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.
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, L.L.P.
P.O. Box 1190
Springfield, MO 65801-1190
LeGaL CouNseL
Silver, Freedman, Taff and Tiernan, 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
Annual Meeting
The 25th Annual Meeting of Shareholders will be held at 10:00 a.m.
CDT on Wednesday, May 7, 2014, at the Great Southern Operations
Center, 218 S. Glenstone, Springfield, Missouri.
Corporate Profile
In 1923, Great Southern Bank was started with a $5,000 investment and
has since grown to the company it is today. Our footprint spans six states
and we serve more than 137,000 households by providing them with
the most comprehensive line of products and services available. With
over 1,100 dedicated associates we provide exceptional service to our
customers and it is our goal to understand what matters most in every
interaction we have with them.
With $3.6 billion in total assets, we are headquartered in Springfield, Mo.
and operate 96 retail banking centers in Missouri, Arkansas, Kansas, Iowa,
Nebraska and Minnesota. Customers can expect the most convenient
services possible, including the longest banking hours in town, mobile,
online and telephone banking, plus a large ATM network.
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, 2013 there were 13,673,709 total shares of common
stock outstanding and approximately 2,000 shareholders of record.
The last sale price of the Company’s Common Stock on December 31,
2013 was $30.41.
HigH/Low Stock Price
2013
2012
2011
High
Low
High
Low
High
Low
First Quarter
$27.34
Second Quarter 28.00
Third Quarter
31.00
Fourth Quarter 31.23
$23.31
22.60
25.71
25.87
$25.18
27.71
31.81
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
DiviDenD DecLarationS
2013
2012
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$.18
.18
.18
.18
$.18
.18
.18
.18
$.18
.18
.18
.18
To Our
Shareholders
Joseph W. Turner
President and
Chief Executive Officer
William V. Turner
Chairman of the Board
2013
Smart Strategies. Good Progress.
Smart Strategies – to us, this means
developing strategies that, when
successfully executed, produce
meaningful results for our shareholders,
customers, associates and communities.
In 2013, our strategic focus primarily
centered on three areas: deepening
customer relationships with a specific
focus on growing the loan portfolio;
resolving lingering credit issues; and
operating more efficiently. We made
progress on these fronts; however, we
fully recognize that there is still work to
be done.
Loan Growth
Despite sluggish demand and
significant competitive pricing
pressures, we are pleased with our
overall loan growth during 2013.
Loans, excluding FDIC-covered
loans and mortgages held for sale,
increased $257.9 million, primarily in
the areas of commercial real estate,
other residential, consumer and
commercial business. Total gross
loans increased $120.2 million during
2013 because of a $137.7 million
decrease in the FDIC-covered loan
portfolios.
The increase in loans was partially due
to the purchase of $86.1 million of
multi-family residential loans in October
2013. The acquired loan portfolio, which
was auctioned by an unrelated FDIC-
insured financial institution, included
119 loans with collateral securing the
notes consisting primarily of multi-family
real estate in Minnesota, Michigan,
Wisconsin, Illinois and Indiana. As
part of our due diligence process, our
lenders re-underwrote each credit
and personally inspected 99% of the
properties. We are very pleased with
this purchase as it allowed us the
opportunity to acquire high quality and
relatively high-yielding loans, while
providing the chance to build long-
lasting relationships with these new
customers.
Our consumer lending division had a
record-breaking year as we focused on
leveraging our geographic footprint
during 2013. Total loan production
increased $50.9 million, or 58%, to
$138.9 million. Indirect lending was
the primary driver of the uptick in
production as our Indirect Lending
team, Business Bankers and banking
center staff focused throughout our
franchise on building relationships with
established new car dealers that also sell
used cars. Direct consumer loans, those
originated through our banking center
network, increased 19% over 2012
originations, which itself was a record-
breaking production year.
A retooled and updated line of business,
Business Banking, was launched in 2013
1
$4 billion
3 billion
2 billion
1 billion
Total Assets
$3.56
BilliOn
Total Deposits
$2.81
BilliOn
Total Loans
$2.44
BilliOn
to serve the small business market by
offering comprehensive depository
and lending products and services.
We began offering Business Banking
services in full force by mid-year and
developed customer relationships
representing $6.2 million in deposits and
$7.9 million in loans by the end of 2013.
In 2013, we focused on bringing the full
power of our Company to customers
in our six-state franchise. In some key
markets, we were lacking full-time,
in-market commercial lenders and
recognized the lost opportunities to
serve local customers. In response, we
effectively built out the commercial
lending team in many of our major
markets, including Minneapolis,
Des Moines, St. Louis, Northwest
Arkansas and Kansas City. We hired
seasoned commercial lenders to initiate
commercial lending services in markets
where we lacked a lender and also
added lenders to established high-
potential markets. We did the same for
Business Banking by hiring experienced
bankers in St. Louis, Minneapolis, Des
Moines and Omaha. We are beginning
to see loan production increase
throughout our footprint, and expect to
see continued progress in production in
2014 as these lenders build on existing
relationships and add new relationships
in their respective markets.
While we have ramped up our lending
team, our lenders have received a clear
message as to our lending approach.
Despite pricing pressures and other
competitive forces, our underwriting
criteria on commercial loans remains
conservative and is primarily centralized.
Our loan portfolio mix continues to
change favorably and is more diversified
by loan type and geography than ever
before. Memories and lessons learned
from the recent economic downturn
have not faded. The old adage that
banks get in trouble in good times and
not bad times remains as true today as it
has ever been.
Credit Quality
Since the end of 2012, overall credit
quality improved with a $32.8 million,
or 27%, decrease in non-performing
assets and potential problem loans.
Non-performing assets were 1.75%
of total assets at December 31, 2013,
compared to 1.84% at December 31,
2012. Total net charge-offs were down
60% from 2012 levels to $17.9 million.
We understand much work remains to
be done to take non-performing loans
and non-performing assets to lower
levels. The progress made during the
year by our team to improve in these
areas is rewarding. As we continue to
work to reduce these problem assets,
we expect that the significant legal
and foreclosure expenses associated
with the resolution process will also
be reduced over time.
Operations
Operating our Company more
efficiently is a constant focus, no
matter the time period. While
expense containment is always top-
of-mind, our focus is even sharper as
top line revenue growth continues to
be challenging. Non-interest expense
2
Total Capital
$381
milliOn
2009 2010 2011 2012 2013
Includes acquisitions:
2009 TeamBank and Vantus
2011 Sun Security
2012 InterBank
Book Value
per common share
$23.60
$60 mil
50 mil
40 mil
30 mil
20 mil
10 mil
decreased $2.2 million to $110.4
million for 2013. The biggest driver of
the decrease was a reduction in legal
and foreclosure-related expenses.
As noted above, we continue to
experience significantly elevated
levels of expenses in this area, but
expect a declining trend as we resolve
credit issues.
Serving our customers how, when and
where they prefer and serving them
efficiently is vital to our ongoing success.
Our banking center network, which is
always evolving, remains very important
in our delivery system. The number of
banking centers we operate will change
from year-to-year as we regularly analyze
utilization, performance, profitability
and market potential. The future role of
the banking center is a topic of much
discussion in the industry. Many banks
are trimming their banking center
$18.12
Total
Net Income
$33.15
milliOn
3
Total Return*
5 Year Cumulative
$312
$300
250
200
150
100
2008
2009
2010
2011
2012
2013
* The graph above compares the cumulative total stockholder return on GSBC Common Stock to the
cumulative total returns of the NASDAQ U.S. Stock Index and the NASDAQ Financial Stocks Index for
the period from December 31, 2008 through December 31, 2013. The graph assumes that $100 was
invested in GSBC Common Stock on December 31, 2008 and that all dividends were reinvested.
network in light of the predominance
and adoption of self-service channels,
like mobile banking and online banking.
We see a quick adoption of electronic
channels by our customers, too, but we
do not think that electronic banking will
be the demise of the banking center
altogether; albeit transactions such
as deposits and cashing checks in the
banking center are steadily decreasing.
We find that most customers still prefer
to utilize a banking center for their more
complex financial needs. The desire
to have a face-to-face conversation
and a handshake regarding significant
financial matters will likely never go out
of style.
During 2013, we reduced our banking
center network from 107 to 96 banking
centers, a net reduction of 11. The
Company added one banking center to
its network in 2013, with a new facility
in a commercial district of Omaha,
Neb. This full-service banking center,
which includes a commercial lending
team, brings the total to four banking
centers operating in the greater Omaha
metropolitan area.
The difficult decision was made to
consolidate a total of 12 offices into
other Great Southern banking centers in
2013. In October, 11 Missouri banking
centers were closed and consolidated
into other proximate Great Southern
banking center locations. Consolidation
of these banking centers, which
included the transfer of deposits and
other banking center operations, was
a result of a performance review of the
entire banking center network. The
affected banking centers were acquired
in 2011, as part of the FDIC-assisted
acquisition of the former 27-branch Sun
Security Bank. Six of the 11 banking
centers were located in southeastern
Missouri and the rest in central
Missouri. Great Southern ATMs remain
4
Great Southern Bancorp, inc.
nASDAQ Composite
nASDAQ Financial
operational at each of the affected
banking center sites. In December, a
drive-thru facility in Sioux City, Iowa, was
consolidated into the nearby Downtown
Sioux City banking center, which was
remodeled to include drive-thru services
for customers.
In addition, the Company relocated
three existing banking centers to nearby
sites in 2013 - one each in Springfield,
Mo., Maple Grove, Minn., and Ava, Mo.
On the technology front in 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 a
smartphone camera. A new mobile-
ready and more interactive Company
website, GreatSouthernBank.com, was
also launched.
Results
Our strategic focus, executed by our
great team of associates, culminated
in our solid financial performance.
Our earnings and capital remained
current shareholders participated in the
IPO and we hope that these shareholders
believe their initial investment 25 years
ago was a smart move. As of December
31, 2013, each share of stock purchased
at $9.00 in the IPO had a value of
approximately $364.92 (including the
effects of stock splits).
As we move ahead, we pledge to
keep the long-term success of the
Company and the long-term interests
of our shareholders in mind in every
decision we make. With our excellent
team of bankers, strong capital
position, favorable deposit base and
expansive franchise located in vibrant
communities across the Midwest,
we are in a great position to make
2014 another outstanding year. We
want to thank our associates for their
tremendous focus and effort over the
past year; our customers for giving us
the opportunity to serve their needs; and
our shareholders for your continued faith
in the bright future of our Company. As
always, we welcome your feedback.
William V. Turner
Joseph W. Turner
positions of strength as we ended
2013. Net income available to
common shareholders for 2013 was
$33.2 million, or $2.42 per diluted
common share. The Company ended
the year with assets of $3.6 billion.
Total stockholders’ equity increased
to $380.7 million at December
31, 2013, or 10.7% of total assets.
Common stockholders’ equity was
$322.8 million, or 9.1% of total assets,
equivalent to a book value of $23.60
per common share at the end of 2013.
Shareholder dividends of $0.18 per
common share were declared in each of
the four quarters of 2013. Consecutive
quarterly dividends have been paid
to common shareholders since 1990.
We are pleased that we were able to
maintain our quarterly dividend of $0.18
since the end of 2007, even in the midst
of the worst economic downturn since
the Great Depression. Reflecting the
Company’s current favorable financial
position, our Board of Directors
approved a $0.02 cash dividend increase
per common share for the first quarter
of 2014, raising the quarterly dividend to
$0.20 per common share.
2014
More Progress
In 2014, our strategic direction is
straightforward and similar to our
focus in 2013. We are optimistic
about our prospects in 2014, but
realistic about challenges that we
will likely encounter. Key priorities in
2014 include continuing to expand
relationships with existing customers
and developing new customer
relationships, strengthening our
credit profile, resolving lingering
credit issues, mitigating interest rate
risk and improving our efficiency.
We remain open to growing by
acquisition; however, the number
of FDIC-assisted deals available has
diminished significantly over the last
several years. We will only consider
open bank deals that provide an
acceptable return to our shareholders.
As we write this message, several
strategic initiatives are already well
underway in 2014. In March, we
completed the acquisition of two
branches in Neosho, Mo., and the
purchase of certain St. Louis depository
and loan customers from Neosho, Mo.-
based Boulevard Bank. The combined
Neosho and St. Louis transactions
represented approximately $101 million
in deposits and $12 million in loans.
The Company has operated a banking
center in Neosho since 1991. This office
will be consolidated into the former
Boulevard Bank location directly across
the street in the third quarter of 2014,
bringing the total of banking centers to
two in this market. Our new St. Louis
customers have access to seven area
Great Southern banking centers.
In February 2014, the Company opened
commercial loan production offices
in Tulsa, Okla., and Dallas, Texas. The
Tulsa office is located in southeast Tulsa
at 4200 E. Skelly Dr. and the Dallas office
is in Preston Center (north Dallas) at
8201 Preston Rd. The new offices are the
first physical presence the Company has
in each market.
In the second quarter of 2014, the
Company expects to add two new full-
service banking centers to its network: a
north St. Louis office and a Fayetteville,
Ark., facility.
On a celebratory note, 2014 marks the
25th anniversary of Great Southern‘s
initial public offering (IPO) on the
NASDAQ stock market. Many of our
5
moves
new Banking Centers
new markets
Expanded Services
Companies must make smart, well-
thought-out moves to be successful.
The climate of our industry has
changed dramatically in the past
several years and now, more than ever
it is imperative that banks make smart
decisions that increase the strength,
efficiency and overall value of the
company.
area banking veterans was hired to
lead the market. Omaha offers the
Company a great opportunity to
build expansive relationships with
customers. It’s one of the 50 largest
cities in the nation, with a population
of more than 400,000 people, and it
ranks eighth in per-capita billionaires
and Fortune 500 companies.
Our goals have always been centered
on making the moves that made
most sense for our customers and
shareholders. Illustrating that type
of thinking, the moves the Company
made in 2013 ranged in variety
from the tougher decisions, like
consolidating banking centers, to
the more exciting, such as entering
new markets and hiring well-known,
well-experienced teams to lead those
markets.
Perhaps one of our biggest moves
was entering Omaha, Neb. The
Company opened a de novo banking
center with a commercial lending
office in October, giving it a strong
retail and lending presence in the
area. The office is situated in the
rapidly growing and vibrant west side
of Omaha. An experienced team of
6
In addition to Omaha, the Company
made investments in the Minneapolis
market, an area we entered through
an FDIC-assisted acquisition of four
banking centers in 2012. A new
banking facility was constructed
in Maple Grove, Minn., replacing
the original leased banking center
and offering us greater exposure
in the region. In addition to our
new banking center, we also
made renovations to some of our
other banking centers in the area,
providing better accessibility to our
customers. Minneapolis is the largest
metropolitan area the Company
currently serves, and the experienced
team of local bankers affords us great
opportunity for developing business
relationships, similar to those in
Omaha.
MAPLE GROVE
ROSEVILLE
EDINA
LAKEVILLE
MINNESOTA
SOUTH
SIOUX CITY
IOWA
LE MARS
SIOUX CITY
ONAWA
ANKENY
JOHNSTON
WEST
DES MOINES
NEWTON
MONROE
FORT CALHOUN
OMAHA
BELLEVUE
NEBRASKA
KANSAS
PRAIRIE
VILLAGE
DE SOTO
OLATHE
SPRING HILL
OTTAWA
OSAWATOMIE
OVERLAND
PARK
PAOLA
LEE’S SUMMIT
MISSOURI
STOVER
ELDON
CLIMAX
SPRINGS
GREENVIEW
BUFFALO
OSAGE BEACH
CAMDENTON
LEBANON
O’FALLON
LAKE
ST. LOUIS
COTTLEVILLE
DES PERES
AFFTON
CREVE
COEUR
CLAYTON
NEVADA
STOCKTON
VIBURNUM
PILOT KNOB
LAMAR
GREENFIELD
WILLARD
SPRINGFIELD
LOCKWOOD
MILLER
JOPLIN
NEOSHO
AURORA
KIMBERLING
CITY
ROGERS
MANSFIELD
CABOOL
ELLINGTON
REPUBLIC
OZARK
NIXA
AVA
MOUNTAIN
GROVE
FORSYTH
BRANSON
WEST PLAINS
THAYER
FREDERICKTOWN
ARKANSAS
IOLA
PARSONS
TULSA
OKLAHOMA
TEXAS
DALLAS
Our new maple
Grove Banking
Center is better
located and has
a larger team.
MAPLE GROVE
ROSEVILLE
EDINA
LAKEVILLE
MINNESOTA
greater
presence
Omaha is a
growing market
with high
income areas.
HOT
market
LE MARS
SIOUX CITY
ONAWA
SOUTH
SIOUX CITY
FORT CALHOUN
OMAHA
BELLEVUE
NEBRASKA
IOWA
We’re making a name for
ourselves in iowa through
community involvement.
ANKENY
JOHNSTON
WEST
DES MOINES
NEWTON
MONROE
extra
exposure
St. louis area
now has ViP
banking services.
KANSAS
PRAIRIE
VILLAGE
DE SOTO
OLATHE
SPRING HILL
OTTAWA
OVERLAND
PARK
PAOLA
OSAWATOMIE
LEE’S SUMMIT
MISSOURI
STOVER
ELDON
added
ViP
O’FALLON
LAKE
ST. LOUIS
COTTLEVILLE
DES PERES
CREVE
COEUR
CLAYTON
AFFTON
more
business
IOLA
NEVADA
STOCKTON
GREENVIEW
BUFFALO
CLIMAX
SPRINGS
OSAGE BEACH
CAMDENTON
LEBANON
VIBURNUM
PILOT KNOB
LAMAR
GREENFIELD
PARSONS
LOCKWOOD
MILLER
WILLARD
SPRINGFIELD
MANSFIELD
CABOOL
FREDERICKTOWN
ELLINGTON
We’ve increased
our commercial
lending and
expanded our
lending team in
the KC area.
OKLAHOMA
TULSA
Tulsa & Dallas give
us great potential for
future commercial
lending.
JOPLIN
NEOSHO
REPUBLIC
OZARK
NIXA
AVA
FORSYTH
BRANSON
AURORA
KIMBERLING
CITY
ROGERS
MOUNTAIN
GROVE
WEST PLAINS
THAYER
BiG
difference
ARKANSAS
new
lPOs
new, more convenient
banking centers in Ava
and Springfield improve
customer experience.
TEXAS
DALLAS
7
7
Business
Banking
TEAm rESulTS
Our new Business Banking
team approach increased
our volume of business
loans, expanded indirect
lending and deepened
our relationships with our
business customers.
The Company replaced two existing
banking centers with new facilities
in the southwest Missouri region in
2013. In March, the Bank relocated
its banking center in downtown
Springfield to a newly renovated
building the Company had occupied
for more than 30 years from 1954 –
1986. This move was, in a sense, a
homecoming for us.
The Company also replaced its Ava,
Mo. location with a new banking
center. The Ava office is one of the
busiest in the franchise and the old
location was simply not big enough
for our customer base. The new
building opened in the fourth quarter
and provides customers with a
much friendlier and more accessible
banking experience.
Though technology for self-service
is becoming a driving force in the
industry, we strongly believe that
customers still prefer face-to-face
interaction for their more complicated
banking business. We recognize
this preference and continually work
to ensure that our banking centers
First six months out of the gate: *
Total Deposits
$6.2 million
Total Loans
$7.9 million
Indirect Loans
$12.5 million
739 Funded Applications
Business Banking customers
1,500 +
* It’s important to note that our Business Banking team
spent the first half of 2013 in extensive training programs
preparing them to serve customers through this new line of
business, making the business they generated in 2013 even
more impressive.
remain relevant and useful for our
customers. Meeting face-to-face with
an “old-fashioned” handshake will
always be our best chance to build
and deepen customer relationships.
Business Banking
In January 2013, we made the
strategic decision to realign our
operating structure to better serve
business customers with both loan
and deposit products. To do so,
we reorganized our Corporate
Services and Small Business Banking
departments into one collective
group known as Business Banking.
This line of business allows us to
aggressively pursue the highly sought
after small business market. As a
result, Business Banking customers
receive a more streamlined and
comprehensive continuum of services,
allowing 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,
8
BuSinESS BAnKinG
Products &
Services
Loans
Deposits
Cash
Management
Business
Expertise
Merchant
Services
Dallas and Tulsa
In early 2014, we expanded our
footprint to two new highly-valued
markets with the opening of loan
production offices (LPOs) in Dallas,
Texas and Tulsa, Okla. Both markets
offer the Company attractive business
opportunities.
The north Dallas office is led by
a 30-year commercial real estate
lending veteran who has lived and
worked in the Dallas market for the
entirety of his career.
Our Tulsa LPO is led by an
experienced commercial lender,
who is familiar with this vibrant
market and focused on building new
relationships.
2013 proved to be another year
of expansion for this service as we
added VIP Bankers in St. Louis,
Des Moines and Omaha, three key
markets for our Company. We plan
to continue expanding the service
in additional key markets, including
Kansas City and Minneapolis.
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
r
a
e
Y
5
d
e
t
a
m
i
t
s
E
7.57%
Dallas
4.83%
Tulsa
Growth potential
Commercial Real Estate Loans
Market analysis shows these markets,
while heavily banked, have significant
growth potential in the commercial
lending area.
9
deepen our current business
customer base, and expand our
presence and identity in key markets
in order to acquire new business.
One year later, we’ve added Business
Banking Officers in several key
markets, including Des Moines,
Kansas City, Minneapolis, Omaha
and St. Louis. To round out our
team of experts, we hired a Small
Business Administration (SBA)
Specialist to provide expertise in SBA
underwriting, packaging, servicing
and reporting.
VIP Banking in New
Markets
VIP Banking provides personalized,
professional service to high net
worth clients. Our VIP Banking team
delivers the entire spectrum of Great
Southern services directly to the
customer with concierge service,
when and where they need it. It was
introduced at Great Southern more
than a decade ago and continues
to be very successful, managing
deposit balances totaling more than
$169 million at year-end 2013, which
is equivalent to our second largest
banking center.
tech
$
In 2013, we made several investments
in our technology-based products
and services, underscoring our
commitment to make them available
to customers when, where and how
they desire. Popular products such
as mobile banking, Mobile Check
Deposit, online loan applications and
online account opening are no longer
considered a perk by customers.
Instead, they are expected as the
industry has begun to move toward
increasingly mobile and self-serve
products and services.
One of our most exciting products
rolled out in 2013 was the Great
Southern Mobile Check Deposit
feature of our Mobile App that allows
customers to deposit checks directly
from their smartphone. The feature is
fast, secure and free to any customer
who utilizes an Online Banking
account.
Great Southern Text Banking and Text
Alerts were also made available in
2013. Text Banking allows customers
to gain quick, easy access to their
Customer Access Points
S
A
DIRECT MAIL
I N E
O N L
account information by texting a short
code which will then automatically
respond with the information they
requested, such as an account
balance. Additionally, Text Alerts
enable customers to easily keep track
M
of their account balance, transactions
and more.
S M E DIA
B A N KIN G CENTER S
In the last year, we worked to enhance
existing services. One of the biggest
improvements to our online presence
is our new and improved website. The
new site was launched in April and is
BANK
T
B I
D E
$
$
TXT BNKNG
GreatSouthernBank.com
ATM
10
$
DIRECT MAIL
ONLINE
M A S S M E D I A
B A N K I N G C E N T E R S
BANK
DEBIT
43,961
active online banking
customers
$
ATM
19,319
mobile app downloads
$
$
17,000
$
$
$
items deposited using
Mobile check Deposit
12,792
customers using
e-documents
4.4 million
banking center
transactions
Auto Loan Campaign
our new propensity-based approach
to marketing allowed us to make the
most cost effective use of different
advertising channels. Direct mail, the
most expensive per prospect, was
highly targeted. in branch materials,
the least expensive, were used across
our entire network.
For example, we ran online
advertisements that targeted
customers who had used the Internet
to search for auto loan information
recently. This allowed us to reach only
consumers who had a specific need,
helping to increase the likelihood of a
closed loan.
Additionally, we examined our
markets extensively to determine
areas with consumers who were
deemed to have a high propensity to
buy based off of certain criteria. As
these markets and consumers were
identified, we utilized direct mail to
reach those who live within close
proximity to our banking centers in
the market. This resulted in a highly
efficient use of our marketing dollars.
more interactive and mobile friendly,
allowing our customers to access us
and our services easily on any device
they use.
Targeted Marketing
$
TXT BNKNG
GreatSouthernBank.co
Smart moves didn’t just apply to
our business initiatives in 2013. We
began utilizing certain marketing
analysis platforms to allow us to
target our marketing efforts much
more precisely. This ‘rifle’ approach
to our advertising, versus the more
traditional ‘shotgun’ approach,
represents an overall philosophical
shift in the way we’re reaching
current and potential customers with
information that is relevant, timely
and helpful to them in their buying
decisions.
m
DIRECT MAIL
DIRECT MAIL
DIRECT MAIL
DIRECT MAIL
I N E
By targeting our audience more
I N E
I N E
O N L
O N L
I N E
O N L
O N L
precisely, we’re able to help control
expenses, increasing the value of
the Company in the long run. A
A
great example of this is the auto
loan campaign we ran in the summer
months of 2013. We utilized a mix
of channels to reach customers who
were actively searching for an auto
loan.
A
A
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M
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A
S M E DIA
S M E DIA
S M E DIA
S M E DIA
B A N KIN G CENTER S
B A N KIN G CENTER S
B A N KIN G CENTER S
B A N KIN G CENTER S
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11
BANK
BANK
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$
$
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GreatSouthernBank.com
GreatSouthernBank.com
GreatSouthernBank.com
GreatSouthernBank.com
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$
spots
$138.9 mil
Consumer Loans
2013
2012
$75.6 mil
$88.0 mil
$34.9 mil
$35.2 mil
$29.6 mil
$28.1 mil
$23.5 mil
Indirect
Lending
Direct
Lending
HELOC
TOTAL
1212
Improved Loan
Portfolio
One of our major focuses in the past
year has been to increase our overall
loan production. Thanks to the efforts
of our associates, the Company
increased total loans, excluding
covered loans and mortgages held for
sale, by approximately $257 million
last year. There are several factors that
play into this increase.
A contributor to our loan increase
was our elevated focus on consumer
lending. In 2013, we repositioned our
indirect lending services, financing
that is done through certain car
dealerships. Sparked by increased
consumer loan demand, we
purchased a new system to allow us
to more effectively communicate with
more dealers and better leverage
the resources we have across our
footprint. Additionally, we are utilizing
our Business Bankers to call on
more auto dealers in more markets,
broadening the reach of our indirect
lending services. Our Consumer
Lending Department reorganized
itself to better manage the increased
volume while adding no additional
staff.
Community
Involvement
Finally, we continued our focus on
banking center-generated loans.
We have a vast network of banking
centers with teams that serve our
customers directly and this network is
a quality source of loan generation. At
the end of 2013, our banking centers
were responsible for $36 million in
consumer loans, $28 million in Home
Equity Lines of Credit (HELOCs),
$64 million in commercial loans and
$77 million in mortgage loans.
Community means a lot to us. It
means building on good relationships
and creating new ones. It means
helping each other. We understand
the importance of a strong, thriving
community. Our focus on what
really matters to our communities
is essential to determining where
we should invest and prioritize
our resources. Strengthening
and supporting our communities
matters to the long term success
of our Company. A thriving, strong
community is more than in our words;
it is in our daily actions.
As a part of our commitment to our
communities, we’re partnering with
them to make them better, more
prosperous places to live, work
and do business. To help us fully
leverage this commitment, we’re
launching the Great Southern Bank
Community Matters Program. This
program involves four components:
Community Development, Charitable
Giving, Volunteerism and Financial
Education.
125
125
+ 55
+ 55
+ 18
+ 18
= 198
= 198
Current
Current
Active Dealers
Active Dealers
New
Dealers
New
Reactivated
Dealers
Dealers
Reactivated
Dealers
Indirect Dealers
Indirect Dealers
in 2013
in 2013
13
mEAninGFul COnnECTiOnS
400+
nonprofit organizations were served by
great Southern volunteers.
375+
volunteer service events completed by
great Southern Bank associates.
200+
associates served nonprofit
organizations in leadership roles.
$500,000+
donated by great Southern Bank
to nonprofit organizations.
$43,000+
donated by great Southern associates
to nonprofit organizations.
THOUSANDS
of hours volunteered by
great Southern Bank associates.
Through these initiatives, it is our
goal to make a meaningful impact
on improving our local economies;
assisting our community partners
in meeting the needs of the
underprivileged through nonprofit
donations; and encouraging our
associates to volunteer in meaningful
projects and teach financial education
to children, teens, adults and senior
citizens.
Employee
Donations
Schools
Leadership
Nonprofit
Organizations
Sports
Organizations
Chambers of
Commerce
Volunteering
and
Support
By fostering our associates to be
leaders in the community, we have a
deep understanding of what matters
in our communities and are able to
make careful decisions of how to
invest and prioritize our resources.
We are proud of our Company’s
leadership and the important role
our associates play in their local
communities every day.
In 2013, we continued our
involvement with Missouri Safe and
Sober, an organization that seeks to
create awareness about the dangers
of drugs and alcohol and encourages
teens to lead a safe and sober
lifestyle. Through our involvement,
we were able to make a direct impact
in several of our markets and affect
more than 150 schools and more than
77,000 high school students across
Missouri.
Of course, our community
involvement goes beyond that of the
nonprofit world. We’re also proud
community partners with several
athletic teams in our markets. New to
the family in 2013 is our involvement
with Drake University Athletics in Des
Moines, Iowa, the River City Rascals
in O’Fallon, Mo. and as of early 2014,
the Iowa Cubs, also in Des Moines.
These are beneficial relationships
that we’re very proud of, and we will
continue to expand them when and
where it makes good business sense.
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
Summary Statement of
Condition Information:
Assets
Loans receivable, net
Allowance for loan losses
Available-for-sale securities
Other real estate owned, 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
2013
2012
December 31,
2011
(Dollars in Thousands)
2010
2009
$3,560,250
2,446,769
40,116
555,281
53,514
2,808,626
343,795
380,698
322,755
2,403,544
3,789,876
2,996,941
378,650
192,323
96
$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
104
$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
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, 2013, 2012, 2011, 2010, and 2009, 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.
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
2013
For the Year Ended December 31,
2011
2010
(In Thousands)
2012
2009
$ 163,903
14,892
178,795
$170,163
23,345
193,508
$171,201
27,466
198,667
$145,832
27,359
173,191
$123,463
32,405
155,868
12,346
3,972
2,324
561
19,203
159,592
17,386
142,206
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
1,065
18,227
4,915
243
---
1,264
295
---
1,036
19,087
5,505
896
18,063
3,524
2,666
(680)
1,028
(38)
483
(615)
651
(10)
31,312
16,486
767
18,652
3,765
8,787
---
767
---
---
54,087
5,352
6,393
773
66,605
89,263
35,800
53,463
309
17,669
2,889
2,787
(4,308)
672
1,184
89,795
(25,260)
4,566
5,315
(18,693)
4,779
46,002
(37,797)
2,450
4,131
(10,427)
2,018
24,329
2,733
2,497
116,227
52,468
20,658
3,315
4,189
2,165
1,303
2,868
4,348
4,068
6,879
8,128
110,389
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
37,132
3,403
33,729
54,710
10,623
44,087
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
35,840
5,183
29,657
39,908
13,480
3,231
4,463
1,754
1,447
2,158
2,832
4,914
1,240
6,723
82,150
31,890
8,590
23,300
35,684
11,720
2,721
5,617
1,349
1,124
1,642
2,741
4,959
---
4,145
71,702
97,988
32,983
65,005
---
33,729
579
---
4,619
48,706
608
---
$ 33,150 $ 48,098
612
30,269
2,798
1,212
$ 26,259
565
23,865
3,403
---
42
65,047
3,353
---
$ 20,462 $ 61,694
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
2013
At and For the Year Ended December 31,
2012
2011
(Number of shares in thousands)
2010
2009
$ 2.43
$ 2.42
$ 3.55
$ 3.54
$ 1.95
$ 1.93
$ 2.42
$ 0.72
$ 23.60
13,635
13,674
13,715
$ 3.20
$ 0.72
$ 22.94
13,534
13,596
13,592
$ 1.89
$ 0.72
$ 19.78
13,462
13,480
13,626
0.89%
1.22%
0.87%
10.52
0.14
2.91
4.60
3.88
4.70
66.94
2.77
29.75
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
1.92%
2.46
201.53
0.91
1.75
0.80
2.21%
2.98
180.84
2.43
1.84
0.94
2.33%
3.31
149.95
2.09
1.96
1.25
$ 1.52
$ 1.46
$ 1.42
$ 0.72
$ 18.40
13,434
13,454
14,046
0.68%
9.42
0.91
2.52
3.81
3.81
3.93
56.52
1.61
49.32
2.48%
3.93
141.02
2.05
2.30
1.52
$ 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
2.35%
2.99
151.38
1.44
1.79
1.24
87.12%
74.42%
72.65%
73.17%
77.06%
116.03
110.12
110.55
108.22
102.17
8.5%
8.9
7.4%
7.7
7.4%
6.9
7.2%
7.1
6.4%
6.5
15.6
16.9
11.3
14.2
15.4
10.2
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
2.84x
5.87x
3.09x
8.24x
1.78x
3.30x
1.53x
2.99x
2.30x
6.29x
(1) Net income (loss) divided by average total assets.
(2) Net income (loss) divided by average stockholders’ equity.
(3) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest
income plus non-interest income.
(6) Non-interest expense less non-interest income divided by
average total assets.
(7) Cash dividends per common share divided by earnings per common
share.
(8) Excludes assets covered by FDIC loss sharing agreements.
(9) In computing the ratio of earnings to fixed charges and preferred
stock dividend requirement: (a) earnings have been based on income
before income taxes and fixed charges, and (b) fixed charges consist
of interest and amortization of debt discount and expense including
amounts capitalized and the estimated interest portion of rents.
18
2013 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) non-interest expense reductions from the Great Southern banking center consolidation might be less
than anticipated and the costs of the consolidation and impairment of the value of the affected premises might be greater than
expected; (ii) expected cost savings, synergies and other benefits from the Company’s merger and acquisition activities, might not be
realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to
customer and employee retention, might be greater than expected; (iii) changes in economic conditions, either nationally or in the
Company’s market areas; (iv) fluctuations in interest rates; (v) 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; (vi)
the possibility of other-than-temporary impairments of securities held in the Company’s securities portfolio; (vii) the Company’s
ability to access cost-effective funding; (viii) fluctuations in real estate values and both residential and commercial real estate market
conditions; (ix) demand for loans and deposits in the Company’s market areas; (x) 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; (xi) monetary and fiscal
policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services
industry; (xii) 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; (xiii) the
uncertainties arising from the Company’s participation in the Small Business Lending Fund program, 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; (xiv) costs and effects of litigation, including
settlements and judgments; and (xv) competition. The Company wishes to advise readers that the factors listed above and other risks
described from time to time in the Company’s other 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.
Additional discussion of the allowance for loan losses is included in the Company’s 2013 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
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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 regarding the
TeamBank, Vantus Bank, Sun Security Bank and InterBank FDIC-assisted transactions.
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,
2013, 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, 2013, 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 a period of seven years.
At December 31, 2013, the amortizable intangible assets consisted of core deposit intangibles of $4.2 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, 2013. While the Company believes no impairment existed at December 31, 2013, 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
Economic conditions during the period 2008 to 2012 presented financial institutions with unprecedented circumstances and challenges
which, in some cases, 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.
Given the potential volatility of 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.
The economic downturn elevated unemployment levels and negatively impacted consumer confidence. This downturn had a
detrimental impact on industry-wide performance nationally as well as the Company's Midwest market areas. Over the past two years,
several economic indicators have shown some improvement, including increasing consumer confidence levels and a continued decline
in unemployment levels.
The national unemployment rate declined from 7.8% as of December 2012 to 6.7% in December 2013. The unemployment rate at
6.7% remains high, and although job growth slowed in December, it is anticipated to accelerate from near 180,000 per month last year
to over 200,000 monthly in 2014, according to economists. Unemployment levels in our market areas decreased during 2013 in all but
two of the states in which the Company has offices and all but one state had unemployment levels lower than the National
unemployment rate. Unemployment rates at December 31, 2013 were: Missouri at 5.9%, Arkansas at 7.4%, Kansas at 4.9%, Iowa at
4.2%, Nebraska at 3.6%, Minnesota at 4.6%, Oklahoma at 5.4% and Texas at 6.0%. Four out of these eight states had unemployment
rates among the ten lowest in the country. Of the metropolitan areas in which Great Southern Bank does business, the St. Louis
market area continues to carry the highest level of unemployment at 6.5% which is an improvement over the 7.0% rate reported as of
December 2012. The unemployment rate at 4.6% for the Springfield market area was below the national and state average for
December 2013. Metropolitan areas in Iowa and Nebraska boasted unemployment levels ranging from 3.6% - 4.0%; ranking them
among the lowest unemployment levels in the nation.
Real GDP growth slowed in the fourth quarter of 2013 to 2.3% from 4.1% in the previous quarter. Although growth slowed slightly,
progress was noted, with consumption accelerating and driving growth. Consumer spending expanded at a moderate rate but remains
constrained by high unemployment, modest income growth, reduced housing wealth and tight credit. Reduced government spending
and the government shutdown in the 2013 4th quarter had an impact on the level of economic improvement.
Sales of newly built, single-family homes fell 7% to a seasonally adjusted annual rate of 414,000 units in December 2013, according
to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Despite the monthly drop, home sales in
2013 were up 16.4% over the previous year. December’s decline in new-home sales followed elevated levels in the previous two
months, resulting in a fourth quarter which was still much stronger than the third quarter according to the National Association of
Home Builders. Builders are still constrained by tight credit conditions for home buyers, and a limited supply of labor and buildable
lots.
Regionally, the Midwest posted a gain in new-home sales activity for 2013 at 17.6%. At December 31, 2013, the median existing
home price in the Midwest stood at $150,700, a 7.0% increase from the year before. Building permits have increased across our
market areas, and foreclosure filings have decreased to their lowest level since 2007.
The performance of commercial real estate markets also improved substantially in the Company’s market areas as shown by increased
real estate sales activity and financing of those activities. According to real estate services firm CoStar Group, retail, office and
industrial types of commercial real estate properties continue to show improvement in occupancy, absorption and rental income both
nationally and in our market areas.
While current economic indicators for the Midwest show improvement in employment, housing starts and prices, commercial real
estate occupancy, absorption and rental income, Bank management will continue to closely monitor regional, national and global
economic conditions as these could have significant impacts on our market areas.
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
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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, 2013, Great Southern's total assets decreased $394.9 million, or 10.0%, from $3.96 billion at
December 31, 2012, to $3.56 billion at December 31, 2013. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2013 and December 31, 2012” section of this Annual Report on Form 10-K.
Loans. In the year ended December 31, 2013, Great Southern's net loans increased $119.9 million, or 5.2%, from $2.32 billion at
December 31, 2012, to $2.44 billion at December 31, 2013. The increase was partially due to the purchase of $86.1 million of multi-
family residential loans in October 2013. In addition, there were increases in commercial real estate, other residential,
commercial business, consumer and construction loans. Excluding loans covered by loss sharing agreements, commercial real
estate loans increased $88.3 million, other residential loans increased $58.1 million, other commercial loans increased $50.6 million,
consumer auto loans increased $52.1 million and commercial construction loans increased $33.5 million. Partially offsetting these
increases was a decrease in net loans acquired through the FDIC-assisted transactions of $137.7 million, or 26.3%, primarily because
of loan repayments. As loan demand is affected by a variety of factors, including general economic conditions, and because of the
competition we face and our focus on pricing discipline and credit quality, we cannot be assured that our loan growth will match or
exceed the level of increases achieved in prior years. 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, 2013 and 2012, 76.0.0% and 73.0%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2013 and 2012, commercial real estate and commercial construction
loans were 42.7% and 45.1% 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,
2013 and 2012, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 20% and 24% 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, 2013 and 2012, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
20% and 21% 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 2013 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 53% in 2013 due to customer preference for fixed rate loans during this period of low interest rates. Of the total
amount of fixed rate loans in our portfolio, 74% mature within one to five years and therefore are not considered to create significant
long-term interest rate risk for the Company. Fixed rate loans make up only a portion of our balance sheet and our overall interest rate
risk strategy. As of December 31, 2013, our interest rate risk models indicated a one-year interest rate earnings sensitivity position
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.”
While our policy allows us to lend up to 95% of the appraised value on one-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, 2013 and December 31, 2012, an estimated
0.4% and 0.2%, respectively, of total owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at
origination. At December 31, 2013 and December 31, 2012, an estimated 0.5% and 0.8%, respectively, of total non-owner occupied
one- to four-family residential loans had loan-to-value ratios above 100% at origination.
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At December 31, 2013, troubled debt restructurings totaled $54.1 million, or 2.3% of total loans, up $7.3 million from $46.8 million,
or 2.0% of total loans, at December 31, 2012. At December 31, 2011, troubled debt restructurings totaled $58.1 million, or 2.7% of
total loans. 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. This increase over the past five years is primarily due to the
economic downturn that was experienced 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, 2013, four loans totaling $3.5 million were each
restructured into multiple new loans. 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. For further information on troubled debt restructurings, see Note 3 of the accompanying audited
financial statements.
The loss sharing agreements with the FDIC are subject to limitations on the types of losses covered and the length of time losses are
covered, and are conditioned upon the Bank complying with its requirements in the agreements with the FDIC, including requirements
regarding servicing and other loan administration matters. The loss sharing agreements extend for ten years for single family real
estate loans and for five years for other loans. At December 31, 2013, approximately five 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 ten years.
At December 31, 2013, approximately five and one half 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 twelve years. At December 31, 2013,
approximately eight 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 five to twelve years. At December 31, 2013, approximately eight and one
half 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 five to fourteen years. At December 31, 2013, approximately three months remain on the loss
sharing agreement for non-single family loans acquired from TeamBank and the remaining loans have an estimated average life of one
to six years. At December 31, 2013, approximately nine months 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 one to six years. At December 31, 2013,
approximately three 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, 2013, approximately three and one half 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 two to three years. While the expected repayments for certain of the acquired loans extend beyond the terms of the loss
sharing agreements, the Bank has identified and will continue to identify problem loans and will make every effort to resolve them
within the time limits of the agreements. The Company may sell any loans remaining at the end of the loss sharing agreement subject
to the approval of the FDIC. Acquired loans are currently included in the analysis and estimation of the allowance for loan losses.
However, when the loss sharing agreements end, the allowance for loan losses related to any acquired loans retained in the portfolio
may need to increase if additional weakness or losses are determined to be in the portfolio subsequent to the end of the loss sharing
agreements. 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. 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.
Available-for-sale Securities. In the year ended December 31, 2013, available-for-sale securities decreased $251.7 million, or 31.2%,
from $807.0 million at December 31, 2012, to $555.3 million at December 31, 2013. The decrease was due to net sales and
repayments of mortgage-backed securities, which decreased $228.5 million from $596.1 million at December 31, 2012 to $367.6
million at December 31, 2013, and U.S. government agencies, which decreased $12.7 million from $30.0 million at December 31,
2012 to $17.3 million at December 31, 2013. The Company has utilized cash flow from its securities and excess cash equivalents to
fund loans and reduce certain deposit types.
Cash and Cash Equivalents. Cash and cash equivalents totaled $227.9 million at December 31, 2013, a decrease of $176.2 million, or
43.6%, from $404.1 million at December 31, 2012. The decrease in cash and cash equivalents during 2013 was primarily due to
decreases in deposits, primarily decreases in retail certificates of deposit, certain collateralized transaction accounts and CDARS
customer deposits.
Other Real Estate Owned. Other real estate owned totaled $53.5 million at December 31, 2013, a decrease of $15.4 million, or 22.3%,
from $68.9 million at December 31, 2012. Of the total at December 31, 2013, $51.4 million was foreclosed assets and $2.1 million
was other real estate owned not acquired through foreclosure, which is made up 13 properties, twelve of these properties were branch
24
locations that have been closed and are held for sale, and one is land which was acquired for a potential branch location. Foreclosed
assets, excluding those covered by loss sharing agreements with the FDIC, decreased from $50.1 million, or 1.3% of total assets, at
December 31, 2012 to $42.4 million, or 1.2% of total assets, at December 31, 2013. The Company’s foreclosed assets began
increasing as the United States economy slowed due to a severe economic recession in 2008 and 2009, and continued to increase
through 2012. During 2013, the Company’s foreclosed assets decreased primarily in the areas of subdivision and commercial
construction. 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, 2013, total
deposit balances decreased $344.6 million, or 10.9%. Transaction accounts decreased $134.6 million, while retail certificates of
deposit decreased $217.2 million. Great Southern Bank customer deposits totaling $76.3 million and $109.1 million, at December 31,
2013 and December 31, 2012, 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 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, 2013.
Our deposit balances may fluctuate from time to time depending on customer preferences and our relative need for funding. 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 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 quarters, 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 depend 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 either fixed or
variable rate funding, if desired, which more closely matches the interest 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 could have a material adverse effect on 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.
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However, any margin gained by these rate reductions is likely to be offset by reduced yields from our investment securities as
payments are made on our mortgage-backed securities and the proceeds are reinvested at lower rates. Similarly, interest rates on
adjustable rate loans may reset lower according to their contractual terms and new loans may be originated at lower market rates. For
further discussion of the processes used to manage our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures
About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.”
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, 2013, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $502 million with rates that change immediately with changes to the prime
rate of interest. Of this total, $464 million also had interest rate floors. These floors were at varying rates, with $11 million of these
loans having floor rates of 7.0% or greater and another $273 million of these loans having floor rates between 5.0% and 7.0%. In
addition, $181 million of these loans have floor rates between 3.25% and 5.0%. At December 31, 2013, all of these loans were at their
floor rates. The loan yield for the total loan portfolio was approximately 185 basis points, 214 basis points and 261 basis points higher
than the national "prime rate of interest" at December 31, 2013, 2012 and 2011, 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 2013, 2012 and 2011, 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, 2013 and 2012.”
Business Initiatives
During 2013, the Company reduced its banking center network from 107 to 96 banking centers, a net reduction of 11. The Company
added one banking center to its network in 2013 with a new facility in a commercial district of Omaha, Neb. This full-service banking
center, which includes a commercial lending team, brings the total to four banking centers operating in the greater Omaha
metropolitan area.
A total of 12 offices were consolidated into other Great Southern banking centers in 2013. In October, 11 Missouri banking centers
were closed and consolidated into other proximate Great Southern banking center locations. Consolidation of these banking centers,
which included the transfer of deposits and other banking center operations, was a result of a performance review of the entire banking
center network. The affected banking centers were acquired in 2011, as part of the FDIC-assisted acquisition of the former 27-branch
Sun Security Bank. Six of the 11 banking centers were located in southeastern Missouri and five were located in central Missouri.
Great Southern ATMs remain operational at each of the affected banking center sites. To date, overall deposit retention at the
consolidated banking centers surpassed expectations. In December 2013, a drive-thru facility in Sioux City, Iowa, was consolidated
into the nearby Downtown Sioux City banking center, which was remodeled to include drive-thru services for customers.
In addition, the Company relocated three existing banking centers to nearby sites in 2013 - one each in Springfield, Mo., Maple Grove,
Minn., and Ava, Mo. In March, a new banking center in Downtown Springfield opened, which replaced a leased facility two blocks
away. In October, a new banking center with a commercial lending team opened in Maple Grove, Minn., replacing a leased office a
short distance away. The Company operates four banking centers in the Minneapolis market – one each in Edina, Lakeville, Maple
Grove and Roseville. Finally, in November, a new and larger banking center in Ava, Mo., opened replacing the bank-owned property
less than a mile away.
In October 2013, the Company completed an acquisition of loans with an aggregate principal amount totaling $86.1 million. The
acquired loan portfolio, which was auctioned by an unrelated FDIC-insured financial institution, included 119 loans with collateral
securing the notes consisting primarily of multi-family real estate in Minnesota, Michigan, Wisconsin, Illinois and Indiana. The Bank
paid $87.9 million for the loans, which resulted in a 2.125% premium over the principal balances of the portfolio. The process of
bidding on the portfolio was competitive in nature with numerous institutions bidding on all or a portion of the loans. The Bank
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estimates the average yield of the portfolio to be approximately 4.3% based on the weighted average maturity of the portfolio (less
than four years), with an average yield potentially as high as 4.7% if loan balances are retained beyond the initial maturity dates.
On the technology front in 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 a smartphone camera. A new mobile-ready and
more interactive Company website, www.GreatSouthernBank.com, was also launched.
In 2014, several initiatives are underway. On January 14, 2014, the Company announced that it signed a definitive agreement to
purchase two branches in Neosho, Mo., from Boulevard Bank, representing approximately $65 million of deposits and $6 million of
loans. Great Southern currently operates one banking center in Neosho. Subject to separate regulatory approval and after conversion
of all Neosho locations to one operating system, the Bank expects to relocate the current Great Southern office into the Boulevard
Bank branch directly across the street. This transaction will ultimately represent a net increase of one banking center to the Great
Southern franchise. Terms of this agreement call for Great Southern to acquire the loans at par and pay a two percent premium on
approximately $55 million of the deposits. The Company will pay book value of approximately $700,000 for the real and personal
property associated with these two branches. The Company anticipates that the effects of this transaction, including the consolidation
of its existing banking center in Neosho, will be slightly accretive to earnings.
Subsequent to the Neosho announcement, the Company announced on January 31, 2014, that it reached a separate definitive
agreement to purchase additional depository and loan accounts serviced from Boulevard Bank’s branch in St. Louis, Mo. Great
Southern currently operates seven banking centers in the greater St. Louis area. This transaction, representing approximately $39
million in depository accounts and $6 million in commercial loans, does not include a physical branch location or personnel. Loans
will be acquired at par value and deposits are being assumed with no significant additional premium. The combined Neosho and St.
Louis transactions represent approximately $104 million in deposits and $12 million in loans. Both acquisitions are expected to be
simultaneously completed in late March 2014, pending regulatory approval.
In the second quarter of 2014, the Company expects to add two new full-service banking centers to its network: a north St. Louis
office and a Fayetteville, Ark., facility.
In the first quarter of 2014, the Company opened commercial loan production offices in Tulsa, Okla., and Dallas, Texas. The Tulsa
office is located in southeast Tulsa at 4200 E. Skelly Dr. and the Dallas office is in Preston Center (north Dallas) at 8201 Preston Rd.
The new offices are the first physical presence the Company will have in each market. They will provide a wide variety of the Bank's
commercial lending services including fixed and variable-rate commercial real estate loans for new and existing property. Competitive
commercial construction and portfolio financing will also be available.
Effect of Federal Laws and Regulations
General. Federal legislation and regulation significantly affect the 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 banking organizations 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.
Significant 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 (discussed
below), 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,
27
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 Capital Rules. The federal banking agencies have adopted new regulatory capital rules that substantially amend the risk-based
capital rules applicable to the Bank and the Company. The new 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. For the Company and the Bank, the general effective date of the new rules is January 1, 2015, and, for certain provisions,
various phase-in periods and later effective dates apply. The chief features of the new rules are summarized below.
The new rules refine the definitions of what constitutes regulatory capital and add a new regulatory capital element, common equity
Tier 1 capital. The minimum capital ratios are (i) a common equity Tier 1 risk-based capital ratio of 4.5%; (ii) a Tier 1 risk-based
capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. In addition to the minimum
capital ratios, the new rules include a capital conservation buffer, under which a banking organization must have capital more than
2.5% above each of its minimum risk-based capital ratios in order to avoid restrictions on paying dividends, engaging in share
repurchases, and paying certain discretionary bonuses.
Effective January 1, 2015, the new rules also revise 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 new prompt corrective action requirements,
insured depository institutions would be required to meet the following in order to qualify as “well capitalized:” (i) a common equity
Tier 1 risk-based capital ratio of at least 6.5%; (ii) a Tier 1 risk-based capital ratio of at least 8%; (iii) a total risk-based capital ratio of
at least 10%; and (iv) a Tier 1 leverage ratio of 5%.
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 published proposed regulations
on these provisions of Basel III on October 24, 2012. As proposed, these regulations will not apply to a bank holding company that
has less than $50 billion of total consolidated assets and is not internationally active.
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, 2013 and December 31, 2012
During the year ended December 31, 2013, total assets decreased by $394.9 million to $3.56 billion. Most of the decrease was
attributable to decreases in available-for-sale-securities, cash and cash equivalents, and the FDIC indemnification asset. The
Company chose to reduce certain deposit categories and utilize cash to repay these deposits. In addition, the Company chose to sell
certain investment securities due to significant liquidity and also elected to not reinvest the monthly repayments received on mortgage-
backed securities in new investment securities.
Net loans increased $119.9 million to $2.44 billion at December 31, 2013. Commercial real estate loans increased $88.3 million, or
12.8%, multi-family residential loans increased $58.1 million, or 21.7%, commercial business loans increased $50.6 million, or 19.1%,
consumer auto loans increased $52.1 million, or 63.1%, and commercial construction loans increased $33.5 million, or 22.3%.
Partially offsetting these increases was a decrease in net loans acquired through the FDIC-assisted transactions of $137.7 million, or
26.3%, primarily because of loan repayments. As disclosed previously by the Company, the Company completed an acquisition of
multi-family real estate loans with an aggregate principal amount totaling $86.1 million on October 25, 2013. The remaining increase
in loans during 2013 was primarily due to financing loans which had been previously financed by other lenders and increased business
activity. 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 decreased $44.6 million to $72.7 million at December 31, 2013. The decrease was primarily due to the billing
and collection of realized losses 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.
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Securities available for sale decreased $251.7 million, or 31.2%, as compared to December 31, 2012. The decrease was primarily due
to paydowns on mortgage-backed securities, which decreased $228.5 million from $596.1 million at December 31, 2012 to $367.6
million at December 31, 2013, and calls, maturities and sales of securities with proceeds used to fund new loans and pay off maturing
deposits. The available-for-sale securities portfolio was 15.6% and 20.4% of total assets at December 31, 2013 and December 31,
2012, respectively.
During the year ended December 31, 2013, cash and cash equivalents decreased $176.2 million to $227.9 million. The decrease
during 2013 was due to decreases in deposits, primarily due to decreases in retail certificates of deposit, certain collateralized
transaction accounts and CDARS customer deposits.
Total liabilities decreased $405.8 million from $3.58 billion at December 31, 2012 to $3.18 billion at December 31, 2013. The
decrease was primarily attributable to decreases in deposits, securities sold under reverse repurchase agreements with customers, and
current and deferred income taxes. In the year ended December 31, 2013, total deposit balances decreased $344.6 million, or 10.9%.
Transaction accounts decreased $134.6 million and retail certificates of deposit decreased $217.2 million. Transaction accounts
decreased mainly due to planned reductions in certain account types, including accounts with collateralized deposit balances. Since
the second quarter of 2010, retail certificates of deposit have trended downward because of customer preference to have immediate
access to funds during the current low interest rate environment, when excluding the effect of the deposits added from the 2011 and
2012 FDIC-assisted acquisitions. In addition, at December 31, 2013 and December 31, 2012, Great Southern Bank customer deposits
totaling $76.3 million and $109.1 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. 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, 2013.
Securities sold under reverse repurchase agreements with customers decreased $44.7 million, or 24.9%, from December 31, 2012 as
these balances fluctuate over time.
Current and deferred income taxes decreased $21.6 million from December 31, 2012 as these balances fluctuate with changes in net
income and utilization of tax credits.
Total stockholders' equity increased $10.8 million from $369.9 million at December 31, 2012 to $380.7 million at December 31, 2013.
The Company recorded net income of $33.7 million for the year ended December 31, 2013, common and preferred dividends declared
were $10.4 million and accumulated other comprehensive income decreased $14.2 million. The decrease in accumulated other
comprehensive income resulted from decreases in the fair value of the Company's available-for-sale investment securities. In addition,
total stockholders’ equity increased $1.7 million due to stock option exercises.
Results of Operations and Comparison for the Years Ended December 31, 2013 and 2012
General
Net income decreased $15.0 million, or 30.8%, during the year ended December 31, 2013, compared to the year ended December 31,
2012. Net income from continuing operations decreased $10.4 million, or 23.5%, during the year ended December 31, 2013,
compared to the year ended December 31, 2012. Net income was $33.7 million for the year ended December 31, 2013 compared to
$48.7 million for the year ended December 31, 2012. Net income from continuing operations was $33.7 million for the year ended
December 31, 2013 compared to $44.1 million for the year ended December 31, 2012. This decrease was due to a decrease in non-
interest income of $40.7 million, or 88.5%, and a decrease in net interest income of $5.5 million, or 3.4%, partially offset by a
decrease in the provision for loan losses of $26.5 million, or 60.4%, a decrease in provision for income taxes of $7.2 million, or 68.0%,
and a decrease in non-interest expense of $2.2 million, or 1.9%. Non-interest income for the year ended December 31, 2012 included a
gain recognized on business acquisition of $31.3 million. Net income available to common shareholders was $33.2 million for the
year ended December 31, 2013 compared to $48.1 million for the year ended December 31, 2012.
Total Interest Income
Total interest income decreased $14.7 million, or 7.6%, during the year ended December 31, 2013 compared to the year ended
December 31, 2012. The decrease was due to an $8.4 million, or 36.2%, decrease in interest income on investments and other interest-
earning assets, and a decrease in interest income on loans of $6.3 million, or 3.7%. Interest income from investment securities and
other interest-earning assets decreased during the year ended December 31, 2013 due to lower average rates of interest and lower
average balances. The lower average investment yields were primarily a result of lower yields on mortgage-backed securities as
interest rates reset downward. Prepayments on the mortgages underlying these securities resulted in amortization of premiums which
also reduced yields. In addition, investments had lower average balances in 2013 as a result of increased prepayments and normal
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monthly payments on mortgage-backed securities. Cash flows from investments were used to fund loans and reduce certain deposit
types. In 2013, few investment securities were purchased to offset these reductions. Interest income on loans is affected by 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. In 2013, many higher
yielding loans matured or were repaid. These loans were replaced with new loans that were generally at rates lower than those that
repaid during the year, resulting in lower overall yields in the loan portfolio. Higher average balances of loans partially offset the
lower interest income on loans.
Interest Income - Loans
During the year ended December 31, 2013 compared to the year ended December 31, 2012, interest income on loans decreased due to
lower average interest rates, partially offset by higher average balances. Interest income decreased $11.8 million as the result of lower
average interest rates on loans. The average yield on loans decreased from 7.31% during the year ended December 31, 2012 to 6.82%
during the year ended December 31, 2013. This decrease was due to lower overall loan rates, and a lower amount of accretion income
in the current year in conjunction with the fair value of the loan pools acquired in the FDIC-assisted transactions, as the additional
yield accretion was less in 2013 than in 2012. On an on-going basis the Company estimates the cash flows expected to be collected
from the acquired loan pools. This cash flows estimate has increased, based on the payment histories and reduced loss expectations of
the loan pools, resulting in a total of $169.6 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 have
also been reduced, resulting in a total of $142.4 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. For the years ended December 31,
2013 and 2012, the adjustments increased interest income by $35.2 million and $36.2 million, respectively, and decreased non-interest
income by $29.5 million and $29.9 million, respectively. The net impact to pre-tax income was $5.8 million and $6.3 million,
respectively, for the years ended December 31, 2013 and 2012. As of December 31, 2013, the remaining accretable yield adjustment
that will affect interest income is $30.4 million and the remaining adjustment to the indemnification assets, including the effects of the
clawback liability related to InterBank, that will affect non-interest income (expense) is $(24.6) million. Of the remaining adjustments,
we expect to recognize $19.0 million of interest income and $(14.7) million of non-interest income (expense) during 2014. Additional
adjustments may be recorded in future periods from the FDIC-assisted transactions, as the Company continues to estimate expected
cash flows from the acquired loan pools. Excluding the yield accretion, the average yield on loans was 5.35% for the year ended
December 31, 2013, down from 5.76% for the year ended December 31, 2012, as a result of normal amortization of higher-rate loans
and new loans that were made at current lower market rates.
Interest income increased $5.5 million as a result of higher average loan balances which increased from $2.33 billion during the year
ended December 31, 2012 to $2.40 billion during the year ended December 31, 2013. The higher average balances were primarily due
to increases in commercial real estate loans, commercial business loans, and other consumer loans, partially offset by decreases in
construction and other residential loans.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments decreased $5.1 million as a result of a decrease in average interest rates from 2.68% during the year
ended December 31, 2012 to 2.01% during the year ended December 31, 2013. The majority of the Company’s securities in 2012 and
2013 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 decreased $3.1 million as a result of a decrease in
average balances from $846.2 million during the year ended December 31, 2012, to $717.8 million during the year ended December
31, 2013. Average balances of securities decreased due primarily to the normal monthly payments received on the portfolio of
mortgage-backed securities and the sale of securities during 2013, with proceeds being used to fund new loan originations and deposit
outflows, while average interest-earning deposits decreased due to decreases in the Bank’s customer deposits. Interest income on
other interest-earning assets decreased $238,000 mainly due to lower average balances.
Average balances of interest-earning deposits decreased primarily due to decreases in the Bank’s customer deposit balances. 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, 2013, the Company had cash and cash equivalents of $227.9
million compared to $404.1 million at December 31, 2012. See "Net Interest Income" for additional information on the impact of this
interest activity.
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Total Interest Expense
Total interest expense decreased $9.2 million, or 32.3%, during the year ended December 31, 2013, when compared with the year
ended December 31, 2012, due to a decrease in interest expense on deposits of $8.4 million, or 40.4%, a decrease in interest expense
on FHLBank advances of $458,000, or 10.3%, a decrease in interest expense on short-term and structured repo borrowings of
$286,000, or 11.0% and a decrease in interest expense on subordinated debentures issued to capital trust of $56,000, or 9.1%.
Interest Expense - Deposits
Interest on demand deposits decreased $3.5 million due to a decrease in average rates from 0.49% during the year ended December 31,
2012, to 0.24% during the year ended December 31, 2013. The average interest rates decreased due to lower overall market rates of
interest since 2012 and because the Company chose to pay lower rates during 2013 when compared to 2012. 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 $38,000 due to a small increase in average balances from the year ended December 31, 2012, to
the year ended December 31, 2013. The small increase in average balances of demand deposits was primarily a result of the
InterBank acquisition in April of 2012, and customer preference to transition from time deposits to demand deposits. Average
noninterest-bearing demand balances increased from $386 million for the year ended December 31, 2012, to $460 million for the year
ended December 31, 2013.
Interest expense on time deposits decreased $2.6 million due to a decrease in average balances of time deposits from $1.36 billion
during the year ended December 31, 2012, to $1.07 billion during the year ended December 31, 2013. The decrease in average
balances of time deposits was primarily due to some customers choosing not to renew their deposits with us upon maturity. Also
contributing to the decrease was the decrease in CDARS deposits of $32.8 million from December 31, 2012 to December 31, 2013.
Interest expense on time deposits decreased $2.3 million as a result of a decrease in average rates of interest from 1.00% during the
year ended December 31, 2012, to 0.82% during the year ended December 31, 2013. A large portion of the Company’s certificate of
deposit portfolio matures within one to two years and so it reprices fairly quickly; this is consistent with the portfolio over the past
several years.
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2013 compared to the year ended December 31, 2012, interest expense on FHLBank advances
decreased due to lower average balances. Interest expense on FHLBank advances decreased $556,000 due to a decrease in average
balances from $145 million during the year ended December 31, 2012, to $128 million during the year ended December 31, 2013.
This decrease was primarily due to repayments of maturing advances. Interest expense on FHLBank advances increased $98,000 due
to an increase in average interest rates from 3.05% in the year ended December 31, 2012, to 3.11% in the year ended December 31,
2013. Advances in the 2012 period included some short-term advances which carried very low rates of interest. 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 $330,000 due to a decrease in average
balances from $266 million during the year ended December 31, 2012, to $233 million during the year ended December 31, 2013.
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 $44,000 due to a slight increase in average rates on short-term borrowings and structured repurchase agreements
from the year ended December 31, 2012, to the year ended December 31, 2013.
Interest expense on subordinated debentures issued to capital trusts decreased $56,000 due to a decrease in average rates from 1.99%
in the year ended December 31, 2012, to 1.81% in the year ended December 31, 2013. These are variable-rate debentures which 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, 2013 decreased $5.5 million to $159.6 million compared to $165.1 million for
the year ended December 31, 2012. Net interest margin was 4.70% for the year ended December 31, 2013, compared to 4.61% in 2012,
an increase of nine basis points. The Company’s margin was positively impacted in both years 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, 2013 and 2012 were increases in interest income of $35.2
million and $36.2 million, respectively, and increases in net interest margin of 104 basis points and 101 basis points, respectively.
Excluding the positive impact of the additional yield accretion, net interest margin increased six basis points during the year ended
December 31, 2013. During 2012 and 2013, market rates on checking and savings deposits decreased and retail time deposits
renewed at lower rates of interest. The Company has also experienced decreases in yields on loans and investments, excluding the
yield accretion income discussed above, when compared to the previous year. Existing loans continue to repay, and in many cases
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new loans are originated at rates which are lower than the rates on those repaying loans and may be lower than existing average
portfolio rates. In addition, premium amortization on the Company’s mortgage-backed securities investments was higher in 2013
compared to 2012.
The Company's overall interest rate spread increased seven basis points, or 1.8%, from 4.53% during the year ended December 31,
2012, to 4.60% during the year ended December 31, 2013. The increase was due to a 21 basis point decrease in the weighted average
rate paid on interest-bearing liabilities, partially offset by a 14 basis point decrease in the weighted average yield on interest-earning
assets. The Company's overall net interest margin increased nine basis points, or 2.0%, from 4.61% for the year ended December 31,
2012, to 4.70% for the year ended December 31, 2013. In comparing the two years, the yield on loans decreased 49 basis points while
the yield on investment securities and other interest-earning assets decreased 67 basis points. The rate paid on deposits decreased 25
basis points, the rate paid on FHLBank advances increased six basis points, the rate paid on short-term borrowings increased two basis
points and the rate paid on subordinated debentures issued to capital trust decreased 18 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
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. Based on the
Company’s current assessment of these factors and their expected impact on the loan portfolio, management believes that provision
expenses and net charge-offs for 2014 will likely continue to be less than those for 2013, or similar to the latter half of 2013. However,
the levels of non-performing assets, potential problem loans, loan loss provisions and net charge-offs fluctuate from period to period
and are difficult to predict.
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.
The provision for loan losses decreased $26.5 million to $17.4 million during the year ended December 31, 2013 when compared with
the year ended December 31, 2012. At December 31, 2013, the allowance for loan losses was $40.1 million, a decrease of $533,000
from December 31, 2012. Total net charge-offs were $17.9 million and $44.5 million for the years ended December 31, 2013 and
2012, respectively. Ten relationships made up $12.7 million of the net charge-off total for the year ended December 31, 2013. The
decrease in net charge-offs and provision for loan losses in 2013 were consistent with our expectations, as indicated in previous filings.
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. As properties were categorized as potential
problem loans, non-performing loans or foreclosed assets, evaluations were made of the values of these assets with corresponding
charge-offs as appropriate.
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. Included in the
net charge-off total for the year ended December 31, 2013, were charge-offs of $2.2 million and net recoveries of $1.1 million related
to loans covered by the loss sharing agreements with the FDIC. In the three months ended March 31, 2013, the Bank recorded $2.2
million in net charge-offs (with a corresponding provision for loan losses) related to the covered loans. Under these agreements, the
FDIC will reimburse the Bank for 80% of the losses, so the Bank expected reimbursement of $1.8 million of this charge-off and
32
recorded income of this amount in the three months ended March 31, 2013. During the three months ended June 30, 2013, these
covered loans were resolved more favorably than originally anticipated, with the Bank experiencing a recovery of $1.1 million of the
previously recorded charge-off. The Bank expected to reimburse, and has reimbursed, the FDIC $0.9 million of this recovery and
recorded expense of this amount in the three months ended June 30, 2013.
The Bank's allowance for loan losses as a percentage of total loans, excluding loans covered by the FDIC loss sharing agreements, was
1.92% and 2.21% at December 31, 2013 and 2012, respectively. Management considers the allowance for loan losses adequate to
cover losses inherent in the Company's loan portfolio at December 31, 2013, based on recent reviews of the Company's loan portfolio
and current economic conditions. If economic conditions were to deteriorate or management’s assessment of the loan portfolio were
to change, 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 or 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
for the applicable terms under the agreement. 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, 2013 were $62.3 million, a decrease of $10.3
million from $72.6 million at December 31, 2012. Non-performing assets as a percentage of total assets were 1.75% at December 31,
2013, compared to 1.84% at December 31, 2012.
Compared to December 31, 2012, non-performing loans decreased $2.6 million to $19.9 million and foreclosed assets decreased $7.7
million to $42.4 million. Other commercial loans comprised $7.2 million, or 36.3%, of the total $19.9 million of non-performing
loans at December 31, 2013. Commercial real estate loans comprised $6.2 million, or 31.2%, of the total $19.9 million of non-
performing loans at December 31, 2013. One-to four-family residential loans comprised $4.4 million, or 21.9% of the total $19.9
million of non-performing loans at December 31, 2013.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2013, 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
$
-- $
-- $
-- $
Subdivision construction
Land development
Commercial construction
2
2,471
--
One- to four-family residential
4,581
Other residential
Commercial real estate
Other commercial
Consumer
--
8,324
6,248
852
1,293
525
--
4,792
4,535
12,158
7,272
1,238
--
--
--
--
--
--
--
(399)
(In Thousands)
-- $
(2)
--
--
(705)
--
(92)
--
(35)
(281)
(2,236)
--
(1,683)
(350)
(5,389)
(126)
(43)
-- $
-- $
-- $
--
871
338
--
(133)
(288)
--
(8)
(134)
--
(1,419)
(1,205) 4,361
(866)
(4,179)
(2,725)
(166)
(3,319)
(4,617)
(3,438)
(547)
--
6,205
7,231
900
Total
$
22,478 $
31,813 $
(399) $
(834) $
(10,108) $
(9,776) $
(13,268) $
19,906
At December 31, 2013, the non-performing other commercial category included nine loans, seven of which were added during the
year. The largest relationship in this category is comprised of three loans totaling $2.7 million, or 37.2% of the total category, and is
collateralized by inventory and assets of a business. The non-performing commercial real estate category included five loans, three of
which were added during the year, and were collateralized by hotel buildings and a theater in Branson, Mo. $9.6 million of the $12.2
33
million of additions to non-performing commercial real estate were loans transferred from potential problem loans to non-performing
loans during the year. The largest relationship in this category is comprised of two loans totaling $4.1 million, or 66.0% of the total
category, a portion of which was added during the year, and is collateralized by two hotel buildings. The non-performing one- to four-
family residential category included 58 loans, 42 of which were added during the year.
Foreclosed Assets. Of the total $53.5 million of other real estate owned at December 31, 2013, $9.0 million represents the fair value of
foreclosed assets covered by FDIC loss sharing agreements and $2.1 million represents properties which were not acquired through
foreclosure. The foreclosed assets covered by FDIC loss sharing agreements and the properties not acquired through foreclosure 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 the market for land development properties did not experience a
recovery. Because of this, we experienced continued higher levels of additions to foreclosed assets during 2013. Because sales of
foreclosed properties exceeded additions, total foreclosed assets decreased. Activity in foreclosed assets during the year ended
December 31, 2013, was as follows:
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
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
$
$
627
17,146
14,284
6,511
975
7,232
2,738
160
471
600 $
832
4,353
113
2,550
350
8,995
--
3,662
(In Thousands)
(627) $
(5,659)
(1,935)
(4,254)
(2,693)
(1,864)
(8,518)
(81)
(3,166)
-- $
26
45
--
--
387
--
--
--
-- $
(193)
(59)
(238)
(88)
(205)
(80)
--
--
600
12,152
16,688
2,132
744
5,900
3,135
79
967
Total
$
50,144
$
21,455 $
(28,797) $
458 $
(863) $
42,397
At December 31, 2013, the land development category of foreclosed assets included 29 properties, the largest of which was located in
northwest Arkansas and had a balance of $2.3 million, or 13.7% of the total category. Of the total dollar amount in the land
development category of foreclosed assets, 35.1% and 36.9% was located in northwest Arkansas and in the Branson, Mo., area,
respectively, including the largest property previously mentioned. The subdivision construction category of foreclosed assets included
35 properties, the largest of which was located in the St. Louis, Mo. metropolitan area and had a balance of $3.2 million, or 26.5% of
the total category. Of the total dollar amount in the subdivision construction category of foreclosed assets, 16.4% and 14.9% is
located in Branson, Mo., and Springfield, Mo., respectively. The other residential category of foreclosed assets included 17 properties,
13 of which were all part of the same condominium community, which was located in Branson, Mo. and had a balance of $2.4 million,
or 40.7% of the total category. Of the total dollar amount in the other residential category of foreclosed assets, 88.1% was located in
the Branson, Mo., area, including the largest related group of properties previously mentioned.
Potential Problem Loans. Potential problem loans decreased $22.4 million during the year ended December 31, 2013 from $49.4
million at December 31, 2012 to $27.0 million at December 31, 2013. This decrease was due to $16.2 million in loans transferred to
the non-performing category, $9.3 million in loans removed from potential problem loans due to improvements in the credits, $7.2
million in charge-offs, $7.5 million in loans transferred to foreclosed assets, and $3.9 million in payments on potential problem loans,
partially offset by the addition of $21.7 million of loans to potential problem loans. 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, 2013, was as follows:
34
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
$
-- $
-- $
-- $
-- $
-- $
-- $
-- $
--
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
1,652
9,458
--
5,386
8,487
21,913
2,398
129
1,894
5,025
--
1,150
1,347
8,736
3,267
283
(76)
--
--
(1,136)
(4,414)
(3,535)
(73)
(77)
(765)
(158)
--
(503)
(713)
(9,639)
(4,426)
(18)
(36)
(149)
(2,081)
(1,089)
--
(754)
--
(4,605)
--
--
--
(965)
(2,181)
(2,352)
(431)
(4)
(319)
(298)
--
(985)
(570)
(1,638)
(18)
(130)
2,201
10,857
--
2,193
1,956
8,880
717
183
Total
$
49,423 $
21,702 $
(9,311) $
(16,222) $
(7,476) $
(7,171) $
(3,958) $
26,987
At December 31, 2013, the land development category included four loans, the largest of which was added during the current year.
This relationship totaled $5.0 million, or 46.1% of the total category, and was collateralized by property located in the Lake of the
Ozarks, Mo. area. The second largest relationship in this category totaled $3.8 million, or 35.4% of the total category, and was
collateralized by property in the Branson, Mo. area. The commercial real estate category of potential problem loans included 11 loans,
10 of which were added during the current year. The largest addition during the year totaled $1.9 million and was collateralized by a
hotel. The largest relationship in this category, which was added during a previous year, had a balance of $5.0 million, or 55.8% of
the total category. The relationship was collateralized by properties located near Branson, Missouri. The one- to four-family
residential category of potential problem loans included 21 loans, nine of which were added during the current year. The subdivision
construction category of potential problem loans included six loans, four of which were added during the current year. The largest
relationship in this category, which was added during the current year, had a balance of $1.8 million, or 80.2% of the total category,
and was collateralized by properties in the Branson, Mo., area. The other residential category of potential problem loans included one
loan which was added in a previous year, and was collateralized by properties located in the Branson, Mo., area. The other commercial
category of potential problem loans included four loans, one of which was added in the current year. The largest relationship in this
category, which was added during a previous year, had a balance of $660,000, or 92.1% of the total category, and was collateralized
by collector automobiles.
Non-Interest Income
Non-interest income for the year ended December 31, 2013 was $5.3 million compared with $46.0 million for the year ended
December 31, 2012. The decrease of $40.7 million, or 88.5%, was primarily the result of the following items:
InterBank FDIC-assisted acquisition: During the year ended December 31, 2012, the Bank recognized a one-time gain on the FDIC-
assisted acquisition of InterBank of $31.3 million (pre-tax).
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $25.3
million for the year ended December 31, 2013, compared to $18.7 million for the year ended December 31, 2012. The amortization
expense for the year ended December 31, 2013 was made up of the following items: $29.5 million of amortization expense related to
the changes in cash flows expected to be collected from the FDIC-covered loan portfolios and $712,000 of amortization of the
clawback liability related to InterBank. Offsetting the expense was income from the accretion of the discount related to the
indemnification assets for all of the acquisitions of $2.7 million and $2.2 million of other loss share items. The amortization expense
for the year ended December 31, 2012 was made up of the following items: $29.9 million of amortization expense related to the
changes in cash flows expected to be collected from the FDIC-covered loan portfolios and $103,000 of amortization of the clawback
liability related to InterBank. Offsetting the expense was income from the accretion of the discount related to the indemnification
assets for all of the acquisitions of $9.5 million and $1.8 million of income from other loss share items.
Net realized gains on sales of available-for-sale securities: Net realized gains on sales of available-for-sale securities decreased $2.4
million for the year ended December 31, 2013, when compared to the year ended December 31, 2012, partially offset by a decrease in
35
recognized impairment of available-for-sale securities of $680,000. No impairment loss was recognized during the 2013 period. The
Company realized significant gains on the sale of $78 million of certain mortgage-backed and municipal securities in the 2012 period.
Service charges and ATM fees: Service charges and ATM fees decreased $860,000 in the year ended December 31, 2013, when
compared to the year ended December 31, 2012, primarily due to a decrease in overdraft activity, and therefore overdraft charges, in
the current period compared to the prior period.
Non-Interest Expense
Total non-interest expense decreased $2.2 million, or 1.9%, from $112.6 million in the year ended December 31, 2012, to $110.4
million in the year ended December 31, 2013. The Company’s efficiency ratio for the year ended December 31, 2013, was 66.9%, up
from 53.0% in 2012. The increase in the ratio in 2013 compared to 2012 was primarily due to decreases in net interest income and
decreases in non-interest income resulting from decreased gains on sales of single-family loans and increased amortization expense
related to business acquisitions, as well as decreases in non-interest income resulting from the acquisition gain in 2012. The
Company’s ratio of non-interest expense to average assets decreased from 2.98% for the year ended December 31, 2012, to 2.91% for
the year ended December 31, 2013. The decrease in this ratio was due to a decrease in non-interest expense in the 2013 period
compared to the 2012 period. Average assets for the year ended December 31, 2013, decreased $216 million, or 5.4%, from the year
ended December 31, 2012. The following were key items related to the decrease in non-interest expense for the year ended December
31, 2013 as compared to the year ended December 31, 2012:
Foreclosure-related expenses: Expenses on foreclosed assets decreased $4.7 million for the year ended December 31, 2013, when
compared to the year ended December 31, 2012, due primarily to large write-downs of carrying values of foreclosed assets and losses
on sales of assets in 2012.
Other non-interest expense: Other non-interest expense decreased $632,000 for the year ended December 31, 2013, when compared
to the year ended December 31, 2012, due primarily to InterBank one-time acquisition related expenses incurred in 2012.
Partially offsetting the decrease in non-interest expense was an increase in the following items:
Salaries and employee benefits: Salaries and employee benefits increased $1.2 million for the year ended December 31, 2013, when
compared to the year ended December 31, 2012, primarily due to the internal growth of the Company and the increased number of
employees, and salary increases for existing employees.
Partnership tax credit: The partnership tax credit expense increased $1.1 million from the prior year period. 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, 2013, tax credits used to reduce the Company’s tax expense totaled $9.5 million,
up $2.1 million from $7.4 million for the year ended December 31, 2012. These tax credits resulted in corresponding amortization
expense of $6.9 million during the year ended December 31, 2013, up $1.1 million from $5.8 million for the year ended December 31,
2012. 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.
Advertising: Advertising expense increased $593,000 for the year ended December 31, 2013, when compared to the year ended
December 31, 2012, due to additional marketing campaigns across the franchise in the current year period, including business banking
and mobile banking promotions, and loan campaigns.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income (from continuing operations) was 9.2% and 19.4% for the years ended
December 31, 2013 and 2012, 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 tax-exempt investment securities and loans which reduce the Company’s
effective tax rate. In future periods, the Company expects the effective tax rate to be less than 12% 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 and the overall level
of pretax income. At this time, the Company expects to utilize a larger amount of tax credits in 2014 than it did in 2013.
36
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
$3.4 million, $3.2 million and $2.3 million for 2013, 2012 and 2011, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
Dec. 31,
2013(2)
Yield/
Rate
4.81%
4.73
4.70
4.50
4.97
6.02
5.64
5.10
2.73
0.22
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 472,127
312,362
813,147
208,254
249,647
297,852
50,155
$ 35,072
23,963
51,175
14,413
14,505
21,947
2,828
7.43%
7.67
6.29
6.92
5.81
7.37
5.64
$ 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
$ 25,076
15,536
54,698
33,966
20,953
16,898
4,074
7.80%
6.06
7.92
12.81
10.77
8.01
5.87
2,403,544
163,903
6.82
2,326,273
170,163
7.31
2,007,914
171,201
8.53
717,806
276,394
14,459
433
2.01
0.16
846,197
413,092
22,674
671
2.68
0.16
841,308
311,493
26,962
504
3.20
0.16
4.49
3,397,744
178,795
5.26
3,585,562
193,508
5.40
3,160,715
198,667
6.29
88,678
303,454
$3,789,876
84,035
336,016
$4,005,613
75,019
261,126
$3,496,860
0.20
0.69
0.41
1.20
1.81
3.13
$ 1,464,029
1,073,110
2,537,139
3,551
8,795
12,346
0.24
0.82
0.49
$ 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
232,598
2,324
1.00
265,718
2,610
0.98
303,944
2,965
0.98
30,929
127,561
561
3,972
1.81
3.11
30,929
145,464
617
4,430
1.99
3.05
30,929
159,148
569
5,242
1.84
3.29
0.61
2,928,227
19,203
0.66
3,256,024
28,377
0.87
2,859,003
35,146
1.23
459,802
23,197
3,411,226
378,650
$3,789,876
385,770
11,537
3,653,331
352,282
$4,005,613
306,728
14,693
3,180,424
316,436
$3,496,860
3.88%
$159,592
4.60%
4.70%
$165,131
4.53%
4.61%
$163,521
5.06%
5.17%
116.0%
110.1%
110.6%
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.
37
(1) Of the total average balances of investment securities, average tax-exempt investment securities were $80.9 million, $134.7 million and $106.8 million for 2013,
2012 and 2011, respectively. In addition, average tax-exempt industrial revenue bonds were $38.3 million, $22.1 million and $43.8 million in 2013, 2012 and
2011, respectively. Interest income on tax-exempt assets included in this table was $5.1 million, $5.8 million and $6.8 million for 2013, 2012 and 2011,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $4.9 million, $5.5 million and $6.4 million for 2013, 2012 and
2011, respectively.
(2) The yield/rate on loans at December 31, 2013 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 2013 results of operations.
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, 2013 vs.
December 31, 2012
Year Ended
December 31, 2012 vs.
December 31, 2011
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
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
$ (11,786) $
(5,099)
(23)
(16,908)
$
5,526
(3,116)
(215)
2,195
(6,260) $ (26,148) $
(8,215)
(238)
(14,713)
(4,444)
2
(30,590)
(3,574)
(2,260)
(5,834)
38
(2,578)
(2,540)
(3,536)
(4,838)
(8,374)
(2,974)
(6,456)
(9,430)
44
(56)
98
(330)
(286)
21
(376)
--
(556)
(56)
(458)
48
(379)
--
(433)
(5,748)
$ (11,160) $
(3,426)
5,621
$
(9,174)
(5,539) $ (20,850) $
(9,740)
2,971
22,460
$
(6,769)
1,610
$
25,110
156
165
25,431
2,086
1,694
3,780
(1,038)
(4,288)
167
(5,159)
(888)
(4,762)
(5,650)
(355)
48
(812)
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.
38
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
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
39
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%.
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.
40
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,
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
41
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
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
(In Thousands)
One- to four-family construction
$
186 $
-- $
-- $
(172)
$
-- $
-- $
(14) $
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)
--
(191)
--
--
(797)
(1,247)
--
--
--
(134)
--
--
(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)
--
2
(3,326)
(478)
2,471
--
--
(1,854) 4.257
--
(1,049)
(964)
(912)
--
8,324
6,248
1,176
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.
42
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
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:
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.
43
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)
410
1,652
8,814
--
4,976
8,487
(2,782)
21,913
(475)
(123)
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
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.
44
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.
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.
45
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.
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, 2013, the Company had commitments of approximately $91.4 million to fund loan originations, $333.9 million of
unused lines of credit and unadvanced loans, and $28.4 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,
2013. Additional information regarding these contractual obligations is discussed further in Notes 8, 9, 10, 11, 12, 13, 16 and 19 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)
$1,814,684
642,137
2,315
136,109
---
---
858
2,606
$ ---
346,024
123,913
---
50,000
---
1,788
---
$ ---
5,781
529
---
---
30,929
1,089
---
$1,814,684
993,942
126,757
136,109
50,000
30,929
3,735
2,606
$2,598,709
$521,725
$38,328
$3,158,762
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.
46
At December 31, 2013 and 2012, 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, 2013
December 31, 2012
$407.4 million
$418.9 million
$227.9 million
$91.7 million
$426.5 million
$446.6 million
$404.1 million
$72.0 million
Statements of Cash Flows. During the years ended December 31, 2013, 2012 and 2011, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during 2013 and 2012 and negative cash
flows from investing activities during 2011. The Company experienced negative cash flows from financing activities during 2013,
2012 and 2011.
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 $93.9 million, $146.9 million and $101.4 million during
the years ended December 31, 2013, 2012 and 2011, respectively.
During the years ended December 31, 2013 and 2012, investing activities provided cash of $124.7 million and $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.
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 $394.8 million and $364.4 million during the years ended December 31, 2013
and 2012, primarily due to the repayment of advances from the FHLBank, reductions in customer repurchase agreements and
reduction of time deposit balances. 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, 2013, was $380.7 million, or 10.7% of total assets. At December 31, 2013, common
stockholders' equity was $322.8 million, or 9.1% of total assets, equivalent to a book value of $23.60 per common share. At
December 31, 2012, the Company's total stockholders' equity 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, 2013, the Company’s tangible common equity to total assets ratio was 8.9% as compared to 7.7% at December 31,
2012. The Company’s tangible common equity to total risk-weighted assets ratio was 12.3% at December 31, 2013, compared to
12.7% at December 31, 2012.
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, 2013, the Bank's Tier 1 risk-based capital ratio was 14.2%, total risk-based capital ratio was 15.4%
47
and the Tier 1 leverage ratio was 10.2%. As of December 31, 2013, 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, 2013, the Company's Tier 1 risk-based capital ratio was 15.6%, total risk-based
capital ratio was 16.9% and the Tier 1 leverage ratio was 11.3%. As of December 31, 2013, the Company was "well capitalized" under
the capital ratios described above. These ratios are the current capital requirements. As discussed in “Effect of Federal Laws and
Regulations,” the Company and the Bank will be subject to new capital requirements due to the changes from “Basel III,” and the
Dodd-Frank Act for which the provisions generally become effective beginning January 1, 2015.
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
all of 2013 and 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. The
Company has now reached the tenth calendar quarter and the dividend rate will be 1.0% until four and one half years after the issuance,
which is March 2016. 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.
Dividends. During the year ended December 31, 2013, the Company declared common stock cash dividends of $0.72 per share
(29.8% of net income per common share) and paid common stock cash dividends of $0.54 per share. The quarterly dividend that
would normally have been paid in January 2013 was paid in December 2012. 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). 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. The redemption of the CPP Preferred Stock resulted in
a non-cash deemed preferred stock dividend that reduced net income available to common shareholders in the year ended December
31, 2011 by $1.2 million. This amount represents the difference between the repurchase price and the carrying amount of the CPP
Preferred Stock, or the accelerated accretion of the applicable discount on the CPP Preferred Stock.
The terms of the SBLF Preferred Stock impose limits on the ability of the Company to pay dividends and repurchase shares of
common stock. Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or
paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities
(including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay
48
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, 2013, we satisfied this condition.
The “Tier 1 Dividend Threshold” means 90% of $272.7 million, 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 $58 million 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 $5.8 million (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., $201.4 million) 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 limited, but allowed, 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, 2013 and 2012, the Company did not repurchase any shares of its common stock. During the
years ended December 31, 2013 and 2012, the Company issued 106,367 shares of stock at an average price of $19.69 per share and
116,479 shares of stock at an average price of $19.49 per share, respectively, to cover stock option exercises.
Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing
the stock would contribute to the overall growth of shareholder value. The number of shares of stock that will be repurchased at any
particular time and the prices that will be paid are subject to 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, the price of the stock
within the market as determined by the market and the projected impact on the Company’s earnings per share and capital.
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-
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,
49
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. At December 31, 2013, Great Southern's interest rate risk models indicate that, generally, rising interest rates are expected to
have a positive impact on the Company’s net interest income, while declining interest rates would have a negative impact on net
interest income. We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in
rates. The results of our modeling indicate that net interest income is not likely to be materially affected either positively or negatively
in the first twelve months following a rate change, regardless of any changes in interest rates, because our portfolios are relatively well
matched in a twelve-month horizon. The effects of interest rate changes, if any, are expected to be more impacting to net interest
income in the 12 to 36 months following a rate change. 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. As discussed under “General-Net Interest Income and Interest Rate Risk
Management,” at December 31, 2013, there were $502 million of adjustable rate loans which were tied to a national prime rate of
interest which had interest rate floors. 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 a national prime rate of interest. At December 31, 2013 and 2012,
there were $248 million and $376 million, respectively, of loans indexed to “Great Southern Prime.” While these interest rate floors
and, to a lesser extent, the utilization of the “Great Southern Prime” rate 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. Also, a
significant portion of our retail certificates of deposit mature in the next twelve months and we expect that they will be replaced with
new certificates of deposit at somewhat lower interest rates.
Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
Directors sets the asset and liability policies of Great Southern which are implemented by the asset and liability committee. The asset
and liability committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior management.
The purpose of the asset and liability committee is to communicate, coordinate and control asset/liability management consistent with
Great Southern's business plan and board-approved policies. The asset and liability committee establishes and monitors the volume
and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The
objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk
and profitability goals. The asset and liability committee meets on a monthly basis to review, among other things, economic conditions
and interest rate outlook, current and projected liquidity needs and capital positions and anticipated changes in the volume and mix of
assets and liabilities. At each meeting, the asset and liability committee recommends appropriate strategy changes based on this review.
The Chief Financial Officer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and
strategies to the Board of Directors at their monthly meetings.
In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital
targets, Great Southern has focused its strategies on originating adjustable rate loans, and managing its deposits and borrowings to
establish stable relationships with both retail customers and wholesale funding sources.
At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market
conditions and competitive factors, we may determine to increase our interest rate risk position somewhat in order to maintain or
increase our net interest margin.
The asset and liability committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments
on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets,
liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest
income and market value of portfolio equity that are authorized by the Board of Directors of Great Southern.
In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to
time to assist in its interest rate risk management. In the fourth quarter of 2011, the Company began executing interest rate swaps with
commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously
hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk
50
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.
In 2013, the Company entered into two interest rate cap agreements related to its floating rate debt associated with its trust preferred
securities. The agreements provide that the counterparty will reimburse the Company if interest rates rise above a certain threshold,
thus creating a cap on the effective interest rate paid by the Company. These agreements are classified as hedging instruments, and the
effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings.
The Company’s interest rate derivatives and hedging activities are discussed further in Note 17 of the Notes to the Consolidated
Financial Statements.
51
131,758
2,869
552,412
912
1,310,369
1,273,797
9,822
999,095
1,291,879
522,805
131,281
136,109
53,485
30,929
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2013. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
Maturities
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale equity securities
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
$
$
$
$
December 31,
2014
2015
2016
2017
2018
(Dollars In Thousands)
Thereafter
Total
2013
Fair Value
---
---
---
---
---
---
---
---
---
---
---
---
6,850 $
6.21 %
---
---
131,758
0.22 %
---
---
24,382 $
3.14 %
---
---
---
---
--- $
---
8,107 $ 13,374 $ 5,824 $
5.08 %
6.30 %
5.94 %
805
--- $
---
7.37 %
---
---
237,709 $ 155,902 $ 130,677 $ 166,703 $ 86,025 $
4.05 %
243,413 $ 119,421 $ 169,127 $ 180,382 $ 225,726 $
4.80 %
--- $
---
5.32 %
---
---
5.51 %
---
---
5.71 %
---
---
5.47 %
---
---
4.94 %
4.56 %
4.12 %
4.35 %
$
$
$
---
---
2,869
---
493,875
2.50 %
---
---
531,542
4.04 %
334,151
6.68 %
$
9,822
1.88 %
$
$
$
$
$
$
131,758
0.22 %
2,869
---
552,412
2.74 %
805
7.37 %
1,308,558
4.30 %
1,272,220
5.61 %
$
9,822
1.88 %
$
$
$
Total financial assets
$
637,262 $ 282,173 $ 307,911 $ 360,459 $ 318,380 $ 1,372,259
$
3,278,444
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
$
$
$
642,137 $ 178,726 $
1.07 %
---
---
---
---
10,905 $
3.87 %
---
---
50,000
4.34 %
---
---
0.59 %
$ 1,291,879
0.20 %
522,805
---
3,170 $
1.02 %
136,109
0.04 %
--- $
---
---
---
$
1.33 %
---
---
---
---
79,267 $ 56,112 $ 31,919 $
1.58 %
1.73 %
---
---
---
---
---
---
---
---
84 $
25,884 $ 86,185 $
5.06 %
3.92 %
---
---
---
---
---
---
---
---
--- $
---
---
---
3.81 %
---
---
---
---
---
---
$
$
$
$
$
$
5,781
2.67 %
---
---
---
---
529
5.51 %
---
---
---
---
30,929
$
$
$
$
$
$
993,942
0.84 %
1,291,879
0.20 %
522,805
---
126,757
3.85 %
136,109
0.04 %
50,000
4.36 %
30,929
$
1.81 %
$
1.81 %
Total financial liabilities
$ 2,596,100 $ 239,631 $ 105,151 $ 142,297 $ 32,003 $
37,239
$ 3,152,421
_______________
(1)
Available-for-sale debt securities include approximately $412 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan
pools which pay interest and principal monthly to the Company. Of this total, $393 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.
52
$ 1,310,369
$ 1,273,797
131,758
2,869
552,412
912
9,822
999,095
522,805
131,281
136,109
$ 1,291,879
$
53,485
30,929
Repricing
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
December 31,
2014
2015
2016
2017
2018
Thereafter Total
(Dollars In Thousands)
2013
Fair Value
$
131,758
$
0.22 %
---
---
172,348
1.65 %
---
---
$ 1,144,772
$
4.29 %
242,268
4.98 %
9,822
1.88 %
---
---
---
---
63,504 $
2.59 %
---
---
61,894 $
4.56 %
---
---
---
---
$ 152,810 $
2.11 %
---
---
59,129 $
4.43 %
---
---
--- $
---
24,757 $
4.47 %
805
7.37 %
24,674 $
4.32 %
$ 119,494 $ 170,056 $ 180,382 $ 225,729 $
4.80 %
---
---
---
---
---
---
30,156 $
3.70 %
--- $
---
16,134 $
3.79 %
5.70 %
---
---
5.51 %
---
---
5.48 %
---
---
$
$
131,758
--- $
---
2,869 $
---
108,837 $
4.80 %
--- $
$
0.22 %
2,869
$
---
552,412
2.74 %
805
7.37 %
1,955 $ 1,308,558
3.59 %
4.30 %
$
334,291 $ 1,272,220
$
6.68 %
--- $
---
5.61 %
$
9,822
1.88 %
Total financial assets
$ 1,700,968
$ 331,433 $ 295,454 $ 226,672 $ 275,965 $
447,952 $ 3,278,444
Financial Liabilities:
Time deposits
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
$
642,137
$ 1,291,879
0.59 %
$ 178,726 $
1.07 %
---
---
---
---
905 $
5.06 %
---
---
50,000
4.34 %
---
---
$
0.20 %
---
---
123,170
$
3.83 %
136,109
0.04 %
---
---
30,929
1.81 %
$
$
$
79,267 $
1.33 %
---
---
---
---
884 $
5.06 %
---
---
---
---
---
---
56,112 $
1.73 %
---
---
---
---
1,185 $
5.36 %
---
---
---
---
---
---
31,919 $
1.58 %
---
---
--- $
---
84 $
5.06 %
---
---
---
---
---
---
$
0.84 %
993,942
522,805
---
126,757
5,781 $
2.67 %
--- $ 1,291,879
---
522,805 $
---
529 $
5.51 %
--- $
---
--- $
---
--- $
---
136,109
0.04 %
50,000
4.36 %
30,929
0.20 %
$
$
3.85 %
$
$
1.81 %
Total financial liabilities
$ 2,224,224
$ 229,631 $
80,151 $
57,297 $
32,003 $
529,115 $ 3,152,421
Periodic repricing GAP
Cumulative repricing GAP
$
$
(523,256 )
$ 101,802
$ 215,303 $ 169,375 $ 243,962 $
(81,163 ) $
126,023
(523,256 )
$ (421,454 ) $ (206,151 ) $
(36,776 ) $ 207,186
$
126,023
_______________
(1) Available-for-sale debt securities include approximately $412 million of mortgage-backed securities, collateralized mortgage obligations and SBA loan pools
which pay interest and principal monthly to the Company. Of this total, $393 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.
53
54
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2013 and 2012
55
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of income,
comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period
ended December 31, 2013. The Company’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. Our audits included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Great Southern Bancorp, Inc. as of December 31, 2013 and 2012, and
the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2013, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Great Southern Bancorp, Inc.’s internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated March 10, 2014, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
BKD, LLP
Springfield, Missouri
March 10, 2014
56
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2013 and 2012
(In Thousands, Except Per Share Data)
Assets
Cash
2013
2012
$
96,167
$
107,949
Interest-bearing deposits in other financial institutions
131,758
295,855
Federal funds sold
—
337
Cash and cash equivalents
227,925
404,141
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
555,281
807,010
805
7,239
920
26,829
Loans receivable, net of allowance for loan losses of $40,116
and $40,649 at December 31, 2013 and 2012, respectively
2,439,530
2,319,638
FDIC indemnification asset
72,705
117,263
Interest receivable
Prepaid expenses and other assets
Other real estate owned, net
Premises and equipment, net
Goodwill and other intangible assets
Federal Home Loan Bank stock
11,408
72,904
53,514
12,755
79,560
68,874
104,534
102,286
4,583
9,822
5,811
10,095
Total assets
$ 3,560,250
$ 3,955,182
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
2013
2012
$ 2,808,626
126,757
$ 3,153,193
126,730
134,981
1,128
50,000
30,929
1,099
3,721
18,502
3,809
179,644
772
53,039
30,929
1,322
2,154
12,128
25,397
Total liabilities
3,179,552
3,585,308
Commitments and Contingencies
—
—
Stockholders’ Equity
Capital stock
Serial preferred stock – SBLF, $.01 par value; authorized
1,000,000 shares; issued and outstanding 2013 and 2012
– 57,943 shares
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding
2013 – 13,673,709 shares, 2012 – 13,596,335 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income
taxes of $1,326 and $8,965 at December 31, 2013 and
2012, respectively
57,943
57,943
137
19,567
300,589
136
18,394
276,751
2,462
16,650
Total stockholders’ equity
380,698
369,874
Total liabilities and stockholders’ equity
$ 3,560,250
$ 3,955,182
58
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2013, 2012 and 2011
(In Thousands, Except Per Share Data)
Interest Income
Loans
Investment securities and other
Interest Expense
Deposits
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
Commissions
Service charges and ATM fees
Net gains on loan sales
Net realized gains on sales of available-for-sale securities
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 acquisitions
Other income
Noninterest Expense
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Advertising
Office supplies and printing
Telephone
Legal, audit and other professional fees
Expense on foreclosed assets
Partnership tax credit
Other operating expenses
2013
2012
2011
$
$
163,903
14,892
178,795
$
170,163
23,345
193,508
171,201
27,466
198,667
12,346
3,972
2,324
561
19,203
159,592
17,386
142,206
1,065
18,227
4,915
243
—
1,264
295
—
(25,260)
4,566
5,315
52,468
20,658
3,315
4,189
2,165
1,303
2,868
4,348
4,068
6,879
8,128
110,389
20,720
4,430
2,610
617
28,377
165,131
43,863
121,268
1,036
19,087
5,505
2,666
(680)
1,028
(38)
31,312
(18,693)
4,779
46,002
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
5,782
8,760
112,560
26,370
5,242
2,965
569
35,146
163,521
35,336
128,185
896
18,063
3,524
483
(615)
651
(10)
16,486
(37,797)
2,450
4,131
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
3,985
6,226
97,476
See Notes to Consolidated Financial Statements
59
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2013, 2012 and 2011
(In Thousands, Except Per Share Data)
Income from Continuing Operations Before Income Taxes
$
37,132
$
54,710
$
34,840
Provision for Income Taxes
Net Income from Continuing Operations
3,403
33,729
10,623
44,087
5,183
29,657
2013
2012
2011
Discontinued Operations
Income from discontinued operations (including gain on
disposal in 2012 of $6,114), net of income taxes of
$2,487 and $330, for the years ended December 31,
2012 and 2011, respectively
Net Income
—
4,619
612
33,729
48,706
30,269
Preferred stock dividends and discount accretion
Noncash deemed preferred stock dividend
579
—
608
—
2,798
1,212
Net Income Available to Common Shareholders
Earnings Per Common Share
Basic
Diluted
Earnings from Continuing Operations Per Common Share
Basic
Diluted
$
$
$
$
$
33,150
$
48,098
$
26,259
2.43
2.42
2.43
2.42
$
$
$
$
3.55
3.54
3.21
3.20
$
$
$
$
1.95
1.93
1.91
1.89
See Notes to Consolidated Financial Statements
60
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2013, 2012 and 2011
(In Thousands)
Net Income
$
33,729
$
48,706
$
30,269
2013
2012
2011
Unrealized appreciation (depreciation) on
available-for-sale securities, net of taxes (credit)
of $(7,516), $3,444 and $4,508 for 2013, 2012
and 2011, respectively
Noncredit component of unrealized gain (loss) on
available-for-sale debt securities for which a
portion of an other-than-temporary impairment
has been recognized, net of taxes (credit) of
$(20), $8 and $287 for 2013, 2012 and 2011,
respectively
Other-than-temporary impairment loss recognized
in earnings on available for sale securities, net of
taxes (credit) of $0, $(238) and $(215) for 2013,
2012 and 2011, respectively
Less: reclassification adjustment for gains
included in net income, net of taxes of $(85),
$(933) and $(169) for 2013, 2012 and 2011,
respectively
Change in fair value of cash flow hedge, net of
taxes (credit) of $(19), $0 and $0 for 2013, 2012
and 2011, respectively
(13,959)
6,398
8,373
(37)
14
533
—
(442)
(400)
(158)
(1,733)
(314)
(34)
—
—
Other comprehensive income (loss)
(14,188)
4,237
8,192
Comprehensive Income
$
19,541
$
52,943
$
38,461
See Notes to Consolidated Financial Statements
61
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2013, 2012 and 2011
(In Thousands, Except Per Share Data)
CPP
Preferred
Stock
SBLF
Preferred
Stock
$
56,480
—
—
—
1,520
—
—
(58,000)
—
—
—
—
—
—
—
—
—
—
—
—
57,943
—
—
—
57,943
—
—
—
—
—
—
57,943
—
—
—
—
—
—
$
57,943
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance, January 1, 2011
$
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
Other comprehensive income
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%)
Other comprehensive income
Reclassification of treasury stock per Maryland law
Balance, December 31, 2012
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.72 per share
SBLF preferred stock dividends accrued (1.0%)
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Balance, December 31, 2013
$
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
—
—
—
—
—
2
136
—
—
—
—
—
1
$
$
2,452
—
—
—
—
—
—
—
—
(2,452)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
20,701
—
466
—
—
—
—
—
—
(3,984)
—
—
17,183
—
1,211
—
—
—
—
18,394
—
1,173
—
—
—
—
220,021
30,269
—
(9,697)
(1,520)
(1,772)
(718)
—
—
—
—
331
236,914
48,706
—
(9,753)
(607)
—
1,491
276,751
33,729
—
(9,823)
(579)
—
511
$
4,221
—
—
—
—
—
—
—
—
—
8,192
—
12,413
—
—
—
—
4,237
—
16,650
—
—
—
—
(14,188)
—
$
—
—
331
—
—
—
—
—
—
—
—
(331)
—
—
1,493
—
—
—
(1,493)
—
—
512
—
—
—
(512)
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
—
369,874
33,729
1,685
(9,823)
(579)
(14,188)
—
$
137
$
—
$
19,567
$
300,589
$
2,462
$
—
$
380,698
63
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2013, 2012 and 2011
(In Thousands)
Operating Activities
Net income
Proceeds from sales of loans held for sale
Originations of loans held for sale
Items not requiring (providing) cash
Depreciation
Amortization
Compensation expense for stock option
grants
Provision for loan losses
Net gains on loan sales
Net realized (gains) losses and impairment
on available-for-sale securities
(Gain) loss on sale of premises and
equipment
Loss on sale/write-down of foreclosed
assets
Gain on purchase of additional business
units
Gain on sale of business units
Amortization of deferred income,
premiums and discounts
(Gain) loss on derivative interest rate
products
Deferred income taxes
Changes in
Interest receivable
Prepaid expenses and other assets
Accrued expenses and other liabilities
Income taxes refundable/payable
Net cash provided by operating
activities
2013
2012
2011
$
33,729
215,744
(198,910)
$
48,706
269,817
(264,179)
$
30,269
191,476
(195,081)
8,036
8,107
443
17,386
(4,915)
7,159
7,039
435
43,863
(5,505)
(243)
(1,986)
(60)
264
5,099
4,361
486
35,336
(3,524)
132
202
1,259
4,968
13,712
—
—
(31,312)
(6,114)
(16,486)
—
29,510
18,004
48,627
(294)
(8,839)
1,347
(7,530)
4,260
(5,109)
39
13,252
2,765
31,412
(3,124)
11,413
10
(9,304)
373
(6,712)
(18)
2,474
93,921
146,916
101,432
See Notes to Consolidated Financial Statements
64
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2013, 2012 and 2011
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
Proceeds from sale of student loans
Cash received from purchase of additional
business units
Cash received from FDIC loss sharing
reimbursements
Proceeds from sale of business units
Purchase of additional business units
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of foreclosed assets
Capitalized costs on foreclosed assets
Proceeds from maturities, calls and repayments of
held-to-maturity securities
Proceeds from sale of available-for-sale securities
Proceeds from maturities, calls and repayments of
available-for-sale securities
Purchase of available-for-sale securities
Purchase of held-to-maturity securities
Redemption of Federal Home Loan Bank stock
2013
2012
2011
$
(33,180) $
(129,422)
—
—
28,511
—
—
(13,853)
1,518
48,900
(457)
115
108,487
210,798
(97,000)
—
273
(1,425) $
(23,457)
—
(173,026)
(2,100)
799
75,328
66,837
49,369
7,800
—
(27,825)
1,728
51,225
(510)
945
78,094
182,900
(155,339)
—
2,578
6,709
—
(1)
(19,425)
1,007
21,774
(267)
100
21,001
151,731
(224,614)
(840)
2,462
Net cash provided by (used in) investing
activities
124,690
241,411
(147,853)
See Notes to Consolidated Financial Statements
65
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2013, 2012 and 2011
(In Thousands)
Financing Activities
Net decrease in certificates of deposit
Net increase (decrease) in checking and savings
accounts
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net decrease in short-term borrowings
Repayments of reverse repurchase borrowings
Redemption of CPP preferred stock
Proceeds from issuance of SBLF preferred stock
Repurchase of common stock warrants
Advances to borrowers for taxes and insurance
Dividends paid
Stock options exercised
2013
2012
2011
$
(208,702) $
(421,977) $
(144,072)
(134,562)
1,980
(1,081)
(44,307)
(3,000)
—
—
—
1,567
(7,964)
1,242
156,867
800
(52,993)
(36,981)
—
—
—
—
571
(12,991)
2,269
231,875
—
(32,293)
(40,561)
—
(58,000)
57,943
(6,436)
169
(12,237)
311
Net cash used in financing activities
(394,827)
(364,435)
(3,301)
Increase (Decrease) in Cash and Cash
Equivalents
(176,216)
23,892
(49,722)
Cash and Cash Equivalents, Beginning of Year
404,141
380,249
429,971
Cash and Cash Equivalents, End of Year
$
227,925
$
404,141
$
380,249
See Notes to Consolidated Financial Statements
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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.
Federal Home Loan Bank Stock
Federal Home Loan Bank common stock is a required investment for institutions that are members
of the Federal Home Loan Bank system. The required investment in common stock is based on a
predetermined formula, carried at cost and evaluated for impairment.
Securities
Available-for-sale securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and
losses are recorded, net of related income tax effects, in other comprehensive income.
Held-to-maturity securities, which include any security for which the Company has the positive
intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of
premiums and accretion of discounts.
Amortization of premiums and accretion of discounts are recorded as interest income from
securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses
on sales of securities are determined on the specific-identification method.
For debt securities with fair value below carrying value when the Company does not intend to sell
a debt security, and it is more likely than not the Company will not have to sell the security before
recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-than-
temporary impairment is amortized prospectively over the remaining life of the security on the
basis of the timing of future estimated cash flows of the security.
The Company’s consolidated statements of income 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
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
to sell prior to recovery, only the credit loss component of the impairment is recognized in
earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The
credit loss component recognized in earnings is identified as the amount of principal cash flows
not expected to be received over the remaining term of the security as projected based on cash
flow projections.
For equity securities, when the Company has decided to sell an impaired available-for-sale security
and the Company does not expect the fair value of the security to fully recover before the expected
time of sale, the security is deemed other-than-temporarily impaired in the period in which the
decision to sell is made. The Company recognizes an impairment loss when the impairment is
deemed other-than-temporary even if a decision to sell has not been made.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of
cost or fair value in the aggregate. Write-downs to fair value are recognized as a charge to
earnings at the time the decline in value occurs. Nonbinding forward commitments to sell
individual mortgage loans are generally obtained to reduce market risk on mortgage loans in the
process of origination and mortgage loans held for sale. Gains and losses resulting from sales of
mortgage loans are recognized when the respective loans are sold to investors. Fees received from
borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to
ensure the ultimate sale of such mortgage loans are recognized as income or expense when the
loans are sold or when it becomes evident that the commitment will not be used.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or payoff are reported at their outstanding principal balances adjusted for any charge-offs,
the allowance for loan losses, any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans. Interest income is reported on the interest method and
includes amortization of net deferred loan fees and costs over the loan term. Past due status is
based on the contractual terms of a loan. Generally, loans are placed on nonaccrual status at 90
days past due and interest is considered a loss, unless the loan is well secured and in the process of
collection. Payments received on nonaccrual loans are applied to principal until the loans are
returned to accrual status. Loans are returned to accrual status when all payments contractually
due are brought current, payment performance is sustained for a period of time, generally six
months, and future payments are reasonably assured. With the exception of consumer loans,
charge-offs on loans are recorded when available information indicates a loan is not fully
collectible and the loss is reasonably quantifiable. Consumer loans are charged-off at specified
delinquency dates consistent with regulatory guidelines.
Discounts and premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated prepayments.
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant
revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an allowance
is established when the discounted cash flows (or collateral value or observable market price) of
the impaired loan is lower than the carrying value of that loan. The general component covers
nonclassified loans and is based on historical charge-off experience and expected loss given
default derived from the Company’s internal risk rating process. Other adjustments may be made
to the allowance for pools of loans after an assessment of internal or external influences on credit
quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that
the Bank will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The Company determines which loans
are reviewed for impairment based on various analyses including annual reviews of large loan
relationships, calculations of loan debt coverage ratios as financial information is obtained, weekly
past-due meetings, quarterly reviews of all loans over $1.0 million and quarterly reviews of watch
list credits by management. In accordance with regulatory guidelines, impairment in the consumer
loan portfolio is primarily identified by past-due status. Factors considered by management in
determining impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the
shortfall in relation to the principal and interest owed. Payments made on impaired loans are
treated in accordance with the accrual status of the loan. If loans are performing in accordance
with their contractual terms but the ultimate collectability of principal and interest is questionable,
payments are applied to principal only. Impairment is measured on a loan-by-loan basis for
commercial and construction loans by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value
of the collateral if the loan is collateral dependent.
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
FDIC Indemnification Asset in conjunction with the fair value measurement as this receivable will
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013, 2012 and 2011.
Goodwill and Intangible Assets
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are
present. A qualitative assessment is performed to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not the fair value is less than the
carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely
than not that the fair value is less than the carrying value, then goodwill is tested further 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Deposit intangibles
TeamBank
Vantus Bank
Sun Security Bank
InterBank
December 31,
2013
2012
(In Thousands)
$
379
$
379
947
829
1,665
763
1,368
1,141
2,015
908
$
4,583
$
5,811
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 $211,000 and $152,000 at December 31, 2013 and 2012,
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.
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012, 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Earnings per share (EPS) were computed as follows:
2013
2012
(In Thousands, Except Per Share Data)
2011
Net income
Net income available to common
shareholders
Net income from continuing operations
Net income from continuing operations
available to common shareholders
$
$
$
$
33,729
$
48,706
$
30,269
33,150
33,729
$
$
48,098
44,087
$
$
26,259
29,657
33,150
$
43,479
$
25,647
Average common shares outstanding
13,635
13,534
13,462
Average common share stock options
and warrants outstanding
80
58
164
Average diluted common shares
13,715
13,592
13,626
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
$
$
$
$
$
$
2.43
2.42
$
$
3.55
3.54
$
$
1.95
1.93
2.43
$
3.21
$
1.91
2.42
$
3.20
$
1.89
—
$
0.34
$
0.04
—
$
0.34
$
0.04
Options to purchase 243,510, 444,770 and 479,098 shares of common stock were outstanding at
December 31, 2013, 2012 and 2011, 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, 2013, 2012 and
2011, respectively.
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013, 2012 and 2011, share-based
compensation expense totaling $443,000, $435,000 and $486,000, respectively, was included in
salaries and employee benefits expense in the consolidated statements of income.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be
cash equivalents. At December 31, 2013, cash equivalents consisted of interest-bearing deposits in
other financial institutions. At December 31, 2012, cash equivalents consisted of interest-bearing
deposits in other financial institutions and federal funds sold. At December 31, 2013, 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.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance
(FASB ASC 740, Income Taxes). The income tax accounting guidance results in two components
of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid
or refunded for the current period by applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. The Company determines deferred income taxes
using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they
occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term more likely
than not means a likelihood of more than 50 percent; the terms examined and upon examination
also include resolution of the related appeals or litigation processes, if any. A tax position that
meets the more-likely-than-not recognition threshold is initially and subsequently measured as the
largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon
settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition
threshold considers the facts, circumstances and information available at the reporting date and is
subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of evidence available, it is more likely than not that some portion or all of a
deferred tax asset will not be realized. At December 31, 2013 and 2012, no valuation allowance
was established.
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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.
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, 2013 and 2012, respectively, was $71.0 million and
$125.5 million.
Recent Accounting Pronouncements
In July 2012, the FASB issued ASU No. 2012-02 to amend FASB ASC Topic 350, Intangibles –
Goodwill and Other. The Update clarifies the process of performing an impairment test for
indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and
improves consistency in impairment testing guidance among long-lived asset categories. The
Update was effective for the Company January 1, 2013, 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
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 was effective for the Company
January 1, 2013, and did not have a material impact on the Company’s financial position or results
of operations.
In January 2013, the FASB issued ASU No. 2013-01 to amend FASB ASC Topic 210, Clarifying
the Scope of Disclosures about Offsetting Assets and Liabilities. The Update applies to derivatives
accounted for in accordance with Topic 815, Derivatives and Hedging and holder of financial
instruments that are either offset in accordance with section 210-20-45 or 815-10-45 or subject to a
master netting arrangement. The Update clarifies implementation issues related to the issuance of
ASU 2011-11. The Update was effective for the Company January 1, 2013, and did not have a
material impact on the Company’s financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02 to amend FASB ASC Topic 220, Reporting
Items Reclassified Out of Accumulated Other Comprehensive Income. The objective of this update
is to improve the reporting of reclassifications out of accumulated other comprehensive income.
The amendments in this Update require an entity to disaggregate the total change of each
component of other comprehensive income, e.g., unrealized gains or losses on available-for-sale
investment securities, and separately present reclassification adjustments and current period other
comprehensive income. The Update does not change the current requirements for reporting of net
income or other comprehensive income. The Update was effective for the Company January 1,
2013, and did not have a material impact on the Company’s financial position or results of
operations.
In July 2013, the FASB issued ASU No. 2013-10 to amend FASB ASC Topic 815, Derivatives and
Hedging. The Update permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark
interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on
treasury obligations of the U.S. Government and LIBOR rates, which were previously allowed.
The Update was effective prospectively for qualifying new or redesignated hedging relationships
entered into on or after July 17, 2013. The Update did not have a material impact on the
Company’s financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11 to amend FASB ASC Topic 740, Income Taxes.
The objective of this Update is to provide explicit guidance on the financial statement presentation
of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax
credit carryforward exist. An unrecognized tax benefit, or a portion of an unrecognized tax benefit,
should be presented in the financial statements as a reduction to a deferred tax asset for a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in specific
situations as described in the Update. The Update will be effective for the Company beginning
January 1, 2014, and is not expected to have a material impact on the Company’s financial position
or results of operations.
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
In January 2014, the FASB issued ASU No. 2014-01 to amend FASB ASC Topic 323, Investments
– Equity Method and Joint Ventures. The objective of this Update is to provide guidance on
accounting for investments by a reporting entity in flow-through limited liability entities that
manage or invest in affordable housing projects that qualify for the low-income housing tax credit.
The amendments in the Update permit reporting entities to make an accounting policy election to
account for their investments in qualified affordable housing projects using the proportional
amortization method if certain conditions are met. Under the proportional amortization method, an
entity amortizes the initial cost of the investment in proportion to the tax credits and other tax
benefits received and recognizes the net investment performance in the income statement as a
component of income tax expense (benefit). The Update will be effective for the Company
beginning January 1, 2015; however, early adoption is permitted. The Company does have
significant investments in such qualified affordable housing projects and is currently reviewing the
provisions of this Update to determine what, if any, impacts it may have on the Company’s
financial position or results of operations. Based on its preliminary review, the Company may
elect to adopt this Update early during the three months ending March 31, 2014. The Company
expects that there will be no material impact on the Company’s financial position or results of
operations, except that the investment amortization expense which is currently included in Other
Noninterest Expense in the Consolidated Statements of Income would be removed from Other
Noninterest Expense and included in Provision for Income Taxes in the Consolidated Statements
of Income. This would have the effect of reducing Noninterest Expense and increasing Provision
for Income Taxes, but is not expected to have any impact on Net Income.
In January 2014, the FASB issued ASU No. 2014-04 to amend FASB ASC Topic 310, Receivables
– Troubled Debt Restructurings by Creditors. The objective of the amendments in this Update is
to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is,
when a creditor should be considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan such that the loan receivable should be
derecognized and the real estate property recognized. The amendments in this Update clarify that
an in substance repossession or foreclosure occurs, and a creditor is considered to have received
physical possession of residential real estate property collateralizing a consumer mortgage loan,
upon either (1) the creditor obtaining legal title to the residential real estate property upon
completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate
property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or
through a similar legal agreement. Additionally, the amendments require interim and annual
disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor
and (2) the recorded investment in consumer mortgage loans collateralized by residential real
estate property that are in the process of foreclosure according to local requirements of the
applicable jurisdiction. The Update will be effective for the Company beginning January 1, 2015,
and is not expected to have a material impact on the Company’s financial position or results of
operations.
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 2:
Investments in Debt and Equity Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
U.S. government agencies
Mortgage-backed securities
Small Business Administration
loan pools
States and political subdivisions
Equity securities
Amortized
Cost
$
20,000
365,020
43,461
122,113
847
December 31, 2013
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
$
$
—
4,824
1,394
2,549
2,022
$
2,745
2,266
—
1,938
—
Fair
Value
17,255
367,578
44,855
122,724
2,869
$
551,441
$
10,789
$
6,949
$
555,281
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
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Additional details of the Company’s mortgage-backed securities at December 31, 2013, are
described as follows:
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
$
$
$
$
$
3,562
15,828
19,390
11,590
32,967
44,557
4,671
296,402
301,073
$
328
959
1,287
292
980
1,272
—
2,265
2,265
$
—
—
—
489
62
551
370
1,345
1,715
3,890
16,787
20,677
11,393
33,885
45,278
4,301
297,322
301,623
365,020
$
4,824
$
2,266
$
367,578
19,823
345,197
$
$
620
4,204
$
859
1,407
19,584
347,994
365,020
$
4,824
$
2,266
$
367,578
The amortized cost and fair value of available-for-sale securities at December 31, 2013, 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.
Amortized
Cost
Fair
Value
(In Thousands)
$
110
1,001
9,893
174,570
365,020
847
$
110
984
10,032
173,708
367,578
2,869
$
551,441
$
555,281
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
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The amortized cost and fair values of securities classified as held to maturity were as follows:
December 31, 2013
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
(In Thousands)
$
805
$
107
$
—
$
912
December 31, 2012
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
(In Thousands)
$
920
$
164
$
—
$
1,084
States and political
subdivisions
States and political
subdivisions
The held-to-maturity securities at December 31, 2013, 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 one through five years
$
805
$
912
The amortized cost and fair values of securities pledged as collateral was as follows at
December 31, 2013 and 2012:
2013
2012
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Public deposits
Collateralized borrowing
accounts
Structured repurchase
agreements
Other
$
228,776
$
(In Thousands)
230,318
$
459,751
$
473,679
171,071
168,813
187,700
189,862
60,352
1,403
61,026
1,437
64,298
3,760
66,575
3,897
$
461,602
$
461,594
$
715,509
$
734,013
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012,
was approximately $237.6 million and $106.6 million, respectively, which is approximately 42.7%
and 13.2% 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, 2013 and 2012:
Description of Securities
U.S. government agencies
Mortgage-backed securities
States and political
subdivisions
Description of Securities
Collateralized mortgage
obligations
Mortgage-backed securities
Less than 12 Months
Fair
Value
Unrealized
Losses
2013
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
20,000
127,901
$
(2,745)
(1,871)
$
—
39,255
$
—
(395)
$
20,000
167,156
$
(2,745)
(2,266)
50,401
(1,938)
—
—
50,401
(1,938)
$ 198,302
$
(6,554)
$
39,255
$
(395)
$ 237,557
$
(6,949)
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
$
$
—
(814)
$
414
—
(8)
—
$
414
106,136
$
(8)
(814)
$ 106,136
$
(814)
$
414
$
(8)
$ 106,550
$
(822)
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 2013, no securities were determined to have impairment that had become other than
temporary. 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.
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The following table provides information about debt securities for which only a credit loss was
recognized in income and other losses are recorded in other comprehensive income.
Credit losses on debt securities held
Beginning of year
Reductions due to final principal payments
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, 2013 and 2012, 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
2013
2012
(In Thousands)
$
4,176
(4,176)
$
3,598
—
—
—
—
$
680
(102)
4,176
2013
2012
(In Thousands)
$
$
$
34,662
40,409
57,841
184,019
89,133
145,908
780,690
325,599
315,269
42,230
134,717
82,260
58,283
49,862
57,920
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
64,843
213,539
2,677,184
(194,544)
(40,116)
(2,994)
$ 2,439,530
91,519
259,232
2,520,054
(157,574)
(40,649)
(2,193)
$ 2,319,638
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Classes of loans by aging were as follows:
December 31, 2013
30-59 Days 60-89 Days Over 90 Total Past
Past Due Past Due
Days
Due
Total
Loans
Total Loans
> 90 Days Past
Due and
Current Receivable Still Accruing
(In Thousands)
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of
discounts (TeamBank)
FDIC-supported loans, net of
discounts (Vantus Bank)
FDIC-supported loans,
net of discounts
(Sun Security Bank)
FDIC-supported loans, net of
discounts (InterBank)
Less FDIC-supported loans,
net of discounts
$
—
—
145
—
1,233
1,562
2,856
—
17
—
955
1,258
168
414
675
$
$
—
—
38
—
$
—
871
338
—
—
871
521
—
$
34,662 $
39,538
57,320
184,019
34,662 $
40,409
57,841
184,019
344
3,014
4,591
84,542
89,133
171
131
—
19
—
127
333
16
843
6,205
—
5,208
2,023
168
732
504
2,576
9,192
—
5,244
2,023
1,250
2,323
688
143,332
771,498
325,599
310,025
40,207
133,467
79,937
57,595
145,908
780,690
325,599
315,269
42,230
134,717
82,260
58,283
130
1,396
1,940
47,922
49,862
31
2,356
3,062
54,858
57,920
510
121
4,241
4,872
59,971
64,843
6,024
15,817
1,567
3,028
16,768
44,667
24,359
63,512
189,180
2,613,672
213,539
2,677,184
7,623
1,849
24,761
34,233
351,931
386,164
Total legacy loans
$
8,194
$
1,179
$ 19,906
$ 29,279
$ 2,261,741 $ 2,291,020 $
86
—
—
—
—
211
140
—
—
—
—
—
257
—
6
42
147
20
823
215
608
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
178
478
—
—
3,305
2,600
1,346
3,741
2,094
—
690
1,522
185
—
—
—
—
263
—
726
—
153
—
73
242
146
(In Thousands)
$
— $
3
2,471
—
178 $ 28,893
35,324
481
60,088
2,471
150,515
—
$ 29,071
35,805
62,559
150,515
$
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
discounts (TeamBank)
1,608
2,077
8,020
11,705
65,910
77,615
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,
1,545
669
5,641
7,855
87,628
95,483
1,539
384
21,342
23,265
68,254
91,519
10,212
31,043
4,662
9,395
33,928
91,409
48,802
210,430
131,847 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
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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,
2013
2012
(In Thousands)
$
—
871
338
—
2,803
703
6,205
—
5,208
2,023
168
475
504
—
3
2,471
—
2,115
1,905
8,324
—
6,249
—
94
385
220
Total
$
19,298
$
21,766
The following table presents the activity in the allowance for loan losses by portfolio segment for the
year ended December 31, 2013. 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, 2013:
88
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
$
6,822
$
4,327
$
17,441
$
3,938
$
5,096
$
3,025 $ 40,649
1,496
(2,196)
113
1,556
(3,248)
43
6,922
(9,836)
2,412
1,142
(788)
172
4,404
(4,072)
1,023
1,866
(3,312)
1,770
17,386
(23,452)
5,533
$
6,235
$
2,678
$
16,939
$
4,464
$
6,451
$
3,349 $ 40,116
Allowance for Loan Losses
Balance, January 1, 2013
Provision charged to
expense
Losses charged off
Recoveries
Balance,
December 31, 2013
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
2,501
$
—
$
90
$
473
$
4,162
$
218 $
7,444
3,734
$
2,678
$
16,845
$
3,991
$
2,287
$
3,131 $ 32,666
—
$
—
$
4
$
—
$
2
$
— $
6
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
13,055
$ 10,983
$
31,591
$
12,628
$
8,755
$
1,389 $ 78,401
$
297,057
$ 314,616
$
791,329
$
229,232
$
306,514
$
273,871 $2,212,619
$
206,964
$ 35,095
$
84,591
$
6,989
$
4,883
$
47,642 $ 386,164
89
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
$
5,096
$
3,025
$
40,649
$
$
$
2,288
$
1,089
$
4,990
$
96
4,532
$
3,239
$
12,443
$
3,842
$
$
2,778
$
156
$
11,397
2,315
$
2,864
$
29,235
1
$
—
$
9
$
—
$
4
$
3
$
17
$
14,691
$ 16,405
$
48,476
$
12,009
$
10,064
$
980
$ 102,625
$
279,502
$ 251,113
$
687,663
$
201,065
$
254,567
$
219,670
$ 1,893,580
$
278,889
$ 53,280
$
129,128
$
7,997
$
14,939
$
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
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:
90
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
One- to
Four-
Family
Residential
and
Other
Commercial Commercial Commercial
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
Allowance for Loan Losses
Balance, January 1, 2011
Provision charged to
expense
Losses charged off
Recoveries
Balance,
December 31, 2011
$
11,424
$
3,088
$
18,390
$
2,982
$
2,974
$
2,374
$
41,232
Ending balance:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
Loans
Individually evaluated for
4,989
$
89
$
3,584
$
594
6,435
$
2,999
$
14,806
$
2,358
$
$
736
$
38
$
10,030
2,238
$
2,336
$
31,172
—
$
—
$
—
$
30
$
—
$
—
$
30
impairment
$
39,519
$
20,802
$
99,254
$
27,592
$
10,720
$
839
$ 198,726
Collectively evaluated for
impairment
Loans acquired and
accounted for under
ASC 310-30
$
283,371
$
222,940
$
600,353
$
160,768
$
225,665
$ 183,183
$ 1,676,280
$
109,909
$
25,877
$
157,805
$
40,215
$
28,784
$ 33,947
$ 396,537
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.
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
• 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, 2013 and 2012, was 5.10%
and 5.39%, respectively.
Loans serviced for others are not included in the accompanying consolidated statements of financial
condition. The unpaid principal balances of loans serviced for others were $166.2 million and
$158.4 million at December 31, 2013 and 2012, respectively. In addition, available lines of credit on
these loans were $15.7 million and $15.7 million at December 31, 2013 and 2012, 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, 2013, 2012 and 2011:
December 31, 2013
Year Ended
December 31, 2013
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
$
$
—
3,502
12,628
—
$
—
3,531
13,042
—
5,802
6,117
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
3,751
31,591
10,983
6,057
2,698
216
604
569
4,003
34,032
10,983
6,077
2,778
231
700
706
—
1,659
473
—
593
249
90
—
4,162
—
32
91
95
$
$
36
3,315
13,389
—
5,101
4,797
42,242
13,837
6,821
2,700
145
630
391
—
163
560
—
251
195
1,632
434
179
27
16
63
38
Total
$
78,401
$
82,200
$
7,444
$
93,404
$
3,558
92
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
December 31, 2012
Year Ended
December 31, 2012
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
$
$
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
$
$
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
December 31, 2011
Year Ended
December 31, 2011
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
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
93
$
12
2,953
594
—
776
1,249
3,562
89
736
22
3
22
12
10,030
$
$
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
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
At December 31, 2013, $18.0 million of impaired loans had specific valuation allowances totaling
$7.4 million. 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 $1.6 million, $1.8 million and $2.4 million
would have been recognized on an accrual basis during the years ended December 31, 2013, 2012
and 2011, 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 2013 and 2012 by type of
modification:
2013
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Mortgage loans on real estate:
One- to four-family
residential construction
$
Subdivision construction
Land development
Residential one-to-four family
Commercial
Other residential
Commercial
Consumer
$
—
—
3,842
—
2,120
1,956
660
—
$
286
2,067
2,078
1,499
2,212
1,874
34
241
$
—
568
—
—
—
—
—
—
286
2,635
5,920
1,499
4,332
3,830
694
241
$
8,578
$
10,291
$
568
$
19,437
94
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
2012
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
$
392
—
—
—
—
—
—
4,882
6,178
492
3,977
19
3,639
39
$
2,271
$
16,563
$
392
$
19,226
At December 31, 2013, the Company had $54.1 million of loans that were modified in troubled
debt restructurings and impaired, as follows: $10.9 million of construction and land development
loans, $16.6 million of single family and multi-family residential mortgage loans, $24.8 million of
commercial real estate loans, $1.5 million of commercial business loans and $310,000 of consumer
loans. Of the total troubled debt restructurings at December 31, 2013, $49.6 million were accruing
interest and $22.1 million were classified as substandard using the Company’s internal grading
system which is described below. The Company had troubled debt restructurings which were
modified in the previous 12 months and subsequently defaulted during the year ended
December 31, 2013, of approximately $1.4 million, including three commercial real estate loans
totaling $912,000, three non-owner occupied residential mortgage loan totaling $260,000, two
owner occupied residential mortgage loan totaling $187,000, three consumer loans totaling
$41,000, and one commercial business loan totaling $13,000. 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, 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.
During the year ended December 31, 2013, borrowers with loans designated as troubled debt
restructurings totaling $2.3 million met the criteria for placement back on accrual status. The $2.3
million was made up of $2.2 million of residential mortgage loans, $92,000 of commercial real
estate loans and $8,000 of consumer loans. This criteria is a minimum of six months of payment
performance under existing or modified terms.
95
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013
and 2012, 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:
Satisfactory
Watch
December 31, 2013
Special
Mention Substandard Doubtful
(In Thousands)
Total
One- to four-family residential
construction
$
Subdivision construction
Land development
Commercial construction
Owner occupied one- to-four-
family residential
Non-owner occupied one- to-
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of
discounts (TeamBank)
FDIC-supported loans, net of
discounts (Vantus Bank)
FDIC-supported loans, net of
discounts (Sun Security Bank)
FDIC-supported loans, net of
discounts (InterBank)
$
34,364
36,524
45,606
184,019
$
298
706
1,148
—
$ —
—
—
—
—
3,179
11,087
—
$
— $
—
—
—
34,662
40,409
57,841
184,019
84,931
503
—
3,699
—
89,133
137,003
727,668
311,320
307,540
39,532
134,516
81,769
57,713
49,702
57,290
63,360
6,718
37,937
12,323
1,803
675
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
2,187
15,085
1,956
3,528
2,023
201
485
570
160
630
—
—
1,483
—
—
—
2,398
—
—
—
—
145,908
780,690
325,599
315,269
42,230
134,717
82,260
58,283
—
—
—
49,862
57,920
64,843
213,539
—
—
—
—
213,539
Total
$ 2,566,396
$
62,117
$
—
$
46,273
$
2,398 $ 2,677,184
96
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Satisfactory
Watch
December 31, 2012
Special
Mention Substandard Doubtful
(In Thousands)
Total
One- to four-family residential
construction
$
Subdivision construction
Land development
Commercial construction
Owner occupied one- to-four-
family residential
Non-owner occupied one- to-
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
FDIC-supported loans, net of
discounts (TeamBank)
FDIC-supported loans, net of
discounts (Vantus Bank)
FDIC-supported loans, net of
discounts (Sun Security Bank)
FDIC-supported loans, net of
discounts (InterBank)
$
28,662
31,156
47,388
150,515
$
—
2,993
3,887
—
$ —
—
—
—
409
1,656
11,284
—
$
— $
—
—
—
29,071
35,805
62,559
150,515
79,411
792
—
3,656
—
83,859
132,073
619,387
252,238
253,165
40,977
82,467
83,250
52,076
77,568
95,281
91,519
7,884
42,753
6,793
4,286
675
—
—
—
—
—
—
—
—
—
—
1,913
—
—
—
—
—
—
259,210
—
—
5,501
30,237
8,487
6,180
2,110
143
565
236
47
202
—
22
—
—
—
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
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, 2013
and 2012, loans outstanding to these directors and executive officers are summarized as follows:
97
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Balance, beginning of year
New loans
Payments
Balance, end of year
December 31,
2013
2012
(In Thousands)
$
$
$
4,295
4,835
(2,037)
2,294
5,121
(3,120)
7,093
$
4,295
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 2013, 2012 and 2011 was $134,000, $1.2 million and $2.5 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 2013, 2012 and 2011 was
$104,000, $399,000 and $928,000, respectively.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 2013, 2012 and 2011 was $974,000, $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 2013 and 2012 was $636,000 and $564,000, respectively.
101
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
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, 2013, 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,
2013, 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:
102
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Year Ended
December 31, December 31,
2013
2012
December 31,
2011
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
40,947
$
42,567
$
27,069
Decrease in FDIC indemnification asset
as a result of accretable yield increase
(32,597)
(34,054)
(23,821)
The adjustments, along with those made in previous years, impacted the Company’s Consolidated
Statements of Income as follows:
Interest income
Noninterest income
Year Ended
December 31, December 31,
2013
2012
December 31,
2011
(In Thousands)
$
35,211
(29,451)
$
36,186
(29,864)
$
49,208
(43,835)
Net impact to pre-tax income
$
5,760
$
6,322
$
5,373
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, beginning in 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.
103
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 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 $3.7 million and $1.1 million was recorded at December 31, 2013 and
2012, respectively. 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.
TeamBank FDIC Indemnification Asset
The following tables present the balances of the FDIC indemnification asset related to the
TeamBank transaction at December 31, 2013 and 2012. Gross loan balances (due from the
borrower) were reduced approximately $382.6 million since the transaction date because of $248.6
million of repayments by the borrower, $61.5 million of transfers to foreclosed assets and $72.5
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
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, 2013
Loans
Foreclosed
Assets
(In Thousands)
$
53,553
$
664
(2,882)
(49,862)
809
82%
665
593
(10)
—
(647)
17
76%
13
—
—
13
FDIC indemnification asset
$
1,248
$
104
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
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, 2013 and 2012. Gross loan balances (due from the borrower)
were reduced approximately $271.5 million since the transaction date because of $226.6 million of
repayments by the borrower, $16.3 million of transfers to foreclosed assets and $28.6 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.
105
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Initial basis for loss sharing determination,
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, 2013
Loans
Foreclosed
Assets
(In Thousands)
$
60,011
$
1,986
(1,202)
(57,920)
889
78%
690
919
(32)
—
(1,092)
894
80%
716
—
—
FDIC indemnification asset
$
1,577
$
716
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
—
—
FDIC indemnification asset
$
6,373
$
935
106
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012. Gross loan balances (due from the
borrower) were reduced approximately $155.9 million since the transaction date because of $98.7
million of repayments by the borrower, $26.1 million of transfers to foreclosed assets and $31.1
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. Of the $8.5 million expected loss remaining,
$540,000 is non-loss share discount.
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, 2013
Loans
Foreclosed
Assets
(In Thousands)
$
78,524
$
3,582
(105)
(5,062)
(64,843)
8,514
70%
5,974
4,049
(680)
—
—
(2,193)
1,389
80%
1,111
—
(93)
FDIC indemnification asset
$
9,343
$
1,018
107
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
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 $108.3 million since the transaction date because of $79.8 million of
repayments by the borrower, $9.3 million of transfers to foreclosed assets and $19.2 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
FDIC indemnification asset
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
FDIC indemnification asset
109
December 31, 2013
Loans
Foreclosed
Assets
(In Thousands)
$
284,975
$
6,543
1,905
(21,218)
(213,539)
52,123
82%
42,654
2,893
16,974
(4,874)
57,647
$
$
—
—
(5,073)
1,470
80%
1,176
—
—
(33)
1,143
December 31, 2012
Loans
Foreclosed
Assets
(In Thousands)
$
356,844
$
2,001
2,541
(9,897)
(259,232)
90,256
81%
73,151
1,000
—
—
(1,620)
381
80%
304
—
7,871
(6,893)
75,129
$
$
—
(93)
211
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Changes in the accretable yield for acquired loan pools were as follows for the years ended
December 31, 2013, 2012 and 2011:
Balance, January 1, 2011
Additions
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2011
Additions
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2012
Accretion
Reclassification from nonaccretable
difference(1)
TeamBank
Vantus
Bank
Sun
Security
Bank
InterBank
(In Thousands)
$
$
36,765
—
(40,010)
$
35,796
—
(30,908)
—
14,990
(2,221)
$
17,907
17,079
—
—
—
—
—
14,662
—
(20,129)
17,595
12,128
(9,473)
21,967
—
(21,437)
13,008
13,538
(8,940)
12,769
—
(15,851)
—
46,078
(11,998)
14,341
11,259
(16,885)
8,494
42,574
(28,667)
4,747
1,127
16,739
26,188
Balance, December 31, 2013
$
7,402
$
5,725
$
11,113
$ 40,095
(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, 2013, totaling $2.3 million, $611,000, $4.8 million
and $146,000, respectively; 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; and for TeamBank and Vantus Bank for the year ended December 31,
2011, totaling $3.5 million and $4.4 million, respectively.
110
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 5: Other Real Estate Owned
Major classifications of foreclosed assets at December 31, 2013 and 2012, were as follows:
Foreclosed assets held for sale
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
Foreclosed assets held for sale, net
2013
2012
(In Thousands)
$
$
600
12,152
16,688
2,132
744
5,900
3,135
79
967
42,397
9,006
51,403
627
17,147
14,058
6,511
1,200
7,232
2,738
160
471
50,144
18,730
68,874
Other real estate owned not acquired through
foreclosure
2,111
—
Other real estate owned
$
53,514
$
68,874
Other real estate owned not acquired through foreclosure includes 13 properties, 12 of which were
branch locations that have been closed and are held for sale, and one of which is land which was
acquired for a potential branch location.
Expenses applicable to foreclosed assets for the years ended December 31, 2013, 2012 and 2011,
included the following:
2013
2012
(In Thousands)
2011
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental
income
$
(231) $
1,384
(1,603)
6,786
$
2,915
3,565
(1,504)
10,437
2,913
$
4,068
$
8,748
$
11,846
111
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 6: Premises and Equipment
Major classifications of premises and equipment at December 31, 2013 and 2012, stated at cost,
were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2013
2012
(In Thousands)
$
29,348
71,026
44,143
144,517
39,983
$
27,618
66,446
41,676
135,740
33,454
$
104,534
$
102,286
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, 2013, the Company had
fifteen investments, with a net carrying value of $34.2 million. At December 31, 2012, the
Company had eleven investments, with a net carrying value of $33.9 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 $44.7 million as of December 31, 2013, 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 $34.3 million, assuming all projects currently
under construction are completed and funded as planned. The Company’s usage of federal
affordable housing tax credits approximated $7.1 million, $5.2 million and $2.6 million during
2013, 2012 and 2011, respectively. Investment amortization amounted to $5.0 million, $4.6
million and $1.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.
112
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013, the
Company had four investments, with a net carrying value of $6.8 million. At December 31, 2012,
the Company had three investments, with a net carrying value of $6.8 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
$9.6 million as of December 31, 2013. Amortization of the investments in partnerships is expected
to be approximately $6.7 million. The Company’s usage of federal New Market Tax Credits
approximated $2.3 million, $1.7 million and $1.7 million during 2013, 2012 and 2011,
respectively. Investment amortization amounted to $1.6 million, $1.1 million and $1.1 million for
the years ended December 31, 2013, 2012 and 2011, respectively.
Investments in Limited Partnerships for Federal Rehabilitation/Historic Tax Credits
From time to time, the Company has invested in certain limited partnerships that were formed to
provide certain federal rehabilitation/historic tax credits. The Company utilizes these credits in
their entirety in the year the project is placed in service and the impact to the Consolidated
Statements of Income has not been material.
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.
113
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 8: Deposits
Deposits at December 31, 2013 and 2012, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2012
2013
(In Thousands, Except
Interest Rates)
—
$
522,805
$
385,778
0.20% - 0.33%
0% - .99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,291,879
1,814,684
669,698
251,118
61,042
9,413
1,852
819
993,942
1,563,468
1,949,246
666,573
426,589
90,539
13,240
5,190
1,816
1,203,947
$
2,808,626
$
3,153,193
The weighted average interest rate on certificates of deposit was 0.69% and 1.00% at
December 31, 2013 and 2012, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater
than $100,000 was approximately $345.1 million and $449.0 million at December 31, 2013 and
2012, respectively. The Bank utilizes brokered deposits as an additional funding source. The
aggregate amount of brokered deposits was approximately $126.3 million and $119.1 million at
December 31, 2013 and 2012, respectively.
At December 31, 2013, scheduled maturities of certificates of deposit were as follows:
2014
2015
2016
2017
2018
Thereafter
Retail
Brokered
(In Thousands)
Total
$
$
569,543
150,042
54,267
56,112
31,919
5,781
72,594
28,684
25,000
—
—
—
$
642,137
178,726
79,267
56,112
31,919
5,781
$
867,664
$
126,278
$
993,942
114
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
A summary of interest expense on deposits for the years ended December 31, 2013, 2012 and
2011, is as follows:
2013
2012
(In Thousands)
2011
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
3,551
8,871
(76)
$
7,087
13,715
(82)
7,976
18,467
(73)
$
12,346
$
20,720
$
26,370
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2013 and 2012, consisted of the
following:
December 31, 2013
December 31, 2012
Due In
Amount
Weighted
Average
Interest
Rate
Weighted
Average
Interest
Rate
Amount
(In Thousands)
2013
2014
2015
2016
2017
2018
2019 and thereafter
$
—
2,315
10,065
25,070
85,825
81
529
—%
1.02
3.87
3.81
3.92
5.06
5.51
$
1,081
335
10,065
25,070
85,825
81
529
1.71%
5.46
3.87
3.81
3.92
5.06
5.51
123,885
3.85
122,986
3.89
Unamortized fair value adjustment
2,872
3,744
$
126,757
$
126,730
Included in the Bank’s FHLB advances at December 31, 2013 and 2012, 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.
115
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Included in the Bank’s FHLB advances at December 31, 2013 and 2012, 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, 2013 and 2012, 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, 2013 and 2012, 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, 2013 and 2012, is a $30.0 million
advance with a maturity date of November 24, 2017. The interest rate on this advance is 3.20%.
The advance has a call provision that allows the Federal Home Loan Bank of Des Moines to call
the advance quarterly.
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges,
liens and encumbrances as collateral for outstanding advances. No investment securities were
specifically pledged as collateral for advances at December 31, 2013 and 2012. Loans with
carrying values of approximately $878.5 million and $905.8 million were pledged as collateral for
outstanding advances at December 31, 2013 and 2012, respectively. The Bank had potentially
available $407.4 million remaining on its line of credit under a borrowing arrangement with the
FHLB of Des Moines at December 31, 2013.
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2013 and 2012, are summarized as follows:
Notes payable – Community Development
Equity Funds
Securities sold under reverse repurchase agreements
2013
2012
(In Thousands)
$
1,128
134,981
$
772
179,644
$
136,109
$
180,416
116
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 0.04% and 0.07% at December 31,
2013 and 2012, respectively. Short-term borrowings averaged approximately $180.4 million and
$212.7 million for the years ended December 31, 2013 and 2012, respectively. The maximum
amounts outstanding at any month end were $220.1 million and $226.4 million, respectively,
during those same periods.
Note 11: Federal Reserve Bank Borrowings
At December 31, 2013 and 2012, the Bank had $418.9 million and $446.6 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, 2013 or 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.
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 matured in 2013. While the borrowings were
outstanding, the Company pledged investment securities to collateralize the borrowings in an
amount of at least 110% of the total borrowings outstanding. At December 31, 2013 and 2012, the
book value of these repurchase agreements was $0 and $3.0 million, respectively.
117
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 1.84% and 1.91% at December 31, 2013 and 2012,
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 1.65% and 1.76% at December 31, 2013 and
2012, respectively.
At December 31, 2013 and 2012, subordinated debentures issued to capital trusts are summarized
as follows:
Subordinated debentures
$
30,929
$
30,929
2013
2012
(In Thousands)
Note 14:
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2013 and 2012,
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, 2013 and 2012.
118
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
During the years ended December 31, 2013, 2012 and 2011, the provision for income taxes
included these components:
2013
2012
(In Thousands)
2011
Taxes currently payable
Deferred income taxes
$
12,242
(8,839)
$
Income taxes
Taxes attributable to
discontinued operations
Income tax expense attributable
3,403
—
$
(142)
13,252
13,110
(2,487)
14,817
(9,304)
5,513
(330)
to continuing operations
$
3,403
$
10,623
$
5,183
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
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,
2013
2012
(In Thousands)
14,041
210
599
—
3,697
18,547
(3,619)
(1,656)
(3,068)
(598)
(1,344)
(12,049)
(256)
(22,590)
$
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)
Net deferred tax liability
$
(4,043)
$
(20,288)
119
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
2013
35.0%
(4.6)
(22.8)
1.6
—
2012
35.0%
(3.5)
(12.5)
0.5
(0.1)
2011
35.0%
(6.3)
(15.2)
0.7
0.7
9.2%
19.4%
14.9%
The Company and its consolidated subsidiaries have not been audited recently by the Internal
Revenue Service or the state taxing authorities 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
Fair value is 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. Fair value measurements
must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a
hierarchy of three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities
Level 3
Unobservable inputs supported by little or no market activity and are significant
to the fair value of the assets or liabilities
120
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying
balance sheets measured at fair value on a recurring basis and the level within the fair value
hierarchy in which the fair value measurements fall at December 31, 2013 and 2012:
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)
$
17,255
367,578
$
44,855
122,724
2,869
211
2,544
(1,613)
30,040
4,507
596,086
51,493
122,878
2,006
152
2,112
(2,160)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
17,255
367,578
$
44,855
122,724
2,869
—
—
—
30,040
4,507
596,086
51,493
122,878
2,006
—
—
—
—
—
—
—
—
211
2,544
(1,613)
—
—
—
—
—
—
152
2,112
(2,160)
December 31, 2013
U.S. government agencies
Mortgage-backed securities
Small Business Administration loan
pools
States and political subdivisions
Equity securities
Mortgage servicing rights
Interest rate derivative asset
Interest rate derivative liability
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 derivative asset
Interest rate derivative liability
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, 2013 and 2012, as well as the general classification of such assets
pursuant to the valuation hierarchy. There have been no significant changes in the valuation
techniques during the year ended December 31, 2013. For assets classified within Level 3 of the
fair value hierarchy, the process used to develop the reported fair value is described below.
121
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012.
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.
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, 2012
Additions
Amortization
Balance, December 31, 2012
Additions
Amortization
Balance, December 31, 2013
122
$
Mortgage
Servicing
Rights
(In Thousands)
292
117
(257)
152
239
(180)
211
$
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Balance, January 1, 2012
Net change in fair value
Balance, December 31, 2012
Net change in fair value
Interest
Rate Derivative
Asset
(In Thousands)
$
111
2,001
2,112
(253)
Balance, December 31, 2013
$
1,859
Interest Rate
Cap Derivative
Asset
Designated
as Hedging
Instrument
(In Thousands)
$
$
—
—
—
738
(53)
685
Interest
Rate Swap
Liability
(In Thousands)
$
121
2,039
2,160
(547)
Balance, January 1, 2012
Net change in fair value
Balance, December 31, 2012
Additions
Net change in fair value
Balance, December 31, 2013
Balance, January 1, 2012
Net change in fair value
Balance, December 31, 2012
Net change in fair value
Balance, December 31, 2013
$
1,613
123
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012:
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value
Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
(In Thousands)
$
$
$
$
$
$
—
145
1,474
349
388
5,224
1,440
61
19
275
70
9,445
2,169
171
1,482
1,463
2,638
2,392
21,764
4,162
2,186
51
286
44
36,639
11,360
124
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
—
145
1,474
349
388
5,224
1,440
61
19
275
70
9,445
2,169
171
1,482
1,463
2,638
2,392
21,764
4,162
2,186
51
286
44
36,639
11,360
December 31, 2013
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, 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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Following is a description of the valuation methodologies used for assets measured at fair value on
a nonrecurring basis and recognized in the accompanying statements of financial condition, as well
as the general classification of such assets pursuant to the valuation hierarchy. For assets
classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair
value is described below.
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, 2013 and 2012, 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.
125
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012, 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 above have been re-measured during the
years ended December 31, 2013 and 2012, 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, 2013 and 2012.
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, 2013 and 2012, the carrying value was $1.3 million and $7.9 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, 2013 and 2012, the carrying value of the FDIC indemnification asset
was $2.3 million and $7.3 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, 2013 and 2012, the carrying value of the FDIC
indemnification asset was $10.4 million and $26.8 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, 2013 and 2012, the carrying value of the FDIC indemnification asset
was $58.8 million and $75.3 million, respectively.
126
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
From the dates of acquisition, each of the four agreements extends 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.
127
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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.
128
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
December 31, 2013
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
December 31, 2012
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
$ 227,925
805
7,239
$ 227,925
912
7,239
2,439,530
11,408
9,822
2,442,917
11,408
9,822
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Structured repurchase
agreements
Subordinated debentures
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
2,808,626
126,757
136,109
2,813,779
131,281
136,109
50,000
30,929
1,099
53,485
30,929
1,099
Commitments to originate loans
Letters of credit
Lines of credit
—
76
—
—
76
—
Note 16: Operating Leases
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
$ 404,141
920
26,829
$
404,141
1,084
26,829
2,319,638
12,755
10,095
2,326,051
12,755
10,095
3,153,193
126,730
180,416
3,162,288
131,280
180,416
53,039
30,929
1,322
—
84
—
58,901
30,929
1,322
—
84
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
The Company has entered into various operating leases at several of its locations. Some of the
leases have renewal options.
At December 31, 2013, future minimum lease payments were as follows (in thousands):
2014
2015
2016
2017
2018
Thereafter
$
858
536
429
420
403
1,089
$
3,735
Rental expense was $1.0 million, $1.7 million and $1.3 million for the years ended December 31,
2013, 2012 and 2011, respectively.
129
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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. The Company has interest rate derivatives that result from a
service provided to certain qualifying loan customers that are not used to manage interest rate risk
in the Company’s assets or liabilities and are not designated in a qualifying hedging relationship.
The Company manages a matched book with respect to its derivative instruments in order to
minimize its net risk exposure resulting from such transactions. In addition, the Company has
interest rate derivatives that are designated in a qualified hedging relationship.
Nondesignated Hedges
The Company has interest rate swaps that are not designated in qualifying hedging relationship.
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, 2013, the Company had 24 interest rate swaps totaling $114.0
million in notional amount with commercial customers, and 24 interest rate swaps with the same
notional amount with third parties related to this program. As of December 31, 2012, the
Company had 16 interest rate swaps totaling $81.7 million in notional amount with commercial
customers, and 16 interest rate swaps with the same notional amount with third parties related to
this program. During the years ended December 31, 2013 and 2012, the Company recognized a
net gain of $295,000 and a net loss of $38,000, respectively, in noninterest income related to
changes in the fair value of these swaps.
Cash Flow Hedges
As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows
due to interest rate fluctuations, the Company entered into two interest rate cap agreements for a
portion of its floating rate debt associated with its trust preferred securities. The agreement with a
notional amount of $25 million states that the Company will pay interest on its trust preferred debt
in accordance with the original debt terms at a rate of 3-month LIBOR + 1.60%. Should interest
rates rise above a certain threshold, the counterparty will reimburse the Company for interest paid
130
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
such that the Company will have an effective interest rate on that portion of its trust preferred
securities no higher than 2.37%. The second agreement with a notional amount of $5 million
states that the Company will pay interest on its trust preferred debt in accordance with the original
debt terms at a rate of 3-month LIBOR + 1.40%. Should interest rates rise above a certain
threshold, the counterparty will reimburse the Company for interest paid such that the Company
will have an effective interest rate on that portion of its trust preferred securities no higher than
2.17%. The agreements were effective on August 1, 2013 and July 1, 2013, respectively, and have
a term of four years.
The effective portion of the gain or loss on the derivative is reported as a component of other
comprehensive income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. Gains and losses on the derivative representing either
hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are
recognized in current earnings.
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:
Derivatives designated as
hedging instruments
Interest rate caps
Total derivatives designated
as hedging instruments
Derivatives not designated
as hedging instruments
Asset Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Liability Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2013
2012
(In Thousands)
Prepaid expenses and other assets
$
685
$
$
685
$
—
—
Prepaid expenses and other assets
$
1,859
$
2,112
$
1,859
$
2,112
Accrued expenses and other liabilities
$
1,613
$
2,160
$
1,613
$
2,160
131
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The following tables present the effect of derivative instruments on the statements of
comprehensive income:
Cash Flow Hedges
Year Ended December 31
Amount of Gain (Loss)
Recognized in OCI
2013
2012
Interest rate cap, net of income taxes
$
(34)
$
—
Agreements with Derivative Counterparties
The Company has agreements with its derivative counterparties. 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, 2013, 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 $480,000. The Company has minimum collateral posting thresholds with its
derivative counterparties. At December 31, 2013, 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 $778,000 of collateral to satisfy the agreement. 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. 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. If the Company had breached any of
these provisions at December 31, 2013 and 2012, it could have been required to settle its
obligations under the agreements at the termination value.
132
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013 and 2012, the Bank had outstanding commitments to originate loans and
fund commercial construction loans aggregating approximately $84.4 million and $168.0 million,
respectively. The commitments extend over varying periods of time with the majority being
disbursed within a 30- to 180-day period.
Mortgage loans in the process of origination represent amounts that the Bank plans to fund within
a normal period of 60 to 90 days, many of which are intended for sale to investors in the secondary
market. Total mortgage loans in the process of origination amounted to approximately $7.0
million and $31.6 million at December 31, 2013 and 2012, 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 $28.4
million and $25.4 million at December 31, 2013 and 2012, respectively, with $25.4 million and
$22.5 million, respectively, of the letters of credit having terms up to five years and $3.0 million
and $2.9 million, respectively, of the letters of credit having terms over five years. Of the amount
having terms over five years, $2.9 million and $2.9 million at December 31, 2013 and 2012,
respectively, consisted of an outstanding letter of credit to guarantee the payment of principal and
interest on a Multifamily Housing Refunding Revenue Bond Issue.
133
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 $14.9 million and $13.3 million at
December 31, 2013 and 2012, 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, 2013, the Bank had granted unused lines of credit to borrowers aggregating
approximately $249.9 million and $84.0 million for commercial lines and open-end consumer
lines, respectively. 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.
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 $130.0 million and $151.5
million at December 31, 2013 and 2012, respectively, are secured by motels, restaurants,
recreational facilities, other commercial properties and residential mortgages in the Branson,
Missouri, area. Residential mortgages account for approximately $44.8 million and $54.1 million
of this total at December 31, 2013 and 2012, respectively.
In addition, loans (excluding those covered by loss sharing agreements) aggregating approximately
$428.1 million and $389.9 million at December 31, 2013 and 2012, 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.
134
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
Conversion of premises and equipment
to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
Income taxes refunded
2013
2012
(In Thousands)
2011
$45,941
$11,303
$82,954
$11,855
$59,927
$11,755
—
—
$2,669
$2,111
$2,606
$19,426
$17,351
—
—
$168
—
$2,799
$29,332
$33
$11,646
$36,634
$13,233
$4,975
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, 2013, 2012 and 2011, were approximately $744,000, $895,000 and $1.0
million, 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, 2013 and
2012, was 102.24% and 111.88%, respectively. The funded status was calculated by taking the
market value of plan assets, which reflected contributions received through June 30, 2013 and
2012, 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 year ended December 31, 2011, 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,
2013, 2012 and 2011, were approximately $870,000, $1.2 million and $1.0 million, respectively.
135
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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 “2003 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, 2013 and 2012, no options were outstanding under
this plan. On May 15, 2013, the Company’s stockholders approved the Great Southern Bancorp,
Inc. 2013 Equity Incentive Plan (the “2013 Plan”). Upon the stockholders’ approval of the 2013
Plan, the Company’s 2003 Plan was frozen. As a result, no new stock options or other awards may
be granted under this plan; however, existing outstanding awards under the 2003 Plan were not
affected. At December 31, 2013, 583,207 options were outstanding under the 2003 Plan.
During 2013, the Company established the 2013 Plan, which provides for the grant from time to
time to directors, emeritus directors, officers, employees and advisory directors of stock options,
stock appreciation rights and restricted stock awards. The number of shares of Common Stock
available for awards under the 2013 Plan is 700,000, all of which may be utilized for stock options
and stock appreciation rights and no more than 100,000 of which may be utilized for restricted
stock awards. At December 31, 2013, 116,500 options were outstanding under the 2013 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.
136
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2011
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
Granted from 2003 Plan
Exercised
Forfeited from terminated plan(s)
Termination of 2003 Plan
Available to grant from 2013 Plan
Granted from 2013 Plan
462,453
(120,100)
—
—
24,987
367,340
(105,200)
—
64,482
326,622
(3,100)
—
46,818
(370,340)
—
700,000
(116,500)
743,796
120,100
(25,856)
(4,000)
(24,987)
809,053
105,200
(116,479)
(64,482)
733,292
3,100
(106,367)
(46,818)
—
583,207
—
116,500
$
23.592
19.349
12.053
12.898
23.349
23.391
24.759
19.488
23.168
24.227
23.957
19.687
27.202
29.515
Balance, December 31, 2013
583,500
699,707
$
25.597
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.
137
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The fair value of each option award is estimated on the date of the grant using the Black-Scholes
option pricing model with the following assumptions:
December 31, December 31, December 31,
2012
2011
2013
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
$0.72
1.53%
5 years
24.80%
$0.72
0.65%
5 years
28.83%
$0.72
0.93%
5 years
27.99%
$5.22
$4.55
$3.15
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, 2013.
Options outstanding, January 1, 2013
Granted
Exercised
Forfeited
Options outstanding, December 31, 2013
Weighted
Average
Exercise
Price
$24.227
29.371
19.687
27.202
25.597
Options
733,292
119,600
(106,367)
(46,818)
699,707
Options exercisable, December 31, 2013
359,749
26.356
Weighted
Average
Remaining
Contractual
Term
5.34
5.93
3.28
138
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
For the years ended December 31, 2013, 2012 and 2011, options granted were 119,600, 105,200,
and 120,100, 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, 2013, 2012 and 2011, was $858,000, $1.0 million and
$145,000, respectively. Cash received from the exercise of options for the years ended
December 31, 2013, 2012 and 2011, was $1.2 million, $2.3 million and $311,000, respectively.
The actual tax benefit realized for the tax deductions from option exercises totaled $764,000,
$888,000 and $97,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
The following table presents the activity related to nonvested options under all plans for the year
ended December 31, 2013.
Nonvested options, January 1, 2013
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$21.442
29.371
18.437
21.715
Options
300,703
119,600
(65,389)
(14,956)
Nonvested options, December 31, 2013
339,958
24.794
Weighted
Average
Grant Date
Fair Value
$4.596
5.212
4.768
4.790
4.768
At December 31, 2012, there was $1.5 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 2018, with the majority of this expense recognized in 2014 and 2015.
The following table further summarizes information about stock options outstanding at
December 31, 2013:
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
126,372
207,050
366,285
7.20 years
7.53 years
4.58 years
Weighted
Average
Exercise
Price
$16.924
23.373
29.846
Options Exercisable
Number
Exercisable
51,163
58,801
249,785
Weighted
Average
Exercise
Price
$13.489
22.065
30.001
699,707
5.93 years
25.597
359,749
26.356
139
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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.
Note 23: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’
equity, are as follows:
Net unrealized gain (loss) on available-for-sale securities
Net unrealized gain (loss) on available-for-sale securities for
which a portion of an other-than-temporary impairment has
been recognized in income
Net unrealized gain (loss) on derivatives used for cash flow
hedges
Tax effect
2013
2012
$
3,841
$
25,593
—
22
(53)
3,788
—
25,615
(1,326)
(8,965)
Net-of-tax amount
$
2,462
$
16,650
140
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The changes in AOCI by component are shown below. Amounts reclassified from AOCI and the
affected line items in the statements of income during the years ended December 31, 2013, 2012
and 2011, were as follows:
Amounts Reclassified
from AOCI
2013
2012
Unrealized gains (losses)
on available-for-sale
securities
$
243
$
2,666
Income taxes
(85)
(933)
Total reclassifications out
of AOCI
$
158
$
1,733
Affected Line Item in the
Statements of Income
Net realized gains on available-for-
sale securities (total reclassified
amount before tax)
Total reclassified amount before tax
Tax (expense) benefit
Note 24: Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct and material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of the Company’s and the
Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company’s and the Bank’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital (as
defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to
adjusted tangible assets (as defined). Management believes, as of December 31, 2013, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2013, 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.
141
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, 2013
Total risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
$436,156
$398,292
16.9%
15.4%
≥ $207,075
≥ $206,850
≥ 8.0%
≥ 8.0%
N/A
≥ $258,562
N/A
≥ 10.0%
Tier I risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
$403,705
$365,876
15.6%
14.2%
≥ $103,538
≥ $103,425
≥ 4.0%
≥ 4.0%
N/A
≥ $155,137
N/A
≥ 6.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$403,705
$365,876
11.3%
10.2%
≥ $143,057
≥ $142,865
≥ 4.0%
≥ 4.0%
N/A
≥ $178,581
N/A
≥ 5.0%
As of December 31, 2012
Total risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
$407,725
$383,859
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
$377,468
$353,628
15.7%
14.7%
≥ $96,408
≥ $96,323
≥ 4.0%
≥ 4.0%
N/A
≥ $144,485
N/A
≥ 6.0%
Tier I leverage capital
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%
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, 2013 and 2012, 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.
142
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 25: 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 26: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2013, 2012 and 2011:
2013
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 (credit) for income taxes
Net income from continuing operations
Discontinued operations
Net income
Net income available to common
shareholders
Earnings per common share – diluted
47,356
5,224
8,225
34
2,924
26,942
1,495
8,394
—
8,394
8,249
0.60
$
43,481
4,980
3,671
97
2,327
27,617
1,316
8,224
—
8,224
8,079
0.59
$
43,019
4,555
2,677
110
929
27,178
1,099
8,439
—
8,439
8,294
0.61
$
44,939
4,444
2,813
2
(865)
28,652
(507)
8,672
—
8,672
8,528
0.62
143
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
$
50,451
5,825
7,786
200
1,982
30,267
177
8,378
4,070
12,448
12,278
0.90
2011
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
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
144
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2013 and 2012, and statements
of income, comprehensive income and cash flows for the years ended December 31, 2013, 2012
and 2011, for the parent company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Available-for-sale 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
Accumulated other comprehensive gain
December 31,
2013
2012
(In Thousands)
$
$
38,965
2,869
371,590
31
1,752
23,430
2,006
375,281
32
1,059
$
415,207
$
401,808
$
$
2,891
689
30,929
57,943
137
19,567
300,589
2,462
599
406
30,929
57,943
136
18,394
276,751
16,650
$
415,207
$
401,808
145
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
2013
2012
(In Thousands)
2011
$
24,000
20
$
12,000
33
$
12,000
27
—
13
280
(19)
—
—
24,033
12,294
12,027
1,132
560
1,692
1,297
617
1,914
1,196
569
1,765
22,341
(365)
10,380
(401)
10,262
(510)
22,706
10,781
10,772
11,023
37,925
19,497
$
33,729
$
48,706
$
30,269
146
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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
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
(Investment)/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
Purchase of interest rate derivative
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
2013
2012
(In Thousands)
2011
$
33,729
$
48,706
$
30,269
(11,023)
443
—
4
(146)
1
23,008
—
(13)
—
—
—
(13)
—
—
—
(738)
(7,964)
1,242
(7,460)
15,535
23,430
38,965
565
(37,925)
435
(280)
(19)
226
10
11,153
—
49
664
—
840
1,553
—
—
—
—
(12,991)
2,269
(10,722)
1,984
21,446
(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
$
$
23,430
$
21,446
620
$
563
$
$
147
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
Statements of Comprehensive Income
Net Income
2013
2012
(In Thousands)
2011
$
33,729
$
48,706
$
30,269
Unrealized appreciation on available-for-sale securities,
net of taxes (credit) of $302, $195 and $(102), for
2013, 2012 and 2011, respectively
Less: reclassification adjustment for gains included in
net income, net of taxes of $0, $98 and $0 for 2013,
2012 and 2011, respectively
561
—
Comprehensive income (loss) of subsidiaries
(14,749)
363
(189)
(182)
4,056
—
8,381
Comprehensive Income
$
19,541
$
52,943
$
38,461
Note 28: Preferred Stock and Common Stock Warrant
CPP Preferred Stock and Common Stock Warrant
On December 5, 2008, as part of the Troubled Asset Relief Program (TARP) Capital Purchase
Program of the United States Department of the Treasury (Treasury), the Company entered into a
Letter Agreement and Securities Purchase Agreement (collectively, the “CPP Purchase
Agreement”) with Treasury, pursuant to which the Company (i) sold to Treasury 58,000 shares of
the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “CPP Preferred
Stock”), having a liquidation preference amount of $1,000 per share, for a purchase price of $58.0
million in cash and (ii) issued to Treasury a ten-year warrant (the “Warrant”) to purchase
909,091 shares of the Company’s common stock, par value $0.01 per share (the “Common
Stock”), at an exercise price of $9.57 per share. As noted below under “SBLF Preferred Stock,”
the Company redeemed all of the CPP Preferred Stock on August 18, 2011, in connection with the
issuance of the SBLF Preferred Stock. As noted below under “Repurchase of Common Stock
Warrant,” the Company repurchased the Warrant on September 21, 2011.
The CPP Preferred Stock qualified as Tier 1 capital and paid cumulative dividends on the
liquidation preference amount on a quarterly basis at a rate of 5% per annum.
148
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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, noncash 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.
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Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
The SBLF Preferred Stock qualifies as Tier 1 capital. The holders of SBLF Preferred Stock are
entitled to receive noncumulative 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 2013 was 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. Based upon the
increase in the Bank’s level of QSBL over the adjusted baseline level, the dividend rate for this
period will be 1.0%. 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 nonvoting, 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 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 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 and $8.1 million
for the years ended December 31, 2012 and 2011, respectively, and are included in the income
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Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
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.
Note 30: Subsequent Event – Branch Acquisition
On January 14, 2014, the Company announced that it signed a definitive agreement to purchase
two branches in Neosho, Missouri, from Boulevard Bank. The acquisition represents
approximately $65 million of deposits and $6 million of loans. Great Southern currently operates
one banking center in Neosho. Subject to separate regulatory approval and after conversion of all
Neosho locations to one operating system, the Bank expects to relocate this office into the
Boulevard Bank branch directly across the street. This transaction will ultimately represent a net
increase of one banking center to the Great Southern franchise.
Terms of the agreement call for Great Southern to acquire the loans at par and pay a two percent
premium on approximately $55 million of the deposits. The Company will pay book value of
approximately $700,000 for the real and personal property associated with these two branches.
On January 31, 2014, the Company announced that it signed a definitive agreement with
Boulevard Bank to acquire additional depository and loan customers serviced from Boulevard’s
branch in St. Louis, Missouri. The Company will acquire approximately $39 million in depository
accounts and $6 million in commercial loans that were serviced by Boulevard’s St. Louis branch.
The Company will not obtain any branch locations or employees in St. Louis as part of this
transaction and deposits are being assumed with no significant additional premium.
The combined transactions represent approximately $104 million in deposits and $12 million in
loans. Both acquisitions are expected to be simultaneously completed in late March 2014, pending
regulatory approval.
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