Annual Report 2012 coverF&B.pdf 1 3/26/13 9:02 AM
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general information
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 rtco.com.
annual meeting
The 24th Annual Meeting of Shareholders will be held at 10:00 a.m. CDT
on Wednesday, May 15, 2013, at the Great Southern Operations Center,
218 S. Glenstone, Springfield, Missouri.
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, GreatSouthernBank.com, the SEC
website or without charge by request to:
Kelly Polonus
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.C.
P.O. Box 10009
Springfield, MO 65808
traNsFer aGeNt aNd reGIstrar
Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016
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 six
states and we serve more than 162,000 customers by providing them
with a comprehensive line of products and services. With nearly 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 $4.0 billion in total assets, we are headquartered in Springfield,
Mo., and operate 107 retail banking centers in Missouri, Arkansas,
Kansas, Iowa, Minnesota 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.
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, 2012, there were 13,596,335 total shares of common
stock outstanding and approximately 2,300 shareholders of record.
The last sale price of the Company’s common stock on December 31,
2012, was $25.45.
HigH/Low Stock Price
2012
2011
2010
High
Low
High
Low
High
Low
First Quarter
$25.18
Second Quarter 27.71
Third Quarter
31.81
Fourth Quarter 31.49
$20.60
21.25
27.22
24.25
$24.44
22.36
20.43
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
DiviDenD DecLarationS
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
$.18
.18
.18
.18
2011
$.18
.18
.18
.18
2010
$.18
.18
.18
.18
Momentum
90 years and counting
Joseph W. Turner
President and
Chief Executive Officer
William V. Turner
Chairman of the Board
To Our
Shareholders
The moment Great Southern opened its doors 90 years ago,
the foundation was laid for our Company to grow and be an
integral part of our community. The initial welcome of the first
Great Southern customer so many years ago has been followed
by millons more with each one just as important as the very
first. Each “Welcome to Great Southern” or any interaction with
a customer is a defining moment for us, and for nine decades
we have understood that each of these moments is critical to
our success. Defining moments build momentum, and with
commitment and focus this momentum continues to grow.
Driving this momentum are Great Southern associates, past and
present, who have been the support and catalyst to build winning
relationships with our customers, shareholders, communities and
each other.
During the last five years, our momentum has been greater than
at any other time in our history. Five 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. Opportunities did indeed
arise and, ultimately, we emerged from this economic cycle a
stronger and more diverse company. We have grown from a
company with business prospects primarily in Springfield and
southwest Missouri to a company serving customers throughout
Missouri and five other states, including the vibrant markets
of Des Moines and Sioux City, Iowa, St. Louis, Kansas City,
Minneapolis, Omaha, and Rogers, Ark.
In the pages that follow this message, you’ll find highlights of key
moments in our Company’s 90-year history, a deep-rooted history
for which we have great respect and appreciation. At the same
time, we’ll look to the future and explore ways we are working to
accelerate our momentum to make Great Southern the bank of
choice in the markets we serve.
1
2012 Building More momentum
2012 was a busy and productive year.
We started the year by completing
the systems conversion of the former
Sun Security Bank, acquired in 2011 in
an FDIC-assisted transaction. In April,
the Company was the winning bidder
in another FDIC-assisted transaction,
Minnesota-based InterBank. This
acquisition allowed us new entry into
the Minneapolis metropolitan market
with four banking centers. The systems
conversion for InterBank was completed
in August 2012.
Since 2009, the Company has participated
in four FDIC-assisted acquisitions; two
in 2009, and one each in 2011 and 2012.
These four acquisitions have been both
beneficial to the Company in the short
term and should produce long-term
value for our franchise. Deposit retention
has been good in most of the acquired
markets. In fact, we’ve seen deposit levels
increasing in many of these markets. In
aggregate, checking deposit balances
have increased by $236.5 million, or 41%,
from the respective conversion date
balances of each acquisition to the end
of 2012. The Company continues to work
through the loans acquired in the four
transactions. Nearly all of these loans
are covered by loss sharing agreements
between the FDIC and the Company,
which afford the Company at least 80%
protection from potential principal losses
for a period of time. The Company’s
net book balance of its acquired
loan portfolios was $524 million as of
December 31, 2012.
In 2012, we saw signs of modest
improvement in loan demand in some of
our markets despite a highly competitive
landscape and challenging operating
environment. Total gross loans, including
FDIC-covered loans, increased by $195
million from year-end 2011, mainly due
to the InterBank transaction and limited
organic growth. Excluding acquired loans
and mortgages held for sale, total loans
increased $67 million from December 31,
2011, primarily in the areas of multi-family
residential mortgage loans, commercial
real estate loans, commercial business
loans and consumer loans, partially offset
by decreases in construction and land
development loans. Consumer lending
production was brisk in 2012, with a 50%
increase over 2011. Consumer loans were
generated in all six states, demonstrating
momentum that is being built throughout
the franchise.
Overall, nonperforming assets and
potential problem loans (excluding FDIC
covered assets) decreased by $6.7 million
from year-end 2011. The resolution of
nonperforming assets continues to be a
priority.
Since the end of 2011, total deposits
increased by approximately $189 million,
primarily due to the InterBank transaction
and attracting new checking deposit
customers throughout the Company’s
market areas. Our deposit mix continued
to trend towards lower-cost transaction
accounts and the cost of deposits
decreased due to lower market interest
rates.
Our banking center network expanded
in 2012. The Company added five
banking centers to its network and began
operating in its sixth state – Minnesota.
As mentioned previously, four banking
centers were added in the Minneapolis
metropolitan area through the InterBank
acquisition. The fifth new banking center
was a de novo office in O’Fallon, Mo.,
a community in the St. Louis area. In
addition, the Company replaced four
banking centers with new locations - one
in Olathe, Kan., two in Springfield, Mo.,
and one in Greenfield, Mo. - with each providing better
service and access for customers. At the end of 2012,
the Company operated 107 full-service banking centers
serving nearly 135,000 households.
On the technology front, the Company launched a
new application for iPhone and Android smartphones
providing customers another method for accessing their
accounts. An online consumer loan application service
was also implemented for customers to apply for various
consumer loans including auto, boat, recreational vehicle
and home equity lines of credit.
On November 30, 2012, the Company separately sold
its Great Southern Travel and Great Southern Insurance
divisions to Milwaukee-based Adelman Travel and St.
Louis-based HM, respectively. The two sales resulted in
a combined transaction gain totaling $6.1 million. Both
divisions have been visible and profitable parts of our
institution for decades, but our Board made the strategic
decision that the Company should strictly focus resources
on the Company’s core business – banking. Our top
priority in selling these entities was to find buyers that
we knew would take excellent care of our customers
and associates and provide even more resources and
capabilities. We believe we have exceeded this objective
with Adelman Travel and HM.
These highlights and many other actions culminated in
our solid financial performance in 2012. 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 containing
operational expenses.
For the year ended 2012, net income available to
common shareholders was $48.1 million, or $3.54 per
diluted common share. The Company ended the year
with assets of $4.0 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 $369.9 million (9.4% of total assets). Common
stockholders’ equity was $311.9 million (7.9% of total
assets), equivalent to a book value of $22.94 per common
share. We declared four quarterly dividends each of
$.18 per common share in 2012. Consecutive quarterly
dividends have been paid to common shareholders
since 1990.
** All per share amounts have been adjusted to re-
flect stock splits. The Company converted to a calen-
dar year in December 1998; therefore, prior years’ net
income numbers will reflect a June 30 fiscal year end.
† Figure stated is as if the Company was publicly traded for
all of the fiscal year 1990 (conversion was in December 1989).
22
3
InterBankGreat SouthernBankKANSASNEBRASKAMinnEsotaARKANSASMISSOURIIOWA and one in Greenfield, Mo. - with each providing better
service and access for customers. At the end of 2012,
the Company operated 107 full-service banking centers
serving nearly 135,000 households.
On the technology front, the Company launched a
new application for iPhone and Android smartphones
providing customers another method for accessing their
accounts. An online consumer loan application service
was also implemented for customers to apply for various
consumer loans including auto, boat, recreational vehicle
and home equity lines of credit.
On November 30, 2012, the Company separately sold
its Great Southern Travel and Great Southern Insurance
divisions to Milwaukee-based Adelman Travel and St.
Louis-based HM, respectively. The two sales resulted in
a combined transaction gain totaling $6.1 million. Both
divisions have been visible and profitable parts of our
institution for decades, but our Board made the strategic
decision that the Company should strictly focus resources
on the Company’s core business – banking. Our top
priority in selling these entities was to find buyers that
we knew would take excellent care of our customers
and associates and provide even more resources and
capabilities. We believe we have exceeded this objective
with Adelman Travel and HM.
These highlights and many other actions culminated in
our solid financial performance in 2012. 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 containing
operational expenses.
For the year ended 2012, net income available to
common shareholders was $48.1 million, or $3.54 per
diluted common share. The Company ended the year
with assets of $4.0 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 $369.9 million (9.4% of total assets). Common
stockholders’ equity was $311.9 million (7.9% of total
assets), equivalent to a book value of $22.94 per common
share. We declared four quarterly dividends each of
$.18 per common share in 2012. Consecutive quarterly
dividends have been paid to common shareholders
since 1990.
** All per share amounts have been adjusted to re-
flect stock splits. The Company converted to a calen-
dar year in December 1998; therefore, prior years’ net
income numbers will reflect a June 30 fiscal year end.
† Figure stated is as if the Company was publicly traded for
all of the fiscal year 1990 (conversion was in December 1989).
3
We expect 2013
will bring both
opportunities and
challenges.
Although there are some slight signs of
improvement, uncertainty continues in
the economy and it will likely take some
time before we see meaningful sustained
economic growth.
Our strategic direction for 2013 is
straightforward and similar to 2012.
Key priorities include serving and
meeting the needs of our customers,
considering acquisition opportunities,
resolving problem assets, managing net
interest income, and driving operational
efficiencies where possible.
Like we have for 90 years, we’ll work as a
team across all business lines to attract
new customers and deepen relationships
with existing customers. We have built
a strong franchise in diverse markets
and the potential to grow our customer
base, especially in our newer markets,
is great. In the fall of 2013, we expect
to open a full-service banking center in
the Omaha, Neb. commercial district.
In addition to the banking center,
a commercial lending team will be
housed in this facility. A strong team is
being assembled in Omaha and we are
eager to expand our operations in this
vibrant market. We currently operate
three banking centers in the Omaha
metropolitan area – two in Bellevue and
one in Fort Calhoun.
In 2013, attracting business customers
– large and small – is a major focus. To
support this focus, we launched a new
product line, Business Banking, to more
aggressively pursue the highly sought
after small business market. Former
divisions of the Company, Small Business
Banking and Corporate Services, were
combined to form this new line of
business, which will offer depository and
lending products to customers in a more
streamlined and comprehensive manner.
Great Southern customers will be
introduced to even more ways to access
their accounts using mobile devices.
We understand that our customers want
to access our services in multiple ways,
whether it is through the banking center,
ATM, telephone, computer, tablet or
mobile device. We are creating ways to
make banking seamlessly with everything
else in our customers’ lives. For example,
in January 2013, we introduced Mobile
Check Deposit, a popular smartphone
application-based service enabling
customers to conveniently deposit a
paper check to their checking account
by simply taking a picture with their
smartphone. Text banking is currently
in the final stages of testing and should
be available to customers in mid-2013,
providing yet another method for
customers to access their accounts.
On the acquisition front, we expect
to continue to look for FDIC-assisted
transaction opportunities, albeit the
pace of potential targets has greatly
diminished. We know that this unique
window of opportunity is closing as the
banking industry shows signs of improving
health, and many of the weaker players
have already been consolidated through
FDIC-assisted transactions or other types
of transactions. However, we do believe
some consolidation is still possible and
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.
Open bank deals may also be considered
as some institutions have expressed
the desire to sell in the aftermath of the
economic crisis.
We anticipate that 2013, like 2012, will be
a productive and busy year. Our capital
and liquidity levels are strong. We know
our challenges and are positioned to take
advantage of opportunities that may arise.
As we celebrate our 90th anniversary,
momentum continues to build, and it’s
an exciting time to be a part of the Great
Southern team.
In closing, we want to thank our associates
for their tremendous focus and effort
over the past year. Our confidence in the
future is grounded in our belief in the
people who work for Great Southern and
their ability to get the job done for our
customers.
momentum in
4
5
5 Year Cumulative
Total Return*
$141
DEC 07
DEC 08
DEC 09
DEC 10
DEC 11
DEC 12
Great Southern
Bancorp
NASDAQ
Financial
NASDAQ
Composite
* The graph above compares the cumulative total stockholder return
on GSBC Common Stock to the cumulative total returns of the NAS-
DAQ U.S. Stock Index and the NASDAQ Financial Stocks Index for
the period from December 31, 2007 through December 31, 2012. The
graph assumes that $100 was invested in GSBC Common Stock on
December 31, 2007 and that all dividends were reinvested.
$
140
120
100
80
60
40
20
0
We want to thank our customers for
giving us the opportunity to serve their
needs. Customers have plenty of choices
of where to do their banking. We will
strive to deliver the best products with
exceptional service when, how and where
desired.
To the Great Southern Board of Directors,
we appreciate their guidance and
wisdom. Their knowledge, management
expertise and thoughtful questions and
advice guided us well in 2012.
And finally, we thank you, our
shareholders, for your investment and
continued faith in the bright future of our
Company. Our commitment to provide
a superior long-term return on your
investment and to keep your interests in
mind as we go about our daily work is
steadfast.
William V. Turner
Joseph W. Turner
5 Year Cumulative
Total Return*
$141
DEC 07
DEC 08
DEC 09
DEC 10
DEC 11
DEC 12
Great Southern
Bancorp
NASDAQ
Financial
NASDAQ
Composite
$
140
120
100
80
60
40
20
0
* The graph above compares the cumulative total stockholder return
on GSBC Common Stock to the cumulative total returns of the NAS-
DAQ U.S. Stock Index and the NASDAQ Financial Stocks Index for
the period from December 31, 2007 through December 31, 2012. The
graph assumes that $100 was invested in GSBC Common Stock on
December 31, 2007 and that all dividends were reinvested.
We want to thank our customers for
giving us the opportunity to serve their
needs. Customers have plenty of choices
of where to do their banking. We will
strive to deliver the best products with
exceptional service when, how and where
desired.
To the Great Southern Board of Directors,
we appreciate their guidance and
wisdom. Their knowledge, management
expertise and thoughtful questions and
advice guided us well in 2012.
And finally, we thank you, our
shareholders, for your investment and
continued faith in the bright future of our
Company. Our commitment to provide
a superior long-term return on your
investment and to keep your interests in
mind as we go about our daily work is
steadfast.
William V. Turner
Joseph W. Turner
5
Our History
& heritage
Great Southern Savings
and Loan Association was
originally chartered in 1923
in Springfield, Mo., with a
$5,000 investment and four
employees. Springfield was
a town of 39,000 people and
automobiles were just making
their debut on the Springfield
square. J. Wyman Hogg, one
of the three original founders
along with R. M. Mack and
John P. McNeil, recalled the
Great Southern early days:
“We operated in the Seville
Hotel on Walnut Street in
downtown Springfield. I was
secretary of the Association,
closing all loans and other
office details. I think we had
$5,000 in capital to start with.
But, ‘mighty oaks from little
acorns grow.’” And grow,
Great Southern did – with
the simple mission to foster
thrift and home ownership,
by attracting savings
deposits and investing these
funds in local real estate
loans. The Company has
weathered many economic
storms, including the Great
Depression of 1929, the “S&L
Crisis” in the 1980s, and our
most recent recession. In
testament to its heritage of
steady, reliable performance,
Great Southern has been led
by only six presidents in its
90-year history.
A momentous turning-
point for the Company was
the hiring of now Great
Southern Chairman William
V. Turner in 1974. With
an extensive commercial
banking background, Turner
brought to the business a
new operating philosophy.
In 1974, Great Southern
opened its first branch in
Branson, Mo., signaling the
90 years of
Key Moments
Great Southern
Savings & Loan
First Annual
Convention
1925
1923
Founded in Springfield, Missouri
$ 5 thousand
investment & 1 location
6
1950s
New Location
South Avenue &
Walnut Street
Springfield, Mo.
First Office
Sevillle Hotel
on historic
Walnut Street
Springfield, Mo.
beginning of an aggressive
expansion program that
would take the Company
from one location to nearly 30
southwest Missouri branches
in the 1980s. In 1976, a new
headquarters building was
opened on Battlefield Road,
which replaced the downtown
headquarters building on
South Ave. and Walnut St.
that Great Southern occupied
from the mid-1950s and would
remain operational through
1986.
In the 1970s, Great Southern
introduced many “firsts”
in banking in the region
and was willing to try non-
traditional and innovative
ways of serving customers,
some of which have become
“new” trends years later in
the banking industry. Great
Southern was among the
first financial institutions in
the area to offer drive-thru
teller service, adjustable-rate
mortgages, interest bearing
checking accounts, tax-
sheltered retirement plans
and nighttime and Sunday
banking hours. In yet another
progressive innovation and
years ahead of its time,
Great Southern introduced
the “Cash Management
Account”, which was the
forerunner to money market
checking in the Ozarks.
Through the early 1980s
with deregulation of the
banking industry, Great
Southern began to offer
checking accounts, consumer
and commercial loans. The
Company moved swiftly
to capitalize on consumer
banking opportunities that
wouldn’t become apparent
to competitors until well into
deregulation. Competing
head-on with the area’s
leading banks, Great Southern
developed services like
the exclusive Savings Plus
program – rewarding both
merchants and customers for
cash transactions at many area
businesses. Great Southern
has also differentiated
itself for many years by
offering travel, insurance
and investment services. In
fact, Great Southern was the
first financial institution in
southwest Missouri to offer
investment products and
services to retail customers.
During the S&L crisis in the
late 1980s, Great Southern
stayed remarkably above the
fray. In fact in 1989, under
Mr. Turner’s leadership
and vision, Great Southern
was completing one of the
most significant and positive
forward moves in its history
by going public. Shares of
Great Southern Bancorp, Inc.
(GSBC) began trading on the
NASDAQ stock exchange.
New
Headquarters
Battlefield Road
Springfield, Mo.
A brand new building,
demonstrating our
strength and growth in
Southwest Missouri
1974
William V. Turner
hired as President,
bringing a focus on
quality service and
convenience for the
customer.
1976
1989
Became a public company
and joined the
NASDAQ Stock Exchange
77
Many of the banks
that have become part
of Great Southern
over the years have
been vital members of
their communities for
decades. We respect and
honor the historic roles
our predecessor banks
play and understand
the importance of
preserving their history
for generations to come.
Parsons, Kansas
In 1981, our predecessor bank in Parsons, Kan., began displaying a large mural of a
panoramic photo taken around 1900 of downtown Parsons that included the bank and
the Katy Railroad Depot. The historical tie between the railroad and the bank in the
development of Parsons is well understood by the community. Unfortunately, the mural
was permanently damaged in a storm in 2000, but continued to hang in the bank’s lobby.
Several experts tried to restore the canvas with no success. By a twist of fate, a local history
buff discovered he had the original photo and contacted Great Southern. The bank had
a new canvas produced with much greater detail than the first one. The new mural is now
proudly displayed behind the teller windows for all to enjoy and to help preserve the rich
heritage of the City of Parsons.
In the 1990s, the Company
went through a series of name
changes – Great Southern
Savings Bank in 1990, Great
Southern Bank, FSB, in 1994
and Great Southern Bank in
1998 when it converted its
charter to a commercial bank.
In 1999, Joseph W. Turner, the
son of William V. Turner, was
named the sixth president and
CEO of Great Southern.
In the 2000s, Great Southern
grew into a dominant regional
financial institution. During
the economic boom in the
early 2000s, the Company
grew from $1 billion in assets
in 2000 to $2 billion in assets
by 2005. The economic
crisis that began in late 2007
caused unprecedented
events to unfold in the
financial services industry.
The Company reprioritized
and repositioned itself so that
it could take advantage of
opportunities that would likely
occur in the marketplace,
including an anticipated sharp
increase in bank failures. By
the end of 2012, four FDIC-
assisted acquisitions had
been successfully completed,
transforming the company
into a regional player. At
the end of 2008, which was
before the first FDIC-assisted
MN
1990
iA
1 state
30 banking centers
NB
2000
1 state
27 banking centers
2005
3 states
35 banking centers
KS
MO
MO
KS
MO
ar
$465 MILLION
in total assets
$1 billion
in total assets
8
ar
$2 billion
in total assets
Greenfield, Missouri
In 1872, the R. S. Jacobs Banking Company, a predecessor of Great Southern, was
the first chartered bank in Greenfield, Mo. R. S. “Uncle Dick” Jacobs first ran the
bank out of his dry goods store then built a bank in 1883 with a fire-proof vault.
Mr. Jacobs was known in Greenfield for keeping his “enforcer” handy, an 1872
Smith & Wesson pistol that he kept in the bank to repel robbers. The rare pistol
has been the prized possession of the bank for years. After more than 120 years
of history, the pistol is now on display at the Great Southern Banking Center in
Greenfield. The gun not only symbolizes the rich history of the community, but
serves as an important connection between the bank and its predecessors.
transaction, the Company
operated 39 banking centers,
exclusively in Missouri, with
$2.7 billion in assets. Now
the Company operates 107
banking centers in six states
with $4.0 billion in assets.
2009
5 states
72 banking centers
iA
NB
KS
MO
2012
6 states
107 banking centers
MN
iA
NB
KS
MO
ar
in total assets $4 billion
$3 billion
in total assets
ar
9
Our Customers
Business
Banking
In 90 years, Great Southern
Bank has changed
dramatically, but one thing
that has remained constant
is our commitment to
providing our customers
with industry-leading
service. From longer hours
to innovative services like
Cash Management, our
focus has always been on
how to make banking easier
and more convenient for
those we serve.
Great Southern has a long
tradition of serving business
customers; however,
we recognized that our
approach to serving
businesses, both small and
large could be even better.
In 2012, the decision was
made to reorganize our
structure by combining two
divisions, Small Business
Banking and Corporate
Services, into a new line
called Business Banking.
Launched in January 2013,
this new structure allows
us to more aggressively
pursue the highly sought
after small business market
and to effectively compete
with other organizations
trying to serve the same
customers. Business
customers are now
provided more streamlined
and comprehensive
services, affording us the
opportunity to grow with
them, as their business
grows.
The goals of Business
Banking are simple –
increase loans for the
Company, increase
indirect lending by dealer
relationship development,
deepen our current
business customer base,
and expand our presence
and identity in key markets
in order to acquire new
business. Business Bankers
are currently located in
Springfield, Mo., Kansas
City, Mo., Rogers, Ark., and
Sioux City, Iowa. In 2013,
plans are to add sales staff
in the Des Moines, Iowa,
Omaha, Neb., St. Louis,
Mo. and Minneapolis, Min.
markets.
Small business Lending
Further illustrating our commitment to small business
customers, Great Southern led Missouri banking institutions
receiving capital funding through the Small Business
Lending Fund (SBLF), by increasing qualified loan balances
by $82.9 million, or 41%, over the Company’s qualified
lending baseline of $201.4 million (as of Sept. 30, 2012). The
SBLF program was established as part of the Small Business
Jobs Act of 2010 and is designed to encourage small business
lending and promote economic growth in communities
across the nation. The Treasury Department invested more
than $4 billion in 332 institutions across 48 states.
Momentum
1010
Our Customers
There is no better group to talk about
our commitment to business banking
than our business customers.
Business Banking Officers
are now the primary point
of contact for our business
customers, whether
it’s a loan request or a
depository need. Officers
are in charge of managing
current relationships
along with developing
new relationships. We
also added a Small
Business Administration
(SBA) Specialist, who
provides corporate-wide
expertise related to SBA
underwriting, packaging,
servicing and reporting.
The decision to launch
Business Banking comes at
a time when our Company
is focused on loan growth,
but loan demand remains
stagnant. We understand
that to continue the
momentum we have gained
in our first 90 years, we
cannot continue to do
things the way we always
have. We know we have
to increase our business
development efforts
significantly in order to be
successful in this market
segment.
Running a business is not
always easy. You want
a team surrounding you
that believes in you and
is there for you when the
going gets tough. I think
it’s important to have a
relationship with your
bank and be able to
believe in
them like they
believe in you.
They’re more than just
a business bank to us,
they’re our bank. The
partnership has grown
in the sense that they
listen, rather than say
‘just give me the facts’.
Instead it’s “let’s hear
your ideas. Let’s hear
your thoughts”. And
“where can we
go with that?”.
Meghan Chambers
Owner – Staxx, Jelly Beans
Paul Sundy
Co-Owner of Big Whiskey’s American Bar & Grill
11
Advances
in technology
Ninety years is a long time
and much has changed in the
banking industry while we’ve
been in business. Nothing
has changed more than the
technology and methods
people use to conduct their
banking.
Prior to ATMs, debit cards,
computers and cell phones,
customers generally
conducted their banking at
a branch location. Payments
occurred primarily with cash,
coin and checks. The use of
checks peaked in the 1990s
and has since given way to
electronic methods such
90 years of
Momentum
1970s
1960s
DRIVE-THRU
You want fries with that?
Great Southern was one of the
first in the area to offer drive-thru
teller services.
1990s
DEBIT CARD
First launched as a “Check
Card”, the GreatAccess card
was touted as a fast, simple
way to pay that could go
“where your checks can’t!”
1980s
ATM
As people’s lives got busier, accessibility
became ever more important. ATMs were
introduced to the banking industry. In the
coming years, we built the largest ATM
network in southwest Missouri with the goal of
being the most convenient bank in the Ozarks.
TELEVISION
On-air sponsorship
gave us a way to reach
consumers – right in their
own living rooms.
12
as debit cards, automatic
transfers, and the use of
computers and cell phones to
conduct banking transactions.
In the last 20 years, we
have seen two momentous
technological introductions
in banking: debit cards and
online banking. Less than
five years ago, we saw a
third advancement - mobile
banking. These three access
channels have revolutionized
the face of banking and
customer expectations, with
perhaps mobile banking
bringing the most radical
change. More than ever,
customers can now bank,
literally, when, where and how
they want. They are no longer
limited to traditional banking
hours.
These services are no
longer considered a luxury
by customers; they have
become services that are
expected. In order to sustain
the momentum that we have
generated in our first 90
years, it is important for us to
continue to create and offer
new services and products
that can make our customers’
lives easier.
deposit-taking ATMs and
an online consumer loan
application service at
GreatSouthernBank.com.
These four services offer
our customers an even
wider range of channels for
conducting their banking
business.
Just in the last year, we
launched the Great Southern
Mobile App for smartphones,
Mobile Check Deposit,
Deposit-taking ATMs have
been slower to gain customer
acceptance, but momentum
is building around usage as
2012
ONLINE BANKING
We launched our website,
continually adding new
features like deposit
account opening and
loan applications.
2000s
DEPOSIT DIRECT
Continuing to expand our business
banking services, we introduced
convenient options like our popular
desktop scanners for expedited
check deposits.
GSB MOBILE APP
We had a successful adoption rate of our
............
new mobile app, due to an impressive effort
by our associates to promote it.
MODERN CONSUMER
An
FOR THE............
TIME FOR THAT
ALL-AMERICAN DREAM!
.
.
.
.
.
.
.
........
A new
AUTOMOBILE
.25%
discount
With loan payment auto-deduct!
ADDITIONAL
AUTO LOANS AS LOW AS
..........................
%*
APR
GreatSouthernBank.com/auto
GreatSouthernBank.com/auto
*Subject to credit approval. Minimum loan amount $2000. Includes auto loans only.
Offer only available for new loans opened by 12.31.12. Certain loan fees may apply.
AUTOS ONLINE
We had a little retro fun with our auto
loans campaign while modernizing
the process with online applications.
Our customers can now apply for
consumer loans online, as well as
mortgages and home equity lines of
credit.
SOCIAL MEDIA
New media gives us immediate
response channels to connect
with and inform our customers.
We ran contests, highlighted our
community efforts and introduced
our newest products and services.
13
Amazing Offer technological advances have
made the service even more
user-friendly. Currently, we
are testing a deposit-taking
ATM at one of our busiest
banking centers. The machine
is equipped with the latest
technological features so
customers no longer have to
sort their checks from their
cash to make a deposit.
Plans are to possibly expand
this service to strategic
locations in the future. These
machines help cut down on
customer wait time at our
busier locations and allow
MOBILE CHECK
DEPOSIT
Say “Cheese”! Our latest
version of our mobile app allows
customers to deposit checks
simply by taking a picture with
their smartphone.
us to maintain a presence in
communities where we may
not have a physical branch.
As with anything, we cannot
rest on accomplishments of
the past. Technology is no
different. We are looking to
carry the momentum created
by our current technology
services into this year and
going forward. Plans are in
place for a new electronic
statement and notice delivery
service, an iPad app, text
banking service and a new
more interactive company
website in 2013.
While the need for traditional
banking methods will
probably never go away
completely, technology has
become a major focus for
the banking industry. More
often than not, when a new
product is developed, the
question becomes, ‘How
will we be able to deliver
this electronically?’ Moving
forward, our focus must
continue to be on creating
and maintaining relationships
and how we can utilize
advances in technology to
manage those relationships
while making our products
and services more convenient
to use.
Life is m bile.
Life is m bile.
2013
Life is m bile.
TExT BANKING
Text banking will allow customers to access account
information, transfer money and view balances
and account history simply by sending a text with
a short code. The most useful feature will be the
alert system. Users will be able to request alerts for
balance thresholds, deposits, debit card activity, and
overdraft notices.
E-DOCUMENTS
E-Documents is a new system we are using for delivering statements
and notices electronically. Now, beyond traditional bank account
statements, customers have electronic access to documents such as
electronic transaction notifications, account notices, loan notices,
tax forms and more. Customers now have the choice to determine
which documents they want to receive electronically based on the
accounts they have. This new system provides customers with a more
convenient and secure way to receive their notifications without the
wait time and security risk associated with traditional mail.
14
Directors
of Great Southern
Bancorp, Inc. and
Great Southern Bank
Back Row
earl a. steinert, Jr.
Board Member
Co-owner, EAS Investment
Enterprises, Inc./CPA
Larry d. Frazier
Board Member
Retired – Hollister, Mo.
Grant q. Haden
Board Member
Attorney and Managing
Partner, Haden, Cowherd
and Bullock LLC
thomas J. Carlson
Board Member
President, Mid America
Management, Inc.
Front Row
William e. Barclay
Board Member
Retired – Springfield, Mo.
Joseph W. turner
President and
Chief Executive Officer
William V. turner
Chairman of the Board
Julie t. Brown
Board Member
Shareholder, Carnahan,
Evans, Cantwell &
Brown, P.C.
Leadership
Team
tammy
Baurichter
Controller
Kris Conley
Director of
Retail Banking
rex Copeland*
Chief Financial
Officer
doug Marrs*
Director of
Operations
debbie Flowers
Director of Credit
Risk Administration
steve Mitchem*
Chief Lending
Officer
Kelly polonus
Director of
Communications
and Marketing
Matt snyder
Director of Human
Resources
Lin thomason*
Director of
Information Services
Bryan tiede
Director of Risk
Management
Joe turner*
President and
Chief Executive
Officer
*Denotes Executive Officer
15
Selected Consolidated Financial Data
2012
2011
December 31,
2010
(Dollars in Thousands)
2009
2008
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
$3,955,182
2,346,467
40,649
807,010
68,874
3,153,193
391,114
369,874
311,931
2,326,273
4,005,613
3,199,683
352,282
197,733
107
$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
The tables on pages 16, 17
and 18 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, 2012,
2011, 2010, 2009 and 2008, 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.
The Million Dollar
Convention
1927
16
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
Recognized 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
Partnership tax credit
Other operating expenses
Income (loss) from continuing operations
before income taxes
Provision (credit) for income taxes
Net income (loss) from continuing operations
Discontinued Operations
Income from discontinued operations, net of income taxes
Net income (loss)
Preferred stock dividends and discount accretion
Non-cash deemed preferred stock dividend
Net income (loss) available to common shareholders
2012
For the Year Ended December 31,
2010
2009
(In Thousands)
2011
2008
$ 170,163
23,345
193,508
$171,201
27,466
198,667
$145,832
27,359
173,191
$123,463
32,405
155,868
$119,829
24,985
144,814
20,720
4,430
2,610
617
28,377
165,131
43,863
121,268
26,370
5,242
2,965
569
35,146
163,521
35,336
128,185
38,427
5,516
3,329
578
47,850
125,341
35,630
89,711
54,087
5,352
6,393
773
66,605
89,263
35,800
53,463
60,876
5,001
5,892
1,462
73,231
71,583
52,200
19,383
1,036
19,087
5,505
896
18,063
3,524
767
18,652
3,765
309
17,669
2,889
1,129
15,352
1,415
2,666
(680)
1,028
(38)
483
(615)
651
(10)
31,312
16,486
8,787
---
767
---
---
2,787
(4,308)
672
1,184
89,795
44
(7,386)
819
6,981
---
(18,693)
4,779
46,002
(37,797)
2,450
4,131
(10,427)
2,018
24,329
2,733
2,497
116,227
---
2,134
20,488
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
35,684
11,720
2,721
5,617
1,349
1,124
1,642
2,741
4,959
---
4,145
71,702
25,534
7,446
2,157
2,131
891
736
1,180
1,699
3,431
---
2,942
48,147
54,710
10,623
44,087
35,840
5,183
29,657
31,890
8,590
23,300
97,988
32,983
65,005
4,619
48,706
608
---
$ 48,098
612
30,269
2,798
1,212
$ 26,259
565
23,865
3,403
---
$ 20,462
42
65,047
3,353
---
$ 61,694
$
(8,276)
(3,785)
(4,491)
63
(4,428)
242
---
(4,670)
17
Selected Consolidated Financial Data
Per Common Share Data:
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Diluted earnings (loss) from continuing operations 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
(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.
2012
At and For the Year Ended December 31,
2011
2010
(Number of shares in thousands)
2009
2008
$ 3.55
$ 3.54
$ 1.95
$ 1.93
$ 1.52
$ 1.46
$ 3.20
$ 0.72
$ 22.94
13,534
13,596
13,592
$ 1.89
$ 0.72
$ 19.78
13,462
13,480
13,626
$ 1.42
$ 0.72
$ 18.40
13,434
13,454
14,046
1.22%
0.87%
16.55
1.49
2.98
4.53
3.57
4.61
53.03
1.48
20.34
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
$ 4.61
$ 4.44
$ 4.44
$ 0.72
$ 18.12
13,390
13,406
13,382
1.91%
29.72
3.61
2.30
2.98
3.56
3.03
36.88
(1.31)
16.22
2.21%
2.98
180.84
2.43
1.84
0.94
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
$ (0.35)
$ (0.35)
$ (0.35)
$ 0.72
$ 13.34
13,381
13,381
13,381
(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
74.42%
72.65%
73.17%
77.06%
90.23%
110.12
110.55
108.22
102.17
108.98
7.4%
7.7
7.4%
6.9
7.2%
7.1
6.4%
6.5
7.1%
6.7
15.7
16.9
9.5
14.7
15.9
8.9
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
3.09x
8.24x
1.78x
3.30x
1.53x
2.99x
2.30x
6.29x
0.88x
0.33x
(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.
18
2012 Financial Information
201
1 Financial Information
Contents
20 Management’s Discussion and Analysis of Financial Condition
4
1 Management’s Discussion and Analysis of Financial Condition
and Results of Operation.
and Results of Operations.
56 Report of Independent Registered Public Accounting Firm.
50 Report of Independent Registered Public Accounting Firm.
57 Consolidated Statements of Financial Condition.
51 Consolidated Statements of Financial Condition.
59 Consolidated Statements of Income.
53 Consolidated Statements of Income.
61 Consolidated Statements of Comprehensive Income.
54 Consolidated Statements of Stockholders’ Equity.
56 Consolidated Statements of Cash Flows.
62 Consolidated Statements of Stockholders’ Equity.
59 Notes to Consolidated Financial Statements.
64 Consolidated Statements of Cash Flows.
67 Notes to Consolidated Financial Statements.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward-looking Statements
When used in this Annual Report and in other documents filed or furnished 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 transactions involving Sun Security Bank and InterBank,
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 InterBank 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 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 Great
Southern 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, 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 which 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 2012.
1
20
Additional discussion of the allowance for loan losses is included in the Company’s 2012 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 the financial statements contained in this report, 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 the 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 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 4 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,
2012, the Company has one reporting unit to which goodwill has been allocated – 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 of those assets to their carrying values. At December 31, 2012, goodwill consisted of $379,000 at the Bank 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, 2012, the amortizable intangible assets consisted of core deposit intangibles of $5.4 million.
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 unit. 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, 2012. While the Company believes no impairment existed at December 31, 2012, different conditions or
assumptions used to measure fair value of the reporting unit, 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.
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Current Economic Conditions
Current economic conditions present 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 are 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.
Recent economic conditions have impacted the markets in which we operate. Throughout our market areas, the economic downturn
beginning in 2008 negatively affected consumer confidence and elevated unemployment levels. Recently there have been signs of
increasing optimism and economic activity. Unemployment levels across our market areas have decreased. The Missouri
unemployment rate declined during the year ended December 31, 2012 from 8.2% at December 31, 2011 to 6.5% at December 31,
2012, and was below the national average of 7.6% at December 31, 2012. The Iowa and Kansas unemployment rates also declined
during the year ended December 31, 2012 from 6.1% and 6.8% at December 31, 2011, respectively, to 5.6% and 6.3% at December 31,
2012, respectively. The St. Louis market area continues to carry the highest level of unemployment among our market areas, with
unemployment rates at 7.0%, and 8.9% at December 31, 2012 and 2011, respectively, but is still below national levels. Job creation in
the St. Louis market, while positive, remains sluggish. The unemployment rate for the Springfield market area was below the national
average, at 5.4% at December 31, 2012. Average prices for existing home sales in the Midwest, which includes our market areas,
increased 5.8% in 2012 over 2011 according to the National Association of Realtors. Building permits have increased across our
market areas while foreclosure filings have plunged to their lowest level since April 2007 according to CNNMoney. These
improvements are anticipated to continue throughout 2013. Commercial real estate markets also improved substantially in the
Company’s markets. Vacancy rates continued to fall with a notable improvement in sales, absorption and rents. According to real
estate services firm, CoStar Group, retail, office and industrial types of commercial real estate properties had vacancy rates that
averaged 7.32%, 11.84% and 9.19%, respectively, in the Company’s primary markets for 2012. These vacancy rates in the
Company’s primary markets remain slightly elevated from averages of 7.1%, 10.5% and 7.3%, respectively, for 2008, prior to the
economic downturn but have shown continued improvement over the past two years. National averages were 6.9%, 12.5% and 8.9%,
respectively, for 2012, still elevated from 6.5%, 11.7% and 8.8% for 2008, according to the CoStar Group. Increased vacancy rates
for commercial real estate properties correlate to fewer commercial land development sales because of the risk involved in developing
these types of properties when completed properties have vacancies. Loan types specifically impacted in the Company’s loan
portfolio over the past 5 years include residential and commercial land development, segments of the commercial real estate portfolio
and condominium development in the St. Louis, Central Missouri and Branson market areas. Overall lending activity has increased
somewhat but is still below historic levels.
General
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, 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, 2012, Great Southern's total assets increased $165.2 million, or 4.4%, from $3.79 billion at December
31, 2011, to $3.96 billion at December 31, 2012. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2012 and December 31, 2011” section of this Annual Report.
Loans. In the year ended December 31, 2012, Great Southern's net loans increased $195.5 million, or 9.2%, from $2.12 billion at
December 31, 2011, to $2.32 billion at December 31, 2012. The increase was primarily due to the loans acquired in the InterBank
FDIC-assisted transaction during 2012 which totaled $259.2 million at December 31, 2012. Excluding loans covered by loss sharing
agreements, commercial real estate loans increased $52.5 million, or 8.2%, other commercial loans increased $28.2 million, or 11.9%,
consumer auto loans increased $23.2 million, or 39.1%, and multi-family residential loans increased $23.8 million, or 9.8%.
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 and 2011 FDIC-assisted
transactions of $131.9 million, or 33.3%, primarily because of loan repayments, and a decrease in the loans acquired in the InterBank
transaction since the acquisition date of $36.4 million, 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
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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 in certain loan categories experienced during the year ended December 31, 2012, excluding the InterBank FDIC-assisted
transaction, may continue into 2013. 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, 2012 and 2011, 78.0% and 79.0%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2012 and 2011, commercial real estate and commercial construction
loans were 42.2% and 46.5% 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,
2012 and 2011, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 24% and 27% 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, 2012 and 2011, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
21% and 20% 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 on 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 2012 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 2008 to 48% in 2012 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, 72% 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, 2012, 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 2012 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, 2012
and December 31, 2011, an estimated 0.2% and 0.6%, respectively, of total owner occupied one- to four-family residential loans had
loan-to-value ratios above 100% at origination. At December 31, 2012 and December 31, 2011, an estimated 0.8% and 0.4%,
respectively, of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2012 troubled debt restructurings totaled $46.8 million, or 2.0% of total loans, down $11.3 million from $58.1
million, or 2.7% of total loans, at December 31, 2011. At December 31, 2010, troubled debt restructurings totaled $20.4 million, or
1.1% of total loans. At December 31, 2009, troubled debt restructurings totaled $11.6 million, or 0.5% of total loans. At December
31, 2008, 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, 2012, eleven loans totaling $38.0 million were each
restructured into multiple new loans. 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 3 of the accompanying audited
financial statements.
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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, 2012, approximately six years remain on the loss sharing agreement
for single family real estate loans acquired from TeamBank and the remaining loans have an estimated average life of two to eleven
years. At December 31, 2012, approximately seven years remain on the loss sharing agreement for single family real estate loans
acquired from Vantus Bank and the remaining loans have an estimated average life of two to thirteen years. At December 31, 2012,
approximately nine years remain on the loss sharing agreement for single family real estate loans acquired from Sun Security Bank
and the remaining loans have an estimated average life of four to eleven years. At December 31, 2012, approximately nine years
remain on the loss sharing agreement for single family real estate loans acquired from InterBank and the remaining loans have an
estimated average life of seven to fourteen years. At December 31, 2012, approximately one year remains on the loss sharing
agreement for non-single family loans acquired from TeamBank and the remaining loans are have an estimated average life of one to
five years. At December 31, 2012, approximately two years remain on the loss sharing agreement for non-single family loans
acquired from Vantus Bank and the remaining loans have an estimated average life of two to five years. At December 31, 2012,
approximately four years remain on the loss sharing agreement for non-single family loans acquired from Sun Security Bank and the
remaining loans have an estimated average life of one to two years. At December 31, 2012, approximately four years remain on the
loss sharing agreement for non-single family loans acquired from InterBank and the remaining loans have an estimated average life of
three to eight 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 4 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, 2012, available-for-sale securities decreased $68.4 million, or 7.8%,
from $875.4 million at December 31, 2011, to $807.0 million at December 31, 2012. The decrease was due to net sales and
repayments of mortgage-backed securities which decreased $45.6 million from $641.7 million at December 31, 2011 to $596.1
million at December 31, 2012 and securities of states and political subdivisions, which decreased $27.3 million from $150.2 million at
December 31, 2011 to $122.9 million at December 31, 2012.
Cash and Cash Equivalents. Cash and cash equivalents totaled $404.1 million at December 31, 2012 an increase of $23.9 million, or
6.3%, from $380.2 million at December 31, 2011. The increase in cash and cash equivalents during 2012 was due to cash received
from the FDIC in the InterBank FDIC-assisted transaction and proceeds from the sale and repayment of certain investments.
Foreclosed Assets. Foreclosed assets totaled $68.9 million at December 31, 2012, an increase of $1.3 million, or 1.9%, from $67.6
million at December 31, 2011. Foreclosed assets, excluding those covered by loss sharing agreements with the FDIC, increased from
$32.7 million, or 1.2% of total assets, at December 31, 2008 to $50.1 million, or 1.3% of total assets, at December 31, 2012.
Foreclosed assets began increasing in 2007 as the United States economy slowed due to a severe economic recession in 2008 and 2009.
During 2010, 2011 and 2012, 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 2012 remained elevated. 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, 2012, total
deposit balances increased $189.7 million, or 6.4%. The increase was primarily due to the addition of the $456.3 million of core
deposits assumed from InterBank in the FDIC-assisted transaction during 2012. Including the deposits assumed from InterBank,
interest-bearing transaction accounts increased $199.7 million, non-interest-bearing checking accounts increased $55.0 million and
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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, 2012, approximately six years remain on the loss sharing agreement
for single family real estate loans acquired from TeamBank and the remaining loans have an estimated average life of two to eleven
years. At December 31, 2012, approximately seven years remain on the loss sharing agreement for single family real estate loans
acquired from Vantus Bank and the remaining loans have an estimated average life of two to thirteen years. At December 31, 2012,
approximately nine years remain on the loss sharing agreement for single family real estate loans acquired from Sun Security Bank
and the remaining loans have an estimated average life of four to eleven years. At December 31, 2012, approximately nine years
remain on the loss sharing agreement for single family real estate loans acquired from InterBank and the remaining loans have an
estimated average life of seven to fourteen years. At December 31, 2012, approximately one year remains on the loss sharing
agreement for non-single family loans acquired from TeamBank and the remaining loans are have an estimated average life of one to
five years. At December 31, 2012, approximately two years remain on the loss sharing agreement for non-single family loans
acquired from Vantus Bank and the remaining loans have an estimated average life of two to five years. At December 31, 2012,
approximately four years remain on the loss sharing agreement for non-single family loans acquired from Sun Security Bank and the
remaining loans have an estimated average life of one to two years. At December 31, 2012, approximately four years remain on the
loss sharing agreement for non-single family loans acquired from InterBank and the remaining loans have an estimated average life of
three to eight 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 4 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, 2012, available-for-sale securities decreased $68.4 million, or 7.8%,
from $875.4 million at December 31, 2011, to $807.0 million at December 31, 2012. The decrease was due to net sales and
repayments of mortgage-backed securities which decreased $45.6 million from $641.7 million at December 31, 2011 to $596.1
million at December 31, 2012 and securities of states and political subdivisions, which decreased $27.3 million from $150.2 million at
December 31, 2011 to $122.9 million at December 31, 2012.
Cash and Cash Equivalents. Cash and cash equivalents totaled $404.1 million at December 31, 2012 an increase of $23.9 million, or
6.3%, from $380.2 million at December 31, 2011. The increase in cash and cash equivalents during 2012 was due to cash received
from the FDIC in the InterBank FDIC-assisted transaction and proceeds from the sale and repayment of certain investments.
Foreclosed Assets. Foreclosed assets totaled $68.9 million at December 31, 2012, an increase of $1.3 million, or 1.9%, from $67.6
million at December 31, 2011. Foreclosed assets, excluding those covered by loss sharing agreements with the FDIC, increased from
$32.7 million, or 1.2% of total assets, at December 31, 2008 to $50.1 million, or 1.3% of total assets, at December 31, 2012.
Foreclosed assets began increasing in 2007 as the United States economy slowed due to a severe economic recession in 2008 and 2009.
During 2010, 2011 and 2012, 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 2012 remained elevated. 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, 2012, total
deposit balances increased $189.7 million, or 6.4%. The increase was primarily due to the addition of the $456.3 million of core
deposits assumed from InterBank in the FDIC-assisted transaction during 2012. Including the deposits assumed from InterBank,
interest-bearing transaction accounts increased $199.7 million, non-interest-bearing checking accounts increased $55.0 million and
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retail certificates of deposit increased $80.4 million. Total brokered deposits decreased $145.5 million, primarily because of a
reduction in deposits that are part of the CDARS program. Included in total brokered deposits at December 31, 2012 and December
31, 2011, were Great Southern Bank customer deposits totaling $109.1 million and $216.3 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 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 the year ended December 31, 2012.
Our deposit balances may fluctuate from time to time depending on customer preferences and our relative need for funding. In 2012,
we experienced an overall increase in deposits, primarily due to the deposits assumed in the InterBank FDIC-assisted transaction.
Because of overall low loan demand and increased liquidity levels in 2012, when compared to historic trends, we chose to allow
certain types of our deposit balances to decrease. As discussed previously regarding 2012, 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 InterBank and other core deposits added during 2012 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. In
addition, while we have been generally lowering our deposit rates over the past several quarter, increasing rates paid on deposits can
help to attract deposits if needed; however, this 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
interest rate changes in the market. 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 4 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 changed
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 and pay higher
rates on borrowings. 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
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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.”
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, 2012, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $586 million with rates that change immediately with changes to the prime
rate of interest. Of this total, $551 million also had interest rate floors. These floors were at varying rates, with $23 million of these
loans having floor rates of 7.0% or greater and another $388 million of these loans having floor rates between 5.0% and 7.0%. In
addition, there were $140 million of these loans with floor rates between 3.25% and 5.0%. At December 31, 2012, all $551 million of
these loans were at their floor rates. The loan yield for the total loan portfolio was approximately 214, 261 and 278 basis points higher
than the national "prime rate of interest" at December 31, 2012, 2011 and 2010, 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, 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 2012, 2011 and 2009, non-interest income was also affected by
the gains recognized on the FDIC-assisted transactions. In 2012, 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, 2012 and 2011.”
Business Initiatives
In 2012, several initiatives have been completed or are underway related to the Company’s banking center network. In February, the
Company opened a new banking center in O’Fallon, Mo., a suburb of St. Louis. The Company now operates seven banking centers in
the St. Louis metro area.
During the second quarter, the Company replaced two existing banking centers with new facilities. In April, a new banking center on
West Kearney in north Springfield, Mo., was opened replacing a leased location approximately one block east. In May, a new banking
center on West 135th Street in Olathe, Kan., was opened in an established retail business district replacing the former banking site
located in a lesser developed area of the city.
In October 2012, a new banking center at 600 W. Republic in Springfield, Mo., was opened, which replaced a nearby leased facility at
3961 S. Campbell. A new banking center in Greenfield, Mo., was also opened in December 2012. The full-service banking center
replacd a previously razed drive-thru facility on the same lot. At the same time as the opening of the new facility, a leased banking
center in downtown Greenfield was closed.
In March 2013, a new banking center in Downtown Springfield is expected to open, which replaces a leased facility two blocks away.
Great Southern operated from this new location at 331 South Ave. in the 1960’s through the 1980’s. A new full-service banking center
in a commercial district in Omaha, Neb., is under construction. In addition to the banking center, a commercial lending team will be
housed in this facility. The facility is expected to be open in fall 2013. The Company currently operates two banking centers in the
Omaha metropolitan area – one in Bellevue and one in Fort Calhoun.
On the technology front, in January 2012, the Company launched a new smartphone application for iPhone and Android users
providing customers another channel for accessing their accounts. In December 2012, the Company launched an online consumer loan
application service so that customers can apply online for various consumer loans including auto, boat, recreational vehicle and home
equity loans. In January 2013, the Company introduced Mobile Check Deposit, a smartphone application-based service enabling
customers to conveniently deposit a paper check to their checking account by utilizing the smartphone camera. Text Banking is
expected to be launched in the second quarter of 2013 providing another channel for customers to access account information.
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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.”
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, 2012, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $586 million with rates that change immediately with changes to the prime
rate of interest. Of this total, $551 million also had interest rate floors. These floors were at varying rates, with $23 million of these
loans having floor rates of 7.0% or greater and another $388 million of these loans having floor rates between 5.0% and 7.0%. In
addition, there were $140 million of these loans with floor rates between 3.25% and 5.0%. At December 31, 2012, all $551 million of
these loans were at their floor rates. The loan yield for the total loan portfolio was approximately 214, 261 and 278 basis points higher
than the national "prime rate of interest" at December 31, 2012, 2011 and 2010, 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, 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 2012, 2011 and 2009, non-interest income was also affected by
the gains recognized on the FDIC-assisted transactions. In 2012, 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, 2012 and 2011.”
Business Initiatives
the St. Louis metro area.
In 2012, several initiatives have been completed or are underway related to the Company’s banking center network. In February, the
Company opened a new banking center in O’Fallon, Mo., a suburb of St. Louis. The Company now operates seven banking centers in
During the second quarter, the Company replaced two existing banking centers with new facilities. In April, a new banking center on
West Kearney in north Springfield, Mo., was opened replacing a leased location approximately one block east. In May, a new banking
center on West 135th Street in Olathe, Kan., was opened in an established retail business district replacing the former banking site
located in a lesser developed area of the city.
In October 2012, a new banking center at 600 W. Republic in Springfield, Mo., was opened, which replaced a nearby leased facility at
3961 S. Campbell. A new banking center in Greenfield, Mo., was also opened in December 2012. The full-service banking center
replacd a previously razed drive-thru facility on the same lot. At the same time as the opening of the new facility, a leased banking
center in downtown Greenfield was closed.
In March 2013, a new banking center in Downtown Springfield is expected to open, which replaces a leased facility two blocks away.
Great Southern operated from this new location at 331 South Ave. in the 1960’s through the 1980’s. A new full-service banking center
in a commercial district in Omaha, Neb., is under construction. In addition to the banking center, a commercial lending team will be
housed in this facility. The facility is expected to be open in fall 2013. The Company currently operates two banking centers in the
Omaha metropolitan area – one in Bellevue and one in Fort Calhoun.
On the technology front, in January 2012, the Company launched a new smartphone application for iPhone and Android users
providing customers another channel for accessing their accounts. In December 2012, the Company launched an online consumer loan
application service so that customers can apply online for various consumer loans including auto, boat, recreational vehicle and home
equity loans. In January 2013, the Company introduced Mobile Check Deposit, a smartphone application-based service enabling
customers to conveniently deposit a paper check to their checking account by utilizing the smartphone camera. Text Banking is
expected to be launched in the second quarter of 2013 providing another channel for customers to access account information.
The Company reorganized its internal organizational structure during the year to more effectively serve business banking customers.
Small Business Banking and Corporate Services were combined to form the Business Banking division, which will offer depository
and lending products to customers in a more streamlined and comprehensive manner.
On November 30, 2012, Great Southern Bank separately sold Great Southern Travel and Great Southern Insurance to Milwaukee-
based Adelman Travel and St. Louis-based HM, respectively. The two sales resulted in a combined transaction gain totaling $6.1
million.
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
implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, centralize
responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, with broad
rulemaking authority for a wide range of consumer protection laws that apply to all banks, require new capital rules and apply to bank
holding companies the same leverage and risk-based capital requirements that apply to insured depository 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 to examine
the Company and its non-bank subsidiaries.
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 long-term impact there will be on the interchange rates for issuers below the $10 billion
level of assets.
New Proposed Capital Rules. The federal banking agencies have proposed rules that would substantially amend the regulatory risk-
based capital rules applicable to the Bank and the Company. The proposed rules would implement the “Basel III” regulatory capital
reforms and changes required by the Dodd-Frank Act. “Basel III” refers to various documents released by the Basel Committee on
Banking Supervision. As published, the proposed rules contemplated a general effective date of January 1, 2013, and, for certain
provisions, various phase-in periods and later effective dates. However, the federal banking agencies have announced that the
proposed rules will not be effective on January 1, 2013. The agencies have not adopted final rules or published any modifications to
the proposed rules. The proposed rules as published are summarized below. It is not possible to predict when or in what form final
regulations may be adopted.
The proposed rules include new minimum capital ratios, to be phased in until fully effective on January 1, 2015, and would refine the
definitions of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital ratios would be:
(i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of
8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The proposed rules would also establish a “capital
conservation buffer” requirement of 2.5% above each of the new regulatory minimum capital ratios to be phased in starting on January
1, 2016 and fully effective on January 1, 2019. An institution would be subject to limitations on paying dividends, engaging in share
repurchases, and paying discretionary bonuses if any of its capital levels fell below the capital conservation buffer amount.
The federal banking agencies also proposed revisions, effective January 1, 2015, to the prompt corrective action framework, which is
designed to place restrictions on insured depository institutions if their capital levels show signs of weakness. Under the prompt
corrective action requirements, insured depository institutions would be required to meet the following in order to qualify as “well
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capitalized:” (i) a common equity Tier 1 risk-based capital ratio of 6.5%; (ii) a Tier 1 risk-based capital ratio of 8% (increased from
6%); (iii) a total risk-based capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged
from the current rules).
The Basel III also contains provisions on liquidity include complex criteria establishing a liquidity coverage ratio (“LCR”) and net
stable funding ratio (“NSFR”). The purpose of the LCR is to ensure that a bank maintains adequate unencumbered, high quality liquid
assets to meet its liquidity needs for 30 days under a severe liquidity stress scenario. The purpose of the NSFR is to promote more
medium and long-term funding of assets and activities, using a one-year horizon. The federal banking agencies have not published
proposed regulations on these provisions of Basel III.
FDIC-Assisted Acquisition of Certain Assets and Liabilities
On April 27, 2012, 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 Inter Savings
Bank, FSB (“InterBank”), a full-service bank headquartered in Maple Grove, Minn. Established in 1965, InterBank operated four
locations in three counties in the Minneapolis-St. Paul area. Assets with a fair value of approximately $490.1 million were acquired,
including $285.5 million of loans, $75.3 million of cash and cash equivalents , $34.9 million of investment securities, $6.2 million of
foreclosed assets, and $3.1 million of other assets. Liabilities with a fair value of $458.7 million were assumed, including $456.3
million of deposits, $2.3 million of accounts payable and $215,000 of other liabilities. A customer-related core deposit intangible
asset of $1.0 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. Under the loss sharing agreement, the FDIC has agreed to cover 80% of the losses on the loans and foreclosed assets
purchased subject to certain limitations. The Company recorded an FDIC indemnification asset of $84.0 million as a result of this loss
sharing agreement.
The former InterBank franchise is currently operating under the Great Southern name from its previous locations. The Bank
converted the InterBank operational systems into Great Southern’s systems in August 2012, which allows all Great Southern and
former InterBank customers to conduct business at any banking center throughout the Great Southern six-state franchise.
The Company recorded a one-time gain of $31.3 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, 2012. 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
has continued to evaluate the initial fair value estimates and, has finalized these estimates without adjustment as of December 31, 2012.
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 InterBank 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.
InterBank presented an attractive franchise for the Company to acquire because it provided the opportunity for expansion into a new
complementary market through banking centers which, for the most part, held competitive market positions in both loans and
deposits. The Minneapolis-St. Paul market should provide new opportunities for commercial and real estate lending, as it is a large
metropolitan area with relatively low unemployment and significant business activity. 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 4 and Note 28 of the
accompanying audited financial statements.
Sale of Business Units
Effective November 30, 2012, the Company sold the Bank’s Great Southern Travel division to Milwaukee, Wisconsin-based Adelman
Travel and the Bank’s Great Southern Insurance division to St. Louis-based HM. Existing Great Southern Travel and Great Southern
Insurance employees and offices became part of each acquirer’s respective operations. The business units were sold after the
Company made the decision to focus its resources on its core banking business.
The 2012 operations of the two divisions have been reclassified to include all revenues and expenses in discontinued operations. In
2012, the Company recognized gains on the sales totaling $6.1 million, which are included in the income from discontinued operations.
The 2008 through 2011 operations have been restated to reflect the reclassification of revenues and expenses in discontinued
operations. Revenues from the two divisions, excluding the gain on sale, totaled $8.2 million, $8.1 million, $7.6 million, $6.6 million
and $7.7 million for the years ended December 31, 2012, 2011, 2010, 2009, and 2008, respectively, and is included in income from
discontinued operations.
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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, 2012 and December 31, 2011
During the year ended December 31, 2012, total assets increased by $165.2 million to $4.0 billion. The increase was primarily due to
increases in loans and cash and cash equivalents, primarily attributable to the InterBank FDIC-assisted transaction. The increase was
also due to increases in premises and equipment, partially offset by decreases in available-for-sale securities and prepaid expenses and
other assets.
Net loans increased $195.5 million to $2.32 billion at December 31, 2012, due primarily to the InterBank loans acquired in the 2012
FDIC-assisted transaction which had a balance of $259.2 million at December 31, 2012. Commercial real estate loans increased $52.5
million, or 8.2%, commercial business loans increased $28.2 million, or 11.9%, consumer auto loans increased $23.2 million, or
39.1%, and multi-family residential loans increased $23.8 million, or 9.8%. 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 and 2011 FDIC-assisted transactions of $131.9 million, or 33.3%, primarily
because of loan repayments. The increase in loans during 2012 was primarily due to financing loans which had been previously
financed by other lenders, rather than significant 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 2012, 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 $9.3 million to $117.3 million at December 31, 2012. The increase was due to the FDIC
indemnification asset recorded through the InterBank FDIC-assisted transaction of $84.0 million which was reduced $8.9 million to
$75.1 million at December 31, 2012 due to amounts billed to the FDIC for losses recognized. Partially offsetting this increase was a
$66.1 million decrease in the FDIC indemnification assets related to the 2009 and 2011 FDIC-assisted transactions due to payments
received from the FDIC as well as estimated 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 decreased $68.4 million as compared to December 31, 2011. The decrease was due to sales and maturities
of mortgage-backed securities which decreased $45.6 million from $641.7 million at December 31, 2011 to $596.1 million at
December 31, 2012 and securities of states and political subdivisions, which decreased $27.3 million from $150.2 million at
December 31, 2011 to $122.9 million at December 31, 2012. 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
20.4% and 23.1% of total assets at December 31, 2012 and December 31, 2011, respectively.
Prepaid expenses and other assets decreased $5.6 million as compared to December 31, 2011, due to an approximately $10.2 million
decrease in prepaid expenses and other assets, primarily due a reduction in receivables from the FDIC for losses covered by the loss
sharing agreements of $9.2 million. Offsetting this decrease was an increase of $4.6 million 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 7 of the accompanying audited financial statements.
The Company’s net premises and equipment increased $18.1 million as compared to December 31, 2011. The primary reason for the
increase was the purchase of approximately $6.1 million of fixed assets from the FDIC for the Sun Security Branch locations, the
purchase of approximately $2.8 million of fixed assets from the FDIC for the InterBank branch locations and the addition of new
locations as a result of the growth of the Company and to provide for future growth. During the year ended December 31, 2012, a new
banking center was opened in O’Fallon, Mo. A new banking center in Olathe, Kan. was opened which relocated an existing banking
center to a more established retail business district. In addition, a new banking center in Springfield, Mo. was opened, relocating a
banking center with one of the Company’s highest transaction volumes to provide more drive-thru lanes and better access. The
Company replaced a leased banking center in Springfield, Mo., with a new banking center less than a mile away. The new site is a
former bank office and provides greater customer access. A new banking center was opened in Greenfield, Mo., which replaced a
previously razed drive-thru facility on the same lot, and a leased banking center downtown.
During the year ended December 31, 2012, cash and cash equivalents increased $23.9 million to $404.1 million. The increase during
2012 was due to sales and maturities of available-for-sale securities and the cash received from the FDIC in the InterBank FDIC-
assisted transaction, partially offset by increased loan funding.
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Total liabilities increased $119.9 million from $3.47 billion at December 31, 2011 to $3.58 billion at December 31, 2012. The increase
was primarily attributable to increases in deposits and current and deferred income taxes, partially offset by decreases in FHLB
advances and securities sold under repurchase agreements with customers. In the year ended December 31, 2012, total deposit
balances increased $189.7 million, or 6.4%. The increase was primarily due to the addition of the $456.3 million of deposits assumed
in the InterBank FDIC-assisted transaction during 2012. Including the deposits assumed in the InterBank FDIC-assisted transaction,
interest-bearing transaction accounts increased $199.7 million, non-interest-bearing checking accounts increased $55.0 million and
retail certificates of deposit increased $80.4 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 InterBank deposits in the second
quarter of 2012 resulted in the increase in retail certificates of deposit at December 31, 2012. Total brokered deposits, excluding the
CDARS customer accounts, were $10.0 million at December 31, 2012, down from $48.3 million at December 31, 2011. The decrease
was the result of $38.3 million of brokered deposits that matured or were called by the Company during the period while no new
brokered deposits were added. At December 31, 2012 and 2011, Great Southern Bank customer deposits totaling $109.1 million and
$216.3 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 decreased $57.8 million from December 31, 2011. The Company elected to prepay $30.0 million of FHLB
advances, which were assumed as part of the Sun Security transaction, during the first quarter of 2012. The penalties incurred to
prepay these advances were primarily accounted for as part of the purchase accounting adjustments at the time of acquisition, resulting
in no additional material expense in the year ended December 31, 2012. 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 $37.1 million from December 31, 2011 as these
balances fluctuate over time and rates paid on these accounts decreased.
Total stockholders' equity increased $45.3 million from $324.6 million at December 31, 2011 to $369.9 million at December 31, 2012.
The Company recorded net income of $48.7 million for the year ended December 31, 2012, common and preferred dividends declared
were $9.8 million and accumulated other comprehensive income increased $4.2 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 $2.7 million due to stock option exercises.
Results of Operations and Comparison for the Years Ended December 31, 2012 and 2011
General
Net income increased $18.4 million, or 60.9%, during the year ended December 31, 2012, compared to the year ended December 31,
2011. Net income from continuing operations increased $14.4 million, or 48.7%, during the year ended December 31, 2012,
compared to the year ended December 31, 2011. Net income was $48.7 million for the year ended December 31, 2012 compared to
$30.3 million for the year ended December 31, 2011. Net income from continuing operations was $44.1 million for the year ended
December 31, 2012 compared to $29.7 million for the year ended December 31, 2011. This increase was primarily due to an increase
in non-interest income of $41.9 million, or 1013.6%, and an increase in net interest income of $1.6 million, or 1.0%, partially offset by
an increase in non-interest expense of $15.1 million, or 15.5%, an increase in provision for income taxes of $5.4 million, or 104.9%,
and an increase in the provision for loan losses of $8.5 million, or 24.1%. Non-interest income for the year ended December 31, 2012
included a gain recognized on business acquisition of $31.3 million, and also included net amortization expense of the FDIC
indemnification asset of $18.7 million. Net income available to common shareholders was $48.1 million for the year ended December
31, 2012 compared to $26.3 million for the year ended December 31, 2011.
Total Interest Income
Total interest income decreased $5.2 million, or 2.6%, during the year ended December 31, 2012 compared to the year ended
December 31, 2011. The decrease was primarily due to a $4.1 million, or 15.0%, decrease in interest income on investments and other
interest-earning assets, while interest income on loans decreased $1.0 million, or 0.6%. Interest income on loans decreased primarily
due to variations in the adjustments to accretable yield due to increases in expected cash flows to be received from the FDIC-acquired
loan pools as discussed below in “Interest Income – Loans” and in Note 4 of the accompanying audited financial statements. Interest
income from investment securities and other interest-earning assets decreased during the year ended December 31, 2012 primarily due
to lower average rates of interest. The lower average investment yields were primarily a result of lower yields on mortgage-backed
11
30
securities as interest rates reset downward. Prepayments on the mortgages underlying these securities resulted in amortization of
premiums which also reduced yields.
Interest Income - Loans
During the year ended December 31, 2012 compared to the year ended December 31, 2011, interest income on loans decreased due to
lower average interest rates, partially offset by higher average balances. Interest income decreased $26.1 million as the result of lower
average interest rates on loans. The average yield on loans decreased from 8.53% during the year ended December 31, 2011 to 7.31%
during the year ended December 31, 2012. This decrease was partially due to fluctuation in the additional yield accretion recognized
in conjunction with the fair value of the loan pools acquired in the FDIC-assisted transactions, as the additional yield accretion was
less in 2012 than in 2011. 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 2012 and 2011 FDIC-assisted transactions increased during 2012. The cash flows estimate for
the 2009 FDIC-assisted transactions has increased each quarter since the third quarter of 2010, based on the payment histories and
reduced loss expectations of the loan pools. These adjustments resulted in a total of $128.6 million of adjustments to date 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 FDIC-assisted transactions have also been reduced, resulting in a total of $109.8
million of adjustments to date 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 $36.2 million and
decreased non-interest income by $29.9 million during the year ended December 31, 2012, for a net impact of $6.3 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 remaining accretable yield adjustment that will affect
interest income is $23.7 million and the remaining adjustment to the indemnification assets that will affect non-interest income
(expense) is $(18.9) million. Of the remaining adjustments, we expect to recognize $13.2 million of interest income and $(11.2)
million of non-interest income (expense) in 2013. 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 4 of
the accompanying audited financial statements. Apart from the yield accretion, the average yield on loans was 5.76% for the year
ended December 31, 2012, down from 6.08% for the year ended December 31, 2011, as a result of both normal amortization of
higher-rate loans and new loans that were made at current lower market rates.
Interest income increased $25.1 million as a result of higher average loan balances which increased from $2.01 billion during the year
ended December 31, 2011 to $2.33 billion during the year ended December 31, 2012. The higher average balances were primarily due
to the loans acquired in the InterBank FDIC-assisted transaction.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments decreased $4.4 million as a result of a decrease in average interest rates from 3.20% during the year
ended December 31, 2011 to 2.68% during the year ended December 31, 2012. The majority of the Company’s securities in 2011 and
2012 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 investments increased $156,000 as a result of an increase in average
balances from $841.3 million during the year ended December 31, 2011, to $846.2 million during the year ended December 31, 2012.
Average balances of securities increased due to purchases made for pledging to secure public-fund deposits. Interest income on other
interest-earning assets increased $167,000 mainly due to higher average balances. Average balances of interest-earning deposits
increased due to repayment of loans and the cash received from the FDIC in the InterBank 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, 2012, the Company had cash and cash equivalents of $404.1
million compared to $380.2 million at December 31, 2011. See "Net Interest Income" for additional information on the impact of this
interest activity.
Total Interest Expense
Total interest expense decreased $6.8 million, or 19.3%, during the year ended December 31, 2012, when compared with the year
ended December 31, 2011, due to a decrease in interest expense on deposits of $5.7 million, or 21.4%, a decrease in interest expense
on FHLBank advances of $812,000, or 15.5%, and a decrease in interest expense on short-term and structured repo borrowings of
$355,000, or 12.0%. These decreases were partially offset by an increase in interest expense on subordinated debentures issued to
capital trust of $48,000, or 8.4%.
12
31
Interest Expense - Deposits
Interest on demand deposits decreased $3.0 million due to a decrease in average rates from 0.72% during the year ended December 31,
2011, to 0.49% during the year ended December 31, 2012. The average interest rates decreased due to lower overall market rates of
interest since 2011 and because the Company chose to pay lower rates during 2012 when compared to 2011. Market rates of interest
on checking and money market accounts have been decreasing since late 2008 when the FRB began reducing short-term interest rates.
Interest on demand deposits increased $2.1 million due to an increase in average balances from $1.11 billion during the year ended
December 31, 2011, to $1.46 billion during the year ended December 31, 2012. The increase in average balances of demand deposits
was primarily a result of demand deposits assumed in the Sun Security Bank and InterBank FDIC-assisted transactions in 2011 and
2012. Also contributing to the increase was 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. Average noninterest-bearing
demand balances increased from $307 million for the year ended December 31, 2011, to $386 million for the year ended December 31,
2012.
Interest expense on time deposits decreased $6.5 million as a result of a decrease in average rates of interest from 1.47% during the
year ended December 31, 2011, to 1.00% during the year ended December 31, 2012. 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 increased $1.7 million due to an increase in average balances of time deposits from $1.25 billion
during the year ended December 31, 2011, to $1.36 billion during the year ended December 31, 2012. The increase in average
balances of time deposits was primarily a result of time deposits assumed in the Sun Security Bank and InterBank FDIC-assisted
transactions during 2011 and 2012. As previously mentioned, the increase in average balances of time deposits was partly offset by
the customer preference to transition from time deposits to demand deposits. Also offsetting the increase was the reduction of the
balance of brokered deposits, primarily CDARS accounts, of $145.5 million from December 31, 2011 to December 31, 2012.
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 fully determined, the Company expects interest costs associated with demand deposits
may increase as a result of competitor responses to this change.
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2012 compared to the year ended December 31, 2011, interest expense on FHLBank advances
decreased due to lower average interest rates and lower average balances. Interest expense on FHLBank advances decreased $433,000
due to a decrease in average balances from $159 million during the year ended December 31, 2011, to $145 million during the year
ended December 31, 2012. Interest expense on FHLBank advances decreased $379,000 due to a decrease in average interest rates
from 3.29% in the year ended December 31, 2011, to 3.05% in the year ended December 31, 2012. 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 $376,000 due to a decrease in average
balances from $304 million during the year ended December 31, 2011, to $266 million during the year ended December 31, 2012.
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 short-term borrowings and structured repurchase
agreements increased $21,000 due to a slight increase in average rates on short-term borrowings and structured repurchase agreements
from the year ended December 31, 2011, to the year ended December 31, 2012.
Interest expense on subordinated debentures issued to capital trust increased $48,000 due to an increase in average rates from 1.84% in
the year ended December 31, 2011, to 1.99% in the year ended December 31, 2012. 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, 2012 increased $1.6 million to $165.1 million compared to $163.5 million for
the year ended December 31, 2011. Net interest margin was 4.61% for the year ended December 31, 2012, compared to 5.17% in 2011,
a decrease of 56 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 FDIC-assisted transactions and the resulting increases to accretable yield which was
discussed previously in “Interest Income – Loans” and is discussed in Note 4 of the accompanying audited financial statements. The
impact of these changes on the years ended December 31, 2012 and 2011 were increases in interest income of $36.2 million and $49.2
million, respectively, and increases in net interest margin of 101 basis points and 156 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin decreased one basis point during the year ended December 31,
13
32
Interest Expense - Deposits
Interest on demand deposits decreased $3.0 million due to a decrease in average rates from 0.72% during the year ended December 31,
2011, to 0.49% during the year ended December 31, 2012. The average interest rates decreased due to lower overall market rates of
interest since 2011 and because the Company chose to pay lower rates during 2012 when compared to 2011. Market rates of interest
on checking and money market accounts have been decreasing since late 2008 when the FRB began reducing short-term interest rates.
Interest on demand deposits increased $2.1 million due to an increase in average balances from $1.11 billion during the year ended
December 31, 2011, to $1.46 billion during the year ended December 31, 2012. The increase in average balances of demand deposits
was primarily a result of demand deposits assumed in the Sun Security Bank and InterBank FDIC-assisted transactions in 2011 and
2012. Also contributing to the increase was 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. Average noninterest-bearing
demand balances increased from $307 million for the year ended December 31, 2011, to $386 million for the year ended December 31,
2012.
Interest expense on time deposits decreased $6.5 million as a result of a decrease in average rates of interest from 1.47% during the
year ended December 31, 2011, to 1.00% during the year ended December 31, 2012. 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 increased $1.7 million due to an increase in average balances of time deposits from $1.25 billion
during the year ended December 31, 2011, to $1.36 billion during the year ended December 31, 2012. The increase in average
balances of time deposits was primarily a result of time deposits assumed in the Sun Security Bank and InterBank FDIC-assisted
transactions during 2011 and 2012. As previously mentioned, the increase in average balances of time deposits was partly offset by
the customer preference to transition from time deposits to demand deposits. Also offsetting the increase was the reduction of the
balance of brokered deposits, primarily CDARS accounts, of $145.5 million from December 31, 2011 to December 31, 2012.
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 fully determined, the Company expects interest costs associated with demand deposits
may increase as a result of competitor responses to this change.
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2012 compared to the year ended December 31, 2011, interest expense on FHLBank advances
decreased due to lower average interest rates and lower average balances. Interest expense on FHLBank advances decreased $433,000
due to a decrease in average balances from $159 million during the year ended December 31, 2011, to $145 million during the year
ended December 31, 2012. Interest expense on FHLBank advances decreased $379,000 due to a decrease in average interest rates
from 3.29% in the year ended December 31, 2011, to 3.05% in the year ended December 31, 2012. 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 $376,000 due to a decrease in average
balances from $304 million during the year ended December 31, 2011, to $266 million during the year ended December 31, 2012.
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 short-term borrowings and structured repurchase
agreements increased $21,000 due to a slight increase in average rates on short-term borrowings and structured repurchase agreements
from the year ended December 31, 2011, to the year ended December 31, 2012.
Interest expense on subordinated debentures issued to capital trust increased $48,000 due to an increase in average rates from 1.84% in
the year ended December 31, 2011, to 1.99% in the year ended December 31, 2012. 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, 2012 increased $1.6 million to $165.1 million compared to $163.5 million for
the year ended December 31, 2011. Net interest margin was 4.61% for the year ended December 31, 2012, compared to 5.17% in 2011,
a decrease of 56 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 FDIC-assisted transactions and the resulting increases to accretable yield which was
discussed previously in “Interest Income – Loans” and is discussed in Note 4 of the accompanying audited financial statements. The
impact of these changes on the years ended December 31, 2012 and 2011 were increases in interest income of $36.2 million and $49.2
million, respectively, and increases in net interest margin of 101 basis points and 156 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin decreased one basis point during the year ended December 31,
13
2012. During 2011 and 2012, lower-rate transaction deposits increased as customers added to existing accounts or new customer
accounts were opened, while higher-rate brokered deposits decreased and retail time deposits renewed at lower rates of interest.
While retail certificates of deposit increased over the year-ago quarter because of the deposits assumed in the Sun Security Bank and
InterBank FDIC-assisted acquisitions, those assumed were at relatively low market rates. The former InterBank generally paid above-
market rates on its certificates of deposit. We have elected to reduce those rates as deposits have matured. The Company has also
experienced decreases in yield on loans and investments, excluding the yield accretion income discussed above, when compared to the
year-ago quarter. Existing loans continue to repay, and in many cases new loans originated are at rates which are lower than the rates
on those repaying loans and may be lower than existing portfolio rates.
The Company's overall interest rate spread decreased 53 basis points, or 10.5%, from 5.06% during the year ended December 31, 2011,
to 4.53% during the year ended December 31, 2012. The decrease was due to an 89 basis point decrease in the weighted average yield
on interest-earning assets partially offset by a 36 basis point decrease in the weighted average rate paid on interest-bearing liabilities.
The Company's overall net interest margin decreased 56 basis points, or 10.8%, from 5.17% for the year ended December 31, 2011, to
4.61% for the year ended December 31, 2012. In comparing the two years, the yield on loans decreased 122 basis points while the
yield on investment securities and other interest-earning assets decreased 53 basis points. The rate paid on deposits decreased 38 basis
points, the rate paid on FHLBank advances decreased 24 basis points, the rate paid on short-term borrowings remained unchanged,
and the rate paid on subordinated debentures issued to capital trust increased 15 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 increased $8.6 million, from $35.3 million during the year ended December 31, 2011, to $43.9
million during the year ended December 31, 2012. The allowance for loan losses decreased $583,000, or 1.4%, to $40.6 million at
December 31, 2012, compared to $41.2 million at December 31, 2011. Net charge-offs were $44.5 million in the year ended
December 31, 2012, versus $35.6 million in the year ended December 31, 2011. Eleven relationships made up $28.4 million of the net
charge-off total for the year ended December 31, 2012. General market conditions, and more specifically, real estate, absorption rates
and unique circumstances related to individual borrowers and projects also contributed to the level of provisions and charge-offs in
both 2011 and 2012. 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, and internal as well as external reviews.
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. Additional procedures provide for 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 2009, 2011 and 2012 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 4 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, 2012 and 2011, an allowance for loan losses was established for loan pools exhibiting risks of loss totaling $17,000 and $30,000,
respectively. Because of the loss sharing agreements, only 20% of the anticipated losses 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 2.21% and 2.33% at December 31, 2012 and 2011, respectively. Management considers the allowance for loan losses adequate to
14
33
cover losses inherent in the Company's loan portfolio at December 31, 2012, 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, Sun Security Bank and InterBank 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, FDIC-supported TeamBank, Vantus Bank, Sun Security Bank and InterBank assets were initially recorded at their
estimated fair values as of their acquisition dates of March 20, 2009, September 4, 2009, October 7, 2011 and April 27, 2012,
respectively. The overall performance of the FDIC-covered loan pools has been better than original expectations as of the acquisition
dates.
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 non-performing assets, at December 31, 2012 were $72.6 million, a decrease of $1.8
million from $74.4 million at December 31, 2011. Non-performing assets as a percentage of total assets were 1.84% at December 31,
2012, compared to 1.96% at December 31, 2011.
Compared to December 31, 2011, non-performing loans decreased $5.0 million to $22.5 million and foreclosed assets increased $3.2
million to $50.1 million. Commercial real estate loans comprised $8.3 million, or 37.0%, of the total $22.5 million of non-performing
loans at December 31, 2012. Other commercial loans comprised $6.2 million, or 27.8%, of the total $22.5 million of non-performing
loans at December 31, 2012. One-to-four family residential loans comprised $4.3 million, or 18.9% of the total $22.5 million of non-
performing loans at December 31, 2012.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2012, 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
One- to four-family construction
$
186 $
-- $
-- $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
6,661
2,655
--
7,238
--
6,204
3,472
1,081
3,465
8,586
--
6,828
4,219
12,459
5,855
2,364
(196)
(832)
--
(797)
--
--
--
(134)
(In Thousands)
(172) $
(191)
--
--
(1,247)
--
--
(50)
(611)
(3,403)
(4,348)
--
(4,423)
(2,950)
(5,978)
(18)
(249)
(3,008)
(3,112)
--
(1,488)
(1,269)
(3,312)
(2,047)
(363)
(3,326)
(478)
--
--
2
2,471
--
(1,854)
4.257
--
(1,049)
(964)
(912)
--
8,324
6,248
1,176
--
$
--
$
(14) $
Total
$
27,497 $
43,776 $
(1,959) $
(2,271) $
(21,369) $
(14,599) $
(8,597) $
22,478
At December 31, 2012, the land development category of non-performing loans included three loans. The largest relationship in this
category, which was added during the year, totaled $2.1 million, or 84.5% of the total category, and was collateralized by land located
in the Rogers, Arkansas area. The one- to four-family residential category included 28 loans, 21 of which were added during the year.
None of the loans added to the one- to four-family residential category during 2012 were included in borrower relationships that were
larger than $700,000. The commercial real estate category included nine loans, seven of which were added during the year. The
largest two relationships in this category, which were added during the year, totaled $5.7 million, or 68.2% of the total category, and
are collateralized by hotels. The other commercial 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 $2.6 million, or 41.9% of the total category, and was
collateralized by stock.
Foreclosed Assets. Of the total $68.9 million of foreclosed assets at December 31, 2012, $18.7 million represents the fair value of
foreclosed assets acquired in the FDIC-assisted transactions in 2009, 2011 and 2012. 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.
Foreclosed assets have increased since the economic recession began in 2008. During the year, economic growth was slow and real
15
34
cover losses inherent in the Company's loan portfolio at December 31, 2012, 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.
estate markets did not experience a recovery. Because of this, we experienced continued higher levels of additions to foreclosed assets
during 2012. Because sales of foreclosed properties have been slower than additions, total foreclosed assets increased. Activity in
foreclosed assets during the year ended December 31, 2012, was as follows:
Non-performing Assets
Former TeamBank, Vantus Bank, Sun Security Bank and InterBank 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, FDIC-supported TeamBank, Vantus Bank, Sun Security Bank and InterBank assets were initially recorded at their
estimated fair values as of their acquisition dates of March 20, 2009, September 4, 2009, October 7, 2011 and April 27, 2012,
respectively. The overall performance of the FDIC-covered loan pools has been better than original expectations as of the acquisition
dates.
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 non-performing assets, at December 31, 2012 were $72.6 million, a decrease of $1.8
million from $74.4 million at December 31, 2011. Non-performing assets as a percentage of total assets were 1.84% at December 31,
2012, compared to 1.96% at December 31, 2011.
Compared to December 31, 2011, non-performing loans decreased $5.0 million to $22.5 million and foreclosed assets increased $3.2
million to $50.1 million. Commercial real estate loans comprised $8.3 million, or 37.0%, of the total $22.5 million of non-performing
loans at December 31, 2012. Other commercial loans comprised $6.2 million, or 27.8%, of the total $22.5 million of non-performing
loans at December 31, 2012. One-to-four family residential loans comprised $4.3 million, or 18.9% of the total $22.5 million of non-
performing loans at December 31, 2012.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2012, was as follows:
One- to four-family construction
$
186 $
-- $
-- $
--
$
--
$
(14) $
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)
(172) $
(191)
--
--
--
--
(50)
(611)
(3,403)
(4,348)
--
(4,423)
(2,950)
(5,978)
(18)
(249)
(3,008)
(3,112)
--
(1,488)
(1,269)
(3,312)
(2,047)
(363)
(3,326)
(478)
--
--
(1,049)
(964)
(912)
2,471
--
2
--
--
8,324
6,248
1,176
(797)
(1,247)
(1,854)
4.257
6,661
2,655
7,238
--
--
6,204
3,472
1,081
3,465
8,586
--
6,828
4,219
12,459
5,855
2,364
(196)
(832)
--
--
--
--
(134)
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
Total
$
27,497 $
43,776 $
(1,959) $
(2,271) $
(21,369) $
(14,599) $
(8,597) $
22,478
At December 31, 2012, the land development category of non-performing loans included three loans. The largest relationship in this
category, which was added during the year, totaled $2.1 million, or 84.5% of the total category, and was collateralized by land located
in the Rogers, Arkansas area. The one- to four-family residential category included 28 loans, 21 of which were added during the year.
None of the loans added to the one- to four-family residential category during 2012 were included in borrower relationships that were
larger than $700,000. The commercial real estate category included nine loans, seven of which were added during the year. The
largest two relationships in this category, which were added during the year, totaled $5.7 million, or 68.2% of the total category, and
are collateralized by hotels. The other commercial 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 $2.6 million, or 41.9% of the total category, and was
collateralized by stock.
Foreclosed Assets. Of the total $68.9 million of foreclosed assets at December 31, 2012, $18.7 million represents the fair value of
foreclosed assets acquired in the FDIC-assisted transactions in 2009, 2011 and 2012. 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.
Foreclosed assets have increased since the economic recession began in 2008. During the year, economic growth was slow and real
15
Beginning
Balance,
January 1
$
1,630
15,573
13,634
2,747
1,849
7,853
2,290
85
1,211
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
(In Thousands)
Ending
Balance,
December 31
$
27 $
6,770
2,355
3,764
5,066
4,633
6,559
90
2,658
(1,296) $
(4,273)
(565)
--
(5,499)
(3,278)
(4,876)
(15)
(3,398)
327 $
35
125
--
11
12
--
--
--
(61) $
(958)
(1,491)
--
(227)
(1,988)
(1,235)
--
--
627
17,147
14,058
6,511
1,200
7,232
2,738
160
471
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Total
$
46,872
$
31,922 $
(23,200) $
510 $
(5,960) $
50,144
At December 31, 2012, the subdivision construction category of foreclosed assets included 46 properties, the largest of which was
located in the St. Louis, Mo. metropolitan area and had a balance of $3.6 million, or 20.6% of the total category. Of the total dollar
amount in the subdivision construction category, 16.4% and 15.6% is located in Springfield, Mo., and Branson, Mo., respectively.
The land development category of foreclosed assets included 26 properties, the largest of which had a balance of $2.3 million, or
16.3% of the total category. Of the total dollar amount in the land development category, 42.1% and 32.0% was located in the
Branson, Mo. area and in northwest Arkansas, respectively, including the largest property previously mentioned.
As discussed below in the non-interest expense section, the $6.0 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.
16
35
Potential Problem Loans. Potential problem loans decreased $4.9 million during the year ended December 31, 2012 from $54.3
million at December 31, 2011 to $49.4 million at December 31, 2012. 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, 2012,
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
$
144 $
691 $
-- $
(142) $
-- $
--
$
(283) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
6,024
3,691
--
7,665
7,640
25,799
3,318
45
8,364
23,223
--
6,647
21,228
20,220
4,934
367
(918)
(3,450)
--
(4,045)
(10,521)
(5,699)
(825)
(26)
(2,931)
(6,919)
--
(4,044)
(4,852)
(5,413)
(2,774)
(94)
(3,553)
(804)
--
(177)
(2,602)
(842)
--
(20)
(4,539)
(6,588)
--
(199)
(1,478)
(9,370)
(1,136)
(20)
(795)
(339)
--
(871)
(928)
(2,782)
(475)
(123)
410
1,652
8,814
--
4,976
8,487
21,913
3,042
129
Total
$
54,326 $
85,674 $
(25,484) $
(27,169) $
(7,998) $
(23,330) $
(6,596) $
49,423
At December 31, 2012, the commercial real estate category of potential problem loans included 16 loans. The largest two
relationships in this category, which were added during 2011 and 2012, respectively, had balances of $5.0 million and $4.4 million,
respectively, or 42.8% of the total category. One relationship was collateralized by properties located in southwest Missouri and the
other relationship was collateralized by property located in St. Louis, Mo. The land development category included seven loans, five
of which were added during the year. The largest relationship in this category, which was added during the year, was $6.0 million, or
67.9% of the total catgegory and is collateralized by property in the Branson, Mo., area. The other residential category included five
loans, all of which were added during the year. The largest relationship in this category, totaled $3.7 million, or 44.1% of the total
category, and was collateralized by condominiums located in the St. Louis area. The one- to four-family residential category
included 42 loans, 22 of which were added during the year. The largest relationship in this category, which was added during 2011
and included fifteen loans, totaled $1.1 million, or 22.8% of the total category, and was collateralized by over 30 separate properties in
southwest Missouri.
Non-Interest Income
Non-interest income for the year ended December 31, 2012 was $46.0 million compared with $4.1 million for the year ended
December 31, 2011. The increase of $41.9 million, or 1013.6%, was primarily the result of the following items:
Initial gains recognized on business acquisitions: The initial gain recognized on business acquisitions increased $14.8 million from
the year ended December 31, 2011. During the quarter ended June 30, 2012, the Bank recognized a one-time gain on the FDIC-
assisted acquisition of InterBank of $31.3 million (pre-tax). In the prior year, the Bank recognized a one-time gain of $16.5 million
(pre-tax) on the FDIC-assisted acquisition of Sun Security Bank.
Amortization of indemnification asset: There was a smaller decrease to non-interest income from amortization related to business
acquisitions compared to the year ended December 31, 2011. The net amortization, an amount which reduces net interest
income, decreased $19.1 million from the prior year. As previously described under “Net Interest Income,” due to the increase in
cash flows expected to be collected from the TeamBank, Vantus Bank, Sun Security Bank and InterBank FDIC-covered loan
portfolios, $29.9 million of amortization (decrease in non-interest income) was recorded in the year ended December 31, 2012,
relating to reductions of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as
indemnification assets. This amortization (decrease in non-interest income) amount was down $13.9 million from the $43.8 million
that was recorded in the year ended December 31, 2011, relating to reductions of expected reimbursements under the loss sharing
agreements with the FDIC. Offsetting this, the Bank had additional income from the accretion of the discount on the indemnification
assets related to the FDIC-assisted acquisitions involving Sun Security Bank, which was completed in October 2011, and InterBank
17
36
Potential Problem Loans. Potential problem loans decreased $4.9 million during the year ended December 31, 2012 from $54.3
million at December 31, 2011 to $49.4 million at December 31, 2012. 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, 2012,
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
$
144 $
691 $
-- $
(142) $
-- $
--
$
(283) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
6,024
3,691
--
7,665
7,640
25,799
3,318
45
8,364
23,223
--
6,647
21,228
20,220
4,934
367
(918)
(3,450)
--
(4,045)
(10,521)
(5,699)
(825)
(26)
(2,931)
(6,919)
--
(4,044)
(4,852)
(5,413)
(2,774)
(94)
(3,553)
(804)
--
(177)
(2,602)
(842)
--
(20)
(4,539)
(6,588)
--
(199)
(1,478)
(9,370)
(1,136)
(20)
(795)
(339)
--
(871)
(928)
(2,782)
(475)
(123)
410
1,652
8,814
--
4,976
8,487
21,913
3,042
129
Total
$
54,326 $
85,674 $
(25,484) $
(27,169) $
(7,998) $
(23,330) $
(6,596) $
49,423
At December 31, 2012, the commercial real estate category of potential problem loans included 16 loans. The largest two
relationships in this category, which were added during 2011 and 2012, respectively, had balances of $5.0 million and $4.4 million,
respectively, or 42.8% of the total category. One relationship was collateralized by properties located in southwest Missouri and the
other relationship was collateralized by property located in St. Louis, Mo. The land development category included seven loans, five
of which were added during the year. The largest relationship in this category, which was added during the year, was $6.0 million, or
67.9% of the total catgegory and is collateralized by property in the Branson, Mo., area. The other residential category included five
loans, all of which were added during the year. The largest relationship in this category, totaled $3.7 million, or 44.1% of the total
category, and was collateralized by condominiums located in the St. Louis area. The one- to four-family residential category
included 42 loans, 22 of which were added during the year. The largest relationship in this category, which was added during 2011
and included fifteen loans, totaled $1.1 million, or 22.8% of the total category, and was collateralized by over 30 separate properties in
southwest Missouri.
Non-Interest Income
Non-interest income for the year ended December 31, 2012 was $46.0 million compared with $4.1 million for the year ended
December 31, 2011. The increase of $41.9 million, or 1013.6%, was primarily the result of the following items:
Initial gains recognized on business acquisitions: The initial gain recognized on business acquisitions increased $14.8 million from
the year ended December 31, 2011. During the quarter ended June 30, 2012, the Bank recognized a one-time gain on the FDIC-
assisted acquisition of InterBank of $31.3 million (pre-tax). In the prior year, the Bank recognized a one-time gain of $16.5 million
(pre-tax) on the FDIC-assisted acquisition of Sun Security Bank.
Amortization of indemnification asset: There was a smaller decrease to non-interest income from amortization related to business
acquisitions compared to the year ended December 31, 2011. The net amortization, an amount which reduces net interest
income, decreased $19.1 million from the prior year. As previously described under “Net Interest Income,” due to the increase in
cash flows expected to be collected from the TeamBank, Vantus Bank, Sun Security Bank and InterBank FDIC-covered loan
portfolios, $29.9 million of amortization (decrease in non-interest income) was recorded in the year ended December 31, 2012,
relating to reductions of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as
indemnification assets. This amortization (decrease in non-interest income) amount was down $13.9 million from the $43.8 million
that was recorded in the year ended December 31, 2011, relating to reductions of expected reimbursements under the loss sharing
agreements with the FDIC. Offsetting this, the Bank had additional income from the accretion of the discount on the indemnification
assets related to the FDIC-assisted acquisitions involving Sun Security Bank, which was completed in October 2011, and InterBank
17
which was completed in April 2012. Income from the accretion of the discount was $11.1 million for the year ended December 31,
2012, an increase of $5.1 million from the $6.0 million recognized in the prior year.
Securities Gains and Impairments: Realized gains on sales of available-for-sale securities, net of impairment losses, increased $2.2
million from the year ended December 31, 2011. During the years ended December 31, 2012 and 2011, losses totaling $680,000 and
$615,000, respectively, were recorded as a result of impairment write-downs in the value of an investment in a non-agency CMO.
The impairment write-downs recognized during 2012 reduced the book value of this security to zero.
Gains on sales of single-family loans: Gains on sales of single-family loans increased $2.0 million from the year ended December 31,
2011. This was due to an increase in originations (primarily refinancings) of fixed-rate loans due to lower fixed rates, which were
then sold in the secondary market.
Tax credits: The Bank sold or utilized several state tax credits during the year ended December 31, 2012, which resulted in a gain of
$1.1 million.
Interest rate derivative income: The Company recognized non-interest income of $1.2 million during the period related to its matched
book interest rate derivatives program. The Company provides interest rate derivatives to certain qualifying customers in order to
facilitate their respective interest rate management objectives. Those interest rate swaps are economically 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. However, the Company does not account for these transactions as hedges. The Company earns non-interest income
related to the derivatives it provides to its customers, which represents compensation for credit risk and administrative costs associated
with making a market in derivatives.
Service charges and ATM fees: Service charges and ATM fees during the year ended December 31, 2012 increased by $1.0 million
compared to the year ended December 31, 2011.
Non-Interest Expense
Total non-interest expense increased $15.1 million, or 15.5%, from $97.5 million in the year ended December 31, 2011, to $112.6
million in the year ended December 31, 2012. The Company’s efficiency ratio for the year ended December 31, 2012, was 53.03%,
down from 59.54% in 2011 due to the gain recognized on the FDIC-assisted acquisition, partially offset by increases in non-interest
expense described below. The Company’s ratio of non-interest expense to average assets decreased from 2.99% for the year ended
December 31, 2011, to 2.98% for the year ended December 31, 2012. The following were key items related to the increase in non-
interest expense for the year ended December 31, 2012 as compared to the year ended December 31, 2011:
Sun Security Bank FDIC-assisted transaction: Non-interest expense increased $4.7 million for the year ended December 31, 2012
when compared to the year ended December 31, 2011, due to the operating costs related to the operations acquired in the FDIC-
assisted acquisition involving the former Sun Security Bank on October 7, 2011. Of this amount, $497,000 related to non-recurring
acquisition-related costs incurred during the first quarter of 2012, primarily salaries ($127,000) and occupancy and equipment
expenses ($215,000).
InterBank FDIC-assisted acquisition: Non-interest expense increased $4.7 million for the year ended December 31, 2012, when
compared to the year ended December 31, 2011, due to operating costs related to the operations acquired in the FDIC-assisted
acquisition involving the former InterBank on April 27, 2012. Of this amount, $2.4 million related to non-recurring acquisition-
related expenses incurred during the second and third quarters of 2012, primarily related to salaries and benefits ($587,000), computer
license and support ($541,000) and legal and other professional fees ($424,000).
Other operating expenses: Other operating expenses increased $2.5 million from the prior year primarily due to increases in expenses
to originate loans, amortization of the core deposit intangible, contributions and other expenses.
Partnership tax credit: 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, 2012, tax credits used to reduce the
Company’s tax expense totaled $7.4 million, up $2.7 million from $4.7 million for the year ended December 31, 2011. These tax
credits resulted in corresponding amortization of $5.8 million during the year ended December 31, 2012, up $1.8 million from $4.0
million for the year ended December 31, 2011. 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.
18
37
New banking centers: Continued internal growth of the Company since the year ended December 31, 2011, caused an increase in
non-interest expense during the year ended December 31, 2012. The Company opened two retail banking centers in the St. Louis, Mo.,
market area – one in O’Fallon, Mo., in February 2012 and one in Affton, Mo., in December 2011. The operation of these two new
locations increased non-interest expense for the year ended December 31, 2012, by $568,000 over the same period in 2011.
Foreclosure-related expenses: Partially offsetting the above increases was a decrease in expenses on foreclosed assets of $3.1 million
for the year ended December 31, 2012, when compared to the year ended December 31, 2011, primarily due to the prior year write-
downs of carrying values discussed previously. The discount on foreclosed assets acquired through the 2009, 2011 and 2012 FDIC-
assisted acquisitions recognized as income decreased $356,000. These amounts were partially offset by an increase in expenses on
foreclosed properties of $941,000 due to higher levels of foreclosed properties held.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income (from continuing operations) was 19.4% and 14.9% for the years ended
December 31, 2012 and 2011, 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. The Company’s tax rate, however, was higher than in recent periods in the year ended
December 31, 2012, due to the significant gain recognized on the FDIC-assisted transaction completed in 2012, and the gains
recognized on the sales of the Travel and Insurance business units in 2012. In future periods, the Company expects the effective tax
rate to be approximately 12%-18% of pre-tax net income, assuming it continues to maintain or increase its use of investment tax
credits. The Company’s effective tax rate may fluctuate as it is impacted by the level and timing of the Company’s utilization of tax
credits and the level of tax-exempt investments and loans.
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
$3.2 million, $2.3 million and $2.0 million for 2012, 2011 and 2010, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
19
38
Dec. 31,
2012(2)
Yield/
Rate
5.02%
4.95
5.20
5.03
5.24
6.33
5.69
5.39
2.79
0.10
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 463,096
314,630
785,181
219,309
228,109
259,684
56,264
$ 31,643
18,807
56,428
20,802
19,439
19,739
3,305
6.83%
5.98
7.19
9.49
8.52
7.60
5.87
$ 321,325
256,170
690,413
265,102
194,622
210,857
69,425
7.80%
$ 25,076
6.06
15,536
54,698
7.92
33,966 12.81
20,953 10.77
8.01
16,898
5.87
4,074
$ 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
2,326,273
170,163
7.31
2,007,914
171,201
8.53
2,019,361
145,832
7.22
846,197
413,092
22,674
671
2.68
0.16
841,308
311,493
26,962
504
3.20
0.16
760,924
407,377
26,858
501
3.53
0.12
4.35
3,585,562
193,508
5.40
3,160,715
198,667
6.29
3,187,662
173,191
5.43
84,035
336,016
$4,005,613
75,019
261,126
$3,496,860
77,074
263,307
$3,528,043
0.33
1.00
0.62
1.04
1.89
3.50
$ 1,456,172
1,357,741
2,813,913
7,087
13,633
20,720
0.49
1.00
0.74
$ 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
265,718
2,610
0.98
303,944
2,965
0.98
344,861
3,329
0.97
30,929
145,464
617
4,430
1.99
3.05
30,929
159,148
569
5,242
1.84
3.29
30,929
162,378
578
5,516
1.87
3.40
0.78
3,256,024
28,377
0.87
2,859,003
35,146
1.23
2,945,633
47,850
1.62
385,770
11,537
3,653,331
352,282
$4,005,613
306,728
14,693
3,180,424
316,436
$3,496,860
253,699
19,153
3,218,485
309,558
$3,528,043
3.57%
$165,131
4.53%
4.61%
$163,521 5.06%
5.17%
$125,341
3.81%
3.93%
110.1%
110.6%
108.2%
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 $134.7 million, $106.8 million and $70.3 million for 2012,
2011 and 2010, respectively. In addition, average tax-exempt industrial revenue bonds were $22.1 million, $43.8 million and $46.0 million in 2012, 2011 and
2010, respectively. Interest income on tax-exempt assets included in this table was $5.8 million $6.8 million and $5.3 million for 2012, 2011 and 2010,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $5.5 million, $6.4 million and $4.7 million for 2012, 2011 and
2010, respectively.
(2) The yield/rate on loans at December 31, 2012 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 2012 results of operations.
20
39
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, 2012 vs.
December 31, 2011
Year Ended
December 31, 2011 vs.
December 31, 2010
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(26,148)
(4,444)
2
(30,590)
(2,974)
(6,456)
(9,430)
21
48
(379)
$
$
25,110
156
165
25,431
2,086
1,694
3,780
(376)
--
(433)
(In Thousands)
$
(1,038)
(4,288)
167
(5,159)
(888)
(4,762)
(5,650)
(355)
48
(812)
$
26,200
(2,594)
137
23,743
(2,038)
(7,370)
(9,408)
36
(9)
(158)
$
(831)
2,698
(134)
1,733
1,545
(4,194)
(2,649)
(400)
--
(116)
25,369
104
3
25,476
(493)
(11,564)
(12,057)
(364)
(9)
(274)
(9,740)
(20,850)
$
$
2,971
22,460
$
(6,769)
1,610
$
(9,539)
33,282
$
(3,165)
4,898
$
(12,704)
38,180
$
Interest-earning assets:
Loans receivable
Investment securities
Other interest-earning assets
Total interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
Short-term borrowings and
structured repo
Subordinated debentures
issued to capital trust
FHLBank advances
Total interest-bearing
liabilities
Net interest income
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. Net income from continuing operations increased $6.4 million, or 27.3%, compared to the year ended December 31, 2011.
Net income from continuing operations was $29.7 million compared to $23.3 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 4 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.
21
40
Rate/Volume Analysis
Interest Income - Loans
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, 2012 vs.
December 31, 2011
Year Ended
December 31, 2011 vs.
December 31, 2010
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
$
(26,148)
$
25,110
$
$
$
$
25,369
Total interest-earning assets
(30,590)
25,431
Interest-earning assets:
Loans receivable
Investment securities
Other interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
Short-term borrowings and
structured repo
Subordinated debentures
issued to capital trust
FHLBank advances
Total interest-bearing
liabilities
(4,444)
2
(2,974)
(6,456)
(9,430)
21
48
(379)
(9,740)
156
165
2,086
1,694
3,780
(376)
--
(433)
2,971
22,460
(1,038)
(4,288)
167
(5,159)
(888)
(4,762)
(5,650)
(355)
48
(812)
(6,769)
26,200
(2,594)
137
23,743
(2,038)
(7,370)
(9,408)
36
(9)
(158)
(9,539)
33,282
(831)
2,698
(134)
1,733
1,545
(4,194)
(2,649)
(400)
--
(116)
(3,165)
104
3
25,476
(493)
(11,564)
(12,057)
(364)
(9)
(274)
(12,704)
38,180
Net interest income
$
(20,850)
$
$
1,610
$
$
4,898
$
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. Net income from continuing operations increased $6.4 million, or 27.3%, compared to the year ended December 31, 2011.
Net income from continuing operations was $29.7 million compared to $23.3 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 4 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.
21
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. For further discussion about these adjustments, see Note 4 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
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
22
41
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.
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 4 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 during 2011. During 2011, lower-cost checking accounts increased as customers
added to existing accounts or new customer accounts were opened while higher-cost brokered deposits decreased. During 2011, 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 partially offset by 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
23
42
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
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.
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 4 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 considered 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.
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 had not materially changed as of December 31, 2011.
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
24
43
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.
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
25
44
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
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 $4.1 million compared with $24.3 million for the year ended
December 31, 2010. Due to the sale of the Travel and Insurance business units in 2012, certain non-interest income items have been
included in discontinued operations. The decrease of $20.2 million, or 83.0%, 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)
26
45
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.
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 $15.3 million, or 18.7%, from $82.2 million in the year ended December 31, 2010, to $97.5
million in the year ended December 31, 2011. Due to the sale of the Travel and Insurance business units in 2012, certain non-interest
expense items have been included in discontinued operations. 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.
27
46
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income (from continuing operations) was 14.9% and 26.9% 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.
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, 2012, the Company had commitments of approximately $199.6 million to fund loan originations, $286.7 million of
unused lines of credit and unadvanced loans, and $25.4 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,
2012. Additional information regarding these contractual obligations is discussed further in Notes 8, 9, 10, 11, 12, 13, and 16 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)
$ 1,949,246
881,565
1,081
180,416
---
---
1,022
168
$
---
317,388
125,039
---
53,039
---
2,012
---
$
---
4,994
610
---
---
30,929
1,405
---
$ 1,949,246
1,203,947
126,730
180,416
53,039
30,929
4,439
168
$3,013,498
$497,478
$37,938
$3,548,914
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, 2012 and 2011, 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, 2012
December 31, 2011
$426.5 million
$446.6 million
$404.1 million
$72.0 million
$262.1 million
$353.6 million
$380.2 million
$90.9 million
28
47
Statements of Cash Flows. During the years ended December 31, 2012, 2011 and 2010, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during 2012 and 2010 and negative cash
flows from investing activities during 2011. The Company experienced negative cash flows from financing activities during 2012,
2011 and 2010.
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
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 $146.9 million, $101.4 million and $67.6 million during
the years ended December 31, 2012, 2011 and 2010, respectively.
During the year ended December 31, 2012, investing activities provided cash of $241.4 million, primarily due to the cash received
from the FDIC-assisted acquisition and the repayment of investment securities. During the year ended December 31, 2011, investing
activities used cash of $147.9 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 $141.1 million primarily due to 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. Financing activities used cash flows of $364.4 million during the year ended December 31, 2012, primarily due to the
repayment of advances from the FHLBank and reduction of time deposit balances. 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. 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 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.
Total stockholders’ equity at December 31, 2012, was $369.9 million, or 9.4% of total assets. At December 31, 2012, common
stockholders' equity was $311.9 million, or 7.9% of total assets, equivalent to a book value of $22.94 per common share. 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.
At December 31, 2012, the Company’s tangible common equity to total assets ratio was 7.7% as compared to 6.9% at December 31,
2011. The Company’s tangible common equity to total risk-weighted assets ratio was 12.7% at December 31, 2012, compared to
11.5% at December 31, 2011.
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, 2012, the Bank's Tier 1 risk-based capital ratio was 14.7%, total risk-based capital ratio was 15.9%
and the Tier 1 leverage ratio was 8.9%. As of December 31, 2012, 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, 2012, the Company's Tier 1 risk-based capital ratio was 15.7%, total risk-based
capital ratio was 16.9% and the Tier 1 leverage ratio was 9.5%. As of December 31, 2012, 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
29
48
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
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 preferred stock, previously 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 holder of the SBLF Preferred Stock is entitled to receive non-cumulative
dividends, payable quarterly, on each January 1, April 1, July 1 and October 1. The dividend rate, as a percentage of the liquidation
amount, can fluctuate between one percent (1%) and five percent (5%) per annum 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 ($201,374,000). 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 adjusted baseline level, the dividend rate for
2012 was approximately 1.0%. 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, 2012, the Company declared and paid common stock cash dividends of $0.72 per
share (20.3% of net income per common share). 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). The Board of Directors meets regularly to consider
the level and the timing of dividend payments. 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
30
49
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
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, 2012, 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., $201,374,000) 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 generally precluded due to our participation in the CPP beginning in December 2008. Therefore, during the years
ended December 31, 2012 and 2011, the Company did not repurchase any shares of its common stock. During the years ended
December 31, 2012 and 2011, the Company issued 116,479 shares of stock at an average price of $19.49 per share and 25,856 shares
of stock at an average price of $12.05 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.
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-
31
50
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, 2012, 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 would be expected to have an immediate negative impact on Great
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 2013 and we
expect that they will be replaced, in whole or in part, 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
32
51
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. The Company’s
interest rate swaps are discussed further in Note 17 of the accompanying audited financial statements.
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2012. 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.
December 31,
2013
2014
2015
2016
2017
Thereafter
Total
(Dollars In Thousands)
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
$
296,192
0.10 %
---
---
35,306
2.03 %
---
---
348,653
5.16 %
$
---
---
---
---
6,444
6.27%
---
---
$ 132,023
5.13%
267,398
$ 130,235
5.39 %
---
---
5.81%
---
---
$
$
$
Total financial assets
$ 947,549
$ 268,702
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
$
881,565
$ 165,831
0.82 %
$ 1,563,468
$
$
$
$
0.33 %
385,778
---
1,953
1.71 %
180,416
$
0.07 %
3,039
4.68 %
---
---
1.14%
---
---
---
---
1,190
5.46%
---
---
---
---
---
---
---
---
---
---
6,920
6.16%
---
---
147,960
4.47%
$
---
---
---
---
8,455
5.94%
---
---
$ 91,350
---
---
---
---
$ 14,059
6.30%
---
---
$ 139,151
5.00%
4.21%
154,165
$ 127,218
$ 153,977
5.79%
---
---
6.22%
---
---
5.46%
---
--
$
$
$
$
$
$
---
---
2,006
---
733,820
2.69%
920
7.37%
524,615
4.31%
323,059
6.89%
10,095
1.98%
309,045
$ 227,023
$ 307,187
$
1,594,515
59,994
$ 27,850
$ 63,713
1.88%
---
---
---
---
10,905
3.87%
---
---
50,000
4.34%
---
---
2.01%
---
---
---
---
$ 25,884
1.68%
---
---
---
---
$ 86,185
3.81%
---
---
---
---
---
---
3.92%
---
---
---
---
---
---
$
$
4,994
3.04%
---
---
---
---
613
5.45%
---
---
---
---
$ 30,929
1.89%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
296,192
0.10%
2,006
---
805,004
2.80%
920
7.37%
1,383,752
4.65%
1,156,052
6.01%
10,095
1.98%
3,654,021
1,203,947
1.00%
1,563,468
0.33%
385,778
---
126,730
3.89%
180,416
0.07%
53,039
4.36%
30,929
1.89%
3,544,307
2012
Fair Value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
296,192
2,006
805,004
1,084
1,385,045
1,161,172
10,095
1,213,042
1,563,468
385,778
131,280
180,416
58,901
30,929
Total financial liabilities
$ 3,016,219
$ 167,021
$
120,899
$ 53,734
$ 149,898
$ 36,536
_______________
(1)
Available-for-sale debt securities include approximately $652 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan
pools which pay interest and principal monthly to the Company. Of this total, $634 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.
33
52
Repricing
December 31,
2013
2014
2015
2016
(Dollars In Thousands)
2017
Thereafter
Total
2012
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
$
$
296,192
0.10%
---
---
235,241
2.04%
---
---
$ 1,188,826
$
$
4.67%
267,398
5.39%
10,095
1.98%
---
---
---
---
82,339
2.50%
---
---
75,585
4.86%
130,235
5.81%
---
---
---
---
---
---
224,697
2.13%
---
---
42,020
4.39%
154,165
5.79%
---
---
$
$
$
$
$
$
---
---
---
---
81,781
3.18%
---
---
45,786
4.69%
127,218
6.22%
---
---
---
---
---
---
40,913
3.68%
---
---
29,231
3.84%
153,977
5.46%
---
---
$
$
$
$
$
$
$
$
$
$
$
---
---
2,006
---
140,033
5.01%
920
7.37%
2,304
3.54%
$
$
$
$
296,192
0.10%
2,006
---
805,004
2.80%
920
7.37%
$
$
$
$
296,192
2,006
805,004
1,084
$ 1,383,752
$ 1,385,045
4.65%
323,059
$ 1,156,052
$ 1,161,172
6.89%
---
---
6.01%
$
10,095
$
10,095
1.98%
Total financial assets
$ 1,997,752
$
288,159
$
420,882
$
254,785
$
224,121
$ 468,322
$ 3,654,021
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
Periodic repricing GAP
$
881,565
$
175,831
$
59,994
$
27,850
$
53,713
$
0.82%
$ 1,563,468
0.33%
---
---
121,953
3.87%
180,416
0.07%
3,039
4.68%
30,929
1.89%
$
$
$
$
$
1.15%
---
---
---
---
1,190
5.46%
---
---
---
---
---
---
$ 2,781,370
$ (783,618)
$
$
177,021
111,138
$
$
$
$
1.88%
---
---
---
---
905
5.06%
---
---
50,000
$
4.34%
---
---
$
$
2.01%
---
---
---
---
884
5.06%
---
---
---
---
---
---
$
1.76%
---
---
---
---
1,185
5.36%
---
---
---
---
---
---
4,994
3.04%
---
---
385,778
---
613
5.45%
---
---
---
---
---
---
$ 1,203,947
$ 1,213,042
1.00%
$ 1,563,468
$ 1,563,468
$
$
$
$
$
0.33%
385,778
---
126,730
3.89%
180,416
0.07%
53,039
4.36%
30,929
$
$
$
$
$
1.89%
385,778
131,280
180,416
58,901
30,929
110,899
$ 28,734
$ 54,898
$ 391,385
$ 3,544,307
309,983
$
226,051
$
169,223
$ 76,937
$ 109,714
Cumulative repricing GAP
$ (783,618)
$ (672,480) $ (362,497) $ (136,446) $ 32,777
$ 109,714
_______________
(1) Available-for-sale debt securities include approximately $652 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan pools
which pay interest and principal monthly to the Company. Of this total, $634 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.
34
53
54
Great Southern Bancorp, Inc.
Accountants’ Report and Consolidated Financial Statements
December 31, 2012 and 2011
55
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Audit Committee, Board of Directors and Stockholders
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Springfield, Missouri
Springfield, Missouri
We have audited the accompanying consolidated statements of financial condition of Great Southern
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of income,
Bancorp, Inc. as of December 31, 2012 and 2011, 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,
stockholders’ equity and cash flows for each of the years in the three-year period ended December 31,
2012. The Company’s management is responsible for these financial statements. Our responsibility is to
2012. 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.
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
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
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
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,
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
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
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
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, 2012 and 2011, and
respects, the financial position of Great Southern Bancorp, Inc. as of December 31, 2012 and 2011, and
the results of its operations and its cash flows for each of the years in the three-year period ended
the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2012, in conformity with accounting principles generally accepted in the United States of
December 31, 2012, in conformity with accounting principles generally accepted in the United States of
America.
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
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
Board (United States), Great Southern Bancorp, Inc.’s internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by
December 31, 2012, 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
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 11, 2013, expressed an unqualified opinion on the effectiveness of the Company’s internal control
March 11, 2013, expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
over financial reporting.
BKD, LLP
BKD, LLP
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2012 and 2011
(In Thousands, Except Per Share Data)
Assets
Cash
Federal funds sold
Interest-bearing deposits in other financial institutions
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
2012
2011
$
$
107,949
295,855
337
87,911
248,569
43,769
404,141
380,249
807,010
875,411
920
26,829
1,865
28,920
Loans receivable, net of allowance for loan losses of $40,649
and $41,232 at December 31, 2012 and 2011, respectively
2,319,638
2,124,161
FDIC indemnification asset
117,263
108,004
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
12,755
79,560
68,874
102,286
5,811
10,095
—
13,848
85,175
67,621
84,192
6,929
12,088
1,549
Springfield, Missouri
Springfield, Missouri
March 11, 2013
March 11, 2013
Total assets
$
3,955,182
$
3,790,012
56
See Notes to Consolidated Financial Statements
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2012 and 2011
(In Thousands, Except Per Share Data)
Assets
Cash
Interest-bearing deposits in other financial institutions
Federal funds sold
$
$
107,949
295,855
337
87,911
248,569
43,769
2012
2011
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
Loans receivable, net of allowance for loan losses of $40,649
and $41,232 at December 31, 2012 and 2011, respectively
FDIC indemnification asset
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
404,141
380,249
807,010
875,411
920
26,829
1,865
28,920
2,319,638
2,124,161
117,263
108,004
12,755
79,560
68,874
102,286
5,811
10,095
—
13,848
85,175
67,621
84,192
6,929
12,088
1,549
Total assets
$
3,955,182
$
3,790,012
See Notes to Consolidated Financial Statements
57
Liabilities and Stockholders’ 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
2012
2011
$
3,153,193
126,730
$
2,963,539
184,437
179,644
772
53,039
30,929
1,322
2,154
12,128
25,397
3,585,308
216,737
660
53,090
30,929
2,277
1,572
12,184
—
3,465,425
Commitments and Contingencies
—
—
Stockholders’ Equity
Capital stock
Serial preferred stock – SBLF, $.01 par value; authorized
1,000,000 shares; issued and outstanding 2012 and 2011
– 57,943 shares
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding
2012 – 13,596,335 shares, 2011 – 13,479,856 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive gain
Unrealized gain on available-for-sale securities, net of
income taxes of $8,965 and $6,684 at December 31,
2012 and 2011, respectively
Total stockholders’ equity
57,943
57,943
136
18,394
276,751
134
17,183
236,914
16,650
369,874
12,413
324,587
Total liabilities and stockholders’ equity
$
3,955,182
$
3,790,012
58
2
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands, Except Per Share Data)
$
$
Interest Income
Interest Income
Loans
Investment securities and other
Loans
Investment securities and other
Interest Expense
Deposits
Interest Expense
Federal Home Loan Bank advances
Deposits
Short-term borrowings and repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures issued to capital trust
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Net Interest Income
Provision for Loan Losses
Net Interest Income
Net Interest Income After Provision for Loan Losses
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
Commissions
Noninterest Income
Service charges and ATM fees
Commissions
Net gains on loan sales
Service charges and ATM fees
Net realized gains on sales of available-for-sale securities
Net gains on loan sales
Recognized impairment of available-for-sale securities
Net realized gains on sales of available-for-sale securities
Late charges and fees on loans
Recognized impairment of available-for-sale securities
Gain (loss) on derivative interest rate products
Late charges and fees on loans
Gain recognized on business acquisitions
Gain (loss) on derivative interest rate products
Accretion (amortization) of income/expense related to
Gain recognized on business acquisitions
Accretion (amortization) of income/expense related to
Other income
Other income
business acquisitions
business acquisitions
Noninterest Expense
Noninterest Expense
Salaries and employee benefits
Net occupancy expense
Salaries and employee benefits
Postage
Net occupancy expense
Insurance
Postage
Advertising
Insurance
Office supplies and printing
Advertising
Telephone
Office supplies and printing
Legal, audit and other professional fees
Telephone
Expense on foreclosed assets
Legal, audit and other professional fees
Partnership tax credit
Expense on foreclosed assets
Other operating expenses
Partnership tax credit
Other operating expenses
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
59
2012
2012
2011
2011
2010
2010
$
$
170,163
23,345
170,163
193,508
23,345
193,508
20,720
4,430
20,720
2,610
4,430
617
2,610
28,377
617
28,377
165,131
43,863
165,131
121,268
43,863
121,268
1,036
19,087
1,036
5,505
19,087
2,666
5,505
(680)
2,666
1,028
(680)
(38)
1,028
31,312
(38)
31,312
(18,693)
4,779
(18,693)
46,002
4,779
46,002
51,262
20,179
51,262
3,301
20,179
4,476
3,301
1,572
4,476
1,389
1,572
2,768
1,389
4,323
2,768
8,748
4,323
5,782
8,748
8,760
5,782
112,560
8,760
112,560
$
$
171,201
27,466
171,201
198,667
27,466
198,667
26,370
5,242
26,370
2,965
5,242
569
2,965
35,146
569
35,146
163,521
35,336
163,521
128,185
35,336
128,185
896
18,063
896
3,524
18,063
483
3,524
(615)
483
651
(615)
(10)
651
16,486
(10)
16,486
(37,797)
2,450
(37,797)
4,131
2,450
4,131
43,606
15,220
43,606
3,096
15,220
4,840
3,096
1,316
4,840
1,268
1,316
2,270
1,268
3,803
2,270
11,846
3,803
3,985
11,846
6,226
3,985
97,476
6,226
97,476
145,832
27,359
145,832
173,191
27,359
173,191
38,427
5,516
38,427
3,329
5,516
578
3,329
47,850
578
47,850
125,341
35,630
125,341
89,711
35,630
89,711
767
18,652
767
3,765
18,652
8,787
3,765
—
8,787
767
—
—
767
—
—
—
(10,427)
2,018
(10,427)
24,329
2,018
24,329
39,908
13,480
39,908
3,231
13,480
4,463
3,231
1,754
4,463
1,447
1,754
2,158
1,447
2,832
2,158
4,914
2,832
1,240
4,914
6,723
1,240
82,150
6,723
82,150
3
3
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands, Except Per Share Data)
Interest Income
Income from Continuing Operations Before Income Taxes
Loans
Investment securities and other
$
$
Discontinued Operations
Provision for Income Taxes
Interest Expense
Deposits
Net Income from Continuing Operations
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Income from discontinued operations (including gain on
disposal in 2012 of $6,114), net of income taxes of
$2,487, $330 and $304, for the years ended December
31, 2012, 2011 and 2010, respectively
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Net Income
$
$
$
$
$
Net Income Available to Common Shareholders
Noninterest Income
Preferred stock dividends and discount accretion
Commissions
Non-cash deemed preferred stock dividend
Service charges and ATM fees
Net gains on loan sales
Net realized gains on sales of available-for-sale securities
Recognized impairment of available-for-sale securities
Late charges and fees on loans
Basic
Gain (loss) on derivative interest rate products
Gain recognized on business acquisitions
Diluted
Accretion (amortization) of income/expense related to
Earnings Per Common Share
Earnings from Continuing Operations Per Common Share
business acquisitions
Other income
Basic
Diluted
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
Partnership tax credit
Other operating expenses
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
60
2012
2012
2011
2011
2010
2010
$
$
$
$
$
$
$
170,163
54,710
23,345
193,508
10,623
20,720
44,087
4,430
2,610
617
28,377
165,131
4,619
43,863
121,268
48,706
608
1,036
—
19,087
5,505
48,098
2,666
(680)
1,028
3.55
(38)
31,312
3.54
(18,693)
4,779
3.21
46,002
3.20
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
$
$
$
$
$
$
$
171,201
34,840
27,466
198,667
5,183
26,370
29,657
5,242
2,965
569
35,146
163,521
612
35,336
128,185
30,269
2,798
896
1,212
18,063
3,524
26,259
483
(615)
651
1.95
(10)
16,486
1.93
(37,797)
2,450
1.91
4,131
1.89
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
145,832
31,890
27,359
173,191
8,590
38,427
23,300
5,516
3,329
578
47,850
125,341
565
35,630
89,711
23,865
3,403
767
—
18,652
3,765
20,462
8,787
—
767
1.52
—
—
1.46
(10,427)
2,018
1.48
24,329
1.42
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
3
4
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands)
Interest Income
Loans
Net Income
Investment securities and other
Interest Expense
Unrealized appreciation on available-for-
Deposits
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
sale securities, net of taxes (credit) of $3,444,
$4,508 and $(700) for 2012, 2011 and 2010,
respectively
Noncredit component of unrealized gain (loss) on
available-for-sale debt securities for which a
Net Interest Income
portion of an other-than-temporary impairment
Provision for Loan Losses
has been recognized, net of taxes (credit) of $8,
Net Interest Income After Provision for Loan Losses
$287 and $(144) for 2012, 2011 and 2010,
respectively
Noninterest Income
Commissions
Service charges and ATM fees
Other-than-temporary impairment loss recognized
Net gains on loan sales
in earnings on available for sale securities, net of
Net realized gains on sales of available-for-sale securities
taxes (credit) of $(238), $(215) and $0 for 2012,
Recognized impairment of available-for-sale securities
2011 and 2010, respectively
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Less: reclassification adjustment for gains
Gain recognized on business acquisitions
included in net income, net of taxes of $(933),
Accretion (amortization) of income/expense related to
business acquisitions
$(169) and $(3,075) for 2012, 2011 and 2010,
respectively
Other income
Comprehensive 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
Partnership tax credit
Other operating expenses
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
61
2012
2012
2011
2011
$
$
170,163
48,706
23,345
193,508
$
$
171,201
30,269
27,466
198,667
$
$
2010
2010
145,832
23,865
27,359
173,191
20,720
4,430
2,610
6,398
617
28,377
165,131
43,863
121,268
14
1,036
19,087
5,505
2,666
(680)
(442)
1,028
(38)
31,312
(18,693)
4,779
(1,733)
46,002
26,370
5,242
2,965
8,373
569
35,146
163,521
35,336
128,185
533
896
18,063
3,524
483
(615)
(400)
651
(10)
16,486
(37,797)
2,450
(314)
4,131
38,427
5,516
3,329
(1,300)
578
47,850
125,341
35,630
89,711
(267)
767
18,652
3,765
8,787
—
—
767
—
—
(10,427)
2,018
(5,712)
24,329
$
52,943
$
38,461
$
16,586
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
3
5
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
CPP
Preferred
Stock
SBLF
Preferred
Stock
$
$
56,017
—
—
—
463
—
—
—
56,480
—
—
—
1,520
—
—
(58,000)
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
57,943
—
—
—
57,943
—
—
—
—
—
—
$
57,943
Balance, January 1, 2010
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
Balance, December 31, 2011
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.72 per share
SBLF preferred stock dividends accrued (1.0%)
Change in unrealized gain on available-for-sale securities,
net of income taxes of $2,281
Reclassification of treasury stock per Maryland law
Balance, December 31, 2012
See Notes to Consolidated Financial Statements
62
Common
Stock
Common
Stock
Warrants
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
$
134
—
—
—
—
—
—
—
134
—
—
—
—
—
—
—
—
—
—
—
134
—
—
—
—
—
2
$
2,452
—
—
—
—
—
—
—
2,452
—
—
—
—
—
—
—
—
(2,452)
—
—
—
—
—
—
—
—
—
$
$
20,180
—
521
—
—
—
—
—
20,701
—
466
—
—
—
—
—
—
(3,984)
—
—
17,183
—
1,211
—
—
—
—
208,625
23,865
—
(9,676)
(463)
(2,940)
—
610
220,021
30,269
—
(9,697)
(1,520)
(1,772)
(718)
—
—
—
—
331
236,914
48,706
—
(9,753)
(607)
—
1,491
11,500
—
—
—
—
—
(7,279)
—
4,221
—
—
—
—
—
—
—
—
—
8,192
—
12,413
—
—
—
—
4,237
—
$
— $
—
610
—
—
—
—
(610)
—
—
331
—
—
—
—
—
—
—
—
(331)
—
—
1,493
—
—
—
(1,493)
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
—
324,587
48,706
2,704
(9,753)
(607)
4,237
—
$
136
$
— $
18,394
$
276,751
$
16,650
$
— $
369,874
63
6
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands)
2012
2011
2010
Interest Income
Loans
Investment securities and other
Operating Activities
2012
$
$
Net income
Interest Expense
Proceeds from sales of loans held for sale
Deposits
Originations of loans held for sale
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Items not requiring (providing) cash
Subordinated debentures issued to capital trust
Depreciation
Amortization
Compensation expense for stock option
grants
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Provision for loan losses
Net gains on loan sales
Net realized (gains) losses and impairment
Noninterest Income
Commissions
on available-for-sale securities
Service charges and ATM fees
(Gain) loss on sale of premises and
Net gains on loan sales
Net realized gains on sales of available-for-sale securities
equipment
Recognized impairment of available-for-sale securities
Late charges and fees on loans
assets
Gain (loss) on derivative interest rate products
Gain on purchase of additional business
Gain recognized on business acquisitions
units
Accretion (amortization) of income/expense related to
Loss on sale/write-down of foreclosed
business acquisitions
Gain on sale of business units
Amortization of deferred income,
Other income
premiums and discounts
Noninterest Expense
Loss on derivative interest rate products
Deferred income taxes
Salaries and employee benefits
Net occupancy expense
Changes in
Postage
Interest receivable
Insurance
Prepaid expenses and other assets
Advertising
Accrued expenses and other liabilities
Office supplies and printing
Income taxes refundable/payable
Telephone
Legal, audit and other professional fees
Expense on foreclosed assets
Partnership tax credit
activities
Other operating expenses
Net cash provided by operating
170,163
23,345
193,508
$
20,720
4,430
2,610
617
28,377
48,706
269,817
(264,179)
7,159
7,039
2011
$
171,201
27,466
198,667
$
30,269
191,476
(195,081)
26,370
5,242
2,965
569
35,146
5,099
4,361
2010
$
145,832
27,359
173,191
23,865
179,584
(189,269)
38,427
5,516
3,329
578
47,850
3,571
2,087
165,131
43,863
121,268
435
43,863
(5,505)
163,521
486
35,336
128,185
35,336
(3,524)
125,341
461
35,630
89,711
35,630
(3,765)
(1,986)
264
4,968
(31,312)
(6,114)
1,036
19,087
5,505
2,666
(680)
1,028
(38)
31,312
(18,693)
4,779
46,002
18,004
39
13,252
2,765
31,412
(3,124)
11,413
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
132
202
896
18,063
3,524
483
(615)
651
(10)
16,486
13,712
(16,486)
(37,797)
—
2,450
4,131
373
(6,712)
(18)
2,474
48,627
10
(9,304)
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
146,916
101,432
(8,787)
(44)
767
18,652
3,765
8,787
—
767
—
—
588
—
(10,427)
—
2,018
24,329
2,954
21,817
(1,595)
(9,128)
15,063
—
(5,451)
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
67,581
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
64
3
7
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands)
Interest Income
Loans
Investment securities and other
Investing Activities
Net change in loans
Interest Expense
Purchase of loans
Deposits
Proceeds from sale of student loans
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Cash received from purchase of additional
Subordinated debentures issued to capital trust
business units
Cash received from FDIC loss sharing
$
reimbursements
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Proceeds from sale of business units
Purchase of additional business units
Purchase of premises and equipment
Noninterest Income
Proceeds from sale of premises and equipment
Commissions
Proceeds from sale of foreclosed assets
Service charges and ATM fees
Capitalized costs on foreclosed assets
Net gains on loan sales
Net realized gains on sales of available-for-sale securities
Proceeds from maturities, calls and repayments of
Recognized impairment of available-for-sale securities
Late charges and fees on loans
Proceeds from sale of available-for-sale securities
Gain (loss) on derivative interest rate products
Proceeds from maturities, calls and repayments of
Gain recognized on business acquisitions
Accretion (amortization) of income/expense related to
held-to-maturity securities
available-for-sale securities
business acquisitions
Purchase of available-for-sale securities
Purchase of held-to-maturity securities
(Purchase) redemption of Federal Home Loan
Other income
Bank stock
Noninterest Expense
activities
Salaries and employee benefits
Net occupancy expense
Net cash provided by (used in) investing
Postage
Insurance
Advertising
Office supplies and printing
Telephone
Legal, audit and other professional fees
Expense on foreclosed assets
Partnership tax credit
Other operating expenses
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
65
2012
2012
$
170,163
23,345
193,508
(1,425)
(23,457)
20,720
—
4,430
2,610
617
28,377
75,328
49,369
165,131
7,800
43,863
121,268
—
(27,825)
1,728
51,225
(510)
1,036
19,087
5,505
2,666
(680)
1,028
(38)
31,312
945
78,094
$
$
2011
2011
171,201
27,466
198,667
(173,026)
(2,100)
26,370
799
5,242
2,965
569
35,146
66,837
6,709
163,521
—
35,336
128,185
(1)
(19,425)
1,007
896
21,774
18,063
(267)
3,524
483
(615)
651
(10)
16,486
100
21,001
182,900
(18,693)
(155,339)
4,779
—
46,002
151,731
(37,797)
(224,614)
2,450
(840)
4,131
2,578
241,411
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
2,462
43,606
15,220
3,096
(147,853)
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
$
$
2010
2010
145,832
27,359
173,191
110,557
(12,164)
38,427
22,291
5,516
3,329
578
—
47,850
17,486
125,341
—
35,630
89,711
(26)
(29,850)
354
767
31,791
18,652
(1,669)
3,765
8,787
—
45,165
767
296,829
—
—
199,113
(10,427)
(508,464)
2,018
(30,000)
24,329
(349)
39,908
13,480
3,231
141,064
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
3
8
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
Years Ended December 31, 2012, 2011 and 2010
(In Thousands, Except Per Share Data)
(In Thousands)
Interest Income
Loans
Investment securities and other
Financing Activities
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Net decrease in certificates of deposit
Interest Expense
Net increase in checking and savings accounts
Deposits
Repayments of Federal Home Loan Bank advances
Federal Home Loan Bank advances
Net increase (decrease) in short-term borrowings
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Proceeds from Federal Home Loan Bank advances
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
Noninterest Income
Stock options exercised
Commissions
Service charges and ATM fees
Net cash used in financing activities
Net gains on loan sales
Net realized gains on sales of available-for-sale securities
Recognized impairment of available-for-sale securities
Increase (Decrease) in Cash and Cash
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
Cash and Cash Equivalents, Beginning of Year
Equivalents
business acquisitions
Cash and Cash Equivalents, End of Year
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
Partnership tax credit
Other operating expenses
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
66
2012
2012
2011
2011
$
170,163
23,345
193,508
$ (421,977)
156,867
20,720
(52,993)
4,430
(36,981)
2,610
617
800
28,377
—
—
165,131
—
43,863
121,268
571
(12,991)
2,269
1,036
19,087
(364,435)
5,505
2,666
(680)
1,028
(38)
31,312
23,892
380,249
(18,693)
4,779
46,002
404,141
$
$
171,201
27,466
198,667
$ (144,072)
231,875
26,370
(32,293)
5,242
(40,561)
2,965
569
—
35,146
(58,000)
57,943
163,521
(6,436)
35,336
128,185
169
(12,237)
311
896
18,063
(3,301)
3,524
483
(615)
651
(49,722)
(10)
16,486
429,971
(37,797)
2,450
380,249
4,131
$
$
2010
2010
145,832
27,359
173,191
$ (332,387)
216,535
38,427
(17,028)
5,516
(78,224)
3,329
578
—
47,850
—
—
125,341
—
35,630
89,711
(249)
(12,567)
670
767
18,652
(223,250)
3,765
8,787
—
767
(14,605)
—
—
444,576
(10,427)
2,018
429,971
24,329
$
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
3
9
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 to customers primarily located in
Missouri, Iowa, Kansas, Minnesota, 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.
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.
Effective November 30, 2012, Great Southern Bank sold its Great Southern Travel and Great
Southern Insurance divisions. The 2012 operations of the two divisions have been reclassified to
include all revenues and expenses in discontinued operations. The 2011 and 2010 operations have
been restated to reflect the reclassification of revenues and expenses in discontinued operations.
The discontinued operations are discussed further in Note 29.
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.
67
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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
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, GS-RE Holding III, 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 2012 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.
68
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The Company’s consolidated statements of income 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 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.
69
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Discounts and premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated prepayments.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral and prevailing 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
70
13
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Discounts and premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated prepayments.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral and prevailing 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
13
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value
of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogenous loans are collectively evaluated for 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, one during 2011 and one during 2012, 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 acquisitions, 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
71
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 4.
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, 2012, 2011 and 2010.
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.
72
15
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 4.
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, 2012, 2011 and 2010.
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.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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
InterBank
Noncompete agreements
December 31,
2012
2011
(In Thousands)
$
379
—
—
1,368
1,141
2,015
908
—
379
878
51
1,789
1,452
2,365
—
15
$
5,811
$
6,929
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 $152,000 and $292,000 at December 31, 2012 and 2011,
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.
15
73
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, 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.
74
17
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Earnings per share (EPS) were computed as follows:
Net income
Net income available to common
shareholders
Net income from continuing operations
Net income from continuing operations
available to common shareholders
Average common shares outstanding
Average common share stock options
and warrants outstanding
Average diluted common shares
Earnings per common share – basic
Earnings per common share – diluted
Earnings from continuing operations per
common share – basic
Earnings from continuing operations per
common share – diluted
Earnings from discontinued operations per
common share, net of tax – basic
Earnings from discontinued operations per
common share, net of tax – diluted
$
$
$
$
$
$
$
$
$
$
2012
2011
(In Thousands, Except Per Share Data)
2010
$
$
$
$
48,706
48,098
44,087
43,479
13,534
$
$
$
$
30,269
26,259
29,657
25,647
13,462
23,865
20,462
23,300
19,897
13,434
58
164
612
13,592
13,626
14,046
3.55
3.54
3.21
3.20
0.34
0.34
$
$
$
$
$
$
1.95
1.93
1.91
1.89
0.04
0.04
$
$
$
$
$
$
Options to purchase 444,770, 479,098 and 498,674 shares of common stock were outstanding at
December 31, 2012, 2011 and 2010, 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, 2012, 2011 and
2010, respectively.
75
1.52
1.46
1.48
1.42
0.04
0.04
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Stock Option Plans
The Company has stock-based employee compensation plans, which are described more fully in
Note 21. 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, 2012, 2011 and 2010, share-based
compensation expense totaling $435,000, $486,000 and $461,000, 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.
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 2010 was reduced by
approximately $103,000. 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, 2012 and 2011, cash equivalents consisted of interest-bearing
deposits in other financial institutions and federal funds sold. At December 31, 2012, 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.
76
19
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, 2012 and 2011, no valuation allowance
The Company recognizes interest and penalties on income taxes as a component of income tax
was established.
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 17.
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.
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, no valuation allowance
was established.
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 17.
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.
77
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, respectively, was $125.5 million and
$106.2 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 was effective for the Company
January 1, 2012, and did not have a material impact on the Company’s financial position or results
of operations.
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 was effective for the Company January 1, 2012. While early adoption was
permitted, the Company did not choose to do so. The Update did not 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
was effective for the Company January 1, 2012, on a retrospective basis for interim and annual
reporting periods. The new required disclosures are included in the Consolidated Statements of
Comprehensive Income, which follow the Consolidated Statements of Income.
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 was effective for the Company January 1, 2012, on a prospective basis for interim and
annual reporting periods, and did not have a material impact on the Company’s financial position
or results of operations.
78
21
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 was effective for the Company January 1, 2012, on a prospective basis
for interim and annual reporting periods, and did not have a material impact on the Company’s
financial position or results of operations.
In October 2012, the FASB issued ASU No. 2012-06 to amend FASB ASC Topic 805, Business
Combinations. The Update addresses the diversity in practice when subsequently measuring an
indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation
or National Credit Union Administration) acquisition of a financial institution that includes a loss
sharing agreement (indemnification agreement). When a reporting entity recognizes an
indemnification asset as a result of a government-assisted acquisition of a financial institution and
subsequently a change in the cash flows expected to be collected on the indemnification asset
occurs (as a result of a change in cash flows expected to be collected on the assets subject to
indemnification), the reporting entity should subsequently account for the change in the
measurement of the indemnification asset on the same basis as the change in the assets subject to
indemnification. Any amortization of changes in value should be limited to the contractual term of
the indemnification agreement (that is, the lesser of the term of the indemnification agreement and
the remaining life of the indemnified assets). The Update will be effective for the Company
January 1, 2013, and is not expected to have a material impact on the Company’s financial position
or results of operations.
In January 2013, FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope
of Disclosures about Offsetting Assets and Liabilities. The Update clarifies the scope of
transactions that are subject to the disclosures about offsetting. The Update clarifies that ordinary
trade receivables and receivables are not in the scope of Accounting Standards Update No. 2011-
11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically,
Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase
agreements, and securities borrowing and securities lending transactions that are either offset in
accordance with specific criteria contained in FASB Accounting Standards Codification or subject
to a master netting arrangement or similar agreement. The Update will be effective for the
Company January 1, 2013, and is not expected to have a material impact on the Company’s
financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220):
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve
the transparency of reporting reclassifications out of accumulated other comprehensive income.
The amendments in the Update do not change the current requirements for reporting net income or
other comprehensive income in financial statements. All of the information that this Update
requires already is required to be disclosed elsewhere in the financial statements under U.S.
GAAP. The new amendments will require an organization to present (either on the face of the
statement where net income is presented or in the notes) the effects on the line items of net income
22
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
of significant amounts reclassified out of accumulated other comprehensive income–but only if the
item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the
same reporting period. Or, the organization may cross-reference to other disclosures currently
required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP)
to be reclassified directly to net income in their entirety in the same reporting period. The Update
will be effective for the Company January 1, 2013, and is not expected to 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, 2012
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
Equity securities
30,000
3,939
582,039
50,198
114,372
847
$
40
576
14,861
1,295
8,506
1,159
$
—
8
814
—
—
—
$
Fair
Value
30,040
4,507
596,086
51,493
122,878
2,006
$
781,395
$
26,437
$
822
$
807,010
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
80
23
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Additional details of the Company’s collateralized mortgage obligations and mortgage-backed
securities at December 31, 2012, 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
$
$
$
$
$
3,939
6,482
35,431
41,913
9,728
50,202
59,930
7
480,189
480,196
582,039
16,217
565,822
582,039
$
$
$
$
$
576
696
2,494
3,190
845
1,799
2,644
—
9,027
9,027
14,861
1,541
13,320
14,861
$
$
$
$
$
8
$
4,507
— $
—
—
—
302
302
—
512
512
7,178
37,925
45,103
10,573
51,699
62,272
7
488,704
488,711
814
$
596,086
— $
814
17,758
578,328
814
$
596,086
The amortized cost and fair value of available-for-sale securities at December 31, 2012, 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)
$
—
505
10,140
183,925
585,978
847
$
—
520
10,635
193,256
600,593
2,006
$
781,395
$
807,010
81
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The amortized cost and fair values of securities classified as held to maturity were as follows:
Amortized
Cost
December 31, 2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
920
$
164
$
—
$
1,084
Amortized
Cost
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
1,865
$
236
$
—
$
2,101
States and political
subdivisions
States and political
subdivisions
The held-to-maturity securities at December 31, 2012, 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.
Amortized
Cost
Fair
Value
(In Thousands)
After five through ten years
$
920
$
1,084
The amortized cost and fair values of securities pledged as collateral was as follows at
December 31, 2012 and 2011:
2012
2011
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Public deposits
Collateralized borrowing
accounts
Structured repurchase
agreements
Other
$
459,751
$
473,679
$
463,832
(In Thousands)
$
475,622
187,700
189,862
235,323
237,576
64,298
3,760
66,575
3,897
65,658
1,600
67,498
1,678
$
715,509
$
734,013
$
766,413
$
782,374
82
25
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011,
was approximately $106.6 million and $172.6 million, respectively, which is approximately 13.2%
and 19.7% 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.
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, 2012 and 2011:
Description of Securities
Collateralized mortgage
obligations
Mortgage-backed securities
Description of Securities
Collateralized mortgage
obligations
Mortgage-backed securities
States and political
subdivisions
Less than 12 Months
Fair
Value
Unrealized
Losses
2012
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
—
106,136
$
106,136
$
$
—
(814)
(814)
$
$
414
—
414
$
$
(8)
—
(8)
$
414
106,136
$ 106,550
$
$
(8)
(814)
(822)
Less than 12 Months
Fair
Value
Unrealized
Losses
2011
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
3,760
61,720
$
6,436
(110)
(365)
(44)
$
1,460
91,824
$
7,381
(270)
(437)
(859)
$
5,220
153,544
$
13,817
(380)
(802)
(903)
$
71,916
$
(519)
$
100,665
$
(1,566)
$ 172,581
$
(2,085)
83
26
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
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 2012, the Company determined that the impairment of a nonagency collateralized mortgage
obligation with a book value of $680,000 had become other than temporary. Consequently, the
Company recorded a total of $680,000 of pre-tax charges to income. 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. This was the same nonagency collateralized mortgage
obligation that was also determined to be impaired during 2012. During 2010, no securities were
determined to have impairment that had become other than temporary.
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.
84
27
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Other-than-Temporary Impairment
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.
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.
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 2012, the Company determined that the impairment of a nonagency collateralized mortgage
obligation with a book value of $680,000 had become other than temporary. Consequently, the
Company recorded a total of $680,000 of pre-tax charges to income. 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. This was the same nonagency collateralized mortgage
obligation that was also determined to be impaired during 2012. During 2010, no securities were
determined to have impairment that had become other than temporary.
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.
27
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
End of year
Note 3:
Loans and Allowance for Loan Losses
Classes of loans at December 31, 2012 and 2011, included:
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)
FDIC-supported loans, net of discounts (InterBank)
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
85
Accumulated Credit Losses
2012
2011
(In Thousands)
$
3,598
$
2,983
—
680
(102)
4,176
$
—
615
—
3,598
2012
2011
$
(In Thousands)
29,071
35,805
62,559
150,515
83,859
145,458
692,377
267,518
264,631
43,762
82,610
83,815
54,225
77,615
95,483
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
91,519
259,232
2,520,054
(157,574)
(40,649)
(2,193)
2,319,638
$
144,626
—
2,271,543
(103,424)
(41,232)
(2,726)
2,124,161
28
$
$
$
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Classes of loans by aging were as follows:
December 31, 2012
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Total Loans
> 90 Days
Past
Due and
Total
Loans
Current
Receivable Still Accruing
$
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)
FDIC-supported loans, net of
discounts (InterBank)
Less FDIC-supported loans,
178
478
—
—
3,305
2,600
1,346
3,741
2,094
—
690
1,522
185
1,608
1,545
1,539
10,212
31,043
(In Thousands)
$
— $
—
—
—
— $
3
2,471
—
178 $
481
2,471
28,893
35,324
60,088
— 150,515
$
29,071
35,805
62,559
150,515
$
263
—
726
—
153
—
73
242
146
2,352
5,920
77,939
83,859
1,905
8,324
—
4,139
2,110
120
834
220
4,505
10,396
3,741
6,386
2,110
883
2,598
551
140,953
681,981
263,777
258,245
41,652
81,727
81,217
53,674
145,458
692,377
267,518
264,631
43,762
82,610
83,815
54,225
2,077
8,020
11,705
65,910
77,615
669
5,641
7,855
87,628
95,483
384
21,342
23,265
68,254
91,519
4,662
9,395
33,928
91,409
48,802
131,847
210,430
2,388,207
259,232
2,520,054
net of discounts
14,904
7,792
68,931
91,627
432,222
523,849
—
—
—
—
237
—
—
—
—
—
26
449
—
173
—
1,274
347
2,506
1,794
Total legacy loans
$
16,139
$
1,603
$ 22,478 $ 40,220 $1,955,985
$1,996,205
$
712
86
29
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
December 31, 2011
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Total Loans
> 90 Days
Past
Due and
Total
Loans
Current Receivable Still Accruing
$
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
(In Thousands)
$
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 legacy loans
$
15,803
$
2,005
$ 27,497 $ 45,305 $ 1,829,701 $ 1,875,006
$
87
30
—
—
—
—
40
—
—
—
—
—
10
356
—
—
5
150
561
155
406
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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,
2012
2011
(In Thousands)
$
—
3
2,471
—
2,115
1,905
8,324
—
6,249
—
94
385
220
186
6,661
2,655
—
3,848
3,425
6,204
—
1,362
2,110
107
359
174
Total
$
21,766
$
27,091
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 $3,845 for 2012, $5,063 for
2011 and $5,804 for 2010
2012
2011
(In Thousands)
2010
$
41,232
43,863
$
41,487
35,336
$
40,101
35,630
(44,446)
(35,591)
(34,244)
Balance, end of year
$
40,649
$
41,232
$
41,487
88
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The following table presents the activity in the allowance for loan losses by portfolio segment for the
year ended December 31, 2012. 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, 2012:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
$
11,424
$
3,088
$
18,390
$
2,982
$
2,974
$
2,374
$
41,232
(1,626)
(3,203)
227
4,471
(3,579)
347
16,360
(18,010)
701
18,101
(18,027)
882
4,897
(3,082)
307
1,660
(2,390)
1,381
43,863
(48,291)
3,845
$
$
$
$
$
$
$
6,822
$
4,327
$
17,441
$
3,938
2,288
4,532
1
$
$
$
1,089
3,239
$
$
4,990
12,443
— $
9
14,691
$
16,405
279,502
$ 251,113
278,889
$
53,280
$
$
$
48,476
687,663
129,128
$
$
$
$
$
$
96
3,842
—
12,009
201,065
7,997
$
$
$
$
$
$
$
5,096
$
3,025
$
40,649
2,778
2,315
4
10,064
254,567
14,939
$
$
$
$
$
$
156
2,864
$
$
11,397
29,235
3
$
17
980
$ 102,625
219,670
$1,893,580
39,616
$ 523,849
Allowance for Loan Losses
Balance, January 1, 2012
Provision charged to
expense
Losses charged off
Recoveries
Balance,
December 31, 2012
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
89
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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
Allowance for Loan Losses
Balance, January 1, 2011
Provision charged to
expense
Losses charged off
Recoveries
Balance,
December 31, 2011
Ending balance:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired and
accounted for under
ASC 310-30
Construction Residential Real Estate Construction
Business Consumer
Total
(In Thousands)
$
11,483
$
3,866
$
14,336
$
5,852
$
3,281
$
2,669
$
41,487
7,995
(8,333)
279
5,693
(8,018)
1,547
17,859
(13,862)
57
1,020
(4,103)
213
1,459
(2,842)
1,076
1,310
(3,496)
1,891
35,336
(40,654)
5,063
$
$
$
$
$
$
$
11,424
$
3,088
$
18,390
$
2,982
4,989
6,435
$
$
89
2,999
$
$
3,584
14,806
$
$
594
2,358
— $
— $
— $
30
39,519
283,371
109,909
$
$
$
20,802
222,940
25,877
$
$
$
99,254
600,353
157,805
$
$
$
27,592
160,768
40,215
$
$
$
$
$
$
$
2,974
$
2,374
$
41,232
736
2,238
$
$
38
2,336
$
$
10,030
31,172
— $
— $
30
10,720
$
839
$
198,726
225,665
$ 183,183
$ 1,676,280
28,784
$
33,947
$
396,537
90
33
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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
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 impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
$
$
$
(In Thousands)
4,353
7,100
$
$
1,714
2,152
$
$
3,089
11,247
$
$
2,083
3,769
— $
— $
— $
30
40,562
310,272
75,727
$
$
$
25,246
185,600
$
$
72,379
522,539
23,277
$
128,704
$
$
$
45,334
118,257
22,858
$
$
$
$
$
$
784
1,697
800
$
$
$
37
2,632
$
$
12,060
28,597
— $
830
8,340
$
622
$ 192,483
177,525
$ 172,553
$1,486,746
15,215
$ 39,015
$ 304,796
The portfolio segments used in the preceding three tables correspond to the loan classes used in all
other tables in Note 3 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, 2012 and 2011, was 5.39%
and 5.86%, respectively.
91
34
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 $158.4 million and
$170.3 million at December 31, 2012 and 2011, respectively. In addition, available lines of credit on
these loans were $15.7 million and $11.7 million at December 31, 2012 and 2011, 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, 2012, 2011 and 2010:
December 31, 2012
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(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
$
410
2,577
12,009
—
$
410
2,580
13,204
—
$
5,627
6,037
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
6,077
48,476
16,405
7,279
2,785
143
602
235
6,290
49,779
16,405
8,615
2,865
170
682
248
239
688
96
—
550
811
4,990
1,089
2,778
—
22
89
45
Year Ended
December 31, 2012
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
679
8,399
12,614
383
5,174
10,045
45,181
16,951
4,851
3,034
157
654
162
22
143
656
—
295
330
2,176
836
329
5
17
65
15
Total
$
102,625
$ 107,285
$
11,397
$
108,284
$
4,889
92
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 $158.4 million and
$170.3 million at December 31, 2012 and 2011, respectively. In addition, available lines of credit on
these loans were $15.7 million and $11.7 million at December 31, 2012 and 2011, 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, 2012, 2011 and 2010:
December 31, 2012
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2012
Average
Investment
in Impaired
Interest
Income
Loans
Recognized
One- to four-family residential construction
$
410
$
$
$
679
$
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
Non-owner occupied one- to four-family
residential
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
5,627
6,037
2,577
12,009
—
6,077
48,476
16,405
7,279
2,785
143
602
235
410
2,580
13,204
—
6,290
49,779
16,405
8,615
2,865
170
682
248
239
688
96
—
550
811
4,990
1,089
2,778
—
22
89
45
8,399
12,614
383
5,174
10,045
45,181
16,951
4,851
3,034
157
654
162
Total
$
102,625
$ 107,285
$
11,397
$
108,284
$
4,889
22
143
656
—
295
330
2,176
836
329
5
17
65
15
35
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
Total
December 31, 2011
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
$
873
12,999
7,150
—
$
917
14,730
7,317
—
5,481
6,105
11,259
49,961
12,102
4,679
2,110
147
579
174
107,514
$
11,768
55,233
12,102
5,483
2,190
168
680
184
$ 116,877
$
$
12
2,953
594
—
776
1,249
3,562
89
736
22
3
22
12
10,030
December 31, 2010
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2011
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
1,939
10,154
9,983
308
4,748
9,658
34,403
9,475
4,173
2,137
192
544
227
87,941
$
$
39
282
379
—
76
425
1,616
454
125
—
6
10
1
3,413
Year Ended
December 31, 2010
Average
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
93
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
At December 31, 2012, $43.4 million of impaired loans had specific valuation allowances totaling
$11.4 million. At December 31, 2011, all impaired loans had specific valuation allowances
totaling $10.0 million. Previous to the third quarter of 2012, the Company reported all impaired
loans as having specific valuation allowances, even though in many instances the allowance
assigned to a particular loan was actually only the general valuation percentage used for that
particular category of loans. In the third quarter of 2012, the Company began reporting specific
valuation allowances on impaired loans only if the recorded loan balance was greater than the
calculated fair value of the collateral supporting the loan. This change was also factored into the
general valuation allowances recorded by the Company, and did not result in a significant change
to the overall allowance for loan losses recorded by the Company. For impaired loans which were
nonaccruing, interest of approximately $1.8 million, $2.4 million and $2.0 million would have
been recognized on an accrual basis during the years ended December 31, 2012, 2011 and 2010,
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.
The following table presents newly restructured loans during 2012 by type of modification:
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Construction and land development
Other residential
Home equity lines of credit
$
Commercial
Consumer
$
1,291
773
183
—
—
24
—
$
3,199
5,405
309
3,977
19
3,615
39
$
2,271
$
16,563
$
392
—
—
—
—
—
—
392
$
4,882
6,178
492
3,977
19
3,639
39
$
19,226
94
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
At December 31, 2012, the Company had $2.8 million of construction loans, $7.1 million of
residential mortgage loans, $26.9 million of commercial real estate loans, $7.9 million of other
residential loans, $1.9 million of commercial business loans and $167,000 of consumer loans that
were modified in troubled debt restructurings and impaired. Of the total troubled debt
restructurings at December 31, 2012, $38.1 million were accruing interest and $14.6 million were
classified as substandard and $1.0 million were classified as doubtful using the Company’s
internal grading system which is described below. During the previous 12 months, five
commercial real estate loans totaling $1.8 million, two non-owner occupied residential mortgage
loans totaling $406,000, four owner occupied residential mortgage loans totaling $294,000 and one
consumer loan totaling $19,000, were modified as troubled debt restructurings and had payment
defaults subsequent to the modifications. When loans modified as troubled debt restructuring have
subsequent payment defaults, the defaults are factored into the determination of the allowance for
loan losses to ensure specific valuation allowances reflect amounts considered uncollectible. 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 at December 31, 2011.
As of December 31, 2012, borrowers with loans designated as troubled debt restructurings totaling
$1.4 million, including $160,000 of construction loans, $1.2 million of residential mortgage loans,
$49,000 of commercial business loans and $17,000 of consumer loans, met the criteria for
placement back on accrual status. This criteria is a minimum of six months of payment
performance under existing or modified terms.
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, 2012
and 2011, respectively. See Note 4 for further discussion of the acquired loan pools and loss
sharing agreements. The loan grading system is presented by loan class below:
95
38
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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)
FDIC-supported loans, net of
discounts (InterBank)
Satisfactory
Watch
Special
Mention
December 31, 2012
Substandard
(In Thousands)
Doubtful
Total
$
28,662
31,156
47,388
150,515
79,411
132,073
619,387
252,238
253,165
40,977
82,467
83,250
52,076
77,568
95,281
91,519
259,210
$
— $
2,993
3,887
—
792
7,884
42,753
6,793
4,286
675
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
1,913
—
—
—
—
409
1,656
11,284
—
3,656
5,501
30,237
8,487
6,180
2,110
143
565
236
47
202
—
22
$
— $
—
—
—
29,071
35,805
62,559
150,515
—
83,859
—
—
—
1,000
—
—
—
—
—
—
—
—
145,458
692,377
267,518
264,631
43,762
82,610
83,815
54,225
77,615
95,483
91,519
259,232
Total
$ 2,376,343
$
70,063
$ 1,913
$
70,735
$
1,000
$ 2,520,054
96
39
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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)
Satisfactory
Watch
$
21,436
45,754
41,179
119,589
86,725
129,458
542,712
222,940
225,664
57,640
59,237
77,006
46,940
128,875
123,036
144,626
$
2,354
2,701
20,902
—
1,018
5,232
51,757
13,262
5,403
—
—
—
—
—
—
—
December 31, 2011
Special
Mention
(In Thousands)
Substandard
Total
$
— $
—
245
—
186
12,685
6,445
—
$
23,976
61,140
68,771
119,589
—
4,251
91,994
249
13,384
—
638
—
—
—
—
—
—
—
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
144,626
Total
$ 2,072,817
$
102,629
$
14,516
$
81,581
$ 2,271,543
Certain of the Bank’s real estate loans are pledged as collateral for borrowings as set forth in
Notes 9 and 11.
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, 2012
and 2011, loans outstanding to these directors and executive officers are summarized as follows:
97
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Balance, beginning of year
New loans
Payments
Balance, end of year
December 31,
2012
2011
(In Thousands)
$
$
2,294
5,121
(3,120)
4,295
$
$
12,933
2,607
(13,246)
2,294
Note 4: 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
98
41
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 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 2012, 2011 and 2010 was $1.2 million, $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
99
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 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 2012, 2011 and 2010 was
$399,000, $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. During 2012, the Company continued to analyze its estimates of the
fair 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
100
43
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 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 2012, 2011 and 2010 was
$399,000, $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. During 2012, the Company continued to analyze its estimates of the
fair 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
43
recorded the fair value of the acquired loans at their estimated fair value of $163.7 million and the
related FDIC indemnification asset was recorded at its estimated fair value of $67.4 million. A
discount was recorded in conjunction with the fair value of the acquired loans and the amount
accreted to yield during 2012 and 2011 was $1.6 million and $140,000, respectively.
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 and entered into the loss sharing agreement with the FDIC.
InterBank
On April 27, 2012, 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 Inter Savings
Bank, FSB (“InterBank”), a full service bank headquartered in Maple Grove, Minnesota.
The loans and foreclosed assets purchased in the InterBank 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 $60,000 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 $84.0 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 $31.3 million, which was included in Noninterest
Income in the Company’s Consolidated Statement of Income for the year ended December 31,
2012. During 2012, the Company continued to analyze its estimates of the fair 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 $285.5 million and the related FDIC
indemnification asset was recorded at its estimated fair value of $84.0 million. A premium was
recorded in conjunction with the fair value of the acquired loans and the amount amortized to yield
during 2012 was $564,000.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $79.8 million, including $34.9 million of investment
101
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
securities, $34.5 million of cash and cash equivalents, $6.2 million of foreclosed assets, $585,000
of FHLB stock and $2.6 million of other assets. Liabilities with a fair value of $458.7 million were
also assumed, including $456.3 million of deposits and $2.4 million of other liabilities. A
customer-related core deposit intangible asset of $1.0 million was also recorded. Net of the excess
of assets over liabilities, the Bank received approximately $40.8 million in cash from the FDIC and
entered into the loss sharing agreement with the FDIC.
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, 2012 and 2011, increases in expected cash flows
related to the acquired loan portfolios 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,
2012 and 2011, 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:
December 31,
2012
Year Ended
December 31,
2011
(In Thousands)
December 31,
2010
Increase in accretable yield due to increased
cash flow expectations
$
42,567
$
27,069
$
58,951
Decrease in FDIC indemnification asset
as a result of accretable yield increase
(34,054)
(23,821)
(51,888)
102
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The adjustments, along with those made in previous years, impacted the Company’s Consolidated
Statements of Income as follows:
Interest income
Noninterest income
Net impact to pre-tax income
$
$
December 31,
2012
36,186
(29,864)
Year Ended
December 31,
2011
(In Thousands)
$
49,208
(43,835)
6,322
$
5,373
December 31,
2010
$
$
19,452
(17,134)
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.
On an on-going basis the Company estimates the cash flows expected to be collected from the
acquired loan pools. For the loan pools acquired in 2012 and 2011, the cash flow estimates have
increased during 2012. For the loan pools acquired in 2009, the cash flow estimates have
increased, beginning with the fourth quarter of 2010, based on payment histories and reduced loss
expectations of the loan pools. This resulted in increased income that was spread on a level-yield
basis over the remaining expected lives of the loan pools.
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.
The loss sharing agreement on the InterBank transaction includes a clawback provision whereby if
credit loss performance is better than certain pre-established thresholds, then a portion of the
monetary benefit is shared with the FDIC. The pre-established threshold for credit losses is $115.7
million for this transaction. The monetary benefit required to be paid to the FDIC under the
clawback provision, if any, will occur shortly after the termination of the loss sharing agreement,
which in the case of InterBank is 10 years from the acquisition date.
At December 31, 2012, the Bank’s internal estimate of credit performance is expected to be better
than the threshold set by the FDIC in the loss sharing agreement. Therefore, a separate clawback
liability totaling $1.0 million was recorded at December 31, 2012. As changes in the fair values of
the loans and foreclosed assets are determined due to changes in expected cash flows, changes in
the amount of the clawback liability will occur.
103
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
TeamBank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the
TeamBank transaction at December 31, 2012 and 2011. Gross loan balances (due from the
borrower) were reduced approximately $349.5 million since the transaction date because of $215.9
million of repayments by the borrower, $59.0 million of transfers to foreclosed assets and $74.6
million of charge-downs to customer loan balances. Based upon the collectability analyses
performed during the acquisition, we expected certain levels of foreclosures and charge-offs and
actual results have been better than our expectations. As a result, cash flows expected to be
received from the acquired loan pools have increased, resulting in adjustments that were made to
the related accretable yield as described above.
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 sharing value
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2012
Loans
Foreclosed
Assets
(In Thousands)
$
86,657
$
9,056
(134)
(5,120)
(77,615)
3,788
81%
3,051
4,036
(332)
—
—
(7,669)
1,387
82%
1,141
—
—
FDIC indemnification asset
$
6,755
$
1,141
104
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 sharing value
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
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, 2012 and 2011. Gross loan balances (due from the borrower)
were reduced approximately $227.6 million since the transaction date because of $185.9 million of
repayments by the borrower, $15.0 million of transfers to foreclosed assets and $26.7 million of
charge-downs to customer loan balances. Based upon the collectability analyses performed during
the acquisition, we expected certain levels of foreclosures and charge-offs and actual results have
been better than our expectations. As a result, cash flows expected to be received from the
acquired loan pools have increased, resulting in adjustments that were made to the related
accretable yield as described above.
105
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 sharing value
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2012
Loans
Foreclosed
Assets
(In Thousands)
$
103,910
$
4,383
(104)
(5,429)
(95,483)
2,894
78%
2,270
4,343
(240)
—
—
(3,214)
1,169
80%
935
—
—
935
FDIC indemnification asset
$
6,373
$
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 sharing value
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
106
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011. Gross loan balances (due from the
borrower) were reduced approximately $107.5 million since the transaction date because of $69.0
million of repayments by the borrower, $18.0 million of transfers to foreclosed assets and $20.5
million of charge-downs to customer loan balances. Based upon the collectability analyses
performed during the acquisition, we expected certain levels of foreclosures and charge-offs and
actual results have been better than our expectations. As a result, cash flows expected to be
received from the acquired loan pools have increased, resulting in adjustments that were made to
the related accretable yield as described above.
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 sharing value
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2012
Loans
Foreclosed
Assets
(In Thousands)
$
126,933
$
10,980
(1,079)
(4,182)
(91,519)
30,153
76%
23,017
3,345
(2,867)
—
—
(6,227)
4,753
80%
3,785
—
(561)
FDIC indemnification asset
$
23,495
$
3,224
107
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 sharing value
Accretable discount on FDIC indemnification asset
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)
12,626
80%
10,101
(1,811)
FDIC indemnification asset
$
49,925
$
8,290
InterBank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the
InterBank transaction at December 31, 2012. Gross loan balances (due from the borrower) were
reduced approximately $36.4 million since the transaction date because of $26.7 million of
repayments by the borrower and $9.7 million of charge-offs to customer loan balances. Based
upon the collectability analyses performed during the acquisition, we expected certain levels of
foreclosures and charge-offs and actual results have been better than our expectations. As a result,
cash flows expected to be received from the acquired loan pools have increased, resulting in
adjustments that were made to the related accretable yield as described above.
108
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 sharing value
FDIC loss share clawback
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2012
Loans
Foreclosed
Assets
(In Thousands)
$
356,844
$
2,001
2,541
(9,897)
—
—
(259,232)
(1,620)
90,256
81%
73,151
1,000
7,871
(6,893)
381
80%
304
—
—
(93)
211
FDIC indemnification asset
$
75,129
$
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 sharing value
Accretable discount on FDIC indemnification asset
April 27, 2012 –
Acquisition Date
Loans
Foreclosed
Assets
(In Thousands)
$
393,274
$
9,908
3,105
—
(285,458)
(6,216)
110,921
81%
89,669
(8,411)
3,692
80%
2,954
(223)
FDIC indemnification asset
$
81,258
$
2,731
109
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The carrying amount of assets covered by the loss sharing agreement related to the InterBank
transaction at April 27, 2012 (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)
$
$
4,363
—
281,095
—
$
— $
6,216
285,458
6,216
—
—
83,989
83,989
Loans
Foreclosed assets
Estimated loss
reimbursement
from the FDIC
Total covered
assets
$
4,363
$
281,095
$
90,205
$
375,663
On the acquisition date, the preliminary estimate of the contractually required payments receivable
for all FASB ASC 310-30 loans acquired was $19.3 million, the cash flows expected to be
collected were $4.8 million including interest, and the estimated fair value of the loans was $4.4
million. These amounts were determined based upon the estimated remaining life of the
underlying loans, which include the effects of estimated prepayments. At April 27, 2012, 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.
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 $374.0 million, of
which $96.4 million of cash flows were not expected to be collected, and the estimated fair value
of the loans was $281.1 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.
110
53
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Changes in the accretable yield for acquired loan pools were as follows for the years ended
December 31, 2012, 2011 and 2010:
Balance, January 1, 2010
Accretion
Reclassification from
nonaccretable difference(1)
Balance, December 31, 2010
Additions
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2011
Additions
Accretion
Reclassification from nonaccretable
difference(1)
TeamBank
Vantus
Bank
Sun
Security
Bank
InterBank
(In Thousands)
$
31,300
(24,250)
$
39,023
(23,848)
$
— $
—
29,715
36,765
—
(40,010)
17,907
14,662
—
(20,129)
20,621
35,796
—
(30,908)
17,079
21,967
—
(21,437)
—
—
14,990
(2,221)
—
12,769
—
(15,851)
—
—
—
—
—
—
—
—
46,078
(11,998)
17,595
13,008
14,341
8,494
Balance, December 31, 2012
$
12,128
$
13,538
$
11,259
$ 42,574
(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, Vantus Bank, Sun Security Bank and
InterBank for the year ended December 31, 2012, totaling $5.2 million, $4.4 million, $3.6
million and $2.4 million, respectively; for TeamBank and Vantus Bank for the year ended
December 31, 2011, totaling $3.5 million and $4.4 million, respectively; and for TeamBank and
Vantus Bank for the year ended December 31, 2010, totaling $1.8 million and $6.8 million,
respectively.
111
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 5:
Foreclosed Assets Held for Sale
Major classifications of foreclosed assets at December 31, 2012 and 2011, 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
2012
2011
(In Thousands)
$
627
17,147
14,058
6,511
1,200
7,232
2,738
160
471
50,144
18,730
$
1,630
15,573
13,634
2,747
1,849
7,853
2,290
85
1,211
46,872
20,749
$
68,874
$
67,621
Expenses applicable to foreclosed assets for the years ended December 31, 2012, 2011 and 2010,
included the following:
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental
income
2012
2011
(In Thousands)
2010
$
$
(1,603)
6,786
$
3,565
$
(1,504)
10,437
2,913
8,748
$
11,846
$
(1,045)
3,169
2,790
4,914
112
55
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 5:
Foreclosed Assets Held for Sale
Note 6:
Premises and Equipment
Major classifications of foreclosed assets at December 31, 2012 and 2011, were as follows:
Major classifications of premises and equipment at December 31, 2012 and 2011, stated at cost,
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
2012
2011
(In Thousands)
$
$
627
17,147
14,058
6,511
1,200
7,232
2,738
160
471
50,144
18,730
1,630
15,573
13,634
2,747
1,849
7,853
2,290
85
1,211
46,872
20,749
$
68,874
$
67,621
Expenses applicable to foreclosed assets for the years ended December 31, 2012, 2011 and 2010,
included the following:
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental
income
2012
2011
2010
(In Thousands)
$
$
(1,603)
6,786
$
3,565
$
(1,504)
10,437
2,913
8,748
$
11,846
$
(1,045)
3,169
2,790
4,914
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2012
2011
(In Thousands)
$
27,618
66,446
41,676
135,740
33,454
$
22,635
55,425
37,681
115,741
31,549
$
102,286
$
84,192
Note 7:
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, 2012, the Company had
eleven investments, with a net carrying value of $33.9 million. At December 31, 2011, the
Company had eleven investments, with a net carrying value of $28.7 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.
The remaining federal affordable housing tax credits to be utilized over a maximum of 15 years
were $44.2 million as of December 31, 2012, 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 $33.4 million, assuming all projects currently
under construction are completed and funded as planned. The Company’s usage of federal
affordable housing tax credits approximated $5.2 million, $2.6 million and $1.3 million during
2012, 2011 and 2010, respectively. Investment amortization amounted to $4.6 million, $1.9
million and $1.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.
55
113
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012, the
Company had three investments, with a net carrying value of $6.8 million. 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 provides 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
$8.8 million as of December 31, 2012. Amortization of the investments in partnerships is expected
to be approximately $5.9 million. The Company’s usage of federal New Market Tax Credits
approximated $1.7 million, $1.7 million and $1.1 million during 2012, 2011 and 2010,
respectively. Investment amortization amounted to $1.1 million, $1.1 million and $727,000 for the
years ended December 31, 2012, 2011 and 2010, 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.
114
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 8: Deposits
Deposits at December 31, 2012 and 2011, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2011
2012
(In Thousands, Except
Interest Rates)
—
$
385,778
$
330,813
0.33% - 0.61%
0% - .99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,563,468
1,949,246
666,573
426,589
90,539
13,240
5,190
1,816
1,203,947
1,363,727
1,694,540
432,778
628,063
158,696
17,228
26,526
5,708
1,268,999
$
3,153,193
$
2,963,539
The weighted average interest rate on certificates of deposit was 1.00% and 1.29% at
December 31, 2012 and 2011, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater
than $100,000 was approximately $449.0 million and $446.2 million at December 31, 2012 and
2011, respectively. The Bank utilizes brokered deposits as an additional funding source. The
aggregate amount of brokered deposits was approximately $119.1 million and $264.6 million at
December 31, 2012 and 2011, respectively.
At December 31, 2012, scheduled maturities of certificates of deposit were as follows:
2013
2014
2015
2016
2017
Thereafter
Retail
Brokered
(In Thousands)
Total
$
793,096
146,578
58,622
27,850
53,713
4,994
$
88,469
19,253
1,372
—
10,000
—
$
881,565
165,831
59,994
27,850
63,713
4,994
$
1,084,853
$
119,094
$
1,203,947
115
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
A summary of interest expense on deposits for the years ended December 31, 2012, 2011 and
2010, is as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2012
2011
(In Thousands)
2010
$
$
7,087
13,715
(82)
20,720
$
$
7,976
18,467
(73)
26,370
$
$
8,468
30,065
(106)
38,427
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2012 and 2011, consisted of the
following:
December 31, 2012
December 31, 2011
Due In
Amount
2012
2013
2014
2015
2016
2017
2018 and thereafter
$
—
1,081
335
10,065
25,070
85,825
610
122,986
Weighted
Average
Interest
Rate
Amount
(In Thousands)
—%
$
1.71
5.46
3.87
3.81
3.92
5.45
3.89
22,993
281
335
10,065
40,070
100,825
610
Weighted
Average
Interest
Rate
4.41%
5.68
5.47
3.87
4.03
3.92
5.47
175,179
4.02
Unamortized fair value adjustment
3,744
9,258
$
126,730
$
184,437
116
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
A summary of interest expense on deposits for the years ended December 31, 2012, 2011 and
2010, is as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2012
2011
2010
(In Thousands)
$
$
7,087
13,715
(82)
20,720
$
$
7,976
18,467
(73)
26,370
$
$
8,468
30,065
(106)
38,427
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2012 and 2011, consisted of the
following:
Due In
Amount
December 31, 2012
December 31, 2011
Weighted
Average
Interest
Rate
Amount
(In Thousands)
Weighted
Average
Interest
Rate
$
—%
$
22,993
4.41%
2012
2013
2014
2015
2016
2017
2018 and thereafter
—
1,081
335
10,065
25,070
85,825
610
122,986
1.71
5.46
3.87
3.81
3.92
5.45
3.89
Unamortized fair value adjustment
3,744
$
126,730
$
184,437
281
335
10,065
40,070
100,825
610
175,179
9,258
5.68
5.47
3.87
4.03
3.92
5.47
4.02
59
Included in the Bank’s FHLB advances at December 31, 2012 and 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, 2012 and 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, 2012 and 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, 2012 and 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, 2012 and 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.
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. This
advance matured during 2012.
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. This advance was prepaid by the Bank during 2012.
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. This advance was prepaid by the Bank during 2012.
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, 2012 and 2011. Loans with
carrying values of approximately $905.8 million and $768.9 million were pledged as collateral for
outstanding advances at December 31, 2012 and 2011, respectively. The Bank had potentially
available $426.5 million remaining on its line of credit under a borrowing arrangement with the
FHLB of Des Moines at December 31, 2012.
117
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2012 and 2011, are summarized as follows:
Note payable – Community Development
Equity Funds
Securities sold under reverse repurchase agreements
2012
2011
(In Thousands)
$
$
772
179,644
180,416
$
$
660
216,737
217,397
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 0.07% and 0.22% at December 31,
2012 and 2011, respectively. Short-term borrowings averaged approximately $212.7 million and
$250.8 million for the years ended December 31, 2012 and 2011, respectively. The maximum
amounts outstanding at any month end were $226.4 million and $277.7 million, respectively,
during those same periods.
Note 11: Federal Reserve Bank Borrowings
At December 31, 2012 and 2011, the Bank had $446.6 million and $353.6 million, respectively,
available under a line-of-credit borrowing arrangement with the Federal Reserve Bank. The line is
secured primarily by commercial loans. There were no amounts borrowed under this arrangement
at December 31, 2012.
Note 12: Structured Repurchase Agreements
In September 2008, the Company entered into a structured repurchase borrowing transaction for
$50 million. This borrowing bears interest at a fixed rate of 4.34%, matures September 15, 2015,
and has a call provision that allows the repurchase counterparty to call the borrowing quarterly.
The Company pledges investment securities to collateralize this borrowing.
118
61
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 December 31, 2012 and 2011, the book value of these repurchase
agreements was $3.0 million and $3.1 million, respectively.
Note 13: 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 1.91% and 2.03% at December 31, 2012 and 2011,
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 1.76% and 1.77% at December 31, 2012 and
2011, respectively.
119
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
At December 31, 2012 and 2011, subordinated debentures issued to capital trusts are summarized
as follows:
Subordinated debentures
$
30,929
$
30,929
2012
2011
(In Thousands)
Note 14:
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2012 and 2011,
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, 2012 and 2011.
During the years ended December 31, 2012, 2011 and 2010, the provision for income taxes
included these components:
Taxes currently payable
Deferred income taxes
$
Income taxes
Taxes attributable to
discontinued operations
Income tax expense attributable
2012
2011
(In Thousands)
2010
(142)
13,252
13,110
(2,487)
$
14,817
(9,304)
5,513
(330)
$
14,345
(5,451)
8,894
(304)
to continuing operations
$
10,623
$
5,183
$
8,590
120
63
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
At December 31, 2012 and 2011, subordinated debentures issued to capital trusts are summarized
as follows:
Subordinated debentures
$
30,929
$
30,929
2012
2011
(In Thousands)
Note 14:
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2012 and 2011,
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, 2012 and 2011.
During the years ended December 31, 2012, 2011 and 2010, the provision for income taxes
included these components:
2012
2011
(In Thousands)
2010
$
$
$
(142)
13,252
13,110
(2,487)
14,817
(9,304)
5,513
(330)
14,345
(5,451)
8,894
(304)
Taxes currently payable
Deferred income taxes
Income taxes
Taxes attributable to
discontinued operations
Income tax expense attributable
to continuing operations
$
10,623
$
5,183
$
8,590
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
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
December 31,
2012
2011
(In Thousands)
14,227
549
611
—
1,247
4,119
20,753
(3,717)
(2,091)
(3,241)
(1,134)
(8,965)
(21,619)
(274)
(41,041)
$
14,431
439
1,005
155
2,088
5,661
23,779
(1,292)
(2,005)
(3,085)
—
(6,684)
(15,235)
(233)
(28,534)
Net deferred tax liability
$
(20,288)
$
(4,755)
Reconciliations of the Company’s effective tax rates from continuing operations to the statutory
corporate tax rates were as follows:
Tax at statutory rate
Nontaxable interest and
dividends
Tax credits
State taxes
Other
2012
35.0%
(3.5)
(12.5)
0.5
(0.1)
2011
35.0%
(6.3)
(15.2)
0.7
0.7
2010
35.0%
(5.1)
(4.0)
0.8
0.2
19.4%
14.9%
26.9%
63
121
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 15: 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:
• 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.
122
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Recurring Measurements
December 31, 2012
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Small Business Administration loan
pools
States and political subdivisions
Equity securities
Mortgage servicing rights
Interest rate swap asset
Interest rate swap liability
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
Interest rate swap asset
Interest rate swap liability
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)
$
$
$
$
30,040
4,507
596,086
51,493
122,878
2,006
152
2,112
(2,160)
20,060
4,840
641,655
56,492
150,238
295
1,831
292
111
(121)
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
387
—
—
—
$
$
30,040
4,507
596,086
51,493
122,878
2,006
—
—
—
20,060
4,840
641,655
56,492
150,238
295
1,444
—
—
—
—
—
—
—
—
—
152
2,112
(2,160)
—
—
—
—
—
—
—
292
111
(121)
123
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, 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, 2012 and 2011.
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.
Interest Rate Swap Agreements
The fair value is estimated using forward-looking interest rate curves and is calculated using
discounted cash flows that are observable or that can be corroborated by observable market data
and, therefore, are classified within Level 3 of the valuation hierarchy.
124
67
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Level 3 Reconciliation
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, 2011
Additions
Amortization
Balance, December 31, 2011
Additions
Amortization
Balance, December 31, 2012
Balance, January 1, 2011
Net change in fair value
Balance, December 31, 2011
Net change in fair value
Balance, December 31, 2012
Balance, January 1, 2011
Net change in fair value
Balance, December 31, 2011
Net change in fair value
Balance, December 31, 2012
Mortgage
Servicing
Rights
(In Thousands)
$
$
637
21
(366)
292
117
(257)
152
Interest
Rate Swap
Asset
(In Thousands)
$
$
—
111
111
2,001
2,112
Interest
Rate Swap
Liability
(In Thousands)
$
$
—
121
121
2,039
2,160
125
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Nonrecurring Measurements
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, 2012 and 2011:
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)
$
$
$
$
$
$
171
1,482
1,463
2,638
2,392
21,764
4,162
2,186
51
286
44
36,639
11,360
964
3,188
4,298
2,210
4,639
13,354
4,771
3,207
46
258
46
36,981
14,042
126
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
171
1,482
1,463
2,638
2,392
21,764
4,162
2,186
51
286
44
36,639
11,360
964
3,188
4,298
2,210
4,639
13,354
4,771
3,207
46
258
46
36,981
14,042
69
December 31, 2012
Impaired loans
One- to four-family residential construction
Subdivision construction
Land development
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Consumer auto
Consumer other
Home equity lines of credit
Total impaired loans
Foreclosed assets held for sale
December 31, 2011
Impaired loans
One- to four-family residential construction
Subdivision construction
Land development
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Consumer auto
Consumer other
Home equity lines of credit
Total impaired loans
Foreclosed assets held for sale
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, 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.
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.
127
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, are shown in the table above (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, 2012 and 2011, subsequent to their initial transfer to foreclosed assets.
The following disclosure relates to financial assets for which it is not practicable for the Company
to estimate the fair value at December 31, 2012 and 2011.
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 4.
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, 2012 and 2011, the carrying value was $7.9 million and $30.1 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, 2012 and 2011, the carrying value of the FDIC indemnification asset
was $7.3 million and $19.7 million, respectively.
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, 2012 and 2011, the carrying value of the FDIC
indemnification asset was $26.8 million and $58.2 million, respectively.
Under the InterBank 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 (April 27,
2012) and at December 31, 2012, the carrying value of the FDIC indemnification asset was $75.3
million.
128
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, are shown in the table above (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, 2012 and 2011, subsequent to their initial transfer to foreclosed assets.
The following disclosure relates to financial assets for which it is not practicable for the Company
to estimate the fair value at December 31, 2012 and 2011.
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 4.
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, 2012 and 2011, the carrying value was $7.9 million and $30.1 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, 2012 and 2011, the carrying value of the FDIC indemnification asset
was $7.3 million and $19.7 million, respectively.
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, 2012 and 2011, the carrying value of the FDIC
indemnification asset was $26.8 million and $58.2 million, respectively.
Under the InterBank 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 (April 27,
2012) and at December 31, 2012, the carrying value of the FDIC indemnification asset was $75.3
million.
From the dates of acquisition, each of the four 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.
Fair Value of Financial Instruments
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.
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.
71
129
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
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.
130
73
December 31, 2012
December 31, 2011
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
Fair
Value
Hierarchy
Level
$
404,141
$
404,141
$
380,249
$
380,249
Financial assets
Cash and cash equivalents
Held-to-maturity securities
Mortgage loans held for sale
Loans, net of allowance for loan
losses
Accrued interest receivable
Investment in FHLB stock
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Structured repurchase
agreements
Subordinated debentures
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
920
26,829
2,319,638
12,755
10,095
3,153,193
126,730
180,416
53,039
30,929
1,322
Commitments to originate loans
Letters of credit
Lines of credit
—
84
—
Note 16: Operating Leases
1,084
26,829
2,326,051
12,755
10,095
3,162,288
131,280
180,416
58,901
30,929
1,322
—
84
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
1,865
28,920
2,124,161
13,848
12,088
2,963,539
184,437
217,397
53,090
30,929
2,277
2,101
28,920
2,124,032
13,848
12,088
2,966,874
189,793
217,397
60,471
30,929
2,277
—
84
—
—
84
—
The Company has entered into various operating leases at several of its locations. Some of the
leases have renewal options.
At December 31, 2012, future minimum lease payments were as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
1,022
787
465
381
379
1,405
$
4,439
Rental expense was $1.7 million, $1.3 million and $1.2 million for the years ended December 31,
2012, 2011 and 2010, respectively.
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
December 31, 2012
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
December 31, 2011
Fair
Value
Hierarchy
Level
Financial assets
Cash and cash equivalents
Held-to-maturity securities
Mortgage loans held for sale
Loans, net of allowance for loan
losses
Accrued interest receivable
Investment in FHLB stock
$
404,141
920
26,829
2,319,638
12,755
10,095
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Structured repurchase
agreements
Subordinated debentures
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
3,153,193
126,730
180,416
53,039
30,929
1,322
$
404,141
1,084
26,829
2,326,051
12,755
10,095
3,162,288
131,280
180,416
58,901
30,929
1,322
Commitments to originate loans
Letters of credit
Lines of credit
—
84
—
—
84
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
$
380,249
1,865
28,920
$
380,249
2,101
28,920
2,124,161
13,848
12,088
2,963,539
184,437
217,397
53,090
30,929
2,277
2,124,032
13,848
12,088
2,966,874
189,793
217,397
60,471
30,929
2,277
—
84
—
—
84
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
Note 16: 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, 2012, future minimum lease payments were as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
1,022
787
465
381
379
1,405
$
4,439
Rental expense was $1.7 million, $1.3 million and $1.2 million for the years ended December 31,
2012, 2011 and 2010, respectively.
131
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 17: 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.
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,
2012
December 31,
2011
(In Thousands)
Asset Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Prepaid expenses and other assets
Total derivatives not designated
as hedging instruments
Liability Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Accrued expenses and other liabilities
Total derivatives not designated
as hedging instruments
$
$
$
$
2,112
2,112
2,160
2,160
$
$
$
$
132
111
111
121
121
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Nondesignated Hedges
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 began offering 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, 2012, the Company had 16 interest rate swaps totaling $81.7
million with commercial customers, and 16 interest rate swaps with the same notional amount with
third parties related to this program. As of December 31, 2011, the Company had one interest rate
swap of $7.9 million with a commercial customer, and one interest rate swap with the same
notional amount with a third party related to this program. During the years ended December 31,
2012 and 2011, the Company recognized a net loss of $38,000 and $10,000, respectively, in
noninterest income related to changes in the fair value of these swaps.
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-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, 2012, 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 $2.2 million. The Company has minimum collateral posting thresholds with its
derivative counterparties. At December 31, 2012, the Company’s activity with its derivative
counterparties had met the level at which the minimum collateral posting thresholds take effect and
the Company had posted $2.9 million of collateral to satisfy the agreement. At December 31,
2011, the Company’s activity with its derivative counterparties had not yet met the level at which
the minimum collateral posting thresholds take effect. If the Company had breached any of these
provisions at December 31, 2012 and 2011, it could have been required to settle its obligations
under the agreements at the termination value.
133
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 18: 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.
At December 31, 2012 and 2011, the Bank had outstanding commitments to originate loans and
fund commercial construction loans aggregating approximately $168.0 million and $135.4 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 $31.6
million and $23.0 million at December 31, 2012 and 2011, respectively.
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 $25.4
million and $21.3 million at December 31, 2012 and 2011, respectively, with $22.5 million and
$18.0 million, respectively, of the letters of credit having terms up to five years. The remaining
$2.9 million and $3.3 million at December 31, 2012 and 2011, respectively, consisted of an
outstanding letter of credit to guarantee the payment of principal and interest on a Multifamily
Housing Refunding Revenue Bond Issue.
134
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Purchased Letters of Credit
The Company has purchased letters of credit from the Federal Home Loan Bank as security for
certain public deposits. The amount of the letters of credit was $13.3 million and $11.7 million at
December 31, 2012 and 2011, respectively, and they expire in less than one year from issuance.
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 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, 2012, the Bank had granted unused lines of credit to borrowers aggregating
approximately $207.2 million and $79.5 million for commercial lines and open-end consumer
lines, respectively. 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.
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, the
greater Minneapolis, Minnesota, area, and the western and central portions of Iowa. Although the
Bank has a diversified portfolio, loans aggregating approximately $151.5 million and $165.1
million at December 31, 2012 and 2011, respectively, are secured by motels, restaurants,
recreational facilities, other commercial properties and residential mortgages in the Branson,
Missouri, area. Residential mortgages account for approximately $54.1 million and $56.7 million
of this total at December 31, 2012 and 2011, respectively.
In addition, loans (excluding those covered by loss sharing agreements) aggregating approximately
$389.9 million and $360.2 million at December 31, 2012 and 2011, 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.
135
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 19: 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
2012
2011
(In Thousands)
2010
$82,954
$11,855
—
$168
$29,332
—
$11,613
$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
Note 20: 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, 2012, 2011 and 2010, were approximately $895,000, $1.0 million and
$835,000, 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, 2012 and
2011, was 111.88% and 94.75%, respectively. The funded status was calculated by taking the
market value of plan assets, which reflected contributions received through June 30, 2012 and
2011, 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 3% of the employee’s
compensation and also matches an additional 50% of the employee’s contribution on the next 2%
of the employee’s compensation. During the years ended December 31, 2011 and 2010, the
Company matched 100% of the employee’s contribution on the first 4% of the employee’s
compensation, and plus an additional 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, 2012, 2011 and 2010, were approximately $1.2 million, $1.0 million and $1.0
million, respectively.
136
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 21: 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, 2012, no options were outstanding under this plan, however there were
options exercised under this plan during the year.
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, 2012, 733,292 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.
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
Weighted
Average
Exercise Price
Balance, January 1, 2010
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)
Balance, December 31, 2011
Granted
Exercised
Forfeited from current plan(s)
Balance, December 31, 2012
524,510
(88,190)
—
—
26,133
462,453
(120,100)
—
—
24,987
367,340
(105,200)
—
64,482
326,622
137
730,186
88,190
(47,597)
(850)
(26,133)
743,796
120,100
(25,856)
(4,000)
(24,987)
809,053
105,200
(116,479)
(64,482)
$
23.215
22.105
14.088
7.785
25.916
23.592
19.349
12.053
12.898
23.349
23.391
24.759
19.488
23.168
733,292
$
24.227
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
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:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
December 31,
2012
December 31,
2011
December 31,
2010
$0.72
0.65%
5 years
28.83%
$4.55
$0.72
0.93%
5 years
27.99%
$3.15
$0.72
1.52%
5 years
37.69%
$5.60
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, 2012.
Options outstanding, January 1, 2012
Granted
Exercised
Forfeited
Options outstanding, December 31, 2012
Weighted
Average
Exercise
Price
$23.391
24.759
19.488
23.168
24.227
Options
809,053
105,200
(116,479)
(64,482)
733,292
Options exercisable, December 31, 2012
432,589
26.163
138
Weighted
Average
Remaining
Contractual
Term
5.43
—
—
—
5.34
2.97
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
For the years ended December 31, 2012, 2011 and 2010, options granted were 105,200, 120,100
and 88,190, 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, 2012, 2011 and 2010, was $1.0 million, $145,000 and
$388,000, respectively. Cash received from the exercise of options for the years ended
December 31, 2012, 2011 and 2010, was $2.3 million, $311,000 and $671,000, respectively. The
actual tax benefit realized for the tax deductions from option exercises totaled $888,000, $97,000
and $309,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
The following table presents the activity related to nonvested options under all plans for the year
ended December 31, 2012.
Nonvested options, January 1, 2012
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$19.744
24.759
20.035
19.709
Options
300,644
105,200
(63,730)
(41,411)
Nonvested options, December 31, 2012
300,703
21.442
Weighted
Average
Grant Date
Fair Value
$4.940
4.545
5.509
5.563
4.596
At December 31, 2012, there was $1.4 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 2017, with the majority of this expense recognized in 2013 and 2014.
The following table further summarizes information about stock options outstanding at
December 31, 2012:
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
143,244
304,303
285,745
8.08 years
6.51 years
2.74 years
Weighted
Average
Exercise
Price
$16.456
$22.531
$29.928
Options Exercisable
Number
Exercisable
25,481
121,363
285,745
Weighted
Average
Exercise
Price
$8.472
$21.012
$29.928
733,292
5.34 years
$24.227
432,589
$26.163
139
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 22: 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 3. 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 4. Current vulnerabilities due to certain
concentrations of credit risk are discussed in the footnotes on loans, deposits and on commitments
and credit risk.
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 23: 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.
140
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2012, 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.
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, 2012
Total risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
$407,725
$338,859
16.9%
15.9%
≥ $192,816
≥ $192,646
≥ 8.0%
≥ 8.0%
N/A
≥ $240,808
N/A
≥ 10.0%
Tier I risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I leverage capital
$377,468
$353,628
15.7%
14.7%
≥ $96,408
≥ $96,323
≥ 4.0%
≥ 4.0%
N/A
≥ $148,530
N/A
≥ 6.0%
Great Southern Bancorp, Inc.
Great Southern Bank
$377,468
$353,628
9.5%
8.9%
≥ $159,359
≥ $159,120
≥ 4.0%
≥ 4.0%
N/A
≥ $198,900
N/A
≥ 5.0%
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
$335,298
$314,582
14.8%
14.1%
≥ $90,438
≥ $89,422
≥ 4.0%
≥ 4.0%
N/A
≥ $134,132
N/A
≥ 6.0%
Great Southern Bancorp, Inc.
Great Southern Bank
$335,298
$314,582
9.2%
8.6%
≥ $145,753
≥ $145,599
≥ 4.0%
≥ 4.0%
N/A
≥ $181,999
N/A
≥ 5.0%
141
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012 and 2011, the Company and
the Bank exceeded their minimum capital requirements. The entities may not pay dividends which
would reduce capital below the minimum requirements shown above.
Note 24: Litigation Matters
In the normal course of business, the Company and its subsidiaries are subject to pending and
threatened legal actions, some of which seek substantial relief or damages. While the ultimate
outcome of such legal proceedings cannot be predicted with certainty, 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 Company’s business,
financial condition or results of operations.
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 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 25: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2012, 2011 and 2010:
2012
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) and impairment
$
on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income from continuing operations
Discontinued operations
Net income
Net income available to common
shareholders
Earnings per common share – diluted
44,677
7,904
10,077
28
6,087
24,984
661
7,138
359
7,497
7,353
0.54
$
48,221
7,744
17,600
1,251
35,848
28,157
9,039
21,529
127
21,656
21,512
1.58
$
50,159
6,904
8,400
507
2,085
29,152
746
7,042
63
7,105
6,955
0.51
142
$
50,451
5,825
7,786
200
1,982
30,267
177
8,378
4,070
12,448
12,278
0.90
85
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 from continuing operations
Discontinued operations
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 from continuing operations
Discontinued operations
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
—
(4,006)
19,820
1,731
5,604
289
5,893
5,048
0.36
$49,144
8,852
8,431
(400)
(4,375)
20,277
1,550
5,659
231
5,890
5,108
0.37
$49,965
8,325
8,500
483
(3,010)
21,218
2,462
6,450
3
6,453
4,443
0.33
$50,518
8,290
10,205
(215)
15,522
36,161
(560)
11,944
89
12,033
11,660
0.85
2010
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$39,612
12,488
12,000
3,465
12,000
19,127
2,471
5,526
298
5,824
4,976
0.35
$41,535
11,341
10,800
5,441
10,497
20,893
2,853
6,145
17
6,162
5,305
0.38
$39,754
13,183
5,500
—
7,065
20,488
2,290
5,358
180
5,538
4,699
0.34
143
$52,290
10,838
7,330
(119)
(5,233)
21,642
976
6,271
70
6,341
5,482
0.39
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 26: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2012 and 2011, and statements
of income, comprehensive income and cash flows for the years ended December 31, 2012, 2011
and 2010, 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
Additional paid-in capital
Retained earnings
Unrealized gain on available-for-sale securities, net
December 31,
2012
2011
(In Thousands)
$
$
$
23,430
2,006
—
375,281
32
1,059
401,808
599
406
30,929
57,943
136
18,394
276,751
16,650
$
$
$
21,446
1,831
840
333,482
42
1,089
358,730
3,004
210
30,929
57,943
134
17,183
236,914
12,413
$
401,808
$
358,730
144
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Note 26: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2012 and 2011, and statements
of income, comprehensive income and cash flows for the years ended December 31, 2012, 2011
and 2010, 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
Additional paid-in capital
Retained earnings
Unrealized gain on available-for-sale securities, net
December 31,
2012
2011
(In Thousands)
$
$
$
23,430
2,006
375,281
—
32
1,059
401,808
599
406
30,929
57,943
136
18,394
276,751
16,650
$
$
$
21,446
1,831
840
333,482
42
1,089
358,730
3,004
210
30,929
57,943
134
17,183
236,914
12,413
$
401,808
$
358,730
Statements of Income
Income
Dividends from subsidiary bank
Interest and dividend income
Net realized gains on sales 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
2012
2011
(In Thousands)
2010
$
12,000
33
$
12,000
27
$
12,000
16
280
(19)
—
—
15
(11)
12,294
12,027
12,020
1,297
617
1,914
1,196
569
1,765
1,121
578
1,699
10,380
(401)
10,262
(510)
10,321
(502)
10,781
10,772
10,823
37,925
19,497
13,042
$
48,706
$
30,269
$
23,865
87
145
88
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Statements of Cash Flows
Operating Activities
Net income
Items not requiring (providing) cash
Equity in undistributed earnings of subsidiary
Compensation expense for stock option grants
Net realized gains on sales of available-for-sale
securities
Net realized gains 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
Purchase of held-to-maturity securities
Proceeds from maturity of held-to-maturity 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
Increase (Decrease) in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2012
2011
(In Thousands)
2010
$
48,706
$
30,269
$
23,865
(37,925)
435
(280)
—
(19)
226
10
11,153
—
49
664
—
840
1,553
—
—
—
(12,991)
2,269
(10,722)
1,984
21,446
23,430
620
(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
21,446
563
$
$
(13,042)
461
—
(5)
8
75
1
11,363
—
—
158
—
—
158
—
—
—
(12,567)
670
(11,897)
(376)
44,818
44,442
577
89
$
$
$
$
146
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Statements of Comprehensive Income
Net Income
Unrealized appreciation on available-for-sale securities,
net of taxes (credit) of $195, $(102) and $136, for
2012, 2011 and 2010, respectively
Less: reclassification adjustment for gains included in
net income, net of taxes of $98, $0 and $5 for 2012,
2011 and 2010, respectively
Comprehensive Income of subsidiaries
2012
2011
(In Thousands)
2010
$
48,706
$
30,269
$
23,865
363
(189)
253
(182)
4,056
—
8,381
(10)
(7,522)
Comprehensive Income
$
52,943
$
38,461
$
16,586
Note 27: 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.
147
90
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
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.
148
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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. The dividend rate, as a percentage of the liquidation amount, can fluctuate between
one percent (1%) and five percent (5%) per annum 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
$(201,374,000). Based upon the increase in the Bank’s level of QSBL over the adjusted baseline
level, the dividend rate for the fourth quarter of 2012 was 1.2%. 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.
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 28: FDIC-Assisted Acquisition
On April 27, 2012, Great Southern Bank entered into a purchase and assumption agreement,
including a loss sharing agreement as described in Note 4, with the FDIC to purchase substantially
all of the assets and assume substantially all of the deposits and other liabilities of Inter Savings
Bank, FSB (“InterBank”), a full-service bank headquartered in Maple Grove, Minnesota.
Established in 1965, InterBank operated four locations in three counties in the Minneapolis-St.
Paul area. The fair values of the assets acquired and liabilities assumed in the transaction were as
follows:
149
92
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Assets
Cash
Due from banks
Cash and cash equivalents
Investment securities
Loans receivable, net of discount on loans purchased of
$107,816
Foreclosed real estate
FDIC indemnification asset
Federal Home Loan Bank of Des Moines stock
Accrued interest receivable
Core deposit intangible
Other assets
Total assets acquired
Liabilities
Demand and savings deposits
Time deposits
Total deposits
Accounts payable
Accrued interest payable
Other liabilities
Total liabilities assumed
April 27,
2012
(In Thousands)
$
493
74,834
75,327
34,914
285,458
6,216
83,989
585
1,672
1,017
873
490,051
97,838
358,414
456,252
2,272
197
18
458,739
Gain recognized on business acquisition
$
31,312
150
93
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Loans receivable, net of discount on loans purchased of
Federal Home Loan Bank of Des Moines stock
Assets
Cash
Due from banks
Cash and cash equivalents
Investment securities
$107,816
Foreclosed real estate
FDIC indemnification asset
Accrued interest receivable
Core deposit intangible
Other assets
Total assets acquired
Liabilities
Demand and savings deposits
Time deposits
Total deposits
Accounts payable
Accrued interest payable
Other liabilities
Total liabilities assumed
Gain recognized on business acquisition
$
31,312
April 27,
2012
(In Thousands)
$
493
74,834
75,327
34,914
285,458
6,216
83,989
585
1,672
1,017
873
490,051
97,838
358,414
456,252
2,272
197
18
458,739
93
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Under the terms of the Purchase and Assumption Agreement, the FDIC agreed to transfer net
assets to Great Southern at a discount of $59.9 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 $59.9 million. Details
related to the transfer are as follows:
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
Investments
Core deposit intangible
Other adjustments
April 27,
2012
(In Thousands)
$
21,308
40,810
62,118
(107,816)
(3,692)
83,989
(1,972)
(114)
1,017
(2,218)
Gain recognized on business acquisition
$
31,312
The acquisition of the net assets of InterBank 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 4. 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 $31.3
million for the year ended December 31, 2012. The transaction also resulted in the recording of a
deferred tax liability in the initial amount of $11.0 million.
Note 29: Discontinued Operations
Effective November 30, 2012, Great Southern Bank sold Great Southern Travel and Great
Southern Insurance divisions. The 2012 operations of the two divisions have been reclassified to
include all revenues and expenses in discontinued operations. The 2011 and 2010 operations have
been restated to reflect the reclassification of revenues and expenses in discontinued operations.
Revenues from the two divisions, excluding the gain on sale, totaled $8.2 million, $8.1 million and
$7.6 million for the years ended December 31, 2012, 2011 and 2010, respectively, and are
included in the income from discontinued operations. In 2012, the Company recognized gains on
the sales totaling $6.1 million, which are included in the income from discontinued operations.
151
94
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