
related foreclosed real estate. Although the assets are contractual receivables from the FDIC, they
do not have effective interest rates. The Bank will collect the assets over the next several years.
The amount ultimately collected will depend on the timing and amount of collections and charge-
offs on the acquired assets covered by the loss sharing agreements. While the assets were recorded
at their estimated fair values on the acquisition dates, it is not practicable to complete fair value
analyses on a quarterly or annual basis. Estimating the fair value of the FDIC indemnification asset
would involve preparing fair value analyses of the entire portfolios of loans and foreclosed assets
covered by the loss sharing agreements from all three acquisitions on a quarterly or annual basis.
The following methods were used to estimate the fair value of all other financial instruments
recognized in the accompanying statements of financial condition at amounts other than fair value.
Cash and Cash Equivalents and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
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 purposes of the
calculations. The carrying amount of accrued interest receivable approximates its fair value.
114
63
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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 certificates of deposit
is estimated using a discounted cash flow calculation that applies the rates currently offered for
deposits of similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are
used to estimate fair value of existing advances.
Short-Term Borrowings
The carrying amount approximates fair value.
Subordinated Debentures Issued to Capital Trusts
The subordinated debentures have floating rates that reset quarterly. The carrying amount of these
debentures approximates their fair value.
Structured Repurchase Agreements
Structured repurchase agreements are collateralized borrowings from a counterparty. In addition to
the principal amount owed, the counterparty also determines an amount that would be owed by
either party in the event the agreement is terminated prior to maturity by the Company. The fair
values of the structured repurchase agreements are estimated based on the amount the Company
would be required to pay to terminate the agreement at the reporting date.
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 agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at the reporting date.
115
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table presents estimated fair values of the Company’s financial instruments. The
fair values of certain of these instruments were calculated by discounting expected cash flows,
which method involves significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no market exists for
certain of these financial instruments and because management does not intend to sell these
financial instruments, the Company does not know whether the fair values shown below represent
values at which the respective financial instruments could be sold individually or in the aggregate.
December 31, 2011
Fair
Value
Carrying
Amount
December 31, 2010
Fair
Value
Carrying
Amount
(In Thousands)
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
Mortgage servicing rights
$ 380,249
875,411
1,865
28,920
2,124,161
13,848
12,088
292
$ 380,249
875,411
2,101
28,920
2,124,032
13,848
12,088
292
$ 429,971
769,546
1,125
22,499
1,876,887
12,628
11,572
637
$ 429,971
769,546
1,300
22,499
1,878,345
12,628
11,572
637
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Structured repurchase agreements
Subordinated debentures
Accrued interest payable
Unrecognized financial instruments
(net of contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
2,963,539
184,437
217,397
53,090
30,929
2,277
—
84
—
2,966,874
189,793
217,397
60,471
30,929
2,277
—
84
—
2,595,893
153,525
257,958
53,142
30,929
3,765
—
50
—
2,603,440
158,052
257,958
61,007
30,929
3,765
—
50
—
116
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 17: 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, 2011, future minimum lease payments were as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
$
1,142
843
780
453
272
1,089
$
4,579
Rental expense was $1.3 million, $1.2 million and $1.1 million for the years ended December 31,
2011, 2010 and 2009, respectively.
Note 18: Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages
economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount,
sources and duration of its assets and liabilities. In the normal course of business, the Company
may use derivative financial instruments (primarily interest rate swaps) from time to time to assist
in its interest rate risk management. However, the Company’s existing interest rate derivatives
result from a service provided to certain qualifying loan customers and, therefore, are not used to
manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched
book with respect to its derivative instruments in order to minimize its net risk exposure resulting
from such transactions.
117
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The table below presents the fair value of the Company’s derivative financial instruments as well
as their classification on the Consolidated Statements of Financial Condition:
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2011
2010
(In Thousands)
Asset Derivatives
Derivatives not designated
as hedging instruments
—
—
—
—
Interest rate products
Prepaid expenses and other assets
$
111
$
Total derivatives not designated
as hedging instruments
Liability Derivatives
Derivatives not designated
as hedging instruments
$
111
$
Interest rate products
Accrued expenses and other liabilities
$
121
$
Total derivatives not designated
as hedging instruments
Nondesignated Hedges
$
121
$
None of the Company’s derivatives are designated in qualifying hedging relationships. Derivatives
not designated as hedges are not speculative and result from a service the Company provides to
certain loan customers, which the Company implemented during the fourth quarter of 2011. The
Company executes interest rate swaps with commercial banking customers to facilitate their
respective risk management strategies. Those interest rate swaps are simultaneously hedged by
offsetting interest rate swaps that the Company executes with a third party, such that the Company
minimizes its net risk exposure resulting from such transactions. As the interest rate swaps
associated with this program do not meet the strict hedge accounting requirements, changes in the
fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
As of December 31, 2011, the Company had two interest rate swaps with an aggregate notional
amount of $15.8 million related to this program. During the year ended December 31, 2011, the
Company recognized a net loss of $9,900 in noninterest income related to changes in the fair value
of these swaps.
118
67
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Agreements with Derivative Counterparties
The Company has agreements with its derivative counterparties containing certain provisions that
must be met. If the Company defaults on any of its indebtedness, including default where
repayment of the indebtedness has not been accelerated by the lender, then the Company could also
be declared in default on its derivative obligations. If the Bank fails to maintain its status as a well
/ adequately capitalized institution, then the counterparty could terminate the derivative positions
and the Company would be required to settle its obligations under the agreements. Similarly, the
Company could be required to settle its obligations under certain of its agreements if certain
regulatory events occurred, such as the issuance of a formal directive, or if the Company’s credit
rating is downgraded below a specified level.
As of December 31, 2011, the termination value of derivatives in a net liability position, which
included accrued interest but excluded any adjustment for nonperformance risk, related to these
agreements was $120,668. The Company has minimum collateral posting thresholds with its
derivative counterparties. At December 31, 2011, the Company’s activity with its derivative
counterparties had not yet met the level in which the minimum collateral posting thresholds take
effect. If the Company had breached any of these provisions at December 31, 2011, it could have
been required to settle its obligations under the agreements at the termination value.
Other Interest Rate Swaps
At December 31, 2010 and 2009, the Company had no derivative financial instruments. However,
during a portion 2009, the Company had interest rate swaps to convert the economic interest
payments on certain brokered CDs from a fixed rate to a floating rate based on LIBOR. The
related net gain recognized in earnings was $1.2 million for the year ended December 31, 2009.
Note 19: 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 significant portion of the
commitments may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management’s credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable, inventory, property and
equipment, commercial real estate and residential real estate.
119
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
At December 31, 2011 and 2010, the Bank had outstanding commitments to originate loans and
fund commercial construction loans aggregating approximately $135.4 million and $79.0 million,
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, many of which are intended for sale to investors in the secondary
market. Total mortgage loans in the process of origination amounted to approximately $23.0
million and $15.7 million at December 31, 2011 and 2010, respectively.
Commitments to Purchase Bank Buildings and Equipment from FDIC
Subsequent to December 31, 2011, the Bank formalized its commitment to purchase certain bank
buildings and equipment from the FDIC related to its FDIC-assisted transaction involving the
former Sun Security Bank. Settlement with the FDIC on this purchase has not yet occurred.
Acquisition costs of the real estate, furniture and equipment are based on current appraisals and are
expected to be approximately $6.5 million.
Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Financial standby letters of credit are primarily
issued to support public and private borrowing arrangements, including commercial paper, bond
financing and similar transactions. Performance standby letters of credit are issued to guarantee
performance of certain customers under nonfinancial contractual obligations. The credit risk
involved in issuing standby letters of credit is essentially the same as that involved in extending
loans to customers. Fees for letters of credit issued are initially recorded by the Bank as deferred
revenue and are included in earnings at the termination of the respective agreements. Should the
Bank be obligated to perform under the standby letters of credit, the Bank may seek recourse from
the customer for reimbursement of amounts paid.
The Company had total outstanding standby letters of credit amounting to approximately $21.3
million and $16.7 million at December 31, 2011 and 2010, respectively, with $17.9 million and
$13.0 million, respectively, of the letters of credit having terms up to five years. The remaining
$3.3 million and $3.7 million at December 31, 2011 and 2010, respectively, consisted of an
outstanding letter of credit to guarantee the payment of principal and interest on a Multifamily
Housing Refunding Revenue Bond Issue.
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 necessary by the Bank upon
120
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
extension of credit, is based on management’s credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable, inventory, property and equipment, commercial
real estate and residential real estate. The Bank uses the same credit policies in granting lines of
credit as it does for on-balance-sheet instruments.
At December 31, 2011, the Bank had granted unused lines of credit to borrowers aggregating
approximately $170.7 million and $62.6 million for commercial lines and open-end consumer
lines, respectively. At December 31, 2010, the Bank had granted unused lines of credit to
borrowers aggregating approximately $102.1 million and $61.2 million 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, the greater Kansas City, Missouri, area and the
western and central portions of Iowa. Although the Bank has a diversified portfolio, loans
aggregating approximately $165.1 million and $191.4 million at December 31, 2011 and 2010,
respectively, are secured by motels, restaurants, recreational facilities, other commercial properties
and residential mortgages in the Branson, Missouri, area. Residential mortgages account for
approximately $56.7 million and $68.7 million of this total at December 31, 2011 and 2010,
respectively.
In addition, loans (excluding those covered by loss sharing agreements) aggregating approximately
$360.2 million and $275.2 million at December 31, 2011 and 2010, respectively, are secured
primarily by apartments, condominiums, residential and commercial land developments, industrial
revenue bonds and other types of commercial properties in the St. Louis, Missouri, area.
Note 20: Additional Cash Flow Information
Noncash Investing and Financing Activities
Real estate acquired in settlement of
loans
Sale and financing of foreclosed assets
Conversion of foreclosed assets to
premises and equipment
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
Income taxes refunded
121
2011
2010
(In Thousands)
2009
$59,927
$11,755
$2,669
$2,799
$36,634
$13,233
$4,975
$71,347
$20,523
—
$2,849
$50,368
$17,595
$25
$39,767
$15,317
$100
$2,800
$69,547
$3,165
$3,389
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 21: Employee Benefits
The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra
DB Plan), a multiemployer defined benefit pension plan covering all employees who have met
minimum service requirements. Effective July 1, 2006, this plan was closed to new participants.
Employees already in the plan continue to accrue benefits. The Pentegra DB Plan’s Employer
Identification Number is 13-5645888 and the Plan Number is 333. The Company’s policy is to
fund pension cost accrued. Employer contributions charged to expense for the years ended
December 31, 2011, 2010 and 2009, were approximately $1.0 million, $835,000 and $719,000,
respectively. The Company’s contributions to the Pentegra DB Plan were not more than 5% of the
total contributions to the plan. The funded status of the plan as of July 1, 2011 and 2010, was
94.75% and 99.07%, respectively. The funded status was calculated by taking the market value of
plan assets, which reflected contributions received through June 30, 2011 and 2010, respectively,
divided by the funding target. No collective bargaining agreements are in place that require
contributions to the Pentegra DB Plan.
The Company has a defined contribution retirement plan covering substantially all employees. The
Company matches 100% of the employee’s contribution on the first 4% 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, 2011, 2010 and 2009, were approximately $1.0 million, $1.0 million and $759,000,
respectively. Beginning January 1, 2012, the Company will match 100% of the employee’s
contribution on the first 3% of the employee’s compensation and plus an additional 50% of the
employee’s contribution on the next 2% of the employee’s compensation.
Note 22: Stock Option Plan
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 other awards could be granted
with respect to 1,600,000 (adjusted for stock splits) shares of common stock. Upon stockholders’
approval of the 2003 Stock Option and Incentive Plan, the 1997 Stock Option and Incentive Plan
was frozen; therefore, no new stock options or other awards may be granted under this plan. At
December 31, 2011, 34,200 options were outstanding under this plan.
The Company established the 2003 Stock Option and Incentive Plan for employees and directors of
the Company and its subsidiaries. Under the plan, stock options or other awards could be granted
with respect to 1,196,448 (adjusted for stock splits) shares of common stock. At December 31,
2011, 774,853 options were outstanding under the plan.
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 generally are granted for a 10-year term and generally become exercisable in four
cumulative annual installments of 25% commencing two years from the date of grant. The Stock
Option Committee may accelerate a participant’s right to purchase shares under the plan.
122
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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:
Available to
Grant
Shares Under
Option
Balance, January 1, 2009
Granted
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
Balance, December 31, 2009
Granted
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
Balance, December 31, 2010
Granted
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
586,188
(72,425)
—
—
10,747
524,510
(88,190)
—
—
26,133
462,453
(120,100)
—
—
24,987
700,397
72,425
(25,434)
(6,455)
(10,747)
730,186
88,190
(47,597)
(850)
(26,133)
743,796
120,100
(25,856)
(4,000)
(24,987)
$
Weighted
Average
Exercise
Price
23.003
21.367
14.066
11.910
25.397
23.215
22.105
14.088
7.785
25.916
23.592
19.349
12.053
12.898
23.349
Balance, December 31, 2011
367,340
809,053
$
23.391
The Company’s stock option grants contain terms that provide for a graded vesting schedule
whereby portions of the options vest in increments over the requisite service period. These options
typically vest one-fourth at the end of years two, three, four and five from the grant date. As
provided for under FASB ASC 718, the Company has elected to recognize compensation expense
for options with graded vesting schedules on a straight-line basis over the requisite service period
for the entire option grant. In addition, ASC 718 requires companies to recognize compensation
expense based on the estimated number of stock options for which service is expected to be
rendered. Because the historical forfeitures of its share-based awards have not been material, the
Company has not adjusted for forfeitures in its share-based compensation expensed under ASC
718.
123
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The fair value of each option award is estimated on the date of the grant using the Black-Scholes
option pricing model with the following assumptions:
December 31, December 31, December 31,
2010
2009
2011
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
$0.72
0.93%
5 years
27.99%
$0.72
1.52%
5 years
37.69%
$0.72
2.19%
5 years
69.16%
$3.15
$5.60
$9.90
Expected volatilities are based on the historical volatility of the Company’s stock, based on the
monthly closing stock price. The expected term of options granted is based on actual historical
exercise behavior of all employees and directors and approximates the graded vesting period of the
options. Expected dividends are based on the annualized dividends declared at the time of the
option grant. The risk-free interest rate is based on the five-year treasury rate on the grant date of
the options.
The following table presents the activity related to options under all plans for the year ended
December 31, 2011.
Options outstanding, January 1, 2011
Granted
Exercised
Forfeited
Options outstanding, December 31, 2011
Weighted
Average
Exercise
Price
$23.592
19.349
12.053
21.907
23.391
Options
743,796
120,100
(25,856)
(28,987)
809,053
Options exercisable, December 31, 2011
508,409
25.548
Weighted
Average
Remaining
Contractual
Term
5.59
—
—
—
5.43
3.52
For the years ended December 31, 2011, 2010 and 2009, options granted were 120,100, 88,190 and
72,425, respectively. The total intrinsic value (amount by which the fair value of the underlying
stock exceeds the exercise price of an option on exercise date) of options exercised during the years
ended December 31, 2011, 2010 and 2009, was $145,000, $388,000 and $196,000, respectively.
Cash received from the exercise of options for the years ended December 31, 2011, 2010 and 2009,
was $311,000, $671,000 and $358,000, respectively. The actual tax benefit realized for the tax
deductions from option exercises totaled $97,000, $309,000 and $183,000 for the years ended
December 31, 2011, 2010 and 2009, respectively.
124
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table presents the activity related to nonvested options under all plans for the year
ended December 31, 2011.
Nonvested options, January 1, 2011
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$20.535
19.349
22.056
19.849
Options
266,560
120,100
(69,918)
(16,098)
Nonvested options, December 31, 2011
300,644
19.744
Weighted
Average
Grant Date
Fair Value
$6.029
3.150
5.974
6.232
4.940
At December 31, 2011, there was $1.3 million of total unrecognized compensation cost related to
nonvested options granted under the Company’s plans. This compensation cost is expected to be
recognized through 2016, with the majority of this expense recognized in 2012 and 2013.
The following table further summarizes information about stock options outstanding at
December 31, 2011:
Range of
Exercise Prices
$8.360 to $19.960
$20.120 to $25.000
$25.480 to $36.390
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
Number
Outstanding
205,505
281,440
322,108
7.55 years
5.34 years
4.18 years
Weighted
Average
Exercise
Price
$16.298
$21.275
$29.765
Options Exercisable
Number
Exercisable
57,539
148,118
302,752
Weighted
Average
Exercise
Price
$14.327
$20.743
$30.031
809,053
5.43 years
$23.391
508,409
$25.548
Note 23: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of
certain significant estimates and current vulnerabilities due to certain concentrations. Estimates
related to the allowance for loan losses are reflected in Note 4. Estimates used in valuing acquired
loans, loss sharing agreements and FDIC indemnification assets and in continuing to monitor
related cash flows of acquired loans are discussed in Note 5. Current vulnerabilities due to certain
concentrations of credit risk are discussed in the footnotes on loans, deposits and on commitments
and credit risk.
125
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Other significant estimates not discussed in those footnotes include valuations of foreclosed assets
held for sale. The carrying value of foreclosed assets reflects management’s best estimate of the
amount to be realized from the sales of the assets. While the estimate is generally based on a
valuation by an independent appraiser or recent sales of similar properties, the amount that the
Company realizes from the sales of the assets could differ materially in the near term from the
carrying value reflected in these financial statements.
Current Economic Conditions
The current economic environment presents financial institutions with unprecedented
circumstances and challenges, which in some cases have resulted in large declines in the fair values
of investments and other assets, constraints on liquidity and significant credit quality problems,
including severe volatility in the valuation of real estate and other collateral supporting loans. The
financial statements have been prepared using values and information currently available to the
Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in
the financial statements could change rapidly, resulting in material future adjustments in asset
values, the allowance for loan losses or capital that could negatively impact the Company’s ability
to meet regulatory capital requirements and maintain sufficient liquidity.
Note 24: Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct and material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of the Company’s and the
Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company’s and the Bank’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital (as
defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to
adjusted tangible assets (as defined). Management believes, as of December 31, 2011, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2011, the most recent notification from the Bank’s regulators categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier 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.
126
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company’s and the Bank’s actual capital amounts and ratios are presented in the following
table. No amount was deducted from capital for interest-rate risk.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
(In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2011
Total risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
$363,721
$342,690
16.1%
15.3%
$180,877
$178,843
8.0%
8.0%
N/A
$223,554
N/A
10.0%
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, 2010
Total risk-based capital
$335,298
$314,582
14.8%
14.1%
$90,438
$89,422
4.0%
4.0%
N/A
$134,132
N/A
6.0%
$335,298
$314,582
9.2%
8.6%
$145,753
$145,599
4.0%
4.0%
N/A
$181,999
N/A
5.0%
Great Southern Bancorp, Inc.
Great Southern Bank
$348,825
$305,976
18.0%
15.8%
$154,666
$154,515
8.0%
N/A
8.0% $193,144
N/A
10.0%
Tier I risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$324,445
$281,619
16.8%
14.6%
$77,333
$77,257
4.0%
N/A
4.0% $115,886
N/A
6.0%
$324,445
$281,619
9.5%
8.3%
$136,120
$135,985
4.0%
N/A
4.0% $169,982
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, 2011 and 2010, 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.
127
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 25: Litigation Matters
In the normal course of business, the Company and its subsidiaries are subject to pending and
threatened legal actions, some for which the relief or damages sought are substantial. After
reviewing pending and threatened litigation with counsel, management believes at this time that,
except as noted below, the outcome of such litigation will not have a material adverse effect on the
results of operations or stockholders’ equity. We are not able to predict at this time whether the
outcome or such actions may or may not have a material adverse effect on the results of operations
in a particular future period as the timing and amount of any resolution of such actions and its
relationship to the future results of operations are not known.
On November 22, 2010, a suit was filed against the Bank in Missouri state court in Springfield by a
customer alleging that the fees associated with the Bank’s automated overdraft program in
connection with its debit card and ATM cards constitute unlawful interest in violation of
Missouri’s usury laws. The suit seeks class-action status for Bank customers who have paid
overdraft fees on their checking accounts. The Court denied a motion to dismiss filed by the Bank
and litigation is ongoing. At this early stage of the litigation, it is not possible for management of
the Bank to determine the probability of a material adverse outcome or reasonably estimate the
amount of any potential loss.
Note 26: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2011, 2010 and 2009:
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) and
impairment
on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income
Net income available to common
shareholders
Earnings per common share – diluted
2011
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$49,040
9,679
8,200
$49,144
8,852
8,431
$49,965
8,325
8,500
$50,518
8,290
10,205
—
(1,772)
21,609
1,887
5,893
5,048
0.36
(400)
(2,159)
22,137
1,675
5,890
5,108
0.37
483
(1,207)
23,017
2,463
6,453
4,443
0.33
128
(215)
17,398
37,900
(512)
12,033
11,660
0.85
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) and
impairment
on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income
Net income available to common
shareholders
Earnings per common share – diluted
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) and
impairment
on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income
Net income available to common
shareholders
Earnings per common share – diluted
2010
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$39,754
13,183
5,500
$39,612
12,488
12,000
$41,535
11,341
10,800
$52,290
10,838
7,330
—
8,997
22,143
2,387
5,538
4,699
0.34
3,465
14,139
20,808
2,631
5,824
4,976
0.35
5,441
12,232
22,602
2,862
6,162
5,305
0.38
(119)
(3,416)
23,351
1,014
6,341
5,482
0.39
2009
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$34,300
16,770
5,000
$39,971
18,442
6,800
$39,736
15,911
16,500
$41,861
15,482
7,500
(3,985)
47,546
14,655
16,246
29,175
28,351
2.10
176
9,333
20,008
897
3,157
2,316
0.17
1,966
56,755
22,657
13,988
27,435
26,584
1.90
322
9,150
20,875
1,874
5,280
4,443
0.32
129
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2011 and 2010, and statements of
income and cash flows for the years ended December 31, 2011, 2010 and 2009, for the parent
company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Available-for-sale securities
Held-to-maturity securities
Investment in subsidiary bank
Income taxes receivable
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Deferred income taxes
Subordinated debentures issued to capital trust
Preferred stock
Common stock
Common stock warrants
Additional paid-in capital
Retained earnings
Unrealized gain on available-for-sale securities, net
December 31,
2011
2010
(In Thousands)
$
$
21,446
1,831
840
333,482
42
1,089
44,442
2,123
—
290,603
44
1,149
$
358,730
$
338,361
$
$
3,004
210
30,929
57,943
134
—
17,183
236,914
12,413
3,111
312
30,929
56,480
134
2,452
20,701
220,021
4,221
$
358,730
$
338,361
130
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Statements of Income
Income
Dividends from subsidiary bank
Interest and dividend income
Net realized gains on sales of
available-for-sale securities
Net realized losses on
impairments of available-for-
sale securities
Other income (loss)
Expense
Operating expenses
Interest expense
Income before income tax and
equity in undistributed earnings
of subsidiaries
Credit for income taxes
Income before equity in earnings
of subsidiaries
Equity in undistributed earnings of
subsidiaries
Net income
2011
2010
(In Thousands)
2009
$
12,000
27
$
12,000
16
$
11,750
34
—
—
—
15
—
(11)
—
(533)
(4)
12,027
12,020
11,247
1,196
569
1,765
1,121
578
1,699
10,262
(510)
10,321
(502)
972
773
1,745
9,502
(601)
10,772
10,823
10,103
19,497
13,042
54,944
$
30,269
$
23,865
$
65,047
131
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Statements of Cash Flows
Operating Activities
Net income
Items not requiring (providing) cash
Equity in undistributed earnings of subsidiary
Depreciation
Compensation expense for stock option grants
Net realized gains on sale of fixed assets
Net realized losses on impairments of available-
for-sale securities
Net realized (gains) losses on other investments
Changes in
Prepaid expenses and other assets
Accounts payable and accrued expenses
Income taxes
Net cash provided by operating activities
Investing Activities
Investment in subsidiaries
Return of principal - other investments
Proceeds from sale of available-for-sale securities
Proceeds from sale of fixed assets
Purchase of held-to-maturity securities
Purchase of available-for-sale securities
Net cash provided by (used in) investing
activities
Financing Activities
Proceeds from issuance of SBLF preferred stock
Redemption of CPP preferred stock
Purchase of common stock warrant
Dividends paid
Stock options exercised
Net cash used in financing activities
Decrease in Cash
Cash, Beginning of Year
Cash, End of Year
2011
2010
(In Thousands)
2009
$
30,269
$
23,865
$
65,047
(19,497)
—
486
—
—
—
—
(58)
2
11,202
(15,000)
61
—
—
(840)
—
(15,779)
57,943
(58,000)
(6,436)
(12,237)
311
(18,419)
(22,996)
44,442
(13,042)
—
461
—
—
(5)
8
75
1
11,363
—
—
158
—
—
—
158
—
—
—
(12,567)
670
(11,897)
(376)
44,818
(54,944)
1
337
(5)
533
9
(10)
(212)
611
11,367
(15,000)
10
—
16
—
(500)
(15,474)
—
—
—
(12,376)
358
(12,018)
(16,125)
60,943
$
21,446
$
44,442
$
44,818
Additional Cash Payment Information
Interest paid
$563
$577
$937
132
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 28: Preferred Stock and Common Stock Warrant
CPP Preferred Stock and Common Stock Warrant
On December 5, 2008, as part of the Troubled Asset Relief Program (TARP) Capital Purchase
Program of the United States Department of the Treasury (Treasury), the Company entered into a
Letter Agreement and Securities Purchase Agreement (collectively, the “CPP Purchase
Agreement”) with Treasury, pursuant to which the Company (i) sold to Treasury 58,000 shares of
the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “CPP Preferred
Stock”), having a liquidation preference amount of $1,000 per share, for a purchase price of $58.0
million in cash and (ii) issued to Treasury a ten-year warrant (the “Warrant”) to purchase
909,091 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”),
at an exercise price of $9.57 per share. As noted below under “SBLF Preferred Stock,” the
Company redeemed all of the CPP Preferred Stock on August 18, 2011, in connection with the
issuance of the SBLF Preferred Stock. As noted below under “Repurchase of Common Stock
Warrant,” the Company repurchased the Warrant on September 21, 2011.
The CPP Preferred Stock qualified as Tier 1 capital and paid cumulative dividends on the
liquidation preference amount on a quarterly basis at a rate of 5% per annum.
Under the CPP Purchase Agreement, the Company could not, without the consent of Treasury, (a)
pay a cash dividend on the Company’s common stock of more than $0.18 per share or (b) subject
to limited exceptions, redeem, repurchase or otherwise acquire shares of the Company’s common
stock or preferred stock, other than the CPP Preferred Stock or trust preferred securities. In
addition, under the terms of the CPP Preferred Stock, the Company could not pay dividends on its
common stock unless it was current in its dividend payments on the CPP Preferred Stock.
The proceeds from the TARP Capital Purchase Program were allocated between the CPP Preferred
Stock and the Warrant based on relative fair value, which resulted in an initial carrying value of
$55.5 million for the CPP Preferred Shares and $2.5 million for the Warrant. The resulting
discount to the CPP Preferred Shares of $2.5 million was set up to accrete on a level-yield basis
over five years ending December 2013 and was recognized as additional preferred stock dividends.
The fair value assigned to the CPP Preferred Shares was estimated using a discounted cash flow
model. The discount rate used in the model was based on yields on comparable publicly traded
perpetual preferred stocks. The fair value assigned to the warrant was based on a Black Scholes
option-pricing model using several inputs, including risk-free rate, expected stock price volatility
and expected dividend yield.
The CPP Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”). In accordance with the CPP Purchase Agreement, the Company subsequently registered the
CPP Preferred Stock, the Warrant and the shares of Common Stock underlying the Warrant under
the Securities Act.
133
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
SBLF Preferred Stock
On August 18, 2011, the Company entered into a Small Business Lending Fund-Securities
Purchase Agreement (the “SBLF Purchase Agreement”) with the Secretary of the Treasury,
pursuant to which the Company sold 57,943 shares of the Company’s Senior Non-Cumulative
Perpetual Preferred Stock, Series A (the “SBLF Preferred Stock”) to the Secretary of the Treasury
for a purchase price of $57.9 million. The SBLF Preferred Stock was issued pursuant to Treasury’s
SBLF program, a $30 billion fund established under the Small Business Jobs Act of 2010 that was
created to encourage lending to small businesses by providing Tier 1 capital to qualified
community banks and holding companies with assets of less than $10 billion. As required by the
SBLF Purchase Agreement, the proceeds from the sale of the SBLF Preferred Stock were used in
connection with the redemption of the 58,000 shares of CPP Preferred Stock, issued to the Treasury
pursuant to the CPP, at a redemption price of $58.0 million plus the accrued dividends owed on the
preferred shares. This redemption resulted in a one-time, non-cash write-off of the remaining $1.2
million discount to the CPP Preferred Stock that reduced earnings available to common
shareholders during the year ended December 31, 2011.
The SBLF Preferred Stock qualifies as Tier 1 capital. The holders of SBLF Preferred Stock are
entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1
and October 1, beginning October 1, 2011. The dividend rate, as a percentage of the liquidation
amount, can fluctuate on a quarterly basis during the first 10 quarters during which the SBLF
Preferred Stock is outstanding, based upon changes in the level of “Qualified Small Business
Lending” or “QSBL” (as defined in the SBLF Purchase Agreement) by the Bank over the adjusted
baseline level calculated under the terms of the SBLF Preferred Stock $(158,271,000). The initial
dividend rate through September 30, 2011, was 5%. Based upon the increase in the Bank’s level of
QSBL over the baseline level, the dividend rate for the fourth quarter of 2011 was 2.6%. For the
third through ninth calendar quarters after the closing, the dividend rate may be adjusted to
between one percent (1%) and five percent (5%) per annum based on the level of qualifying loans.
For the tenth calendar quarter through four and one half years after issuance, the dividend rate will
be fixed at between one percent (1%) and seven percent (7%) based upon the level of qualifying
loans. After four and one half years from issuance, the dividend rate will increase to 9% (including
a quarterly lending incentive fee of 0.5%).
The SBLF Preferred Stock is non-voting, except in limited circumstances. In the event that the
Company misses five dividend payments, whether or not consecutive, the holder of the SBLF
Preferred Stock will have the right, but not the obligation, to appoint a representative as an
observer on the Company’s Board of Directors. In the event that the Company misses six dividend
payments, whether or not consecutive, and if the then outstanding aggregate liquidation amount of
the SBLF Preferred Stock is at least $25.0 million, then the holder of the SBLF Preferred Stock
will have the right to designate two directors to the Board of Directors of the Company.
The SBLF Preferred Stock may be redeemed at any time at the Company’s option, at a redemption
price of 100% of the liquidation amount plus accrued but unpaid dividends to the date of
redemption for the current period, subject to the approval of its federal banking regulator.
134
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Repurchase of Common Stock Warrant
On September 21, 2011, the Company completed the repurchase of the Warrant held by the
Treasury that was issued as a part of its participation in the CPP. The Warrant, which had a ten-
year term, was issued on December 5, 2008, and entitled the Treasury to purchase 909,091 shares
of Great Southern Bancorp, Inc. common stock at an exercise price of $9.57 per share. The
repurchase was completed for a price of $6.4 million, or $7.08 per warrant share, which was based
on the fair market value of the warrant as agreed upon by the Company and the Treasury.
Note 29: FDIC-Assisted Acquisition
On October 7, 2011, Great Southern Bank entered into a purchase and assumption agreement,
including a loss sharing agreement as described in Note 5, with the FDIC to purchase substantially
all of the assets and assume substantially all of the deposits and other liabilities of Sun Security
Bank, a full-service bank headquartered in Ellington, Missouri. Established in 1970, Sun Security
Bank operated 27 locations in 15 counties in central and southern Missouri. The fair values of the
assets acquired and liabilities assumed in the transaction were as follows:
Cash
Due from banks
Cash and cash equivalents
Investment securities
Loans receivable, net of discount on loans purchased of $74,038
Foreclosed real estate
FDIC indemnification asset
Federal Home Loan Bank of Des Moines stock
Fixed assets
Accrued interest receivable
Core deposit intangible
Other assets
Total assets acquired
Liabilities
Demand and savings deposits
Time deposits
Total deposits
Advances from Federal Home Loan Bank of Des Moines
Accrued interest payable
Advances from borrowers for taxes and insurance
Total liabilities assumed
October 7,
2011
(In Thousands)
2,410
64,417
66,827
$
45,347
163,674
9,056
67,384
2,978
54
1,593
2,453
2,944
362,310
166,477
114,385
280,862
64,330
248
384
345,824
Gain recognized on business acquisition
$
16,486
135
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Under the terms of the Purchase and Assumption Agreement, the FDIC agreed to transfer net assets
to Great Southern at a discount of $55.0 million to compensate Great Southern for losses not
covered by the loss sharing agreement and troubled asset management costs. No premium was
paid to the FDIC for the deposits, resulting in a net purchase discount of $55.0 million. Details
related to the transfer are as follows:
October 7,
2011
(In Thousands)
Net assets as determined by the FDIC
Cash transferred by the FDIC
Net assets per Purchase and Assumption Agreement
$
Purchase accounting adjustments
Loans
Foreclosed real estate
FDIC indemnification asset
Deposits
Advances from Federal Home Loan Bank of Des Moines
Core deposit intangible
Other adjustments
11,443
43,532
54,975
(76,837)
(21,130)
67,384
(801)
(9,330)
2,453
(228)
Gain recognized on business acquisition
$
16,486
The acquisition of the net assets of Sun Security Bank was determined to constitute a business
acquisition in accordance with FASB ASC 805. FASB ASC 805 allows a measurement period of
up to one year to adjust initial fair value estimates as of the acquisition date. Therefore, assets
acquired and liabilities assumed were recorded on a preliminary basis at fair value on the date of
acquisition, after adjustment for expected loss recoveries under the loss sharing agreement which is
described in Note 5. Based upon the preliminary acquisition date fair values of the net assets
acquired, no goodwill was recorded. The transaction resulted in a preliminary bargain purchase
gain of $16.5 million for the year ended December 31, 2011.
136
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Great Southern
bancorp, inc.
2011 Understanding what really matters.
GreatSouthernBank.com