annual meeting
The 27th Annual Meeting of Shareholders will be held at 10:00 a.m.
CDT on Wednesday, May 4, 2016, at the Great Southern Operations
Center, 218 S. Glenstone, Springfield, Mo.
corporate profile
Great Southern Bank was founded in 1923, with a $5,000 investment,
four employees and 936 customers. Today, it has grown to $4.1 billion
in total assets, with nearly 1,300 dedicated associates serving 169,000
households.
Headquartered in Springfield, Mo., the Company operates 114
offices in eight states, including 110 retail banking centers in Missouri,
Arkansas, Iowa, Kansas, Minnesota and Nebraska, three commercial
loan offices in Dallas, Texas, Tulsa, Okla., and Overland Park, Kan.,
and one home loan office in Springfield, Mo. Great Southern offers
one-stop shopping with a comprehensive lineup of financial services
that give customers more choices for their money. Customers can
choose from a wide variety of checking accounts, savings accounts
and lending options. With the understanding that convenient access
to banking services is a top priority, customers can access the bank
when, where and how they prefer, whether it’s through a banking
center, an ATM, Online Banking, Mobile Banking, or by telephone.
stock information
The Company’s Common Stock is listed on The NASDAQ Global
Select Market under the symbol “GSBC.”
As of December 31, 2015 there were 13,887,932 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,
2015 was $45.26.
High/Low Stock Price
2015
2014
2013
High
Low
High
Low
High
Low
First Quarter
$40.44
Second Quarter 42.95
Third Quarter
43.42
Fourth Quarter 52.94
$35.10
37.44
37.54
42.11
$31.00
32.25
33.77
40.28
$26.95
28.00
29.53
29.80
$27.34
28.00
31.00
31.23
$23.31
22.60
25.71
25.87
Dividend Declarations
2015
2014
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$.20
.22
.22
.22
$.20
.20
.20
.20
$.18
.18
.18
.18
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 Computershare at
800-368-5948, (outside of the U.S.
781-575-4223), or visit computershare.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., N.W., Suite 100
Washington, DC 20007
Carnahan, Evans, Cantwell & Brown, P.C.
P.O. Box 10009
Springfield, MO 65808
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N. A.
Shareholder correspondence:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Overnight correspondence:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Hearing Impaired # TDD: 1-800-952-9245
computershare.com
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
to our shareholders
a look at the
art & science
behind great southern
Another year is behind us, and like every year in our 93-year history, 2015 was
filled with priorities including serving our customers with the goal to exceed their
expectations, evaluating and optimizing our various operating platforms to ensure
efficiency and effectiveness, and fine-tuning our strategy for the years ahead
as uncertainty in the economic landscape continues. Our team of nearly 1,300
associates enthusiastically executed our objectives and made 2015 a successful
year for our Company. This annual report will give you a good overview of some of
the Company’s initiatives in 2015 that contributed to our success to build winning
relationships with our customers, associates, shareholders and communities.
OUR SUCCESS in building winning relationships with our customers in 2015
was underscored by healthy increases in customer deposits and commercial
and consumer loan balances from our entire eight-state franchise. This growth
reflects our efforts to maximize business opportunities inherent in the footprint we
assembled over the last seven years. As you’ll recall, we participated in five FDIC-
assisted transactions from 2009 through 2014, which put us into four new states with
a presence in many attractive metropolitan market areas. Potential for attracting
and deepening our customer base in these markets is significant; we’re working
hard to tap into these opportunities for growth.
1
RELATIONSHIPS INCREASED
in 2015 with new and existing
commercial and consumer loan
customers. Net loan growth
(excluding acquired covered and
non-covered loans and mortgage
loans held for sale) increased $397.3
million, or 15.3%, from the end
of 2014 to the end of 2015. Loan
growth came from throughout
the Company’s footprint and was
primarily related to commercial
real estate, consumer, commercial
construction and multi-family
residential loans. We were pleased
with our strong loan growth in
2015, despite price pressures and
other competitive forces prevalent
in the industry. Our underwriting
standards remain conservative and
decisions are primarily centralized.
The loan portfolio mix continues to
change favorably over time and is
more diversified by loan type and
geography than ever before.
CREDIT QUALITY CONTINUED
TO IMPROVE in 2015. We are
focused on credit quality and are
pleased that our level of classified
assets decreased in 2015. Since the
end of 2014, overall credit quality
improved with an $11.9 million, or
17%, decrease in non-performing
assets and potential problem loans,
excluding those acquired from the
FDIC. Non-performing assets were
$44.0 million, or 1.07% of total assets
at December 31, 2015, compared
to $43.7 million, or 1.11% of total
assets at December 31, 2014. Total
net charge-offs were $5.8 million for
each of the years ended December
31, 2015 and 2014. Other real estate
owned decreased significantly
in 2015.
TOTAL DEPOSITS GREW by nearly
$280 million, or 9.3%, from the end
of 2014 to the end of 2015. Even
with strong competitive forces, we
experienced increases in nearly
every category of deposits, including
a $168 million increase in core
deposits. We also grew our wholesale
deposit balances by approximately
$112 million during the year to fund
loan growth. Our deposit mix is a
source of strength with checking
and savings accounts representing
approximately 61% of the deposit
base and retail certificates of deposit
representing approximately 31% of
the deposit base.
OPTIMIZING OUR BANKING
CENTER NETWORK is an ongoing
priority. Our banking center network
is never static and we expect our
network to evolve in response to
changes in customer needs and
preferences, new and emerging
technology and local market
developments. This means from time
to time we’ll enter a new market or
expand in an existing one if it makes
long-term strategic sense to do
so. Likewise, we will exit a market
2
or reduce our market presence if
conditions warrant so that we can
reallocate those resources to improve
overall effectiveness of operations.
In 2015, we engaged in both
optimization scenarios; we expanded
our presence in certain markets and
made the very difficult decision to
consolidate banking centers which
were underperforming.
Two new banking centers were
opened in 2015. We opened our first
banking center in Columbia, Mo., the
home of the University of Missouri
and a growing market serving as
a regional medical hub and home
to several large corporations. The
other banking center was opened
in Overland Park, Kan., which also
houses the Kansas City commercial
and retail loan headquarters. The
Kansas City Commercial Banking
Group moved from its former
location in a nearby office complex in
Overland Park.
In the St. Louis market, a strategic
opportunity presented itself in
2015 that allowed the Company to
more than double its St. Louis-area
banking center footprint and nearly
double the customer deposit base.
Great Southern has served the St.
Louis market since 2005, when we
opened a loan production office.
We began expanding our presence
in the market in 2009, when we
opened our first banking center
and gradually grew the number of
banking centers to eight in the area.
Thanks to our exceptional team of
associates in the market, we have
developed significant commercial
and retail customer relationships
over the years with prospects to
do even more business, but our
limited market coverage proved to
be an obstacle. In 2015, a branch
acquisition opportunity in the St.
Louis area came our way that offered
an attractive deposit customer base,
and significant market coverage. We
agreed to acquire 12 branches and
related deposits and loans in the St.
Louis area from Cincinnati-based
Fifth Third Bank. The acquisition was
completed in January 2016, and at
that time represented approximately
$228 million in deposits and $159
million in loans. It increased the
Company’s St. Louis-area banking
center total from eight to 20 offices,
with approximately $556 million
in loans and approximately $489
million in deposit accounts. We look
forward to the opportunity in 2016
and beyond to grow these new and
existing relationships.
Also in 2015 and unrelated to the
St. Louis branch acquisition, we
announced plans to consolidate
operations of 16 banking centers
into other nearby Great Southern
banking center locations. These
offices were identified as part of
an ongoing performance review of
our entire banking center network.
Subsequent to this September 2015
announcement, the Bank entered
into separate agreements to sell two
of the 16 banking centers, including
the associated deposits. The offices
in Thayer, Mo., and Buffalo, Mo.,
were sold to separate financial
institutions during the first quarter of
2016. The closing of the remaining
14 facilities occurred in January 2016.
Of these 14 consolidated banking
centers, nine were in Missouri, four
were in Iowa and one was in Kansas.
Nine of these banking centers were
acquired as part of various FDIC-
assisted acquisitions.
TECHNOLOGY REMAINS KEY.
While we are focused on fine-tuning
the banking center network, we are
also concentrating on other service
access channels that customers
prefer today, and just as importantly,
in the future. Serving our customers
how, when and where they prefer
t
o
t
a
l
a
s
s
e
t
s
t
o
t
a
l
l
o
a
n
s
t
o
t
a
l
d
e
p
o
s
t
s
i
$4.10 B
$3.34 B
$3.27 B
$4.00 B
$4.00 B
$4.00 B
2
0
1
5
1
4
1
3
1
2
1
1
2
0
1
5
1
4
1
3
1
2
1
1
2
0
1
5
1
4
1
3
1
2
1
1
0
0
0
3
$219.57
Great Southern Bancorp, Inc.
NASDAQ Composite
NASDAQ Financial
$100
Total return
5 year cumulative*
2010
2011
2012
2013
2014
2015
* 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, 2010 through December 31, 2015.
The graph assumes that $100 was invested in GSBC Common Stock on December 31, 2010
and that all dividends were reinvested.
Book Value per common share
$28.67
2011
2012
2013
2014
2015
$45.95 M
Total
net
income
$40 M
$0
2011
2012
2013
2014
2015
4
and doing so efficiently is vital to our
ongoing success. With the constant
advent of new technology and the
societal push to have everything
available 24/7, in real time and as
easy as a finger tap, we are in the
throes of a fast evolution of how
customers can digitally access their
banking services through smart
phones and tablets. Customer
preferences constantly change and
the challenge is how to address
these preferences when individual
customer desires change at varying
degrees and speeds. It’s a balancing
act, especially with the fast pace
of technological developments. In
2015, we experienced double-digit
percentage growth in our number
of mobile app users. Usage of
Mobile Check Deposit and Text
Banking also experienced double-
digit percentage growth. We fully
expect this growth trend to continue
in the coming years as more and
more customers discover the ease
and simplicity of mobile banking
services. Our mobile customers
experienced improvements in our
mobile app platform in 2015, with
more functionality including touch
ID at log in. We also introduced the
popular Debit On/Off service, which
enables customers to remotely
activate and deactivate their debit
cards. This functionality allows
customers to respond quickly to
a potentially lost or stolen card,
significantly reducing the possibility
of fraudulent transactions and other
inconveniences.
Another way we’ll begin using
industry technological advances is by
deploying live teller machines (LTM)
in a number of locations. In 2015, we
began early-stage testing of LTMs,
which offer customers the benefit of
utilizing either self-service solutions
or a highly personalized, two-way
audio/video interaction to fulfill their
banking needs at an ATM. In-branch
26.3023.6022.9419.78 and off-premise LTMs are being
considered.
The digital age brings many
conveniences, but it also brings
cybersecurity risk to the forefront.
Cybercrime has become a growing
industry concern, and we strive to
stay well ahead of potential threats
and challenges. We are investing in
technologies to continuously ensure
the safeguarding of our Company’s
information technology infrastructure
and protect our customers from
attack and intrusion.
FINANCIAL RESULTS WERE
SOLID in 2015, thanks to the hard
work of our nearly 1,300 associates.
Our earnings and capital remained
strong. Net income available to
common shareholders for 2015 was
$45.9 million, or $3.28 per diluted
common share, compared to
$43.0 million, or $3.10 per diluted
common share for 2014. Our core
net interest margin (excluding
loss share accretion) was relatively
stable at 3.76% for the year ended
December 31, 2015, as compared
to 3.83% for 2014. We experienced
some margin compression due
to the sustained low interest rate
environment; the average interest
rate on loans decreased while the
average interest rate on deposits
increased slightly. The Company
ended the year with assets of $4.1
billion. Total stockholders’ equity
was $398.2 million at December 31,
2015, or 9.7% of assets, equivalent
to a book value of $28.67 per
common share. In December 2015,
we redeemed all of the outstanding
shares of our preferred stock issued
to the Treasury’s Small Business
Lending Fund. In 2015, the Company
also paid out total dividends of $0.86
per common share. Consecutive
quarterly dividends have been paid
to common shareholders since 1990.
2016 & BEYOND
In 2016, our strategic direction is straightforward and similar to our 2015
objectives. We are optimistic about our prospects as we leverage our
expanding franchise. Key priorities in 2016 include attracting new customers
and deepening relationships with existing customers, managing interest
rate risk, sustaining a strong credit discipline, maintaining strong capital and
appropriate liquidity levels, and investing in our communities. Mergers and
acquisitions in the banking industry are on the rise and potential acquisition
opportunities will likely come our way. We remain open to growing by
acquisition, but we continue to be conservative in our approach. We will only
consider open bank deals that we believe provide an acceptable long-term
return to our shareholders.
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 confidence in
the future of our Company. We also
owe a debt of gratitude to our Board
of Directors for their guidance,
engagement and leadership.
We invite your feedback at any time.
Sincerely yours,
William V. Turner
Joseph W. Turner
We believe that 2016 will be a
challenging year for the banking
industry with economic uncertainty
and an unpredictable interest rate
environment. It is difficult to predict
when the next significant economic
downturn will occur, but we are
mindful of this possibility at any
time. We have a vivid memory of
the Great Recession and learned
valuable lessons; one lesson being
that banks can get in trouble even
in good times. With that, we will
keep our conservative underwriting
approach and not stretch on price or
structure just to make deals in a very
competitive environment.
We look forward to a great 2016
and will strive every day to build
winning relationships with our
customers, associates, shareholders
and communities. 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. We want
to thank our associates for their
5
We construct strong
relationships not by
building up, but by
reaching out.
6
creating connections
There is nothing more vital to our continued success than strong relationships,
and our mission reflects this philosophy. Forming these alliances isn’t easy
though. It’s a fine art that takes repeated effort by dedicated associates over
time. Not all relationships are the same, but all are important, and each one
plays a larger role in creating a successful community.
building prosperity
A perfect example is the Glarner family in St. Louis, Mo. with whom we’ve had
the privilege of assisting in many projects, including a large commercial loan
commitment for the Northwest Plaza redevelopment.
Located in St. Ann, Mo., the purpose of the Northwest Plaza redevelopment
project is to revitalize and completely renovate the buildings at the former
shopping mall. It brings opportunities for several retailers and restaurateurs
to make a home in the area, and also includes office buildings that already
have commitments from large nationwide corporations. While the project is
still ongoing, it is expected to bring more than 5,000 jobs to the area when
complete. This economic revitalization project is exactly the kind we’re excited
to be involved with, as it benefits not only our Company, but our community.
“ Our mission:
to build winning
relationships with
our customers,
shareholders,
associates and
communities.”
expanding
our fan base
in Missouri
In 2105, we opened our first banking
center in Columbia, Mo., home
to the state’s flagship university,
the University of Missouri. Also in
2015, we significantly expanded
our relationship with the University
with a comprehensive partnership
with Mizzou athletics. Working with
MU allows us to have a unique
connection with our customers across
the entire state. The added benefit of
the University’s central location helps
us reach alumni in all areas of the
state and also allows our customers
to send their children to school at MU
with the comfort of knowing that we
can serve their banking needs locally.
Our partnership with MU Athletics
includes a branding presence at
Faurout Field and Mizzou Arena,
radio advertising with state-wide
coverage, digital advertising at
MUTigers.com, and many more
benefits. We’re already seeing good
results from our exposure and look
forward to the future as our Missouri
footprint continues to grow.
7
gear up with
gs basics
Our “GS Basics” campaign
highlighted our mobile and
online services with the
simple, yet powerful message
that customers can bank
“anywhere, anywhen.”
online banking
mobile app
text banking
& alerts
mobile check
deposit
debit on/off
instant issue
8
designing the future
Effective use of technology is an art form that requires a delicate balance between
ease of use and functionality. If you make it too difficult for your customers to use,
they’ll abandon it completely. If you don’t make it useful enough, it won’t offer any
added value. We continually work to improve our products and services with this
balance in mind.
mobile
now the norm
2015 was a big year for mobile
banking. For the first time ever, it was
used more frequently than branch
banking, according to a long-term
study released by JAVELIN. One in 10
U.S. adults used mobile banking for
the first time in 2015, amounting to
25 million new mobile banking users.
We experienced impressive growth
with our mobile products in the past
year, as customers continued to
become more familiar with online
and mobile banking methods.
up 21%
up 53%
up 61%
Mobile Banking App
Mobile Check Deposit
Text Banking
Users of our mobile services 2014 2015
As focus on mobile services continues
to grow, we’re constantly looking
for ways to improve the experience
for our customers. We not only take
into consideration convenience of
services, but also ways to increase
security and control for users.
beautiful &
full-featured
We improved the experience for our
mobile banking customers last year
by releasing a platform-wide update,
Version 3, to the Great Southern
Mobile Banking App. Version 3 gives
our users a consistent experience
when using the app on all of their
devices, iOS or Android. The update
features an improved look and
feel, and significantly increased
functionality while still offering the
same great functions users have
come to expect.
debit cards
with a switch
Last year we rolled out a brand
new service known as Debit On/
Off, a feature of the Great Southern
Mobile Banking App that gives
customers complete control over
their debit cards. A powerful fraud
prevention device, users can turn
their debit cards on and off with the
flip of a switch. It works instantly and
includes several options for how
long the card will remain unlocked.
This is an invaluable tool for our
customers and our Company in its
ability to both limit loss, and help
minimize debit card fraud.
9
Secure
& proactive
We share a responsibility with our
customers to protect not only their
money, but their information. With
that goal in mind, we created a new
program to promote information
security awareness, encouraging
associates and customers to become
“Data Guard Gurus”.
The program is a two-prong
approach, providing ongoing
training to all associates and serves
as an outreach and educational
resource for customers. In its
inaugural year, the program tested
associates’ pre-existing knowledge
of information security and created
awareness through the Company’s
internal communication channels.
In December, we ran a successful
external campaign aimed at
educating our customers on the
potential perils of online and in-store
shopping during the holiday season.
Education and awareness continue to
be the most powerful fraud deterrent,
and our program positions us as a
positive resource for our customers.
helping others by
lending a hand
Some of us cook meals,
some paint houses.
others are organizers
and event planners. We
have marathon runners,
emergency responders
and teachers, and those
who just show up and ask
what needs to be done.
volunteered
over 7,200 hours of community service
helped with
over 750 community events
10
sharing our talents
We accomplished plenty in 2015, but nothing makes us quite as happy as the
amount of time our associates gave in their communities. We recognize that
our associates’ time and knowledge is valuable to their communities, which is
why we’re proud they never shy away from giving either.
In 2015, we introduced the Bill and Ann Turner Distinguished Community
Service Award. This annual award was named after our chairman, Bill Turner,
and his wife Ann, who have been instrumental in creating a community-
minded culture since joining the Company in 1974. The award emphasizes the
importance placed on volunteerism at Great Southern Bank by honoring one
outstanding associate who demonstrates excellence in volunteer service to
their community.
Bill and Ann Turner
Distinguished Community Service
Award
Taking on tough challenges
This year’s service award recipient is
Brian Davies, St. Louis Commercial
Market Manager. Brian has been
instrumental in developing and
strengthening the Bank’s involvement
in commercial and community
development lending in the St. Louis
area. He’s a lifetime St. Louisan, and
gives countless hours of guidance
to help address many issues facing
St. Louis, specifically in economic
development. He is passionate about
the organizations he’s involved in,
many of which work together to
create solutions that help people like
single mothers, veterans, the elderly
and hardworking families secure safe
and affordable housing.
One particular effort close to his
heart is his work with the St. Louis
County Library Foundation.
Stepping up to lead
Montie Taylor, Commercial Lending Senior Manager in Parsons, Kan., was one
of our service award finalists and deservedly so. He sets a wonderful example
year after year for all associates in the Kansas region. Montie is a proven
leader in his community and has been an integral part of many projects that
have improved southeastern Kansas and southwest Missouri.
He holds leadership roles in more than a dozen community organizations
and willingly provides his knowledge and expertise for the betterment of the
communities he serves.
“You know the book you’re giving
them may be the first book they’ve
ever had,” says Brian, “and you realize
in a lot of cases that these children
are growing up with things that we
assume every child has, but they don’t.
When you see the looks on their faces
you realize what you’re doing is really
making a difference.”
Inspiring by
action
Alicia Edens, Banking Center
Manager in Joplin, Mo., was also a
2015 finalist. Alicia puts much of her
time and energy into her community
and inspires many of her coworkers
to do the same. She has extensive
involvement in a wide range of
organizations including Ronald
McDonald House, Lafayette House,
Joplin Public Schools, Boys & Girls
Club, Midwest Regional Ballet, and
many more.
11
being flexible and
creative are key
to meeting our
communities’ needs.
12
“Growth is good if it is done wisely. We take the long-term view in our expansion, and look for places where we can make an impact.” unique opportunities
Our Company is constantly evolving and 2015 proved to be another year of
growth and change. We adjusted our footprint to invest our resources where
there is greater market potential and room for growth. We opened two new
banking centers, and we continued to see strong business in our markets. Though
we’re proud of the business we’ve generated across our franchise, we recognize
that we can raise the bar even higher. As 2015 drew to a close, we set our sights
to 2016 as another year for refining our footprint as customer expectations change
and opportunities arise.
double+
presence
in St. Louis
St. Louis is a market we’ve served
with a physical presence since 2005.
During the last decade, thanks to a
great team of associates, we have
continuously built and attracted
customer relationships. As a result,
our presence in St. Louis has grown
presence
st louis metro
Existing
Acquired
to be one of the largest in our
franchise. We more than doubled
our presence in the St. Louis market
with the Fifth Third Bank branch
acquisition that was announced in
September 2015 and finalized in early
2016. As a result, we now have 20
banking centers in the St. Louis area.
We have always understood the
great growth potential in the St. Louis
market, and the Fifth Third branch
acquisition provided a significant
springboard to gain market share.
With our expanded presence, the
Great Southern brand will become a
familiar sight in St. Louis.
Better
visibility
in Kansas City
Our new location in Overland Park,
Kan. is situated in a thriving, upscale
business district. With Commercial
Lending, VIP Banking and Business
Banking together with a retail banking
center in one location, we are well
positioned to serve customers who
work and live in the area.
13
gaining
a new market
with Columbia
In April 2015, we opened our first full-
service banking center in Columbia,
Mo. This dynamic market has a
population of more than 115,000
people and is home to the University
of Missouri and its more than 35,000
students. The banking center has
made great inroads in attracting new
customers, and we expect to grow in
the years ahead as we become more
integrated into the community.
action
packed year
in Iowa
Our customer base in Iowa has
grown to be one of the largest in
our franchise. Through two FDIC-
assisted acquisitions, we have offices
in all three major metro areas across
the state. Between the Siouxland,
Des Moines and Quad Cities areas,
we have 19 banking centers and
oklahoma
texas
$174$174
million
million
$175
million
loan portfolio
balances as of 12/31/15
strong
growth in
Minneapolis
We entered the Twin Cities market
area through a 2012 FDIC-assisted
acquisition. The Minneapolis-St.
Paul region has a strong, diversified
economy anchoring the second
largest economic center in the
Midwest, only behind Chicago.
We currently operate four banking
centers in the region and have
assembled a team of experienced
bankers from all of the Company’s
lines of business. The commercial
lending team has made great
strides in building significant
customer relationships, underscored
by Commercial Lending Market
Manager Carl Brandt being the
entire Company’s top commercial
lending producer. Loan balances at
the end of 2015 in Minnesota were
$111 million. In addition, our loan
portfolio of covered loans acquired in
the FDIC-assisted acquisition, which
include first and second mortgages
and home equity lines of credit, is
substantial with a balance of $179
million at the end of the year. While
our banking center network is small
for a market this size, we have a
sizable deposit base at $226 million
and continue to attract new customer
relationships.
Our Company’s growth potential in
the Twin Cities is great; we have an
experienced, motivated team already
tapping into this potential, with a
strong conviction to go even deeper.
more than $567 million in deposits,
representing 17% of the Company’s
deposits.
The Hawkeye State is also home to
some of our most active associates.
Whether it’s a nationally-known free
concert in the park, college athletics,
or an annual state-wide bike race,
we’ve been involved with some
wonderful events here. Last year,
we were a sponsor of RAGBRAI, the
Register’s Annual Great Bicycle Ride
Across Iowa. RAGBRAI is an annual
seven-day bike ride across the state.
In 2015, the route took riders from
Sioux City to the Quad Cities, with
each point offering our Company a
great opportunity to get involved.
RAGBRAI is the oldest, largest and
longest bicycle touring event in the
world. It is community-driven events
like this that make us so thrilled to
be in business in such a great state.
smart
lending in
Dallas & Tulsa
In 2014, we opened commercial loan
production offices in Tulsa, Okla.,
and Dallas, Texas. In just two years,
our experienced lending teams,
with their deep understanding of
their respective markets, have done
an outstanding job of attracting
new customer relationships. From
both offices, we have experienced
significant loan production, primarily
in various types of non-speculative
commercial real estate loans and
multi-family residential loans. There
are no loans in the portfolios that are
directly related to the troubled energy
industry. At the end of the year, loan
balances in Texas and Oklahoma were
an impressive $175 and $174 million,
respectively.
14
directors
of Great Southern Bancorp Inc & Great Southern Bank
Back Row
DOUGlas M. pitt
Board Member
Business Owner and
Care To Learn Founder
Earl A. Steinert, Jr.
Board Member
Co-owner, EAS Investment
Enterprises, Inc./CPA
Larry D. Frazier
Board Member
Retired – Hollister, Mo.
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
Thomas J. Carlson
Board Member
President, Mid America
Management, Inc.
Grant Q. Haden
Board Member
Attorney, Of Counsel to
Haden, Cowherd and
Bullock, LLC
Julie T. Brown
Board Member
Shareholder, Carnahan,
Evans, Cantwell &
Brown, P.C.
leadership team
Tammy
Baurichter
Controller
Kris Conley
Director of
Retail Banking
Debbie Flowers
Director of Credit
Risk Administration
Kelly Polonus
Director of Communications
and Marketing
Bryan Tiede
Director of Risk
Management
Doug Marrs*
Director of
Operations
Matt Snyder
Director of Human
Resources
Joseph Turner*
President and
Chief Executive Officer
Rex Copeland*
Chief Financial
Officer
Steve Mitchem*
Chief Lending
Officer
Lin Thomason*
Director of
Information Services
*Denotes Executive Officer
15
Selected Consolidated Financial Data
The tables on pages 16, 17, and 18 set forth selected consolidated financial information and other financial data of the
Company. The selected statement of condition and statement of operations data, insofar as they relate to the years
ended December 31, 2015, 2014, 2013, 2012 and 2011, 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.
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
2015
2014
December 31,
2013
(Dollars in Thousands)
2012
2011
$4,104,189
3,352,797
38,149
262,856
31,893
3,268,626
406,797
398,227
398,227
3,235,787
4,067,399
3,203,262
438,683
217,139
110
$3,951,334
3,053,427
38,435
365,506
45,838
2,990,840
514,014
419,745
361,802
2,784,106
3,824,493
3,007,588
402,670
217,877
108
$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
16
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 other real estate owned
Partnership tax credit
Other operating expenses
Income from continuing operations
before income taxes
Provision for income taxes
Net income from continuing operations
Discontinued Operations
2015
For the Year Ended December 31,
2012
2013
2014
(In Thousands)
2011
$ 177,240 $ 172,569
10,793
183,362
7,111
184,351
$ 163,903
14,892
178,795
$ 170,163 $ 171,201
27,466
23,345
198,667
193,508
13,511
1,707
65
714
15,997
168,354
5,519
162,835
11,225
2,910
1,099
567
15,801
167,561
4,151
163,410
12,346
3,972
2,324
561
19,203
159,592
17,386
142,206
1,136
19,841
3,888
2
—
2,129
1,163
19,075
4,133
2,139
—
1,400
1,065
18,227
4,915
243
—
1,264
295
—
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
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
(43)
—
(345)
10,805
(38)
31,312
(18,345)
4,973
13,581
(27,868)
4,229
14,731
(25,260)
4,566
5,315
(18,693)
4,779
46,002
(37,797)
2,450
4,131
58,682
25,985
3,787
3,566
2,317
1,333
3,235
2,713
2,526
1,680
8,526
114,350
56,032
23,541
3,578
3,837
2,404
1,464
2,866
3,957
5,636
1,720
15,824
120,859
52,468
20,658
3,315
4,189
2,165
1,303
2,868
4,348
4,068
2,108
8,128
105,618
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
1,825
8,760
108,603
43,606
15,220
3,096
4,840
1,316
1,268
2,270
3,803
11,846
2,035
6,226
95,526
62,006
15,564
46,502
57,282
13,753
43,529
41,903
8,174
33,729
58,667 36,790
7,133
14,580
29,657
44,087
Income from discontinued operations, net of income taxes
Net income
Preferred stock dividends and discount accretion
Non-cash deemed preferred stock dividend
Net income available to common shareholders
—
46,502
554
—
—
43,529
579
—
$ 45,948 $ 42,950
—
33,729
579
—
$ 33,150
4,619
48,706
608
—
612
30,269
2,798
1,212
$ 48,098 $ 26,259
17
Per Common Share Data:
Basic earnings per common share
Diluted earnings per common share
Diluted earnings 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 capital ratio
Total capital ratio
Tier 1 leverage ratio
Common equity Tier 1 ratio
Great Southern Bank:
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Common equity Tier 1 ratio
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividend Requirement (9):
Including deposit interest
Excluding deposit interest
2015
At or For the Year Ended December 31,
2012
2013
(Number of shares in thousands)
2014
$ 3.33
3.28
$ 3.14
3.10
$ 2.43
2.42
3.28
0.86
28.67
13,818
13,888
14,000
3.10
0.80
26.30
13,700
13,755
13,876
1.14%
12.13
0.33
2.81
4.44
3.80
4.53
62.85
2.48
26.22
1.14%
12.63
0.39
3.16
4.74
3.86
4.84
66.30
2.77
25.81
2.42
0.72
23.60
13,635
13,674
13,715
0.89%
10.52
0.14
2.79
4.60
3.88
4.70
64.05
2.66
29.75
$ 3.55
3.54
3.20
0.72
22.94
13,534
13,596
13,592
1.22%
16.55
1.49
2.71
4.53
3.57
4.61
51.44
1.56
20.34
2011
$ 1.95
1.93
1.89
0.72
19.78
13,462
13,480
13,626
0.87%
11.67
0.35
2.73
5.06
3.68
5.17
56.98
2.61
37.31
1.20%
1.34%
1.92%
2.21%
2.33%
1.28
230.24
0.20
1.07
0.49
1.39
471.77
0.24
1.11
0.26
2.46
201.53
0.91
1.74
0.80
2.98
180.84
2.43
1.84
0.94
3.31
149.95
2.09
1.96
1.25
102.58%
102.09%
87.12%
74.42%
72.65%
121.60
120.95
116.03
110.12
110.55
9.4%
9.6
9.0%
9.0
8.5%
8.9
7.4%
7.7
7.4%
6.9
11.5
12.6
10.2
10.8
11.0
12.1
9.8
11.0
13.3
14.5
11.1
—
11.4
12.6
9.5
—
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
—
4.66x
20.01x
4.41x
11.59x
3.07x
6.44x
3.22x
8.66x
1.82x
3.38x
(1) Net income divided by average total assets.
(2) Net income 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
2 0 1 5 F i n a n c i a l I n f o r m a t i o n
contents
20 Management’s Discussion and Analysis of Financial Condition
and Results of Operation
58 Report of Independent Registered Public Accounting Firm
59 Consolidated Statements of Financial Condition
61 Consolidated Statements of Income
63 Consolidated Statements of Comprehensive Income
64 Consolidated Statements of Stockholders’ Equity
66 Consolidated Statements of Cash Flows
69 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 Great Southern’s banking center consolidations 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 revenues, cost savings, earnings accretion, synergies and other benefits from the Fifth Third Bank branch
acquisition and the Company’s other 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 Board of Governors of the Federal
Reserve System (the “Federal Reserve Board or the FRB”) 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) costs and effects of litigation, including settlements and judgments; and (xiv) competition. The Company wishes to advise
readers that the factors listed above and other risks described from time to time in documents filed or furnished by the Company 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.
20
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 other things, 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 2015 Annual Report on Form 10-K under "Item 1.
Business - Allowances for Losses on Loans and Foreclosed Assets." Inherent in this process is the evaluation of individual significant
credit relationships. From time to time certain credit relationships may deteriorate due to payment performance, cash flow of the
borrower, value of collateral, or other factors. In these instances, management may have to revise its loss estimates and assumptions
for these specific credits due to changing circumstances. In some cases, additional losses may be realized; in other instances, the
factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released
from the particular credit. In the fourth quarter of 2014, the Company began using a three-year average of historical losses for the
general component of the allowance for loan loss calculation. The Company had previously used a five-year average. The Company
believes that the three-year average provides a better representation of the current risks in the loan portfolio. This change was made
after consultation with our regulators and third-party consultants, as well as a review of the practices used by the Company’s peers.
No other significant changes were made to management's overall methodology for evaluating the allowance for loan losses during the
periods presented in the financial statements of this report.
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 Loans Acquired in FDIC-assisted Transactions 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 certain of these assets, the Company should not incur any
significant losses related to these assets. 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, InterBank and Valley Bank 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,
2015, 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,
21
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, 2015, goodwill consisted of $1.2 million at the Bank reporting unit.
Goodwill increased $790,000 during 2014, due to the acquisition of certain loans, deposits and other assets of Boulevard Bank. 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, 2015, the amortizable intangible assets consisted of core deposit intangibles of $4.6 million, including $2.2 million
related to the Valley Bank transaction in June 2014 and $641,000 related to the Boulevard Bank transaction in March 2014. 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, 2015. While the Company believes no impairment existed at December 31, 2015, 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.
Current Economic Conditions
Changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to 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.
Following the bursting of the housing bubble in mid-2007, the United States entered into an economic recession. The economic
downturn of 2008 was caused by a housing market correction and a subprime mortgage crisis. Unemployment rose from 4.7% in
November 2007 to peak at 10% in October 2009. The elevated unemployment levels negatively impacted consumer confidence,
which had a detrimental impact on industry-wide performance nationally as well as in the Company's Midwest market area. Current
economic conditions have improved considerably over the past three years as indicated by increasing consumer confidence levels,
increased economic activity and a continued decline in unemployment levels.
The national unemployment rate declined from 5.6% as of December 2014 to 5.0% as of December 2015. The economy added
292,000 jobs in December 2015. Employment gains occurred in several industries, led by professional and business services,
construction, health care and food services and drinking establishments. Energy was the only significant industry suffering job losses.
Unemployment levels in our market areas have decreased or remained level over the past year in all states in which the Company has
offices. Unemployment rates at December 31, 2015 were: Missouri at 4.4%, Arkansas at 4.8%, Kansas at 3.9%, Iowa at 3.4%,
Nebraska at 2.9%, Minnesota at 3.5%, Oklahoma at 4.1% and Texas at 4.7%. Five of these eight states had unemployment rates
amongst the top performers 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 4.3%. This rate compares favorably to the 5.6% rate reported as
of December 2014. The unemployment rate at 3.4% for the Springfield market area was below the national and state average for
December 2015. Metropolitan areas in Iowa, Nebraska and Minnesota boasted unemployment levels among the lowest in the nation.
Sales of newly built, single-family homes were at a seasonally adjusted annual rate of 544,000 units in December 2015, according to
the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The median sales price of new houses sold in
December 2015 was $288,900 with an average sales price of $346,400. The seasonally adjusted estimate of new houses for sale at the
end of December 2015 was 237,000, which represented a supply of 5.2 months at the current sales rate. According to Realty Trac, the
nation’s foreclosure rate was 10% lower than the same time last year. Building permit activity continues to fluctuate by market area
with residential builders constrained by tighter credit conditions for home buyers and a limited number of buildable lots.
The performance of commercial real estate markets has improved throughout 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 improve in occupancy, absorption and rental income, both nationally
and in our market areas.
While current economic indicators show improvement nationally in employment, housing starts and prices, commercial real estate
occupancy, absorption and rental income, our management will continue to closely monitor regional, national and global economic
conditions, as these could significantly impact our market areas.
22
General
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depends primarily on its
net interest income, as well as provisions for loan losses and the level of non-interest income and non-interest expense. Net interest
income is the difference between the interest income the Bank earns on its loans and investment portfolio, and the interest it pays on
interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the
relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When
interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest
income.
In the year ended December 31, 2015, Great Southern's total assets increased $152.9 million, or 3.9%, from $3.95 billion at December
31, 2014, to $4.10 billion at December 31, 2015. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2015 and December 31, 2014” section.
Loans. In the year ended December 31, 2015, Great Southern's net loans increased $301.7 million, or 9.9%, from $3.04 billion at
December 31, 2014, to $3.34 billion at December 31, 2015. Partially offsetting the increase in loans was a decrease of $95.6 million
in the FDIC-covered loan portfolios. Excluding acquired covered loans, acquired non-covered loans and mortgage loans held for sale,
total loans increased $397.3 million from December 31, 2014 to December 31, 2015, with increases primarily in the areas of
commercial construction loans, consumer loans, commercial real estate loans and other residential loans. The increase was primarily
due to loan growth in our existing banking center network. 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 2015 or prior years. The Company's strategy
continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.
Loan growth has occurred in most loan types and has come from most of Great Southern’s primary lending locations, including
Springfield, St. Louis, Kansas City, Des Moines, Omaha and Minneapolis, as well as the loan production offices in Dallas and Tulsa.
Net loan balances have increased primarily in the areas of commercial construction, consumer, and commercial real estate. Generally,
the Company considers these types of loans to involve a higher degree of risk compared to some other types of loans, such as first
mortgage loans on one- to four-family, owner-occupied residential properties, and has established certain minimum underwriting
standards to help assure portfolio quality. For commercial real estate and construction loans, these standards and procedures include,
but are not limited to, an analysis of the borrower’s financial condition, collateral, repayment ability, verification of liquid assets and
credit history as required by loan type. In addition, geographic diversity of collateral, lower loan-to-value ratios and limitations on
speculative construction projects help to mitigate overall risk in these loans. It has been, and continues to be, Great Southern’s
practice to verify information from potential borrowers regarding assets, income or payment ability and credit ratings as applicable
and as required by the authority approving the loan. Underwriting standards also include loan-to-value ratios which vary depending
on collateral type, debt service coverage ratios or debt payment to income ratios, where applicable, credit histories, use of guaranties
and other recommended terms relating to equity requirements, amortization, and maturity. Great Southern’s loan committee reviews
and approves all new loan originations in excess of lender approval authorities. Consumer loans are primarily secured by new and
used motor vehicles and these loans are also subject to certain minimum underwriting standards to assure portfolio quality. Great
Southern’s consumer underwriting and pricing standards have been fairly consistent over the past several years. The underwriting
standards employed by Great Southern for consumer loans include a determination of the applicant's payment history on other debts,
credit scores, employment history and an assessment of ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the
value of the security, if any, in relation to the proposed loan amount.
Of the total loan portfolio at December 31, 2015 and 2014, 73.5% and 74.1%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2015 and 2014, commercial real estate and commercial construction
loans were 42.8% and 40.7% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions),
respectively. Commercial real estate and commercial construction loans generally afford the Bank an opportunity to increase the yield
on, and the proportion of interest rate sensitive loans in, its portfolio. They do, however, present somewhat greater risk to the Bank
because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At December 31,
2015 and 2014, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 15% and 17% 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, 2015 and 2014, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
18% and 20% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions), respectively. The
Company’s expansion into the St. Louis MSA beginning in May 2009 has provided an opportunity to not only expand its markets and
23
provide diversification from the Springfield MSA, but also has 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 2015 Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio has increased from 44% as of December 31, 2010 to 57% as of December 31,
2015 due to customer preference for fixed rate loans during this period of low interest rates. The majority of the increase in fixed rate
loans was in the commercial construction and consumer loan categories, both of which typically have loans with short durations. Of
the total amount of fixed rate loans in our portfolio as of December 31, 2015, approximately 78% 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, 2015, 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” section of this annual report. For discussion of the risk factors
associated with interest rate changes, see “Risk Factors – We may be adversely affected by interest rate changes” included in the
Company’s 2015 Annual Report on Form 10-K.
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 unless 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, 2015 and December 31, 2014, an
estimated 0.2% and 0.3%, respectively, of total owner occupied one- to four-family residential loans had loan-to-value ratios above
100% at origination. At December 31, 2015 and December 31, 2014, an estimated 2.1% and 1.8%, respectively, of total non-owner
occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2015, troubled debt restructurings totaled $45.0 million, or 1.3% of total loans, down $2.6 million from $47.6
million, or 1.5% of total loans, at December 31, 2014. The amount of troubled debt restructurings has remained relatively stable since
2011. 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. During the year ended
December 31, 2015, no loans were restructured into multiple new loans. During the year ended December 31, 2014, five loans
totaling $1.7 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, 2015, approximately three years remained on the loss sharing
agreement for single family real estate loans acquired from TeamBank and the remaining loans had an estimated average life of two to
ten years. At December 31, 2015, approximately three and one half years remained on the loss sharing agreement for single family
real estate loans acquired from Vantus Bank and the remaining loans had an estimated average life of three to twelve years. At
December 31, 2015, approximately six years remained on the loss sharing agreement for single family real estate loans acquired from
Sun Security Bank and the remaining loans had an estimated average life of five to twelve years. At December 31, 2015,
approximately six and one half years remained on the loss sharing agreement for single family real estate loans acquired from
InterBank and the remaining loans had an estimated average life of six to thirteen years. The loss sharing agreement for non-single-
family loans acquired from TeamBank ended on March 31, 2014. Any additional losses in the non-single-family TeamBank portfolio
are not eligible for loss sharing coverage. The remaining loans in the portfolio had an estimated average life of one to six years and
had a carrying value of $16.2 million at December 31, 2015. The loss sharing agreement for non-single-family loans acquired from
Vantus Bank ended on September 30, 2014. Any additional losses in the non-single-family Vantus Bank portfolio are not eligible for
loss sharing coverage. The remaining loans in the portfolio had an estimated average life of two to seven years and had a carrying
value of $17.1 million at December 31, 2015. At December 31, 2015, approximately one year remained on the loss sharing agreement
for non-single-family loans acquired from Sun Security Bank and the remaining loans had an estimated average life of one to two
years. At December 31, 2015, approximately one and one half years remained on the loss sharing agreement for non-single-family
loans acquired from InterBank and the remaining loans had an estimated average life of one year. 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. Loans that were acquired through
FDIC-assisted transactions, which are accounted for in pools, are currently included in the analysis and estimation of the allowance for
24
loan losses. If expected cash flows to be received on any given pool of loans decreases from previous estimates, then a determination
is made as to whether the loan pool should be charged down or the allowance for loan losses should be increased (through a provision
for loan losses). This is true of all acquired loan pools regardless of whether or not they are covered by loss sharing agreements. If a
charge down occurs to a loan pool that is covered by a loss sharing agreement, the full amount of the charge down will be reflected in
the allowance for loan losses and a separate asset will be recorded for the amount to be recovered from the FDIC. The loss sharing
agreements and their related limitations are described in detail in Note 4 of the accompanying audited financial statements. For
acquired loan pools that currently are not covered by loss sharing agreements, the Company may allocate, and at December 31, 2015,
has allocated, a portion of its allowance for loan losses related to these loan pools in a manner similar to how it allocates its allowance
for loan losses to those loans which are collectively evaluated for impairment.
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, 2015, available-for-sale securities decreased $102.7 million, or 28.1%,
from $365.5 million at December 31, 2014, to $262.9 million at December 31, 2015. The decrease was due to normal monthly
payments received related to the portfolio of mortgage-backed securities and calls and maturities of municipal securities. The
investment securities were reduced because they were no longer needed for pledging and the cash flows from investment securities
were redeployed to fund loan originations.
Other Real Estate Owned. Other real estate owned totaled $31.9 million at December 31, 2015, a decrease of $13.9 million, or 30.4%,
from $45.8 million at December 31, 2014. Of the total at December 31, 2015, $30.7 million was foreclosed assets and $1.2 million
was other real estate owned not acquired through foreclosure, which is made up nine properties. Eight of these properties were branch
locations that have been closed and are held for sale and one of these is land which was acquired for a potential branch location.
Foreclosed assets, excluding those related to assets that are part of FDIC-assisted transactions, decreased from $35.5 million, or 0.9%
of total assets, at December 31, 2014 to $27.4 million, or 0.7% of total assets, at December 31, 2015. The Company’s foreclosed
assets increased as the United States economy slowed due to a severe economic recession in 2008 and 2009, and continued to increase
through 2012. Since 2012, the Company’s other real estate owned has decreased. During 2015, the Company’s foreclosed assets
decreased primarily in the areas of subdivision construction, land development, one- to four-family residential and multi-family
residential, partially offset by increases in commercial real estate and consumer. 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 FHLBank advances and other borrowings, to
meet loan demand or otherwise fund its activities. In the year ended December 31, 2015, total deposit balances increased $277.8
million, or 9.3%. Transaction account balances increased $87.1 million, while retail certificates of deposit increased $80.4 million.
Great Southern Bank customer deposits totaling $12.2 million and $23.7 million, at December 31, 2015 and December 31, 2014,
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. Brokered deposits, including CDARS program purchased funds, were $271.5
million at December 31, 2015, an increase of $121.7 million from $149.8 million at December 31, 2014. The Company elected to
increase brokered deposits to fund a portion of its loan growth and reduce short-term borrowings during the period.
Our deposit balances may fluctuate 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 trends upward, we can increase rates paid on deposits to increase deposit balances and utilize
brokered deposits to provide additional funding. The level of competition for deposits in our markets is high. It is our goal to gain
deposit market share, particularly checking accounts, in our branch footprint. To accomplish this goal, increasing rates to attract
deposits may be necessary, which 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, as 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.
25
Net Interest Income and Interest Rate Risk Management. Our net interest income may be affected positively or negatively by
changes in market interest rates. A portion of our loan portfolio is tied to the "prime rate" 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. Prior to its increase of
0.25% on December 16, 2015, the FRB last changed interest rates on December 16, 2008. This was the first rate increase since June
29, 2006. Great Southern has a significant portfolio of loans which are tied to a "prime rate" of interest. Most of these loans are tied to
some national index of "prime," while some are indexed to "Great Southern prime." The Company had elected to leave its “Great
Southern prime rate” of interest at 5.00%, and has now increased this rate to 5.25%. 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 in the current rate and competitive 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 certain of 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. Any margin gained by these rate increases on loans may be somewhat offset by reduced yields from our investment
securities and our existing loan portfolio as payments are made and the proceeds are potentially reinvested at lower rates. Interest
rates on certain adjustable rate loans may reset lower according to their contractual terms and index rate to which they are tied and
new loans may be originated at lower market rates than the overall portfolio rate. 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, 2015, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $457 million with rates that change immediately with changes to the prime
rate of interest. Of those loans, $424 million also had interest rate floors. These floors were at varying rates, with $15 million of these
loans having floor rates of 7.0% or greater and another $76 million of these loans having floor rates between 5.0% and 7.0%. In
addition, $333 million of these loans have floor rates between 2.75% and 5.0%. At December 31, 2015, $197 million of these loans
were at their floor rates. Also included in these prime-based loans at December 31, 2015, the Company had a portfolio (excluding the
loans acquired in the FDIC-assisted transactions) of GSB prime-based loans totaling approximately $114 million with rates that
change immediately with changes to the GSB prime rate of interest. Of those loans, $96 million also had interest rate floors. At
December 31, 2015, $26 million of these loans were at their floor rates. The loan yield for the total loan portfolio was approximately
106 basis points, 141 basis points and 185 basis points higher than the national "prime rate of interest" at December 31, 2015, 2014
and 2013, 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 2014, 2012, 2011 and 2009, non-interest income was also
affected by the gains recognized on the FDIC-assisted transactions. Since 2010, increases in the cash flows expected to be collected
from the FDIC-covered loan portfolios resulted in amortization (expense) recorded relating to reductions of expected reimbursements
under the loss sharing agreements with the FDIC, which are recorded as indemnification assets. Non-interest income may also be
affected by the Company's interest rate derivative activities, if the Company chooses to implement derivatives. Operating expenses
consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to foreclosed assets, postage, FDIC
deposit insurance, advertising and public relations, telephone, professional fees, office expenses and other general operating expenses.
Details of the current period changes in non-interest income and non-interest expense are provided under “Results of Operations and
Comparison for the Years Ended December 31, 2015 and 2014.”
26
Business Initiatives
The Company completed several initiatives to expand and enhance the franchise in 2015.
In April 2015, the Company opened its first banking center in Columbia, Mo. The full-service banking center is located at 3200 S.
Providence Road. Columbia, the home of the University of Missouri, is a growing market and is a regional medical hub and home to
several large corporations.
The Company’s Kansas City commercial and retail loan headquarters and new retail banking center opened in September 2015 at
11050 Roe Avenue in Overland Park, Kan. The Kansas City Commercial Banking Group moved from its former location in a nearby
office complex in Overland Park. Additional space in the purchased and renovated 20,000-square-foot former bank office building is
leased to tenants unrelated to the Company.
On September 30, 2015, Great Southern entered into a purchase and assumption agreement to acquire 12 branches and related deposits
and loans in the St. Louis area from Cincinnati-based Fifth Third Bank. Completed at the close of business on January 29, 2016, the
acquisition at that time represented approximately $228 million in deposits and $159 million in loans. It increased Great Southern’s St.
Louis-area banking center total from eight to 20 offices, with approximately $556 million in loans and approximately $489 million in
deposit accounts.
On September 24, 2015, the Company announced plans to consolidate operations of 16 banking centers into other nearby Great
Southern banking center locations. As part of an ongoing performance review of its entire banking center network, Great Southern
evaluated each location for a number of criteria, including access and availability of services to affected customers, the proximity of
other Great Southern banking centers, profitability and transaction volumes, and market dynamics. This review culminated in the
approval of the consolidation of these banking centers by the Great Southern Board of Directors. Subsequent to this announcement,
the Bank entered into separate definitive agreements to sell two of the 16 banking centers, including all of the associated deposits
(totaling approximately $20 million), to separate bank purchasers. The sale of one of the banking centers was completed on February
19, 2016 and the sale of the other banking center is expected to be completed on or around March 18, 2016. The closing of the
remaining 14 facilities, which resulted in the transfer of approximately $127 million in deposits and banking center operations to other
Great Southern locations, occurred at the close of business on January 8, 2016. Of these 14 consolidated banking centers, nine were in
Missouri, four were in Iowa and one was in Kansas. Nine of these banking centers were acquired as part of various FDIC-assisted
acquisitions. Great Southern ATMs remained operational at each of the affected banking center sites.
Customers began using a new electronic service called Debit On/Off in October 2015. Available in the Mobile Banking app for
smartphones, this service enables customers to remotely activate and deactivate their debit cards. This functionality allows customers
to respond quickly to a potentially lost or stolen card, significantly reducing the possibility of fraudulent transactions and other
inconveniences.
On December 15, 2015, the Company exited the U.S. Treasury’s Small Business Lending Fund (SBLF) program. The Company began
participation in the SBLF in August 2011 when it issued a new series of preferred stock with an aggregate liquidation amount totaling
$57.9 million to the Treasury. The Company redeemed all 57,943 shares of this preferred stock at their liquidation amount plus
accrued but unpaid dividends. The redemption was completed using internally available funds and the Company continues to have
capital in excess of the levels necessary to be deemed well-capitalized under applicable regulatory standards.
In 2015, early-stage testing of live teller machines (ITMs) was started. ITMs offer customers the benefit of utilizing either self-service
solutions or personal interactions to fulfill their banking needs. It combines video collaboration and remote transaction processing
technology embedded within the ATM to give customers the choice of self-service or connecting with a remote teller in a highly
personalized, two-way audio/video interaction. In-branch and off-premise ITMs are being considered.
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
27
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 at $0.21 per transaction. An additional five basis points of the
transaction amount and an additional $0.01 may be collected by the issuer for fraud prevention and recovery, provided the issuer
performs certain actions. Although the Bank is currently exempt from the provisions of the rule on the basis of asset size, there is
some uncertainty about the long-term impact there will be on the interchange rates for issuers below the $10 billion level of assets.
New 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 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 was 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 (“CET1”) 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 CET1 more than
2.5% above each of its minimum risk-based capital ratios in order to avoid restrictions on paying dividends, repurchasing shares, and
paying certain discretionary bonuses.
Effective January 1, 2015, the new rules also revised 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 are 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%.
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, 2015 and December 31, 2014
During the year ended December 31, 2015, total assets increased by $152.9 million to $4.10 billion. The increase was primarily
attributable to an increase in loans. These increases were due to growth of the Company’s loan portfolio through significant loan
originations in 2015. Partially offsetting these increases were declines in the balances of available-for-sale-securities, cash and cash
equivalents, the FDIC indemnification asset and other real estate owned. The Company chose to sell certain mortgage-backed
securities during 2015 and also elected to not reinvest the monthly repayments received on mortgage-backed securities in new
investment securities. The majority of the proceeds from these sales and repayments were used to fund loan growth.
Net loans increased $301.7 million to $3.34 billion at December 31, 2015. Outstanding balances of construction loans (primarily
commercial construction) increased $87.8 million, or 30.3%, consumer auto loans increased $113.4 million, or 28.3%, commercial
real estate loans increased $105.9 million, or 11.5%, and multi-family residential loans increased $50.5 million, or 13.9%. Partially
offsetting these increases was a decrease in net loans acquired through the FDIC-assisted transactions of $95.6 million, or 20.9%,
primarily because of loan repayments.
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 $20.3 million to $24.1 million at December 31, 2015. The decrease was primarily due to estimated
28
improved cash flows to be collected from the loan obligors, resulting in reductions in payments expected to be received from the FDIC,
as well as the billing and collection of realized losses from the FDIC. The expected improved cash flows are further discussed in the
“Interest Income – Loans” section below. The 2014 Valley Bank acquisition did not include a loss sharing agreement with the FDIC;
therefore, no indemnification asset was recorded as part of the transaction.
Securities available for sale decreased $102.7 million, or 28.1%, as compared to December 31, 2014. The decrease was due to sales of
certain mortgage-backed securities, normal monthly payments received related to the portfolio of mortgage-backed securities, and
calls and maturities of municipal securities. The investment securities were reduced because they were no longer needed for pledging.
The available-for-sale securities portfolio was 6.4% and 9.3% of total assets at December 31, 2015 and 2014, respectively.
Total liabilities increased $174.4 million from $3.53 billion at December 31, 2014 to $3.71 billion at December 31, 2015. The increase
was primarily attributable to increases in deposits, partially offset by decreases in securities sold under reverse repurchase agreements
with customers, short-term borrowings, Federal Home Loan Bank advances and subordinated debentures issued to capital trusts. In
the year ended December 31, 2015, total deposit balances increased $277.8 million, or 9.3%. Non-interest-bearing checking and
savings accounts increased $53.4 million and retail certificates of deposit increased $80.4 million. At December 31, 2015 and
December 31, 2014, Great Southern Bank customer deposits totaling $12.2 million and $23.7 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. Brokered deposits, including CDARS program purchased funds, increased from $149.8 million at December 31,
2014, to $271.5 million at December 31, 2015. The Company elected to increase brokered deposits to fund its loan growth and reduce
short-term borrowings and FHLBank advances during the period.
Short-term borrowings decreased $41.2 million, or 97.0%, from December 31, 2014. The decrease was due to the repayment of
overnight borrowings during the period.
Securities sold under reverse repurchase agreements with customers decreased $52.8 million, or 31.3%, from December 31, 2014 as
these balances fluctuate over time based on customer demand for this product.
FHLBank advances decreased $8.1 million, or 3.0%, from December 31, 2014 to December 31, 2015, due to net decreases in short-
term advances.
Subordinated debentures issued to capital trusts decreased $5.2 million, or 16.7%, from December 31, 2014 to December 31, 2015. In
July 2015, the Company was the successful bidder in an auction of the $5.0 million aggregate liquidation amount of floating rate
cumulative trust preferred securities issued in 2007 by Great Southern Capital Trust III. The Company purchased the trust preferred
securities at a discount, which resulted in a pre-tax gain of approximately $1.1 million. Subsequent to the purchase, which resulted in
the Company’s ownership of all of the outstanding common and preferred securities of Great Southern Capital Trust III, such
securities were canceled and the principal amount of the Company’s related debentures, which had equaled the aggregate liquidation
amount of the outstanding common and preferred securities of Great Southern Capital Trust III, was reduced to zero.
Total stockholders' equity decreased $21.5 million from $419.7 million at December 31, 2014 to $398.2 million at December 31, 2015.
The decrease was due to the redemption, in December 2015, of all of the Company’s SBLF Preferred Stock, totaling $57.9 million.
The Company recorded net income of $46.5 million for the year ended December 31, 2015, common dividends declared were $11.9
million, preferred dividends paid were $553,000, and accumulated other comprehensive income decreased $1.4 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 $3.7 million due to stock option exercises.
Results of Operations and Comparison for the Years Ended December 31, 2015 and 2014
General
Net income increased $3.0 million, or 6.8%, during the year ended December 31, 2015, compared to the year ended December 31,
2014. Net income was $46.5 million for the year ended December 31, 2015 compared to $43.5 million for the year ended December
31, 2014. This increase was due to an increase in net interest income of $793,000, or 0.5% and a decrease in non-interest expense of
$6.5 million, or 5.4%, partially offset by an increase in provision for income taxes of $1.8 million, or 13.2%, an increase in the
provision for loan losses of $1.4 million, or 33.0% and a decrease in non-interest income of $1.2 million, or 7.8%. Non-interest
income for the year ended December 31, 2014 included a gain recognized on business acquisition of $10.8 million. Net income
available to common shareholders was $45.9 million for the year ended December 31, 2015 compared to $43.0 million for the year
ended December 31, 2014.
29
Total Interest Income
Total interest income increased $989,000, or 0.5%, during the year ended December 31, 2015 compared to the year ended December
31, 2014. The increase was due to a $4.7 million, or 2.7%, increase in interest income on loans, partially offset by a $3.7 million, or
34.1%, decrease in interest income on investments and other interest-earning assets. Interest income on loans increased in 2015 due to
higher average balances on loans, partially offset by lower average rates of interest. Interest income from investment securities and
other interest-earning assets decreased during 2015 compared to 2014 primarily due to lower average balances. The lower average
balances of investments were primarily due to the sale of certain mortgage-backed securities, and as a result of management’s decision
to not reinvest mortgage-backed securities’ monthly cash flows and proceeds of sales back into investments, but to utilize the proceeds
to fund a portion of our loan growth. Prepayments on the mortgages underlying these securities resulted in amortization of premiums
which also reduced yields. 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 2015, 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 more than offset the lower interest yield on loans.
Interest Income - Loans
During the year ended December 31, 2015 compared to the year ended December 31, 2014, interest income on loans increased due to
higher average balances, partially offset by lower average interest rates. Interest income increased $26.1 million as a result of higher
average loan balances which increased from $2.78 billion during the year ended December 31, 2014 to $3.24 billion during the year
ended December 31, 2015. The higher average balances were primarily due to increases in commercial construction loans, consumer
loans, commercial real estate loans, other residential loans and owner occupied one- to four-family residential loan categories. A
portion of this average balance increase resulted from the Company acquiring $165.1 million in loans (net of discounts) as part of the
Valley Bank FDIC-assisted transaction on June 20, 2014, the aggregate balance of which was $93.4 million (net of discounts) at
December 31, 2015.
Interest income decreased $21.4 million as the result of lower average interest rates on loans. The average yield on loans decreased
from 6.20% during the year ended December 31, 2014 to 5.48% during the year ended December 31, 2015. 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 lower in 2015 compared to 2014. 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 adjustments to be spread on a
level-yield basis over the remaining expected lives of the loan pools. For the loan pools acquired in the 2009, 2011 and 2012 FDIC-
assisted transactions, 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 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, 2015 and 2014, the adjustments
increased interest income by $28.5 million and $35.0 million, respectively, and decreased non-interest income by $19.5 million and
$28.7 million, respectively. The net impact to pre-tax income was $9.0 million and $6.2 million, respectively, for the years ended
December 31, 2015 and 2014. As of December 31, 2015, the remaining accretable yield adjustment that will affect interest income is
$12.0 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 $(8.6) million. Of the remaining adjustments, we expect to recognize $9.1
million of interest income and $(6.0) million of non-interest income (expense) during 2016. 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. Apart from the yield accretion, the average yield on loans was 4.60% for the year ended December 31, 2015, down from
4.94% for the year ended December 31, 2014, as a result of loan pay-offs and normal amortization of higher-rate loans and new loans
that were made at current lower market rates.
In addition, the Company’s net interest margin has been positively impacted by additional yield accretion recognized in conjunction
with updated estimates of the fair value of the loan pools acquired in the June 2014 Valley Bank FDIC-assisted transaction.
Beginning with the three months ended December 31, 2014, the cash flow estimates have increased for certain of the Valley Bank
loan pools primarily based on significant loan repayments and also due to collection of certain loans, thereby reducing loss
expectations on certain of the loan pools. This resulted in increased income that was spread on a level-yield basis over the remaining
expected lives of these loan pools. The Valley Bank transaction does not include a loss sharing agreement with the FDIC. Therefore,
there is no related indemnification asset. The entire amount of the discount adjustment will be accreted to interest income over time
with no offsetting impact to non-interest income. The amount of the Valley Bank discount adjustment accreted to interest income for
the year ended December 31, 2015 was $5.7 million, and is included in the impact on net interest income/net interest margin amount
discussed above. Based on current estimates, we anticipate recording additional interest income accretion of $3.0 million during 2016
related to these Valley Bank loan pools.
30
In the year ended December 31, 2015, the Company collected $891,000 from customers on loans which had previously not been
expected to be collectible. In accordance with the Company’s accounting methodology, these collections were accounted for as
increases in estimated cash flows and were recorded as interest income, thereby increasing net interest income and net interest margin.
These collections related to acquired loans which were subject to loss sharing agreements with the FDIC; therefore, 80% of the
amounts collected, or $713,000, was owed to the FDIC. This $713,000 of expense is included in non-interest income under “accretion
(amortization) of income related to business acquisitions.”
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments decreased $3.4 million as a result of a decrease in average balances from $495.2 million during the
year ended December 31, 2014, to $330.3 million during the year ended December 31, 2015. Average balances of securities
decreased due to sales of certain mortgage-backed securities, normal monthly payments received related to the portfolio of mortgage-
backed securities, and calls and maturities of maturities of municipal securities. The investment securities were reduced because they
were no longer needed for pledging. Interest income on investments decreased $272,000 as a result of a decrease in average interest
rates from 2.11% during the year ended December 31, 2014 to 2.06% during the year ended December 31, 2015. The majority of the
Company’s securities in 2014 and 2015 were mortgage-backed securities which are backed by hybrid ARMs that have fixed rates of
interest for a period of time (generally one to ten years) and then adjust annually. The actual amount of securities that reprice and the
actual interest rate changes on these securities are subject to the level of prepayments on these securities and the changes that actually
occur in market interest rates (primarily treasury rates and LIBOR rates). Mortgage-backed securities are also subject to reduced
yields due to more rapid prepayments in the underlying mortgages. As a result, premiums on these securities may be amortized
against interest income more quickly, thereby reducing the yield recorded.
Interest income on other interest-earning assets decreased $62,000 mainly due to lower average balances from $185.1 million during
the year ended December 31, 2014, to $152.7 million during the year ended December 31, 2015. Average balances of interest-earning
deposits decreased primarily due to the use of excess liquidity to fund a portion of the Company’s loan growth. 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, 2015, the Company had cash and cash equivalents of $199.2 million compared to
$218.6 million at December 31, 2014. See "Net Interest Income" for additional information on the impact of this interest activity.
Total Interest Expense
Total interest expense increased $196,000, or 1.2%, during the year ended December 31, 2015, when compared with the year ended
December 31, 2014, due to an increase in interest expense on deposits of $2.3 million, or 20.4% and an increase in interest expense on
subordinated debentures issued to capital trust of $147,000, or 25.9%, partially offset by a decrease in interest expense on FHLBank
advances of $1.2 million, or 41.3%, and a decrease in interest expense on short-term and structured repo borrowings of $1.0 million,
or 94.1%.
Interest Expense - Deposits
Interest on demand deposits decreased $176,000 due to a decrease in average rates from 0.22% during the year ended December 31,
2014, to 0.20% during the year ended December 31, 2015. Interest on demand deposits decreased $54,000 due to a small decrease in
average balances from $1.43 billion in the year ended December 31, 2014, to $1.40 billion in the year ended December 31, 2015. The
decrease in average balances of interest-bearing demand deposits was primarily a result of a decrease in public funds deposits.
Average noninterest-bearing demand balances increased from $535 million for the year ended December 31, 2014, to $542 million for
the year ended December 31, 2015.
Interest expense on time deposits increased $1.8 million due to an increase in average balances of time deposits from $1.04 billion
during the year ended December 31, 2014, to $1.26 billion during the year ended December 31, 2015. The increase in average
balances of time deposits was primarily a result of increased balances of brokered deposits and time deposits opened through the
Company’s internet deposit acquisition channels. The increase in time deposit balances was also due to the deposits acquired in the
Valley Bank transaction on June 20, 2014. Interest expense on time deposits increased $741,000 as a result of an increase in average
rates of interest from 0.78% during the year ended December 31, 2014, to 0.85% during the year ended December 31, 2015. A large
portion of the Company’s certificate of deposit portfolio matures within six to eighteen months and therefore 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, 2015 compared to the year ended December 31, 2014, interest expense on FHLBank advances
decreased due to lower average rates of interest, partially offset by slightly higher average balances. Interest expense on FHLBank
advances decreased $1.3 million due to a decrease in average interest rates from 1.69% in the year ended December 31, 2014, to
31
0.97% in the year ended December 31, 2015. The significant decrease in the average rate was due to the repayment of $80 million of
the Company’s long-term higher-rate FHLBank advances in June 2014. As of December 31, 2015, $232 million of the Company’s
$264 million of total FHLBank advances are short-term advances with very low interest rates. Partially offsetting this decrease was an
increase in interest expense on FHLBank advances of $64,000 due to an increase in average balances from $172.0 million in the year
ended December 31, 2014, to $175.9 million in the year ended December 31, 2015. This increase was primarily due to additional
short-term FHLBank advances obtained by the Company during 2015 to fund loan growth and for other short term funding needs.
Interest expense on short-term and structured repo borrowings decreased $1.1 million due to a decrease in average rates on short-term
borrowings from 0.58% in the year ended December 31, 2014, to 0.03% in the year ended December 31, 2015. The Company repaid
$50 million of structured repurchase agreements in June 2014. As there were no higher-rate structured repurchase agreements during
2015, the average rate decreased significantly because the interest expense was all related to the lower-rate securities sold under
repurchase agreements with customers. Partially offsetting that decrease, interest expense on short-term borrowings and structured
repurchase agreements increased $18,000 due to an increase in average balances from $188.9 million during the year ended December
31, 2014, to $192.1 million during the year ended December 31, 2015.
During the year ended December 31, 2015, compared to the year ended December 31, 2014, interest expense on subordinated
debentures issued to capital trusts increased $189,000 due to higher average interest rates. The average interest rate was 1.83% in
2014, compared to 2.48% in 2015. The increase in the interest rate resulted from the amortization of the cost of interest rate caps the
Company purchased in 2013 to limit the interest rate risk from rising LIBOR rates related to the Company’s subordinated debentures
issued to capital trusts. Interest expense on subordinated debentures issued to capital trusts decreased $42,000 due to a decrease in
average balances from $30.9 million for the year ended December 31, 2014 to $28.8 million during the year ended December 31, 2015.
The average balance decreased because the Company redeemed $5.0 million of its subordinated debentures issued to capital trust
during 2015. Additional information regarding this transaction is provided in Note 13 of the accompanying audited financial
statements. The remaining debentures are variable-rate debentures which bear interest at an average rate of three-month LIBOR plus
1.60%, adjusting quarterly. The average interest rate will continue to be higher than this until the third quarter of 2017 as a result of
the amortization of the cost of the interest rate cap.
Net Interest Income
Net interest income for the year ended December 31, 2015 increased $793,000 to $168.4 million compared to $167.6 million for the
year ended December 31, 2014. Net interest margin was 4.53% for the year ended December 31, 2015, compared to 4.84% in 2014, a
decrease of 31 basis points. The Company’s net interest income and margin have been significantly impacted by additional yield
accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in the 2009, 2011 and 2012
FDIC-assisted transactions. 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, 2015 and 2014 were increases in interest income of $28.5 million and $35.0
million, respectively, and increases in net interest margin of 77 basis points and 101 basis points, respectively. Excluding the positive
impact of the additional yield accretion, net interest margin decreased 7 basis points during the year ended December 31, 2015. The
decrease in net interest margin was primarily due to a decrease in average interest rate on loans and an increase in the average interest
rate on time deposits.
The Company's overall interest rate spread decreased 30 basis points, or 6.3%, from 4.74% during the year ended December 31, 2014,
to 4.44% during the year ended December 31, 2015. The decrease was due to a 33 basis point decrease in the weighted average yield
on interest-earning assets, partially offset by a three basis point decrease in the weighted average rate paid on interest-bearing
liabilities. In comparing the two years, the yield on loans decreased 72 basis points while the yield on investment securities and other
interest-earning assets decreased 12 basis points. The rate paid on deposits increased six basis points, the rate paid on FHLBank
advances decreased 72 basis points, the rate paid on short-term borrowings decreased 55 basis points and the rate paid on subordinated
debentures issued to capital trust increased 65 basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
32
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. 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 maintains 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 increased $1.4 million to $5.5 million during the year ended December 31, 2015, when compared with
the year ended December 31, 2014. At December 31, 2015, the allowance for loan losses was $38.1 million, a decrease of $286,000
from December 31, 2014. Total net charge-offs were $5.8 million for each of the years ended December 31, 2015 and 2014,
respectively. Excluding those related to loans covered by loss sharing agreements, five relationships made up $2.6 million of the total
$5.8 million in net charge-offs for the year ended December 31, 2015. General market conditions 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.
Except for those loans acquired in the TeamBank and Vantus Bank transactions for which the loss sharing agreements have ended (i.e.,
non-single family real estate loans), 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. These 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. Former Valley Bank loans, which were also acquired in an FDIC-assisted transaction, are accounted
for in pools and were recorded at their fair value at the time of the acquisition as of June 20, 2014; therefore, these loan pools are
analyzed rather than the individual loans.
The Bank's allowance for loan losses as a percentage of total loans, excluding loans covered by the FDIC loss sharing agreements, was
1.20% and 1.34% at December 31, 2015 and 2014, respectively. Management considers the allowance for loan losses adequate to
cover losses inherent in the Company's loan portfolio at December 31, 2015, 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 as they are, or
were, subject to 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 agreements. At December 31, 2015, there were no material non-performing assets that
were previously covered, and are now not covered, under the TeamBank or Vantus Bank non-single-family loss sharing agreements.
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 acquired in 2009, 2011 and 2012 has been better than original
33
expectations as of the acquisition dates. Former Valley Bank loans are also excluded from the totals and the discussion of non-
performing loans, potential problem loans and foreclosed assets below, although they are not covered by a loss sharing agreement.
The loss sharing agreement for the non-single-family portion of the loans acquired in the TeamBank transaction ended on March 31,
2014. Any additional losses in that non-single-family portfolio will not be eligible for loss sharing coverage. At this time, the
Company does not expect any material losses in this non-single-family loan portfolio, which totaled $16.2 million, net of discounts, at
December 31, 2015.
The loss sharing agreement for the non-single-family portion of the loans acquired in the Vantus Bank transaction ended on
September 30, 2014. Any additional losses in that non-single-family portfolio will not be eligible for loss sharing coverage. At this
time, the Company does not expect any material losses in this non-single-family loan portfolio, which totaled $17.1 million, net of
discounts, at December 31, 2015.
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 and other FDIC-assisted acquired assets, at December 31,
2015, were $44.0 million, an increase of $272,000 from $43.7 million at December 31, 2014. Non-performing assets, excluding
FDIC-covered non-performing assets and other FDIC-assisted acquired assets, as a percentage of total assets were 1.07% at December
31, 2015, compared to 1.11% at December 31, 2014.
Compared to December 31, 2014, non-performing loans increased $8.5 million to $16.6 million at December 31, 2015, and foreclosed
assets decreased $8.1 million to $27.4 million at December 31, 2015. Non-performing commercial real estate loans comprised $13.5
million, or 81.4%, of the total of $16.6 million of non-performing loans at December 31, 2015. Non-performing one-to four-family
residential loans comprised $1.4 million, or 8.2%, of the total non-performing loans at December 31, 2015. Non-performing
consumer loans were $1.3 million, or 7.8%, of total non-performing loans at December 31, 2015. Non-performing commercial
business loans were $288,000, or 1.7%, of total non-performing loans at December 31, 2015. Non-performing construction and land
development loans were $139,000, or 0.8%, of total non-performing loans at December 31, 2015.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2015, 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
$
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
— $
—
255
—
1,610
—
4,699
466
1,117
— $
109
144
—
1,361
—
13,391
415
2,175
— $
—
—
—
(451)
—
(1,469)
(56)
(198)
— $
—
(50)
—
(340)
—
—
(35)
(114)
— $
—
—
—
(316)
—
(2,620)
—
(188)
— $
— $
(55)
(197)
—
(66)
—
(22)
(384)
(514)
(54)
(13)
—
(441)
—
(491)
(118)
(981)
—
—
139
—
1,357
—
13,488
288
1,297
Total
$
8,147 $
17,595 $
(2,174) $
(539) $
(3,124) $
(1,238) $
(2,098) $
16,569
At December 31, 2015, the non-performing commercial real estate category included nine loans, five of which were transferred from
potential problem loans during the current year and related to three relationships. The largest relationship in this category, which was
transferred from potential problem loans to non-performing loans during the three months ended December 31, 2015, totaled $6.5
million, or 48.1% of the total category, and is collateralized by three operating long-term health care facilities in Missouri. This
relationship with the Bank began in 2000 and has performed adequately until recently. A receiver was recently appointed to manage
and stabilize the facilities. The second largest relationship in this category, which was also transferred from potential problem loans
during the three months ended December 31, 2015, totaled $3.7 million, or 27.6%, of the total category, and is collateralized by
property in the Branson, Mo., area, including a lakefront resort, marina and related amenities, condominiums and lots. This borrower
34
has been in business for over 30 years and a bank customer since 1992. In 2015, the project experienced declining occupancy rates
and entered bankruptcy in the latter part of 2015. Of the $1.5 million removed from non-performing commercial real estate loans
during the year, $1.3 million was related to one loan, and was removed due to improvement in the credit and payment performance.
The non-performing one- to four-family residential category included 27 loans, 16 of which were added during the year. The non-
performing consumer category included 101 loans, 84 of which were added during the year.
Foreclosed Assets. Of the total $31.9 million of other real estate owned at December 31, 2015, $1.8 million represents the fair value of
foreclosed assets covered by FDIC loss sharing agreements, $460,000 represents the fair value of foreclosed assets previously covered
by FDIC loss sharing agreements, $995,000 represents foreclosed assets related to Valley Bank and not covered by loss sharing
agreements, $25,000 represents other assets related to acquired loans, and $1.2 million represents properties which were not acquired
through foreclosure. The foreclosed assets and other assets related to acquired loans and the properties not acquired through
foreclosure are not included in the following table and discussion of foreclosed assets. Because sales of foreclosed properties
exceeded additions, total foreclosed assets decreased. Activity in foreclosed assets during the year ended December 31, 2015, 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
$
$
223
9,857
17,168
—
3,353
2,625
1,632
59
624
— $
—
—
—
473
—
2,620
—
5,110
(In Thousands)
(223) $
(2,369)
(5,006)
—
(2,350)
(488)
(614)
(59)
(4,625)
— $
—
—
—
—
13
—
—
—
— $
(472)
(29)
—
(101)
—
(30)
—
—
—
7,016
12,133
—
1,375
2,150
3,608
—
1,109
Total
$
35,541
$
8,203 $
(15,734) $
13 $
(632) $
27,391
At December 31, 2015, the land development category of foreclosed assets included 26 properties, the largest of which was located in
northwest Arkansas and had a balance of $1.4 million, or 11.3% of the total category. Of the total dollar amount in the land
development category of foreclosed assets, 35.4% and 36.2% was located in northwest Arkansas and in the Branson, Mo., area,
respectively, including the $1.4 million property previously mentioned. Of the $5.0 million in proceeds from sales in the category,
$3.9 million related to the sale of six properties, which included one property located in northwest Arkansas which was sold during the
three months ended December 31, 2015, totaling $1.3 million. In addition, two properties totaling $1.6 million in the Branson, Mo.,
area were sold, two properties in northwest Arkansas totaling $1.3 million were sold and one property in southwest Missouri totaling
$585,000 was sold. The subdivision construction category of foreclosed assets included 25 properties, the largest of which was
located in the Springfield, Mo. metropolitan area and had a balance of $1.2 million, or 17.6% of the total category. Of the total dollar
amount in the subdivision construction category of foreclosed assets, 32.2% and 16.4% is located in Branson, Mo. and Springfield,
Mo., respectively. Of the $2.4 million in sales in this category, $2.3 million was from the sale of two properties. One subdivision
property totaling $1.3 million in the Kansas City, Mo. metropolitan area was sold and one subdivision property in the St. Louis, Mo.
metropolitan area totaling $931,000 was sold. The commercial real estate category of foreclosed assets included eight properties,
three of which were related to the same borrower. The largest property in the commercial real estate category of foreclosed assets,
which was located in southeast Missouri and was added during the three months ended March 31, 2015, totaled $2.0 million, or 56.0%
of the total category. The other residential category of foreclosed assets included 11 properties, 10 of which were all part of the same
condominium community, which was located in Branson, Mo. and had a balance of $1.8 million, or 83.7% of the total category. The
one-to four-family residential category of foreclosed assets included seven properties, of which the largest relationship, with two
properties in the southwest Missouri area, had a balance of $554,000, or 40.3% of the total category. Of the total dollar amount in the
one-to- four-family category of foreclosed assets, 38.2% is located in Branson, Mo.
35
Potential Problem Loans. Potential problem loans decreased $12.2 million during the year ended December 31, 2015, from $25.0
million at December 31, 2014 to $12.8 million at December 31, 2015. This decrease was due to $11.2 million in loans transferred to
the non-performing category, $8.6 million in loans removed from potential problem loans due to improvements in the credits, $2.0
million in charge-offs, $157,000 in loans transferred to foreclosed assets, and $2.6 million in payments on potential problem loans,
partially offset by the addition of $12.3 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, 2015, 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
$
1,312 $
368 $
(683) $
— $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
4,252
5,857
—
1,906
1,956
8,043
1,435
214
863
—
—
489
—
10,254
131
227
(3,750)
(2,012)
—
(796)
—
(670)
(464)
(199)
(139)
—
—
(349)
—
(10,687)
(21)
(17)
— $
—
—
—
(157)
—
—
—
—
— $
(997) $
—
—
—
(14)
—
(1,433)
(527)
(5)
(650)
(3)
—
(235)
—
(221)
(373)
(86)
—
576
3,842
—
844
1,956
5,286
181
134
Total
$
24,975 $
12,332 $
(8,574) $
(11,213) $
(157) $
(1,979) $
(2,565) $
12,819
At December 31, 2015, the commercial real estate category of potential problem loans included 10 loans, seven of which were added
during the current year. The largest relationship in this category, which was made up of five new loans added during the three months
ended December 31, 2015, had a balance of $2.9 million, or 55.7% of the total category and is collateralized by various properties in
the Branson, Mo., area., including commercial buildings, commercial land, residential lots and undeveloped land with clubhouse
amenities and entertainment attractions. This relationship has been with the Bank for over 30 years. Of the $10.7 million of transfers
to non-performing, $10.2 million were related to two relationships, which were discussed above in the non-performing loans section.
All of the net charge-offs in the commercial real estate category related to these two relationships. The land development category of
potential problem loans included one loan, which was added during a previous year and is collateralized by property in the Branson,
Mo., area. The other residential category of potential problem loans included one loan which was added in a previous year, and is
collateralized by properties located in the Branson, Mo., area. This loan was also to the same borrower that was referenced above in
the land development category. The one- to four-family residential category of potential problem loans included 12 loans, two of
which were added during the current year. The subdivision construction category of potential problem loans included three loans, two
of which were added during the current year. Seven loans in this category were removed from potential problem loans during 2015,
which included four loans to one borrower totaling $1.6 million. The loans were removed due to improvements in the credit and
payment performance. The one-to four-family construction category of potential problem loans is zero at December 31, 2015, and
three loans in this category, all of which were to the same borrower, were removed from potential problem loans during the year due
to improvement in the borrower’s financial performance. These loans were also to the same borrower that was referenced above in the
loans which were removed from potential problem loans in the subdivision construction category.
Non-Interest Income
Non-interest income for the year ended December 31, 2015 was $13.6 million compared with $14.7 million for the year ended
December 31, 2014. The decrease of $1.1 million, or 7.8%, was primarily the result of the following increases and decreases:
Initial gain recognized on business acquisition: In 2014, the Company recognized a one-time gain of $10.8 million (pre-tax) on the
FDIC-assisted acquisition of Valley Bank, which occurred on June 20, 2014.
Excluding the gain referenced above, non-interest income increased $9.7 million when compared to the year ended December 31,
2014, primarily as a result of the following items:
36
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $18.3
million for the year ended December 31, 2015, compared to $27.9 million for the year ended December 31, 2014. The amortization
expense for the year ended December 31, 2015, consisted of the following items: $17.9 million of amortization expense related to the
changes in cash flows expected to be collected from the FDIC-covered loan portfolios and $1.6 million of amortization of the
clawback liability. In addition, the Company collected amounts on various problem assets acquired from the FDIC totaling $891,000.
Under the loss sharing agreements, 80% of these collected amounts must be remitted to the FDIC; therefore, the Company recorded a
liability and related expense of $713,000. Partially offsetting the expense was income from the accretion of the discount related to the
indemnification assets for the Sun Security Bank and InterBank acquisitions of $1.4 million. In addition, a charge-off on a loan pool
which exceeded the remaining discount on the pool by $803,000 was recognized as a reduction to allowance for loan losses during the
third quarter. The Bank expects to collect 80% of this amount as reimbursement from the FDIC, so income of $643,000 was recorded
in non-interest income.
Service charges and ATM fees: Service charges and ATM fees increased $766,000 compared to the prior year, primarily due to an
increase in fee income from the additional accounts acquired in the Valley Bank transaction in June 2014.
Other income: Other income increased $744,000 compared to the prior year. The increase was primarily due to a $1.1 million gain
recognized when the Company redeemed the trust preferred securities previously issued by Great Southern Capital Trust III at a
discount, as discussed in previous filings. This increase was offset by non-recurring debit card-related income of $1.0 million
recognized during the 2014 period which was not repeated in the 2015 period. Other income increased $300,000 compared to the
prior year due to a $300,000 gain recognized on the sale of a non-marketable investment.
Late charges and fees on loans: Late charges and fees on loans increased $729,000 compared to the prior year period. The increase
was primarily due to yield maintenance penalty payments received on 12 commercial loan prepayments, totaling $547,000 in 2015.
Net realized gains on sales of available-for-sale securities: Gains on sales of available-for-sale securities decreased $2.1 million
compared to the prior year. This was primarily due to the sale of securities in the prior year, which was not repeated in 2015. During
2014, the taxable municipal securities originally acquired in the Sun Security Bank acquisition were sold resulting in a gain of $1.2
million. All of the Company’s Small Business Administration securities were sold in 2014, which produced a gain of $569,000. In
addition, all of the mortgage-backed securities and collateralized mortgage obligations acquired in the Valley Bank acquisition were
sold in 2014, and several additional securities were sold later in 2014, producing a gain of $227,000, and one municipal bond was sold
at a gain of $95,000.
Non-Interest Expense
Total non-interest expense decreased $6.5 million, or 5.4%, from $120.9 million in the year ended December 31, 2014, to $114.4
million in the year ended December 31, 2015. The Company’s efficiency ratio for the year ended December 31, 2015 was 62.85%,
improving from 66.30% in 2014. The 2015 ratio was positively affected by the decrease in non-interest expense and the increase in
net interest income, partially offset by a decrease in non-interest income. The Company’s ratio of non-interest expense to average
assets decreased from 3.16% for the year ended December 31, 2014, to 2.81% for the year ended December 31, 2015. The decrease in
the current year ratio was primarily due to both the increase in average assets and the decrease in non-interest expense in 2015
compared to 2014. Average assets for the year ended December 31, 2015, increased $242.9 million, or 6.4%, from the year ended
December 31, 2014. The following were key items related to the increase in non-interest expense for the year ended December 31,
2015 as compared to the year ended December 31, 2014:
Other Operating Expenses: Other operating expenses decreased $7.3 million, to $8.5 million, in the year ended December 31, 2015
compared to the prior year primarily due to $7.4 million in prepayment penalties paid in 2014 as the Company elected to repay $130
million of its FHLB advances and structured repo borrowings prior to their maturity, which was not repeated in 2015.
Expense on foreclosed assets: Expense on foreclosed assets decreased $3.1 million compared to the prior year primarily due to
valuation write-downs of foreclosed assets during 2014 totaling $2.0 million. In addition, total foreclosed assets decreased from the
prior year, further reducing the expenses.
Legal, audit and other professional fees: Legal, audit and other professional fees decreased $1.2 million when compared to the prior
year, primarily due to additional expenses in the prior year related to the Valley Bank acquisition, significant collection costs of a few
large loans and foreclosed assets, as well as the reduction of the total amount of foreclosed assets in the current year compared to the
prior year.
37
Partially offsetting the decrease in non-interest expense was an increase in the following items:
Expenses related to operations of new banking centers in 2015: The Company incurred approximately $245,000 and $144,000 of
additional non-interest expenses during the year ended December 31, 2015, in connection with the operations of new banking centers
in Overland Park, Kansas and Columbia, Missouri, respectively. The majority of these expenses related to salary and benefits and
occupancy expenses.
Salaries and employee benefits: Salaries and employee benefits increased $2.7 million over the prior year, primarily due to increased
staffing due to growth in lending and other operational areas, as well as approximately $330,000 in retention payments and other
acquisition-related salaries and benefits related to the Fifth Third Bank branch acquisition. In addition, the Company opened banking
centers in 2015 in Overland Park, Kansas and Columbia, Missouri, and operated the acquired Valley Bank for a full year in 2015
versus one-half year of operations in 2014.
Net occupancy expense: Net occupancy expense increased $2.4 million in the year ended December 31, 2015 compared to 2014. In
September 2015, the Company announced plans to consolidate operations of 16 banking centers into other nearby Great Southern
banking center locations. The Company evaluated the carrying value of the affected premises (totaling approximately $7.5 million) to
determine if any impairment of the value of these premises is warranted and has recorded a valuation allowance of $1.2 million related
to certain affected premises, furniture, fixtures and equipment and leases in 2015. Occupancy expense also increased in 2015 as a
result of the Valley Bank acquisition which occurred in June 2014, and due to the opening of the two branches in Overland Park and
Columbia noted above.
Provision for Income Taxes
In 2014, the Company elected to early-adopt FASB ASU No. 2014-01, which amends FASB ASC Topic 323, Investments – Equity
Method and Joint Ventures. This Update impacted the Company’s accounting for investments in flow-through limited liability entities
which manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in the
Update permitted 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 Company has significant
investments in such qualified affordable housing projects that meet the required conditions. The Company’s adoption of this Update
did not materially affect the Company’s financial position or results of operations. There was no change in Net Income for the periods
covered in this document and there was no cumulative effect adjustment to Retained Earnings.
Provision for income taxes as a percentage of pre-tax income was 25.1% and 24.0% for the years ended December 31, 2015 and 2014,
respectively, which was lower than the statutory federal tax rate of 35%, due primarily to the effects of the tax credits utilized and to
tax-exempt investments and tax-exempt loans which reduced the Company’s effective tax rate. In future periods, the Company
expects its effective tax rate typically will be 24-26% 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 continue to utilize a significant amount of tax credits in 2016.
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
$4.4 million, $3.2 million and $3.4 million for 2015, 2014 and 2013, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
38
Dec. 31,
2015(2)
Yield/
Rate
4.38%
4.27
4.29
3.65
4.44
5.24
5.25
4.56
3.09
0.25
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Year Ended
December 31, 2013
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 459,378
423,476
1,071,765
340,666
328,319
569,873
42,310
$ 34,653
21,236
50,952
15,538
19,137
33,377
2,347
7.54%
5.01
4.75
4.56
5.83
5.86
5.55
$ 480,827
375,754
920,340
259,993
296,318
404,375
46,499
$ 41,343
21,268
47,724
13,330
17,722
28,593
2,589
8.60%
5.66
5.19
5.13
5.98
7.07
5.57
$ 472,127
312,362
813,147
208,254
249,647
297,852
$ 35,072
23,963
51,175
14,413
14,505
21,947
50,155 2,828
7.43%
7.67
6.29
6.92
5.81
7.37
5.64
3,235,787
177,240
5.48
2,784,106
172,569
6.20
2,403,544
163,903
6.82
330,328
152,720
6,797
314
2.06
0.21
495,155
185,072
10,467
326
2.11
0.18
717,806
14,459
276,394 433
2.01
0.16
4.34
3,718,835
184,351
4.96
3,464,333
183,362
5.29
3,397,744
178,795
5.26
106,326
242,238
$4,067,399
96,665
263,495
$3,824,493
88,678
303,454
$3,789,876
0.24
0.85
0.53
0.04
1.93
0.76
$ 1,404,489
1,257,059
2,661,548
2,858
10,653
13,511
0.20
0.85
0.51
$ 1,429,893
1,042,563
2,472,456
3,088
8,137
11,225
0.22
0.78
0.45
$ 1,464,029
3,551
1,073,110 8,795
12,346
2,537,139
0.24
0.82
0.49
192,055
28,754
175,873
65
0.03
188,906
1,099
0.58
232,598
2,324
1.00
714
1,707
2.48
0.97
30,929
171,997
567
2,910
1.83
1.69
30,929
561
127,561 3,972
1.81
3.11
0.54
3,058,230
15,997
0.52
2,864,288
15,801
0.55
2,928,227
19,203
0.66
541,714
28,772
3,628,716
438,683
$4,067,399
535,132
22,403
3,421,823
402,670
$3,824,493
459,802
23,197
3,411,226
378,650
$3,789,876
3.80%
$168,354
4.44%
4.53%
$167,561
4.74%
4.84%
$159,592
4.60%
4.70%
121.6%
120.9%
116.0%
Interest-earning assets:
Loans receivable:
One- to four-family
residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
Total loans receivable
Investment securities (1)
Other interest-earning assets
Total interest-earning
assets
Non-interest-earning assets:
Cash and cash equivalents
Other non-earning assets
Total assets
Interest-bearing liabilities:
Interest-bearing demand and
savings
Time deposits
Total deposits
Short-term borrowings and
repurchase agreements
Subordinated debentures
issued to capital trust
FHLB advances
Total interest-bearing
liabilities
Non-interest-bearing
liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Net interest income:
Interest rate spread
Net interest margin*
Average interest-earning
assets to average interest-
bearing liabilities
* Defined as the Company's net interest income divided by total interest-earning assets.
(1) Of the total average balances of investment securities, average tax-exempt investment securities were $79.9 million, $87.9 million and $80.9 million for 2015,
2014 and 2013, respectively. In addition, average tax-exempt industrial revenue bonds were $36.1 million, $38.5 million and $38.3 million in 2015, 2014 and
2013, respectively. Interest income on tax-exempt assets included in this table was $4.4 million, $5.2 million and $5.1 million for 2015, 2014 and 2013,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $4.2 million, $5.0 million and $4.9 million for 2015, 2014 and
2013, respectively.
(2) The yield/rate on loans at December 31, 2015 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 2015 results of operations.
39
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-
earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii)
changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated
on a tax equivalent basis.
Year Ended
December 31, 2015 vs.
December 31, 2014
Year Ended
December 31, 2014 vs.
December 31, 2013
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
$
$
(21,429)
(272)
50
(21,651)
(176)
741
565
$
26,100
(3,398)
(62)
22,640
(54)
1,775
1,721
4,671
(3,670)
(12)
989
(230)
2,516
2,286
structured repo
(1,052)
18
(1,034)
Subordinated debentures issued
to capital trust
FHLBank advances
Total interest-bearing liabilities
Net interest income
$
189
(1,267)
(1,565)
(20,086)
$
(42)
64
1,761
20,879
$
147
(1,203)
196
793
$
$
(15,785)
684
49
(15,052)
(382)
(412)
(794)
(845)
6
(2,172)
(3,805)
(11,247)
$
$
24,451
(4,676)
(156)
19,619
(81)
(246)
(327)
(380)
—
1,110
403
19,216
$
$
8,666
(3,992)
(107)
4,567
(463)
(658)
(1,121)
(1,225)
6
(1,062)
(3,402)
7,969
Results of Operations and Comparison for the Years Ended December 31, 2014 and 2013
General
Net income increased $9.8 million, or 29.1%, during the year ended December 31, 2014, compared to the year ended December 31,
2013. Net income was $43.5 million for the year ended December 31, 2014 compared to $33.7 million for the year ended December
31, 2013. This increase was due to an increase in net interest income of $8.0 million, or 5.0%, an increase in non-interest income of
$9.4 million, or 177.2%, and a decrease in the provision for loan losses of $13.2 million, or 76.1%, partially offset by an increase in
non-interest expense of $15.2 million, or 14.4%, and an increase in provision for income taxes of $5.6 million, or 68.3%. Non-interest
income for the year ended December 31, 2014 included a gain recognized on business acquisition of $10.8 million. Net income
available to common shareholders was $43.0 million for the year ended December 31, 2014 compared to $33.2 million for the year
ended December 31, 2013.
Total Interest Income
Total interest income increased $4.6 million, or 2.6%, during the year ended December 31, 2014 compared to the year ended
December 31, 2013. The increase was due to an $8.7 million, or 5.3%, increase in interest income on loans, partially offset by a $4.1
million, or 27.5%, decrease in interest income on investments and other interest-earning assets. Interest income on loans increased in
2014, due to higher average balances on loans, partially offset by lower average rates of interest. Interest income from investment
securities and other interest-earning assets decreased during 2014 compared to 2013 primarily due to lower average balances. The
lower average balances of investments were primarily due to the sale of the Company’s Small Business Administration loan pool
securities and the sale of certain mortgage-backed securities, and as a result of management’s decision to not reinvest mortgage-
backed securities’ monthly cash flows back into investments, but to utilize the proceeds to fund loan growth. Prepayments on the
mortgages underlying these securities resulted in amortization of premiums which also reduced yields. 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-
40
acquired loan pools as discussed below in “Interest Income – Loans” and in Note 4 of the accompanying audited financial statements.
In 2014, 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
more than offset the lower interest income on loans.
Interest Income - Loans
During the year ended December 31, 2014 compared to the year ended December 31, 2013, interest income on loans increased due to
higher average balances, partially offset by lower average interest rates. Interest income increased $24.5 million as a result of higher
average loan balances which increased from $2.40 billion during the year ended December 31, 2013 to $2.78 billion during the year
ended December 31, 2014. The higher average balances were primarily due to increases in commercial real estate loans, commercial
business loans, construction loans, other residential loans and consumer loans categories. A portion of this loan growth resulted from
the Company acquiring $165.1 million in loans as part of the Valley FDIC-assisted transaction in June 2014, the balance of which
were $122.0 million at December 31, 2014.
In the three months ended December 31, 2014, the Company collected $1.9 million from customers with loans which had previously
not been expected to be collectible. In accordance with the Company’s accounting methodology, these collections were accounted for
as increases in estimated cash flows and were recorded as interest income, thereby increasing net interest income and net interest
margin. These collections related to acquired loans which were subject to loss sharing agreements with the FDIC; therefore, 80% of
the amounts collected, or $1.5 million, is owed to the FDIC. This $1.5 million of expense is included in non-interest income under
“accretion (amortization) of income related to business acquisitions.”
Interest income decreased $15.8 million as the result of lower average interest rates on loans. The average yield on loans decreased
from 6.82% during the year ended December 31, 2013 to 6.20% during the year ended December 31, 2014. This decrease was due to
lower overall loan rates, and a slightly 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 $35.0 million in 2014 and was $35.2
million in 2013. 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 $201.0 million of adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools. The
increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the
FDIC, which are recorded as indemnification assets. Therefore, the expected indemnification assets have also been reduced, resulting
in a total of $165.5 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, 2014 and 2013, the adjustments
increased interest income by $35.0 million and $35.2 million, respectively, and decreased non-interest income by $28.7 million and
$29.5 million, respectively. The net impact to pre-tax income was $6.2 million and $5.8 million, respectively, for the years ended
December 31, 2014 and 2013. Excluding the yield accretion, the average yield on loans was 4.94% for the year ended December 31,
2014, down from 5.35% for the year ended December 31, 2013, as a result of normal amortization of higher-rate loans and new loans
that were made at current lower market rates.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments decreased $4.7 million as a result of a decrease in average balances from $717.8 million during the
year ended December 31, 2013, to $495.2 million during the year ended December 31, 2014. 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 2014, with proceeds being used to fund new loan originations and deposit outflows. Interest income on other
interest-earning assets decreased $156,000 mainly due to lower average balances from $276.4 million during the year ended
December 31, 2013, to $185.1 million during the year ended December 31, 2014. Interest income on investments increased $684,000
as a result of an increase in average interest rates from 2.01% during the year ended December 31, 2013 to 2.11% during the year
ended December 31, 2014. The majority of the Company’s securities in 2013 and 2014 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.
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, 2014, the Company had cash and cash equivalents of $218.6
million compared to $227.9 million at December 31, 2013. See "Net Interest Income" for additional information on the impact of this
interest activity.
41
Total Interest Expense
Total interest expense decreased $3.4 million, or 17.7%, during the year ended December 31, 2014, when compared with the year
ended December 31, 2013, due to a decrease in interest expense on deposits of $1.1 million, or 9.1%, a decrease in interest expense on
FHLBank advances of $1.1 million, or 26.7%, and a decrease in interest expense on short-term and structured repo borrowings of $1.2
million, or 52.7%.
Interest Expense - Deposits
Interest on demand deposits decreased $382,000 due to a decrease in average rates from 0.24% during the year ended December 31,
2013, to 0.22% during the year ended December 31, 2014. 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 2014 and 2013. Interest on demand deposits decreased
$81,000 due to a small decrease in average balances from $1.46 billion in the year ended December 31, 2013, to $1.43 billion in the
year ended December 31, 2014. Average noninterest-bearing demand balances increased from $460 million for the year ended
December 31, 2013, to $535 million for the year ended December 31, 2014.
Interest expense on time deposits decreased $246,000 due to a decrease in average balances of time deposits from $1.07 billion during
the year ended December 31, 2013, to $1.04 billion during the year ended December 31, 2014. 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 from December 31, 2013 to December 31, 2014, partially offset by the increase in
brokered deposits from December 31, 2013 to December 31, 2014. Interest expense on time deposits decreased $412,000 as a result
of a decrease in average rates of interest from 0.82% during the year ended December 31, 2013, to 0.78% during the year ended
December 31, 2014.
Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements and Subordinated
Debentures Issued to Capital Trust
During the year ended December 31, 2014 compared to the year ended December 31, 2013, interest expense on FHLBank advances
decreased due to lower average rates of interest, partially offset by higher average balances. Interest expense on FHLBank advances
decreased $2.2 million due to a decrease in average interest rates from 3.11% in the year ended December 31, 2013, to 1.69% in the
year ended December 31, 2014. The significant decrease in the average rate was due to the repayment of $80 million of the
Company’s long-term higher-rate FHLBank advances in June 2014. As of December 31, 2014, $230 million of the Company’s $272
million of total FHLBank advances are short-term advances with very low interest rates. Most of the remaining advances are fixed-
rate and are subject to penalty if paid off prior to maturity. Partially offsetting this decrease was an increase in interest expense on
FHLBank advances of $1.1 million due to an increase in average balances from $127.6 million in the year ended December 31, 2013,
to $172.0 million in the year ended December 31, 2014. This increase was primarily due to additional short-term FHLBank advances
obtained by the Company during 2014, to fund loan growth and for other short term funding needs.
Interest expense on short-term borrowings and structured repurchase agreements decreased $380,000 due to a decrease in average
balances from $233 million during the year ended December 31, 2013, to $189 million during the year ended December 31, 2014.
Interest expense on short-term and structured repo borrowings decreased $845,000 due to a decrease in average rates on short-term
borrowings from 1.00% in the year ended December 31, 2013, to 0.58% in the year ended December 31, 2014. The decrease in
balances of short-term borrowings in 2014 was primarily due to the repayment by the Company of $50 million of structured
repurchase agreements in June 2014. As there were none of the higher-rate structured repurchase agreements during the latter half of
2014, the average rate went down because the interest expense was all related to the lower-rate securities sold under repurchase
agreements with customers.
Interest expense on subordinated debentures issued to capital trusts increased $6,000 due to an increase in average rates from 1.81% in
the year ended December 31, 2013, to 1.83% in the year ended December 31, 2014. These are variable-rate debentures which bear
interest at an average rate of three-month LIBOR plus 1.57%, adjusting quarterly.
42
Net Interest Income
Net interest income for the year ended December 31, 2014 increased $8.0 million to $167.6 million compared to $159.6 million for
the year ended December 31, 2013. Net interest margin was 4.84% for the year ended December 31, 2014, compared to 4.70% in 2013,
an increase of 14 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, 2014 and 2013 were increases in interest income of $35.0 million and $35.2
million, respectively, and increases in net interest margin of 101 basis points and 104 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin increased 17 basis points during the year ended December 31,
2014. The increase in net interest margin was primarily due to a decrease in interest expense on FHLB advances and short-term
borrowings, due to the payoff of FHLB advances and structured repurchase agreements. In addition, the mix of assets continued to
change through an increase in the average balance of loans and a decrease in the average balance of investment securities and other
interest-earning assets. Our average yield on loans is higher than our average yield on investments. During 2013 and 2014, market
rates on checking and savings deposits decreased slightly and retail time deposits renewed at somewhat lower rates of interest. The
Company also experienced decreases in yields on loans and investments, excluding the yield accretion income discussed above, when
compared to the previous year.
The Company's overall average interest rate spread increased 14 basis points, or 3.0%, from 4.60% during the year ended December
31, 2013, to 4.74% during the year ended December 31, 2014. The increase was due to an 11 basis point decrease in the weighted
average rate paid on interest-bearing liabilities and a three basis point increase in the weighted average yield on interest-earning assets.
The Company's overall net interest margin increased 14 basis points, or 3.0%, from 4.70% for the year ended December 31, 2013, to
4.84% for the year ended December 31, 2014. In comparing the two years, the yield on loans decreased 62 basis points while the
yield on investment securities and other interest-earning assets increased 10 basis points. The rate paid on deposits decreased four
basis points, the rate paid on FHLBank advances decreased 142 basis points, the rate paid on short-term borrowings decreased 42
basis points and the rate paid on subordinated debentures issued to capital trust increased two basis points.
The Company’s net interest income and margin has been significantly impacted by additional yield accretion recognized in
conjunction with updated estimates of the fair value of the loan pools acquired in the 2009, 2011 and 2012 FDIC-assisted transactions.
On an on-going basis, the Company estimates the cash flows expected to be collected from the acquired loan pools. For each of the
loan portfolios acquired, the cash flow estimates have increased, 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
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 each
quarter since the fourth quarter of 2010, resulting in adjustments to be amortized on a comparable basis over the remainder of the loss
sharing agreements or the remaining expected lives of the loan pools, whichever is shorter. Additional estimated cash flows, primarily
related to the InterBank loan portfolios, were recorded in 2014.
In addition, beginning in the three months ended December 31, 2014, the Company’s net interest income and margin has been
impacted by additional yield accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in
the June 2014 Valley Bank FDIC-assisted transaction. Beginning with the three months ended December 31, 2014, the cash flow
estimates have increased for certain of the Valley Bank loan pools primarily based on significant loan repayments and also due to
collection of certain loans, thereby reducing loss expectations on certain of the loan pools. This resulted in increased income that was
spread on a level-yield basis over the remaining expected lives of these loan pools. The Valley Bank transaction does not include a
loss sharing agreement with the FDIC. Therefore, there is no related indemnification asset. The entire amount of the discount
adjustment will be accreted to interest income over time with no offsetting impact to non-interest income. The amount of the Valley
Bank discount adjustment accreted to interest income in 2014 was $981,000.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses decreased $13.2 million to $4.2 million during the year ended December 31, 2014 when compared with
the year ended December 31, 2013. At December 31, 2014, the allowance for loan losses was $38.4 million, a decrease of $1.7
million from December 31, 2013. Total net charge-offs were $5.8 million and $17.9 million for the years ended December 31, 2014
and 2013, respectively. Nine relationships made up $5.1 million of the gross charge-off total ($7.8 million excluding consumer loans
and overdrafts) for the year ended December 31, 2014, and one relationship made up $2.5 million of the gross recoveries ($4.0 million
excluding consumer loans and overdrafts) for the year, which are included in the net charge-off total above. The decrease in net
charge-offs and provision for loan losses in 2014 were consistent with our expectations, as indicated in previous filings. General
43
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.
Except for those loans acquired in the TeamBank and Vantus Bank transactions for which the loss sharing agreements have ended (i.e.,
non-single family real estate loans), 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. Former Valley Bank loans are accounted for in pools and were recorded at their fair value at the time
of the acquisition as of June 20, 2014; therefore, these loan pools are analyzed rather than the individual loans.
The Bank's allowance for loan losses as a percentage of total loans, excluding loans covered by the FDIC loss sharing agreements, was
1.34% and 1.92% at December 31, 2014 and 2013, respectively. Management considered the allowance for loan losses adequate to
cover losses inherent in the Company's loan portfolio at December 31, 2014, based on reviews of the Company's loan portfolio and
current economic conditions.
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 as they are, or
were subject to 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 agreements. At December 31, 2014, there were no material non-performing assets that
were previously covered, and are now not covered, under the TeamBank or Vantus Bank non-single-family loss sharing agreements.
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 acquired in 2009, 2011 and 2012 has been better than original
expectations as of the acquisition dates. Former Valley Bank loans are also excluded from the totals and the discussion of non-
performing loans, potential problem loans and foreclosed assets below, although they are not covered by a loss sharing agreement.
Former Valley Bank loans are accounted for in pools and were recorded at their fair value at the time of the acquisition as of June 20,
2014; therefore, these loan pools are analyzed rather than the individual loans.
The loss sharing agreement for the non-single-family portion of the loans acquired in the TeamBank transaction ended on March 31,
2014. Any additional losses in that non-single-family portfolio will not be eligible for loss sharing coverage. At this time, the
Company does not expect any material losses in this non-single-family loan portfolio, which totaled $28.3 million at December 31,
2014.
The loss sharing agreement for the non-single-family portion of the loans acquired in the Vantus Bank transaction ended on
September 30, 2014. Any additional losses in that non-single-family portfolio will not be eligible for loss sharing coverage. At this
time, the Company does not expect any material losses in this non-single-family loan portfolio, which totaled $23.2 million, at
December 31, 2014.
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 and other FDIC-assisted acquired assets, at December 31, 2014
were $43.7 million, a decrease of $18.4 million from $62.1 million at December 31, 2013. Non-performing assets, excluding FDIC-
covered non-performing assets and other FDIC-assisted acquired assets, as a percentage of total assets were 1.11% at December 31,
2014, compared to 1.74% at December 31, 2013.
Compared to December 31, 2013, non-performing loans decreased $11.8 million to $8.1 million and foreclosed assets decreased $6.6
million to $35.5 million. Commercial real estate loans comprised $4.7 million, or 57.7%, of the total of $8.1 million of non-
performing loans at December 31, 2014. Non-performing one-to four-family residential loans comprised $1.7 million, or 20.4%, of
44
the total non-performing loans at December 31, 2014. Non-performing consumer loans were $1.1 million, or 13.7%, of total non-
performing loans at December 31, 2014. Non-performing commercial business loans were $411,000, or 5.0%, of total non-
performing loans at December 31, 2014. Non-performing construction and land development loans were $255,000, or 3.1%, of total
non-performing loans at December 31, 2014.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2014, 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
$
— $
— $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
871
338
—
4,361
—
6,205
7,231
900
3,231
102
—
5,378
—
5,884
454
1,193
— $
—
—
—
(76)
—
(1,577)
(3,118)
(273)
— $
—
—
—
(1,088)
—
—
—
(52)
— $
— $
— $
(2,367)
(1,136)
(67)
—
(4,657)
—
—
—
(42)
(80)
—
(1,073)
—
(1,363)
(2,473)
(206)
(599)
(38)
—
(1,235)
—
(4,450)
(1,628)
(403)
—
—
255
—
1,610
—
4,699
466
1,117
Total
$
19,906 $
16,242 $
(5,044) $
(1,140) $
(7,133) $
(6,331) $
(8,353) $
8,147
At December 31, 2014, the non-performing commercial real estate category included eight loans, one of which was transferred from
potential problem loans during the current year. The largest relationship in this category, which was added in the current year, totaled
$2.0 million, or 43.3% of the total category, and is collateralized by office buildings in Southeast Missouri. The second largest
relationship in this category, which was added in a previous year, totaled $1.9 million, or 40.9%, of the total category, and is
collateralized by a theater property in Branson, Mo. The non-performing one- to four-family residential category included 37 loans,
20 of which were added during the year. There were 34 properties in the one-to four-family category which were transferred to
foreclosed assets during the year. Of those, 15 properties, totaling $2.1 million, related to two borrowers. The non-performing
consumer category included 74 loans, 58 of which were added during the year. The non-performing commercial business category
included eight loans, four of which were added during the year. The subdivision construction category of non-performing loans had a
balance of $-0- at December 31, 2014, and had $2.4 million transferred to foreclosed assets during the year. The total $2.4 million of
transfers to foreclosed assets was related to two borrowers, and $688,000 of the total $1.1 million of charge-offs for the subdivision
construction category was related to those two borrowers.
Foreclosed Assets. Of the total $45.8 million of other real estate owned at December 31, 2014, $5.7 million represents the fair value of
foreclosed assets covered by FDIC loss sharing agreements, $879,000 represents the fair value of foreclosed assets previously covered
by FDIC loss sharing agreements, $778,000 represents foreclosed assets related to Valley Bank and not covered by loss sharing
agreements, $87,000 represents other assets related to acquired loans, and $2.9 million represents properties which were not acquired
through foreclosure. The foreclosed assets and other assets related to acquired loans and the properties not acquired through
foreclosure are not included in the following table and discussion of foreclosed assets. Because sales of foreclosed properties
exceeded additions, total foreclosed assets decreased. Activity in foreclosed assets during the year ended December 31, 2014, was as
follows:
45
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
(In Thousands)
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
223 $
— $
11,652
18,920
—
744
5,900
4,135
79
715
2,144
76
—
4,800
—
417
—
3,051
(3,079)
(333)
—
(1,989)
(3,060)
(2,773)
(3)
(3,101)
— $
—
—
—
—
96
—
—
—
— $
(860)
(1,495)
—
(202)
(311)
(147)
(17)
(41)
223
9,857
17,168
—
3,353
2,625
1,632
59
624
Total
$
42,145
$
10,711 $
(14,338) $
96 $
(3,073) $
35,541
At December 31, 2014, the land development category of foreclosed assets included 33 properties, the largest of which was located in
northwest Arkansas and had a balance of $2.3 million, or 13.3% of the total category. Of the total dollar amount in the land
development category of foreclosed assets, 41.4% and 34.7% 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
31 properties, the largest of which was located in the St. Louis, Mo. metropolitan area and had a balance of $1.7 million, or 17.7% of
the total category. One relationship, which was originated in 2006, made up $1.3 million of the $2.1 million of additions in the
subdivision construction category, and is collateralized by property near the Kansas City, Mo. metropolitan area. Of the total dollar
amount in the subdivision construction category of foreclosed assets, 18.2% and 15.5% was located in Branson, Mo. and Springfield,
Mo., respectively. The one-to four-family residential category of foreclosed assets included 24 properties, of which the largest
relationship, with nine properties in the southwest Missouri area, had a balance of $1.2 million, or 34.8% of the total category. These
properties were all added in 2014. In addition, six properties securing loans totaling $936,000 to one borrower were added in 2014.
These properties were collateralized by property in the Branson, Mo., area. All of the properties discussed above which were added
during 2014 in the one-to four-family category were originally financed by the Bank prior to 2008. Of the total dollar amount in the
one-to- four-family category of foreclosed assets, 40.4% is located in Branson, Mo. The other residential category of foreclosed assets
included 12 properties, 10 of which were all part of the same condominium community, which was located in Branson, Mo. and had a
balance of $1.8 million, or 68.1% of the total category. Of the total dollar amount in the other residential category of foreclosed assets,
86.7% was located in the Branson, Mo., area, including the largest properties previously mentioned.
Potential Problem Loans. Potential problem loans decreased $2.0 million during the year ended December 31, 2014 from $27.0
million at December 31, 2013 to $25.0 million at December 31, 2014. This decrease was due to $7.9 million in loans transferred to the
non-performing category, $7.2 million in loans removed from potential problem loans due to improvements in the credits, $907,000 in
charge-offs, $419,000 in loans transferred to foreclosed assets, and $835,000 in payments on potential problem loans, partially offset
by the addition of $15.3 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, 2014,
was as follows:
46
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
$
— $
1,312 $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
2,201
10,857
—
2,193
1,956
8,737
860
183
4,392
—
—
2,749
—
5,805
849
145
— $
—
(5,000)
—
(250)
—
(1,905)
(43)
—
— $
— $
— $
— $
(1,806)
—
—
(2,412)
—
(3,456)
(225)
(6)
(2)
—
—
—
—
(417)
—
—
(500)
—
—
—
—
(381)
—
(26)
(33)
—
—
(374)
—
(340)
(6)
(82)
1,312
4,252
5,857
—
1,906
1,956
8,043
1,435
214
Total
$
26,987 $
15,252 $
(7,198) $
(7,905) $
(419) $
(907) $
(835) $
24,975
At December 31, 2014, the commercial real estate category of potential problem loans included eight loans, six of which were added
during the current year. The largest relationship in this category, which was added during a previous year, had a balance of $4.9
million, or 60.2% of the total category. The relationship is collateralized by properties located near Branson, Mo. The land
development category of potential problem loans included three loans, all of which were added during previous years. The largest
relationship in this category totaled $3.8 million, or 65.6% of the total category, and is collateralized by property in the Branson, Mo.,
area. The subdivision construction category of potential problem loans included eight loans, six of which were added during the
current year. The largest relationship in this category, which is made up of four loans which were added during the current year, had a
balance totaling $3.5 million, or 83.0% of the total category, and is collateralized by property in southwest Missouri. The loans in this
relationship which were added during the current year were all originated prior to 2008. The other residential category of potential
problem loans included one loan which was added in a previous year, and is collateralized by properties located in the Branson, Mo.,
area. The one- to four-family residential category of potential problem loans included 23 loans, nine of which were added during the
current year. Of the total $2.7 million of loans added during the year in this category, $1.1 million were transfers from non-
performing loans due to the improved condition of the borrower. The commercial business category of potential problem loans
included nine loans, six of which were added in the current year, of which three were part of the same relationship. The largest
relationship in this category had a balance of $660,000, or 46.0% of the total category, and is collateralized primarily by automobiles.
The one-to four-family construction category of potential problem loans included three loans, all of which were to the same borrower,
and all of which were added during the current year. These loans were collateralized by property in southwest Missouri and were all
originated prior to 2008. These loans are part of the same borrower relationship as the $3.5 million relationship added in the
subdivision construction category discussed above.
Non-Interest Income
Non-interest income for the year ended December 31, 2014 was $14.7 million compared with $5.3 million for the year ended
December 31, 2013. The increase of $9.4 million, or 177.2%, was primarily the result of the following increases and decreases:
Initial gain recognized on business acquisition: The Company recognized a one-time gain of $10.8 million (pre-tax) on the FDIC-
assisted acquisition of Valley Bank, which occurred on June 20, 2014.
Net realized gains on sales of available-for-sale securities: Gains on sales of available-for-sale securities increased $1.9 million
compared to the prior year. This was due to the sale of all of the Company’s Small Business Administration securities in June 2014,
which produced a gain of $569,000; the sale of the acquired Valley Bank securities in July 2014, which produced a gain of $121,000;
and the sale of the taxable municipal securities acquired in the Sun Security Bank transaction in October 2014, resulting in a gain of
$1.2 million.
Service charges and ATM fees: Service charges and ATM fees increased $848,000 compared to the prior year, primarily due to an
increase in fee income from the additional accounts acquired in the Valley Bank transaction in June 2014.
47
Partially offsetting the increase in non-interest income were the following items:
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $27.9
million for the year ended December 31, 2014, compared to $25.3 million for the year ended December 31, 2013. The amortization
expense for the year ended December 31, 2014, was made up of the following items: $27.5 million of amortization expense related to
the changes in cash flows expected to be collected from the FDIC-covered loan portfolios, $1.7 million of amortization of the
clawback liability and $152,000 of impairment of the indemnification asset for Vantus Bank. The impairment was recorded because
the Company did not expect, and did not receive, resolution of certain items related to commercial foreclosed assets prior to the
expiration of the non-single-family loss sharing agreement for Vantus Bank. In addition, the Company collected amounts on various
problem assets acquired from the FDIC totaling $1.9 million. Under the loss sharing agreements, 80% of these collected amounts
must be remitted to the FDIC; therefore, the Company recorded a liability and related expense of $1.5 million. Offsetting the expense
was income from the accretion of the discount related to the indemnification assets for all of the acquisitions of $2.4 million and
$600,000 of other loss share income items.
Gains on sales of single-family loans: Gains on sales of single-family loans decreased $782,000 compared to the prior year. This was
due to a decrease in originations of fixed-rate loans due to higher fixed rates on these loans during most of 2014 which resulted in
fewer loans being originated to refinance existing debt. Fixed rate single-family loans originated are subsequently sold in the
secondary market. The decrease occurred in the first six months of the year and was partially offset by an increase in gains on sales of
single-family loans during the last six months of the year ended December 31, 2014, which included additional loan originations in the
operations acquired in the Valley Bank transaction in June 2014.
Change in interest rate swap fair value: The Company recorded expense of $(345,000) during 2014 due to the decrease in the interest
rate swap fair value related to its matched book interest rate derivatives program. This compares to income of $295,000 recorded
during the year ended December 31, 2013.
Non-Interest Expense
Total non-interest expense increased $15.3 million, or 14.4%, from $105.6 million in the year ended December 31, 2013, to $120.9
million in the year ended December 31, 2014. The Company’s efficiency ratio for the year ended December 31, 2014, was 66.3%, up
from 64.1% in 2013. The 2014 ratio was negatively affected by the early repayment of certain borrowings in June 2014 and the
increase in non-interest expense related to the June 2014 Valley acquisition and other items as discussed above, partially offset by
increases in non-interest income resulting from the initial gain recognized on the Valley acquisition. The Company’s ratio of non-
interest expense to average assets increased from 2.79% for the year ended December 31, 2013, to 3.16% for the year ended
December 31, 2014. The increase in the current year ratio was primarily due to the increase in other operating expenses in the 2014
year compared to the 2013 year due to the penalties paid for prepayment of borrowings, write-downs related to certain foreclosed
assets and other non-interest expenses related to the Valley acquisition. Average assets for the year ended December 31, 2014,
increased $34.6 million, or 0.9%, from the year ended December 31, 2013. The following were key items related to the increase in
non-interest expense for the year ended December 31, 2014 as compared to the year ended December 31, 2013:
Other Operating Expenses: Other operating expenses increased $7.7 million, to $15.8 million for the year ended December 31, 2014
compared to the prior year period primarily due to $7.4 million in prepayment penalties paid as the Company elected in June 2014, to
repay $130 million of its FHLBank advances and structured repo borrowings prior to their maturity.
Valley Bank acquisition expenses: The Company incurred approximately $5.6 million of additional non-interest expenses during the
year ended December 31, 2014 related to the operations of Valley Bank, which was acquired through the FDIC in June 2014. Those
expenses included approximately $2.3 million of compensation expense, approximately $1.2 million of computer and equipment
expense, approximately $718,000 of net occupancy expense, approximately $241,000 of legal, audit and other professional fees
expense, approximately $333,000 of travel, meals and other expenses related to due diligence for the transaction and integration issues
and various other expenses. Approximately $2.6 million of these expenses are not expected to recur in future periods.
Expense on foreclosed assets: Expense on foreclosed assets increased $1.6 million for the year ended December 31, 2014 compared
to the prior year due to write-downs on foreclosed assets of approximately $2.0 million in 2014.
Provision for Income Taxes
In 2014, the Company elected to early-adopt FASB ASU No. 2014-01, which amends FASB ASC Topic 323, Investments – Equity
Method and Joint Ventures. This Update impacts the Company’s accounting for investments in flow-through limited liability entities
which 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
48
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 Company has significant
investments in such qualified affordable housing projects that meet the required conditions. The Company’s adoption of this Update
did not materially affect the Company’s financial position or results of operations, except that the investment amortization expense,
which previously was included in Other Non-interest Expense in the Consolidated Statements of Income, is now included in Provision
for Income Taxes in the Consolidated Statements of Income presented. As a result, there was no change in Net Income for the periods
covered in this document. In addition, there was no cumulative effect adjustment to Retained Earnings.
Provision for income taxes as a percentage of pre-tax income was 24.0% and 19.5% for the years ended December 31, 2014 and 2013,
respectively, which was lower than the statutory federal tax rate of 35%, due primarily to the effects of the tax credits utilized and to
tax-exempt investments and tax-exempt loans which reduced the Company’s effective tax rate. In future periods, the Company
expects its effective tax rate typically will be 20-25% 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 continue to utilize a significant amount of tax credits in 2015.
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, 2015, the Company had commitments of approximately $134.2 million to fund loan originations, $591.3 million of
unused lines of credit and unadvanced loans, and $32.1 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,
2015. 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
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)
$ 1,980,479
929,469
232,111
117,477
—
936
3,055
$
—
353,940
30,935
—
—
2,100
—
$
—
4,738
500
—
25,774
215
—
$ 1,980,479
1,288,147
263,546
117,477
25,774
3,251
3,055
$ 3,263,527
$ 386,975
$ 31,227
$ 3,681,729
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.
49
At December 31, 2015 and 2014, 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, 2015
$505.5 million
December 31, 2014
$395.3 million
633.7 million
199.2 million
59.8 million
563.2 million
218.6 million
63.7 million
Statements of Cash Flows. During the years ended December 31, 2015, 2014 and 2013, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the year ended December 31,
2015, and positive cash flows from investing activities during the years ended December 31, 2014 and 2013. The Company
experienced positive cash flows from financing activities during the year ended December 31, 2015, and negative cash flows from
financing activities during the years ended December 31, 2014 and 2013.
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, realized gains on the sale of investment
securities and loans, depreciation and amortization, 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 $71.4 million, $67.4
million and $93.9 million during the years ended December 31, 2015, 2014 and 2013, respectively.
During the year ended December 31, 2015, investing activities used cash of $196.2 million, primarily due to the net increases and
purchases of loans, partially offset by the net repayment or sales of investment securities. During the years ended December 31, 2014
and 2013, investing activities provided cash of $35.9 million and $124.7 million, primarily due to the cash received from the FDIC-
assisted acquisitions (2014) and the net repayment or sales of investment securities, partially offset by increases in loans.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are primarily due to
changes in deposits after interest credited, changes in FHLBank advances, changes in short-term borrowings and structured repurchase
agreements, dividend payments to stockholders and redemption of preferred stock (2015). Financing activities provided cash flows of
$105.3 million during the year ended December 31, 2015, primarily due to increases in customer deposit balances, partially offset by
net increases or decreases in various borrowings, dividend payments to stockholders and redemption of preferred stock. Financing
activities used cash flows of $112.6 million and $394.8 million during the years ended December 31, 2014 and 2013, respectively,
primarily due to reduction of customer deposit balances, net increases or decreases in various 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.
As of December 31, 2015, total stockholders’ equity and common stockholders’ equity were $398.2 million, or 9.7% of total assets,
equivalent to a book value of $28.67 per common share. At December 31, 2014, the Company's total stockholders' equity was $419.7
million, or 10.6% of total assets. At December 31, 2014, common stockholders' equity was $361.8 million, or 9.2% of total assets,
equivalent to a book value of $26.30 per common share.
At December 31, 2015, the Company’s tangible common equity to total assets ratio was 9.6% as compared to 9.0% at December 31,
2014. The Company’s tangible common equity to total risk-weighted assets ratio was 10.9% at December 31, 2015, compared to
10.9% at December 31, 2014.
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. Under current guidelines, which became effective
January 1, 2015, banks must have a minimum common equity Tier 1 capital ratio of 4.50% (new requirement), a minimum Tier 1 risk-
based capital ratio of 6.00% (increased from 4.00%), a minimum total risk-based capital ratio of 8.00%, and a minimum Tier 1
leverage ratio of 4.00%. To be considered "well capitalized," banks must have a minimum common equity Tier 1 capital ratio of
6.50% (new requirement), a minimum Tier 1 risk-based capital ratio of 8.00% (increased from 6.00%), a minimum total risk-based
capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%. On December 31, 2015, the Bank's common equity Tier 1
50
capital ratio was 11.0%, its Tier 1 capital ratio was 11.0%, its total capital ratio was 12.1% and its Tier 1 leverage ratio was 9.8%. As a
result, as of December 31, 2015, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.
Through December 31, 2014, guidelines required 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, 2014, the Bank's Tier
1 risk-based capital ratio was 11.4%, total risk-based capital ratio was 12.6% and the Tier 1 leverage ratio was 9.5%. As of December
31, 2014, the Bank was "well capitalized" as defined by the Federal banking agencies' capital-related regulations then in effect.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2015, the Company's common equity Tier 1 capital ratio was 10.8%, its Tier 1 capital ratio was 11.5%, its total capital
ratio was 12.6% and its Tier 1 leverage ratio was 10.2%. To be considered well capitalized, a bank holding company must have a Tier
1 risk-based capital ratio of at least 6.00% and a total risk-based capital ratio of at least 10.00%. As of December 31, 2015, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.
On December 31, 2014, the Company's Tier 1 risk-based capital ratio was 13.3%, total risk-based capital ratio was 14.5% and the Tier
1 leverage ratio was 11.1%. As of December 31, 2014, the Company was "well capitalized" under the capital ratios described above.
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
$57.9 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 all 58,000 shares of the
Company’s preferred stock, issued to Treasury in December 2008 pursuant to Treasury’s TARP Capital Purchase Program (the “CPP
Preferred Stock”). The shares of CPP Preferred Stock were redeemed at their liquidation amount of $1,000 per share plus the accrued
but unpaid dividends to the redemption date.
The SBLF Preferred Stock qualified as Tier 1 capital. The holders of SBLF Preferred Stock were 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, could 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 was 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 $(249.7 million). Based upon the increase in the Bank’s level of QSBL over the adjusted baseline level, the
dividend rate had been 1.0%. For the tenth calendar quarter through four and one-half years after issuance, the dividend rate was fixed
at between one percent (1%) and seven percent (7%) based upon the level of qualifying loans. The Company’s dividend rate was
1.0% during 2015, and was expected to remain at 1% until four and one half years after the issuance, which is March 2016. After four
and one half years from issuance, the dividend rate would have increased to 9% (including a quarterly lending incentive fee of 0.5%).
On December 15, 2015, the Company (with the approval of its federal banking regulator) redeemed all 57,943 shares of the SBLF
Preferred Stock at their liquidation amount of $1,000 per share plus accrued but unpaid dividends to the redemption date. The
redemption of the SBLF Preferred Stock was completed using internally available funds.
Dividends. During the year ended December 31, 2015, the Company declared common stock cash dividends of $0.86 per share
(26.2% of net income per common share) and paid common stock cash dividends of $0.84 per share. During the year ended December
31, 2014, the Company declared common stock cash dividends of $0.80 per share (25.8% of net income per common share) and paid
common stock cash dividends of $0.78 per share. The Board of Directors meets regularly to consider the level and the timing of
dividend payments. The $0.22 per share dividend declared but unpaid as of December 31, 2015, was paid to stockholders on January
11, 2016. In addition, the Company paid preferred dividends as described below.
The terms of the SBLF Preferred Stock limited the ability of the Company to pay dividends and repurchase shares of common stock.
Under the terms of the SBLF Preferred Stock, no repurchases could be effected, and no dividends could be declared or paid on
preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities (including the
common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the
SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu
may be paid to the extent necessary to avoid any resulting material covenant breach.
Under the terms of the SBLF Preferred Stock, the Company could 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
51
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. We satisfied this condition through the redemption date of
the SBLF Preferred Stock.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. Our ability to
repurchase common stock was 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 from December 2008 through August 2011. During the
year ended December 31, 2015, the Company did not repurchase any shares of its common stock. During the year ended December
31, 2014, the Company repurchased 18,000 shares of its common stock at an average price of $28.45 per share. During the years
ended December 31, 2015 and 2014, the Company issued 133,126 shares of stock at an average price of $25.26 per share and 99,097
shares of stock at an average price of $27.45 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.
52
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,
a negative gap within shorter repricing periods would adversely affect net interest income, while a positive gap within shorter
repricing periods would result in an increase in net interest income. During a period of falling interest rates, the opposite would be
true. As of December 31, 2015, Great Southern's internal 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. In June 2014, $130 million of fixed rate borrowings were repaid.
Excess liquidity and proceeds from the sale of certain investment securities were used to fund these repayments. The results of our net
interest income modeling were not materially affected by these transactions. 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, 2015 and 2014, there were
$424 million and $484 million, respectively, of adjustable rate loans which were tied to a national prime rate of interest which had
interest rate floors. In addition, Great Southern had 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. This rate increased to 5.25% in December 2015. At
December 31, 2015 and 2014, there were $114 million and $200 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 generally will be replaced with new certificates of deposit at similar or slightly higher interest rates to those that are maturing.
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
53
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 or loans with fixed rates that mature in less than
five years, 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
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. During 2015, the Company redeemed
$5.0 million of the total $30.0 million of its trust preferred securities. The interest rate cap related to this $5.0 million trust preferred
security was terminated and the remaining cost of this interest rate cap was amortized to interest expense in 2015.
The Company’s interest rate derivatives and hedging activities are discussed further in Note 17 of the accompanying audited financial
statements.
54
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2015. 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 other securities
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
Total financial assets
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand
Weighted average rate
Federal Home Loan Bank
Weighted average rate
Short-term borrowings
Weighted average rate
Subordinated debentures
Weighted average rate
$
$
$
$
$
$
December 31,
2016
2017
2018
2019
2020
Thereafter
Total
(Dollars In Thousands)
—
—
—
—
$ 15,218
—
—
— $
—
$ 18,645
$
5.68%
—
—
$ 122,046
5.95%
—
—
$ 137,212
—
—
—
—
5,342
5.39%
353
7.36%
83,985
0.25%
—
—
28,005
3.19%
—
—
346,940
4.28%
—
—
—
—
12,068
6.26%
$
$
— $
—
$ 286,020
$ 256,450
3.76%
4.03%
4.19%
4.25%
240,699
$ 231,031
$ 279,110
$ 331,689
$ 292,824
4.85%
—
—
4.77%
—
—
4.83%
—
—
4.91%
—
—
5.16%
— $
—
$
$
699,629
$ 529,119
$ 541,255
$ 468,953
$ 448,681
$ 1,114,721
2015
Fair Value
$
$
$
$
$
$
$
$
$
$
$
$
$
83,985
3,830
259,026
384
1,671,358
1,783,891
15,303
1,290,839
1,408,850
571,629
264,331
117,477
25,774
— $
—
3,830
—
179,748
$
$
2.37%
— $
—
522,424
$
4.22%
393,416
6.35%
15,303
2.57%
$
$
$
4,738
2.40%
— $
—
— $
—
500
5.54%
$
— $
—
25,774
$
1.93%
83,985
0.25%
3,830
—
259,026
3.13%
353
7.36%
1,671,092
3.85%
1,768,769
5.23%
15,303
2.57%
3,802,358
0.90%
1,408,850
0.24%
571,629
—
263,546
0.75%
117,477
0.04%
25,774
1.93%
$
1,288,147
929,469
$ 265,400
$
60,360
$ 12,536
$ 15,644
$
0.77%
$ 1,408,850
$
$
$
$
0.24%
571,629
—
232,111
0.42%
117,477
0.04%
—
—
1.13%
—
—
—
—
30,826
3.26%
—
—
—
—
$
1.42%
—
—
—
—
81
5.06%
—
—
—
—
$
1.37%
—
—
—
—
28
5.06%
—
—
—
—
1.79%
—
—
—
—
— $
—
—
—
— $
—
Total financial liabilities
$ 3,259,536
$ 296,226
$
60,441
$ 12,564
$ 15,644
$
31,012
$
3,675,423
_______________
(1)
Available-for-sale debt securities include approximately $161.2 million of mortgage-backed securities which pay interest and principal monthly to the
Company. Of this total, $143.1 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.
55
Repricing
December 31,
2016
2017
2018
2019
(Dollars In Thousands)
2020
Thereafter
Total
2015
Fair Value
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale other 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
$
$
83,985
0.25%
—
—
121,062
2.13%
—
—
$ 1,510,178
$
$
3.83%
240,699
4.85%
15,303
2.57%
$
$
$
—
—
—
—
20,274
$
4.45%
— $
—
23,624
$
3.67%
—
—
—
—
10,351
4.54%
353
7.36%
40,942
4.03%
231,031
$
279,110
4.77%
—
—
4.83%
—
—
$
$
$
—
—
—
—
33,055
3.60%
—
—
50,291
4.18%
331,689
4.91%
—
—
$
$
$
—
—
— $
—
18,645
$
5.95%
—
—
36,485
4.26%
292,824
$
$
5.16%
—
—
83,985
0.25%
3,830
—
259,026
3.13%
353
7.36%
$
$
$
$
83,985
3,830
259,026
384
— $
—
3,830
—
55,639
$
$
3.43%
— $
—
9,572
4.23%
$ 1,671,092
$ 1,671,358
3.85%
393,416
$ 1,768,769
$ 1,783,891
6.35%
— $
—
5.23%
15,303
$
15,303
2.57%
Total financial assets
$ 1,971,227
$
274,929
$
330,756
$
415,035
$
347,954
$
462,457
$ 3,802,358
$
929,469
$
265,400
$
60,360
$
12,536
$
15,644
$
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
Subordinated debentures
Weighted average rate
0.77%
$ 1,408,850
0.24%
—
—
262,111
0.74%
117,477
0.04%
25,774
1.93%
$
$
$
1.13%
—
—
—
—
826
5.36%
—
—
—
—
266,226
8,703
$
$
$
$
$
$
1.42%
—
—
—
—
81
5.06%
—
—
—
—
60,441
270,315
$
$
$
1.37%
—
—
—
—
28
5.06%
—
—
—
—
1.79%
—
—
— $
—
— $
—
—
—
—
—
4,738
2.40%
$ 1,288,147
$ 1,290,839
0.90%
0.24%
$
— $ 1,408,850
—
571,629
—
500
5.54%
571,629
—
263,546
$
0.76%
— $
—
— $
—
117,477
0.04%
25,774
1.93%
$ 1,408,850
$
$
$
$
571,629
264,331
117,477
25,774
Total financial liabilities
$ 2,743,681
Periodic repricing GAP
Cumulative repricing GAP
$
$
(772,454)
(772,454)
$ (763,751) $ (493,436) $
(90,965) $
241,346
12,564
402,471
$
$
15,644
332,310
$
$
$
576,867
$ 3,675,423
(114,410)
$
126,935
126,935
_______________
(1) Available-for-sale debt securities include approximately $161.2 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $143.1 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.
56
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2015 and 2014
57
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and
the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2015, 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, 2015, based on criteria established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated March 3, 2016, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
BKD, LLP
Springfield, Missouri
March 3, 2016
58
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2015 and 2014
(In Thousands, Except Per Share Data)
Assets
Cash
2015
2014
$
115,198
$
109,052
Interest-bearing deposits in other financial institutions
83,985
109,595
Cash and cash equivalents
199,183
218,647
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
262,856
365,506
353
450
12,261
14,579
Loans receivable, net of allowance for loan losses of $38,149
and $38,435 at December 31, 2015 and 2014, respectively
3,340,536
3,038,848
FDIC indemnification asset
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
Current and deferred income taxes
24,082
10,930
59,322
31,893
44,334
11,219
60,452
45,838
129,655
124,841
5,758
15,303
12,057
7,508
16,893
2,219
Total assets
$
4,104,189
$
3,951,334
See Notes to Consolidated Financial Statements
59
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Federal Home Loan Bank advances
Securities sold under reverse repurchase agreements with
customers
Short-term borrowings
Subordinated debentures issued to capital trust
Accrued interest payable
Advances from borrowers for taxes and insurance
Accrued expenses and other liabilities
Total liabilities
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding 2015 – -0-
shares and 2014 – 57,943 shares of SBLF
Common stock, $.01 par value; authorized 20,000,000
shares; issued and outstanding
2015 – 13,887,932 shares, 2014 – 13,754,806 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income
taxes of $3,227 and $3,789 at December 31, 2015 and
2014, respectively
Total stockholders’ equity
2015
2014
$
3,268,626
263,546
$
2,990,840
271,641
116,182
1,295
25,774
1,080
4,681
24,778
168,993
42,451
30,929
1,067
4,929
20,739
3,705,962
3,531,589
—
—
—
57,943
139
24,371
368,053
138
22,345
332,283
5,664
7,036
398,227
419,745
Total liabilities and stockholders’ equity
$
4,104,189
$
3,951,334
60
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2015, 2014 and 2013
(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
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 other real estate owned
Partnership tax credit
Other operating expenses
2015
2014
2013
$
$
177,240
7,111
184,351
$
172,569
10,793
183,362
163,903
14,892
178,795
13,511
1,707
65
714
15,997
168,354
5,519
162,835
1,136
19,841
3,888
2
2,129
(43)
—
(18,345)
4,973
13,581
58,682
25,985
3,787
3,566
2,317
1,333
3,235
2,713
2,526
1,680
8,526
114,350
11,225
2,910
1,099
567
15,801
167,561
4,151
163,410
1,163
19,075
4,133
2,139
1,400
(345)
10,805
(27,868)
4,229
14,731
56,032
23,541
3,578
3,837
2,404
1,464
2,866
3,957
5,636
1,720
15,824
120,859
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
2,108
8,128
105,618
See Notes to Consolidated Financial Statements
3
61
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2015, 2014 and 2013
(In Thousands, Except Per Share Data)
2015
2014
2013
Income Before Income Taxes
$
62,066
$
57,282
$
41,903
Provision for Income Taxes
Net Income
Preferred Stock Dividends
Net Income Available to Common Shareholders
Earnings Per Common Share
Basic
Diluted
15,564
46,502
554
45,948
3.33
3.28
$
$
$
13,753
43,529
579
42,950
3.14
3.10
$
$
$
8,174
33,729
579
33,150
2.43
2.42
$
$
$
See Notes to Consolidated Financial Statements
62
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
Net Income
$
46,502
$
43,529
$
33,729
2015
2014
2013
Unrealized appreciation (depreciation) on
available-for-sale securities, net of taxes (credit)
of $(528), $3,301and $(7,516) for 2015, 2014
and 2013, 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 $0,
$0 and $(20) for 2015, 2014 and 2013,
respectively
Less: reclassification adjustment for gains
included in net income, net of taxes of $(1),
$(749) and $(85) for 2015, 2014 and 2013,
respectively
Change in fair value of cash flow hedge, net of
taxes (credit) of $(34), $(88) and $(19) for 2015,
2014 and 2013, respectively
(1,321)
6,128
(13,959)
—
—
(37)
(1)
(1,390)
(158)
(50)
(164)
(34)
Other comprehensive income (loss)
(1,372)
4,574
(14,188)
Comprehensive Income
$
45,130
$
48,103
$
19,541
See Notes to Consolidated Financial Statements
5
63
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2015, 2014 and 2013
(In Thousands, Except Per Share Data)
SBLF
Preferred
Stock
Common
Stock
Balance, January 1, 2013
$
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, 2013
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.80 per share
SBLF preferred stock dividends accrued (1.0%)
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Purchase of the Company’s common stock
Balance, December 31, 2014
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.86 per share
SBLF preferred stock dividends accrued (1.0%)
Redemption of SBLF preferred stock
Other comprehensive loss
Reclassification of treasury stock per Maryland law
$
57,943
—
—
—
—
—
—
57,943
—
—
—
—
—
—
—
57,943
—
—
—
—
(57,943)
—
—
Balance, December 31, 2015
$
—
$
136
—
—
—
—
—
1
137
—
—
—
—
—
1
—
138
—
—
—
—
—
—
1
139
See Notes to Consolidated Financial Statements
64
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
18,394
—
1,173
—
—
—
—
19,567
—
2,778
—
—
—
—
—
22,345
—
2,026
—
—
—
—
—
$
$
276,751
33,729
—
(9,823)
(579)
—
511
300,589
43,529
—
(10,968)
(579)
—
(288)
—
332,283
46,502
—
(11,896)
(553)
—
—
1,717
16,650
—
—
—
—
(14,188)
—
2,462
—
—
—
—
4,574
—
—
7,036
—
—
—
—
—
(1,372)
—
$
— $
—
512
—
—
—
(512)
—
—
225
—
—
—
287
(512)
—
—
1,718
—
—
—
—
(1,718)
369,874
33,729
1,685
(9,823)
(579)
(14,188)
—
380,698
43,529
3,003
(10,968)
(579)
4,574
—
(512)
419,745
46,502
3,744
(11,896)
(553)
(57,943)
(1,372)
—
$
24,371
$
368,053
$
5,664
$
— $
398,227
65
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
(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 on available-for-sale
securities
Gain on sale of non-marketable securities
Gain on redemption of trust preferred
securities
(Gain) loss on sale of premises and
equipment
(Gain) loss on sale/write-down of
foreclosed assets
Gain on purchase of additional business
units
Amortization of deferred income,
premiums, discounts and other
(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
2015
2014
2013
$
46,502
158,730
(155,680)
$
43,529
156,632
(160,074)
$
33,729
215,744
(198,910)
10,465
3,430
382
5,519
(3,888)
(2)
(301)
(1,115)
(465)
8,747
3,242
565
4,151
(4,133)
(2,139)
—
—
18
(1,132)
2,996
—
(10,805)
8,036
8,107
443
17,386
(4,915)
(243)
—
—
(60)
1,259
—
10,595
22,692
29,510
43
(4,670)
289
3,982
3,354
(4,609)
345
(6,260)
1,227
8,430
502
(2,232)
(295)
(8,839)
1,347
(7,529)
4,260
(5,109)
71,429
67,433
93,921
See Notes to Consolidated Financial Statements
7
66
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
Cash received from purchase of additional
business units
Cash received from FDIC loss sharing
reimbursements
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 sale of non-marketable securities
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) redemption of Federal Home Loan
Bank stock
2015
2014
2013
$
(190,154)
(117,634)
$
(340,135)
(101,832)
$
(33,180)
(129,422)
—
189,437
—
2,599
(16,697)
1,883
23,497
(20)
351
97
56,169
63,463
(21,339)
8,377
(17,954)
203
21,706
(199)
—
355
220,169
103,475
(40,661)
28,511
(13,853)
1,518
48,900
(457)
—
115
108,487
210,798
(97,000)
1,590
(7,071)
273
Net cash provided by (used in) investing
activities
(196,195)
35,870
124,690
See Notes to Consolidated Financial Statements
67
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
Financing Activities
Net increase (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 increase (decrease) in short-term borrowings
Repayments of reverse repurchase borrowings
Repayments of structured repurchase borrowings
Advances from (to) borrowers for taxes and
insurance
Redemption of trust preferred securities
Redemption of preferred stock
Dividends paid
Purchase of the Company’s common stock
Stock options exercised
2015
2014
2013
$
191,224
$ (116,139)
$ (208,702)
87,113
6,509,500
(6,517,564)
(93,967)
—
—
(160,144)
4,231,000
(4,083,315)
74,768
—
(50,000)
(248)
(3,885)
(57,943)
(12,290)
—
3,362
580
—
—
(11,257)
(512)
2,438
(134,562)
1,980
(1,081)
(44,307)
(3,000)
—
1,567
—
—
(7,964)
—
1,242
Net cash provided by (used in) financing
activities
105,302
(112,581)
(394,827)
Decrease in Cash and Cash Equivalents
(19,464)
(9,278)
(176,216)
Cash and Cash Equivalents, Beginning of Year
218,647
227,925
404,141
Cash and Cash Equivalents, End of Year
$
199,183
$
218,647
$
227,925
See Notes to Consolidated Financial Statements
9
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 regulation by 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 by
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.
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.
69
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Principles of Consolidation
The consolidated financial statements include the accounts of Great Southern Bancorp, Inc., its
wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiaries, Great Southern
Real Estate Development Corporation, GSB One LLC (including its wholly owned subsidiary,
GSB Two LLC), Great Southern Financial Corporation, Great Southern Community Development
Company, LLC (including its wholly owned subsidiary, Great Southern CDE, LLC), GS, LLC,
GSSC, LLC, GS-RE Holding, LLC (including its wholly owned subsidiary, GS RE Management,
LLC), GS-RE Holding II, LLC, GS-RE Holding III, LLC, VFP Conclusion Holding, LLC and VFP
Conclusion Holding II, LLC. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Reclassifications
Certain prior periods’ amounts have been reclassified to conform to the 2015 financial statements
presentation. These reclassifications had no effect on net income.
Federal Home Loan Bank Stock
Federal Home Loan Bank common stock is a required investment for institutions that are members
of the Federal Home Loan Bank system. The required investment in common stock is based on a
predetermined formula, carried at cost and evaluated for impairment.
Securities
Available-for-sale securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and
losses are recorded, net of related income tax effects, in other comprehensive income.
Held-to-maturity securities, which include any security for which the Company has the positive
intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of
premiums and accretion of discounts.
Amortization of premiums and accretion of discounts are recorded as interest income from
securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses
on sales of securities are determined on the specific-identification method.
For debt securities with fair value below carrying value when the Company does not intend to sell
a debt security, and it is more likely than not the Company will not have to sell the security before
recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment (“OTTI”) of a debt security in earnings and the remaining portion in other
comprehensive income. For held-to-maturity debt securities, the amount of an OTTI recorded in
other comprehensive income for the noncredit portion of a previous OTTI is amortized
prospectively over the remaining life of the security on the basis of the timing of future estimated
cash flows of the security.
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The Company’s consolidated statements of income reflect the full impairment (that is, the
difference between the security’s amortized cost basis and fair value) on debt securities that the
Company intends to sell or would more likely than not be required to sell before the expected
recovery of the amortized cost basis. For available-for-sale and held-to-maturity debt securities
that management has no intent to sell and believes that it more likely than not will not be required
to sell prior to recovery, only the credit loss component of the impairment is recognized in
earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The
credit loss component recognized in earnings is identified as the amount of principal cash flows
not expected to be received over the remaining term of the security as projected based on cash
flow projections.
For equity securities, if any, 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 OTTI 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 Originated by the Company
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.
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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
non-classified 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 certain loan segments 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
not all of the principal and interest due under the loan agreement will be collected in accordance
with contractual terms. For non-homogeneous loans, such as commercial loans, management
determines which loans are reviewed for impairment based on information obtained by account
officers, weekly past due meetings, various analyses including annual reviews of large loan
relationships, calculations of loan debt coverage ratios as financial information is obtained and
periodic reviews of all loans over $1.0 million. 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
and reasons for the delay, the borrower’s prior payment record and the amount of any collateral
shortfall in relation to the principal and interest owed.
Large groups of smaller balance homogenous loans, such as consumer and residential loans, are
collectively evaluated for impairment. In accordance with regulatory guidelines, impairment in the
consumer and mortgage loan portfolio is primarily identified based on past-due status. Consumer
and mortgage loans which are over 90 days past due or specifically identified as troubled debt
restructurings will generally be individually evaluated for impairment.
Impairment is measured on a loan-by-loan basis for both homogeneous and non-homogeneous
loans by either the present value of expected future cash flows or the fair value of the collateral if
the loan is collateral dependent. 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.
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Loans Acquired in Business Combinations
Loans acquired in business combinations under ASC Topic 805, Business Combinations, require
the use of the purchase method of accounting. Therefore, such loans are initially recorded at fair
value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value
Measurements and Disclosures. No allowance for loan losses related to the acquired loans is
recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions
regarding credit risk. The fair value estimates associated with the loans include estimates related
to expected prepayments and the amount and timing of undiscounted expected principal, interest
and other cash flows.
For loans not acquired in conjunction with an FDIC-assisted transaction that are not considered to
be purchased credit-impaired loans, the Company evaluates those loans acquired in accordance
with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value
discount on these loans is accreted into interest income over the weighted average life of the loans
using a constant yield method. These loans are not considered to be impaired loans. The
Company evaluates purchased credit-impaired loans in accordance with the provisions of ASC
Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. 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 the 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 that are accounted for under the accounting guidance
for loans acquired with deteriorated credit quality are initially measured at fair value, which
includes estimated future credit losses expected to be incurred over the life of the loans.
The Company evaluates all of its loans purchased in conjunction with its FDIC-assisted
transactions in accordance with the provisions of ASC Topic 310-30. For purposes of applying
ASC 310-30, loans acquired in FDIC-assisted business combinations are aggregated into pools of
loans with common risk characteristics. All loans acquired in the FDIC transactions, both covered
and not covered by loss sharing agreements, were deemed to be purchased credit-impaired loans as
there is general evidence of credit deterioration since origination in the pools and there is some
probability that not all contractually required payments will be collected. As a result, related
discounts are recognized subsequently through accretion based on changes in the expected cash
flows of these acquired loans.
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 for impaired loans accounted for under ASC Topic 310-30. The Company
continues to estimate cash flows expected to be collected on pools of loans sharing common risk
characteristics, which are treated in the aggregate when applying various valuation techniques.
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.
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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
be collected over the terms of the loss sharing agreements. This discount has been, and will
continue to be, accreted to income over future periods. These acquisitions and agreements are
more fully discussed in Note 4.
Other Real Estate Owned
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. Other real estate owned also includes bank premises formerly, but no longer,
used for banking, as well as property originally acquired for future expansion but no longer
intended to be used for that purpose.
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.
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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.
A valuation allowance of $1.2 million related to bank premises and furniture, fixtures and
equipment was recorded during the year ended December 31, 2015, due to the Company’s
announced plans to consolidate operations of 14 banking centers into other nearby Great Southern
banking center locations. The closing of these 14 facilities occurred at the close of business on
January 8, 2016. No asset impairment was recognized during the years ended December 31, 2014
and 2013.
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 fair value are not recognized in the financial statements.
Intangible assets are being amortized on the straight-line basis generally over a period of seven
years. Such assets are periodically evaluated as to the recoverability of their carrying value.
A summary of goodwill and intangible assets is as follows:
December 31,
2015
2014
(In Thousands)
$
1,169
$
1,169
105
207
964
472
641
2,200
4,589
526
519
1,314
617
763
2,600
6,339
$
5,758
$
7,508
Goodwill – Branch acquisitions
Deposit intangibles
TeamBank
Vantus Bank
Sun Security Bank
InterBank
Boulevard Bank
Valley Bank
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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.
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 Common Share
Basic earnings per common share are computed based on the weighted average number of common
shares outstanding during each year. Diluted earnings per common share are computed using the
weighted average common shares and all potential dilutive common shares outstanding during the
period.
Earnings per common share (EPS) were computed as follows:
2015
2014
(In Thousands, Except Per Share Data)
2013
Net income
Net income available to common
shareholders
Average common shares outstanding
Average common share stock options
outstanding
Average diluted common shares
Earnings per common share – basic
Earnings per common share – diluted
$
$
$
$
46,502
45,948
$
$
43,529
42,950
$
$
33,729
33,150
13,818
13,700
13,635
182
176
80
14,000
13,876
13,715
3.33
3.28
$
$
3.14
3.10
$
$
2.43
2.42
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Options outstanding at December 31, 2015, 2014 and 2013, to purchase 117,600, 500 and 243,510
shares of common stock, respectively, were not included in the computation of diluted earnings per
common share for each of the years because the exercise prices of such options were greater than
the average market prices of the common stock for the years ended December 31, 2015, 2014 and
2013, respectively.
Stock Compensation 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, 2015, 2014 and 2013, share-based
compensation expense totaling $382,000, $565,000 and $443,000, 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, 2015 and 2014, cash equivalents consisted of interest-bearing
deposits in other financial institutions. At December 31, 2015, nearly all of the interest-bearing
deposits were uninsured with nearly all 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
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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, 2015 and 2014, no valuation allowance
was established.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiaries.
Derivatives and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives
and hedging activities with the intent to provide users of financial statements with an enhanced
understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity
accounts for derivative instruments and related hedged items and (c) how derivative instruments
and related hedged items affect an entity’s financial position, financial performance and cash
flows. Further, qualitative disclosures are required that explain the Company’s objectives and
strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains
and losses on derivative instruments, and disclosures about credit-risk-related contingent features
in derivative instruments. For detailed disclosures on derivatives and hedging activities, see
Note 17.
As required by FASB ASC 815, the Company records all derivatives in the statement of financial
condition at fair value. The accounting for changes in the fair value of derivatives depends on the
intended use of the derivative, whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting.
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, 2015 and 2014, respectively, was $58.9 million and
$72.3 million.
Recent Accounting Pronouncements
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 was effective for the Company beginning
January 1, 2015; however, early adoption was permitted. The Company elected to adopt this
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Update early, adopting it during the three months ended March 31, 2014. There was no material
impact on the Company’s financial position or results of operations, except that the investment
amortization expense which was previously included in Other Noninterest Expense in the
Consolidated Statements of Income was moved from Other Noninterest Expense to Provision for
Income Taxes in the Consolidated Statements of Income. For the year ended December 31, 2013,
$4.8 million was moved from Other Noninterest Expense to Provision for Income Taxes. This had
the effect of reducing Noninterest Expense and increasing Provision for Income Taxes, but did not
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 was effective for the Company beginning January 1, 2015, and
did not have a material impact on the Company’s financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860):
Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The guidance in
this Update changes the accounting for repurchase-to-maturity transactions and repurchase
financing arrangements. It also requires enhanced disclosures about repurchase agreements and
similar transactions. The accounting changes in this Update were effective for public companies
for the first interim or annual period beginning after December 15, 2014. In addition, for public
companies, the disclosure for certain transactions accounted for as a sale were effective for the first
interim or annual period beginning on or after December 15, 2014, and the disclosure for
transactions accounted for as secured borrowings was required to be presented for annual periods
beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The
adoption of this Update did not have a material effect on the Company’s consolidated financial
statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09. In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606):
Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and
Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The guidance in
this Update supersedes the revenue recognition requirements in ASC Topic 605, Revenue
Recognition, and most industry-specific guidance throughout the industry topics of the
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
codification. For public companies, the original Update was to be effective for interim and annual
periods beginning after December 15, 2016. The current ASU states that the provisions of ASU
2014-09 should be applied to annual reporting periods, including interim periods, beginning after
December 15, 2017. The Company is currently assessing the impact that this guidance will have
on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to
the Consolidation Analysis. The update changes the evaluation of whether limited partnerships
and similar legal entities are variable interest entities (VIE) or voting interest entities (VOE), and
consolidation conclusions could change for entities that are already considered VIEs. The update
also eliminates both the consolidation model specific to limited partnerships and the current
presumption that a general partner controls a limited partnership. The new authoritative guidance
is effective for interim and annual periods beginning after December 15, 2015. The Company is
currently assessing the impact that this guidance may have, if any, on its consolidated financial
statements.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820):
Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share. The
guidance in this update removes the requirement to categorize within the fair value hierarchy all
investments for which fair value is measured using the net asset value per share practical
expedient. The amendments also remove the requirement to make certain disclosures for all
investments that are eligible to be measured at fair value using the net asset value per share
practical expedient. Rather, those disclosures are limited to investments for which the entity has
elected to measure the fair value using that practical expedient. The new authoritative guidance is
effective for interim and annual periods beginning after December 15, 2015, with early adoption
permitted, and did not have a material effect on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Topic 825-
10): Recognition and Measurement of Financial Assets and Financial Liabilities. The Update
requires investments in equity securities, except for those under the equity method of accounting,
to be measured at fair value with changes in fair value recognized through net income. In addition,
the Update requires separate presentation of financial assets and liabilities by measurement
category, such as fair value through net income, fair value through other comprehensive income, or
amortized cost on the balance sheet or in the notes to the financial statements. The Update also
clarified guidance related to the valuation allowance assessment when recognizing deferred tax
assets resulting from unrealized losses on available-for-sale debt securities. The Update is
effective for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. Early application for public entities is permitted under some circumstances.
The Company is currently assessing the impact that this guidance may have, if any, on its
consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in
this Update revise the accounting related to lessee accounting. Under the new guidance, lessees
will be required to recognize a lease liability and a right-of-use asset for all leases. The Update is
effective for the Company beginning in the first quarter of 2019, with early adoption permitted.
Adoption of the standard requires the use of a modified retrospective transition approach for all
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
periods presented at the time of adoption. The Company is currently assessing the impact this
guidance may have on its consolidated financial statements.
Note 2:
Investments in Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
U.S. government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
U.S. government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
Amortized
Cost
$
20,000
159,777
72,951
847
$
253,575
Amortized
Cost
$
20,000
254,294
79,237
847
$
354,378
$
$
$
$
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
—
2,038
5,081
2,983
10,102
$
$
219
601
1
—
821
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
19,781
161,214
78,031
3,830
$
262,856
Fair
Value
—
4,325
5,810
2,307
12,442
$
$
486
821
7
—
$
19,514
257,798
85,040
3,154
1,314
$
365,506
At December 31, 2015, the Company’s mortgage-backed securities portfolio consisted of GNMA
securities totaling $101.6 million, FNMA securities totaling $17.6 million and FHLMC securities
totaling $42.0 million. At December 31, 2015, $143.1 million of the Company’s mortgage-backed
securities had variable rates of interest and $18.1 million had fixed rates of interest.
The amortized cost and fair value of available-for-sale securities at December 31, 2015, 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.
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
After one through five years
After five through ten years
After ten years
Securities not due on a single maturity date
Other securities
Amortized
Cost
Fair
Value
(In Thousands)
$
619
3,566
88,766
159,777
847
$
649
3,715
93,448
161,214
3,830
$
253,575
$
262,856
The amortized cost and fair values of securities classified as held to maturity were as follows:
Amortized
Cost
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
353
$
31
$
—
$
384
Amortized
Cost
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
450
$
49
$
—
$
499
The held-to-maturity securities at December 31, 2015, 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
$
353
$
384
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The amortized cost and fair values of securities pledged as collateral was as follows at
December 31, 2015 and 2014:
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In Thousands)
$
60,355
$
62,288
$
130,760
$
133,940
131,813
5,149
131,950
5,330
160,130
3,965
161,145
4,053
$
197,317
$
199,568
$
294,855
$
299,138
Public deposits
Collateralized borrowing
accounts
Other
Certain investments in debt securities are reported in the financial statements at an amount less
than their historical cost. Total fair value of these investments at December 31, 2015 and 2014,
was approximately $76.0 million and $106.0 million, respectively, which is approximately 28.9%
and 29.0% 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.
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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, 2015 and 2014:
Description of Securities
Less than 12 Months
Fair
Value
Unrealized
Losses
2015
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
U.S. government agencies
Mortgage-backed securities
States and political
subdivisions
$
20,000
45,494
$
—
$
(219)
(348)
—
—
9,635
910
$
—
(253)
(1)
$
20,000
55,129
$
910
(219)
(601)
(1)
$
65,494
$
(567)
$
10,545
$
(254)
$
76,039
$
(821)
Description of Securities
Less than 12 Months
Fair
Value
Unrealized
Losses
U.S. government agencies
Mortgage-backed securities
States and political
subdivisions
$
—
40,042
$
—
—
(328)
—
2014
12 Months or More
Fair
Value
Unrealized
Losses
$
(In Thousands)
20,000
45,056
$
(486)
(493)
Total
Fair
Value
Unrealized
Losses
$
20,000
85,098
$
(486)
(821)
(7)
925
(7)
925
$
40,042
$
(328)
$
65,981
$
(986)
$ 106,023
$
(1,314)
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
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 2015, 2014 and 2013, no securities were determined to have impairment that had become
other than temporary.
Credit Losses Recognized on Investments
There were no debt securities that 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.
Note 3:
Loans and Allowance for Loan Losses
Classes of loans at December 31, 2015 and 2014, 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
Acquired FDIC-covered loans, net of discounts
Acquired loans no longer covered by FDIC loss sharing
agreements, net of discounts
Acquired non-covered loans, net of discounts
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
85
2015
2014
(In Thousands)
$
23,526
38,504
58,440
600,794
110,277
149,874
1,043,474
419,549
357,580
37,362
439,895
74,829
83,966
236,071
$
40,361
28,593
52,096
392,929
87,549
143,051
945,876
392,414
354,012
41,061
323,353
78,029
66,272
286,608
33,338
93,436
3,800,915
(418,702)
(38,149)
(3,528)
$ 3,340,536
49,945
121,982
3,404,131
(323,572)
(38,435)
(3,276)
$ 3,038,848
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Classes of loans by aging were as follows:
December 31, 2015
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
$
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
Acquired FDIC-covered
loans, net of discounts
Acquired loans no longer
covered by FDIC loss
sharing agreements,
net of discounts
Acquired non-covered loans,
net of discounts
Less FDIC-supported loans,
and acquired non-covered
loans, net of discounts
(In Thousands)
$
— $
—
148
—
— $
—
139
—
649
—
2,532
1
$
$
22,877
38,504
55,908
600,793
$
23,526
38,504
58,440
600,794
345
—
471
—
9
—
891
236
123
603
715
2,277
108,000
110,277
345
13,488
—
288
—
721
576
297
345
14,994
—
1,317
—
4,963
1,755
632
149,529
1,028,480
419,549
356,263
37,362
434,932
73,074
83,334
149,874
1,043,474
419,549
357,580
37,362
439,895
74,829
83,966
9,712
18,251
217,820
236,071
649
—
2,245
1
1,217
—
1,035
—
1,020
—
3,351
943
212
7,936
989
39
33
1,061
32,277
33,338
1,081
20,679
638
3,503
5,914
32,228
7,633
56,410
85,803
3,744,505
93,436
3,800,915
10,006
1,280
15,659
26,945
335,900
362,845
Total
$
10,673
$
2,223
$ 16,569
$ 29,465
$ 3,408,605
$ 3,438,070
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
December 31, 2014
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
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
Acquired FDIC-covered
loans, net of discounts
Acquired loans no longer
covered by FDIC loss
sharing agreements,
net of discounts
Acquired non-covered loans,
net of discounts
Less FDIC-supported loans,
and acquired non-covered
loans, net of discounts
$
— $
109
110
—
2,037
583
6,887
—
59
—
1,801
1,301
89
6,236
(In Thousands)
— $
—
—
—
— $
—
255
—
— $
109
365
—
$
40,361
28,484
51,731
392,929
$
40,361
28,593
52,096
392,929
441
—
—
—
—
—
244
260
—
1,029
3,507
84,042
87,549
296
4,699
—
411
—
316
801
340
879
11,586
—
470
—
2,361
2,362
429
142,172
934,290
392,414
353,542
41,061
320,992
75,667
65,843
143,051
945,876
392,414
354,012
41,061
323,353
78,029
66,272
1,062
16,419
23,717
262,891
286,608
754
46
243
1,043
48,902
49,945
2,638
22,604
640
2,693
11,248
36,057
14,526
61,354
107,456
3,342,777
121,982
3,404,131
9,628
1,748
27,910
39,286
419,249
458,535
Total
$
12,976
$
945
$
8,147
$ 22,068
$ 2,923,528
$ 2,945,596
$
—
—
—
—
170
—
187
—
—
—
—
397
22
194
—
—
970
194
776
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Nonaccruing loans are summarized as follows:
December 31,
2015
2014
(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
$
—
—
139
—
715
345
13,488
—
288
—
721
576
297
Total
$
16,569
$
—
—
255
—
859
296
4,512
—
411
—
316
404
318
7,371
88
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The following table presents the activity in the allowance for loan losses by portfolio segment for the
year ended December 31, 2015. 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, 2015:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
$
3,455
$
2,941
$
19,773
$
3,562
$
3,679
$
5,025
$
38,435
1,428
(80)
97
193
(2)
58
(2,753)
(2,584)
302
(619)
(329)
405
1,450
(1,202)
276
5,820
(5,315)
2,569
5,519
(9,512)
3,707
$
$
$
$
$
$
$
4,900
$
3,190
$
14,738
$
3,019
731
3,464
705
$
$
$
— $
2,556
3,122
68
$
$
11,888
294
6,129
$
9,533
$
34,629
316,052
$ 410,016
$ 1,008,845
194,697
$
35,945
$
73,148
$
$
$
$
$
$
1,391
1,570
58
7,555
651,679
4,981
$
$
$
$
$
$
$
4,203
$
8,099
$
38,149
1,115
2,862
226
2,365
392,577
10,500
$
$
$
$
$
$
300
7,647
152
$
$
$
6,093
30,553
1,503
1,950
$
62,161
596,740
$3,375,909
43,574
$ 362,845
Allowance for Loan Losses
Balance, January 1, 2015
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2015
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
89
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The following table presents the activity in the allowance for loan losses by portfolio segment for the
year ended December 31, 2014. 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, 2014:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
$
6,235
$
2,678
$
16,939
$
4,464
$
6,451
$
3,349
$
40,116
(1,025)
(2,251)
496
227
(1)
37
1,855
(2,160)
3,139
(957)
(126)
181
409
(3,286)
105
3,642
(4,005)
2,039
4,151
(11,829)
5,997
3,455
$
2,941
$
19,773
$
3,562
$
$
$
$
$
$
$
3,679
$
5,025
$
38,435
823
2,805
51
2,725
392,348
17,789
$
$
$
$
$
$
232
4,321
472
$
$
$
5,142
31,157
2,136
1,480
$
61,739
466,174
$2,883,857
48,903
$ 458,535
$
$
$
$
$
$
1,507
1,905
150
7,601
437,424
1,937
Allowance for Loan Losses
Balance, January 1, 2014
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2014
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
$
$
$
$
$
$
$
— $
1,751
829
2,532
94
$
$
$
2,923
18
11,488
$
9,804
288,066
$ 382,610
234,158
$
48,470
$
$
$
$
$
16,671
1,351
28,641
917,235
107,278
90
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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:
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
$
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
16,939
$
4,464
6,451
$
3,349
$
40,116
$
$
$
$
$
$
$
6,235
$
2,678
2,501
3,734
$
$
—
2,678
— $
—
13,055
$
10,983
297,057
$ 314,616
206,964
$
35,095
$
$
$
$
$
$
$
90
16,845
4
31,591
791,329
84,591
$
$
$
$
$
$
$
$
$
473
3,991
4,162
2,287
— $
2
$
$
$
218
3,131
$
$
7,444
32,666
— $
6
12,628
229,332
6,989
$
$
$
8,755
$
1,389
$
78,401
306,514
$ 273,871
$ 2,212,619
4,883
$
47,642
$
386,164
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
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
The portfolio segments used in the preceding three tables correspond to the loan classes used in all
other tables in Note 3 as follows:
(cid:120) 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.
(cid:120) The other residential segment corresponds to the other residential class.
(cid:120) The commercial real estate segment includes the commercial real estate and industrial
revenue bonds classes.
(cid:120) The commercial construction segment includes the land development and commercial
construction classes.
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
(cid:120) The commercial business segment corresponds to the commercial business class.
(cid:120) 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, 2015 and 2014, was 4.56%
and 4.66%, 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 $237.7 million and
$266.4 million at December 31, 2015 and 2014, respectively. In addition, available lines of credit on
these loans were $32.3 million and $33.0 million at December 31, 2015 and 2014, 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 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, 2015, 2014 and 2013:
December 31, 2015
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
— $
— $
1,061
7,555
—
3,166
1,902
34,629
9,533
2,365
—
791
802
357
1,061
7,644
—
3,427
2,138
37,259
9,533
2,539
—
829
885
374
—
214
1,391
—
389
128
2,556
—
1,115
—
119
120
61
Year Ended
December 31, 2015
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
633
3,533
7,432
—
3,587
1,769
28,610
9,670
2,268
—
576
672
403
35
109
287
—
179
100
1,594
378
138
—
59
74
27
Total
$
62,161
$
65,689
$
6,093
$
59,153
$
2,980
92
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
December 31, 2014
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
1,312
4,540
7,601
—
3,747
1,889
28,641
9,804
2,725
—
420
629
431
$
1,312
4,540
8,044
—
4,094
2,113
30,781
9,804
2,750
—
507
765
476
—
344
1,507
—
407
78
1,751
—
823
—
63
94
75
Year Ended
December 31, 2014
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
173
2,593
9,691
—
4,808
4,010
29,808
10,469
2,579
2,644
219
676
461
76
226
292
—
212
94
1,253
407
158
—
37
71
25
Total
$
61,739
$
65,186
$
5,142
$
68,131
$
2,851
December 31, 2013
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
$
— $
— $
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
Year Ended
December 31, 2013
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
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
93
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
At December 31, 2015, $25.1 million of impaired loans had specific valuation allowances totaling
$6.1 million. At December 31, 2014, $20.0 million of impaired loans had specific valuation
allowances totaling $5.1 million. At December 31, 2013, $18.0 million of impaired loans had
specific valuation allowances totaling $7.4 million. For impaired loans which were nonaccruing,
interest of approximately $1.0 million, $1.1 million and $1.6 million would have been recognized
on an accrual basis during the years ended December 31, 2015, 2014 and 2013, 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 2015 and 2014 by type of
modification:
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Commercial
Consumer
Mortgage loans on real estate:
One- to four-family
residential construction
Subdivision construction
Residential one-to-four family
Commercial
Other residential
Commercial
Consumer
2015
Interest Only
Term
Combination
(In Thousands)
Total
Modification
$
$
— $
—
—
—
$
407
115
1,095
97
— $
1,714
$
164
—
—
—
164
$
$
571
115
1,095
97
1,878
2014
Interest Only
Term
Combination
(In Thousands)
Total
Modification
$
— $
—
308
506
—
—
—
— $
250
426
1,928
1,881
1,150
145
$
814
$
5,780
$
223
—
—
—
—
—
—
223
$
223
250
734
2,434
1,881
1,150
145
$
6,817
94
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
debt restructurings and impaired, as follows: $7.9 million of construction and land development
loans, $13.5 million of single family and multi-family residential mortgage loans, $21.3 million of
commercial real estate loans, $2.0 million of commercial business loans and $311,000 of consumer
loans. Of the total troubled debt restructurings at December 31, 2015, $39.0 million were accruing
interest and $12.2 million were classified as substandard using the Company’s internal grading
system which is described below. The Company had no troubled debt restructurings which were
modified in the previous 12 months and subsequently defaulted during the year ended
December 31, 2015. 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, 2014,
the Company had $47.6 million of loans that were modified in troubled debt restructurings and
impaired, as follows: $8.3 million of construction and land development loans, $13.8 million of
single family and multi-family residential mortgage loans, $23.3 million of commercial real estate
loans, $1.9 million of commercial business loans and $324,000 of consumer loans. Of the total
troubled debt restructurings at December 31, 2014, $39.2 million were accruing interest and $18.3
million were classified as substandard using the Company’s internal grading system.
During the year ended December 31, 2015, borrowers with loans designated as troubled debt
restructurings totaling $2.7 million met the criteria for placement back on accrual status. This
criteria is generally a minimum of six months of payment performance under original or modified
terms. The $2.7 million was made up of $1.3 million of commercial real estate loans, $1.0 million
of residential mortgage loans, $337,000 of construction and land development loans, $43,000 of
consumer loans and $29,000 of commercial business loans.
The Company reviews the credit quality of its loan portfolio using an internal grading system that
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.”
Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss
if certain deficiencies are not corrected. Doubtful loans are those having all the weaknesses
inherent to those classified Substandard with the added characteristics that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts, conditions and values,
highly questionable and improbable. 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 acquired FDIC-covered loans are evaluated using this internal grading system.
These loans are accounted for in pools and are currently substantially covered through loss sharing
agreements with the FDIC. Minimal adverse classification in the loan pools was identified as of
December 31, 2015 and 2014, respectively. The acquired loans no longer covered by the FDIC are
also evaluated using this internal grading system, and are accounted for in pools. Minimal adverse
classification in the loan pools was identified as of December 31, 2015 and 2014, respectively.
The acquired non-covered loans are also evaluated using this internal grading system. These loans
are accounted for in pools and minimal adverse classification in the loan pools was identified as of
December 31, 2015. See Note 4 for further discussion of the acquired loan pools and loss sharing
agreements.
95
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The Company evaluates the loan risk internal grading system definitions and allowance for loan
loss methodology on an ongoing basis. In the fourth quarter of 2014, the Company began using a
three-year average of historical losses for the general component of the allowance for loan loss
calculation. The Company had previously used a five-year average. The Company believes that
the three-year average provides a better representation of the current risks in the loan portfolio.
This change was made after consultation with our regulators and other third-party consultants, as
well as a review of the practices used by the Company’s peers. This change did not materially
affect the level of the allowance for loan losses. The general component of the allowance for loan
losses is affected by several factors, including, but not limited to, average historical losses, the
current composition of the loan portfolio, current and expected economic conditions, collateral
values and internal risk ratings. Management considers all these factors in determining the
adequacy of its allowance for loan losses. No other significant changes were made to the loan risk
grading system definitions and allowance for loan loss methodology during the past year.
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2015
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
Acquired FDIC-covered loans,
net of discounts
Acquired loans no longer covered
by FDIC loss sharing
agreements, net of discounts
Acquired non-covered loans,
net of discounts
$
22,798
34,370
47,357
600,794
108,584
144,744
1,005,894
409,172
355,370
37,362
439,157
74,167
83,627
236,055
33,237
91,614
$
— $
263
6,992
—
587
516
18,805
8,422
1,303
—
—
—
—
—
—
—
728
3,407
—
—
—
3,827
—
—
438
—
—
—
—
—
—
—
$
— $
464
4,091
—
1,106
787
18,775
1,955
469
—
738
662
339
— $
—
—
—
23,526
38,504
58,440
600,794
—
110,277
—
149,874
— 1,043,474
419,549
—
357,580
—
37,362
—
439,895
—
74,829
—
83,966
—
16
—
236,071
101
1,822
—
—
33,338
93,436
Total
$ 3,724,302
$
36,888
$ 8,400
$
31,325
$
— $ 3,800,915
96
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Satisfactory
Watch
December 31, 2014
Special
Mention
Substandard
(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
Acquired FDIC-covered loans,
net of discounts
Acquired loans no longer covered
by FDIC loss sharing
agreements, net of discounts
Acquired non-covered loans,
net of discounts
$
39,049
24,269
41,035
392,929
85,041
141,198
901,167
380,811
351,744
40,037
323,002
77,507
65,841
286,049
48,592
121,982
$
— $
21
5,000
—
— $
—
—
—
745
580
32,155
9,647
423
1,024
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,312
4,303
6,061
—
1,763
1,273
12,554
1,956
1,845
—
351
519
431
559
1,353
—
Doubtful
Total
$
— $
—
—
—
40,361
28,593
52,096
392,929
—
—
—
—
—
—
—
—
—
—
—
—
87,549
143,051
945,876
392,414
354,012
41,061
323,353
78,029
66,272
286,608
49,945
121,982
Total
$ 3,320,253
$
49,598
$
— $
34,280
$
— $ 3,404,131
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, 2015
and 2014, loans outstanding to these directors and executive officers are summarized as follows:
97
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Balance, beginning of year
New loans
Payments
Balance, end of year
December 31,
2015
2014
(In Thousands)
$
$
16,028
3,390
(5,131)
14,287
$
$
7,093
10,427
(1,492)
16,028
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 were
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, which five-year period ended March 31,
2014. The value of this loss sharing agreement was considered in determining fair values of loans
and foreclosed assets acquired. The loss sharing agreement is subject to the Bank following
servicing procedures as specified in the agreement with the FDIC. The expected reimbursements
under the loss sharing agreement were recorded as an indemnification asset at their preliminary
estimated fair value on the acquisition date. Based upon the acquisition date fair values of the net
assets acquired, no goodwill was recorded.
The Bank recorded a preliminary one-time gain of $27.8 million (pre-tax) based upon the initial
estimated fair value of the assets acquired and liabilities assumed in accordance with FASB ASC
805, Business Combinations. FASB ASC 805 allows a measurement period of up to one year to
adjust initial fair value estimates as of the acquisition date. Subsequent to the initial fair value
estimate calculations in the first quarter of 2009, additional information was obtained about the fair
value of assets acquired and liabilities assumed as of March 20, 2009, which resulted in
adjustments to the initial fair value estimates. Most significantly, additional information was
obtained on the credit quality of certain loans as of the acquisition date which resulted in increased
98
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 2015, 2014 and 2013 was $-0-, $-0- and $134,000, respectively.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $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 were 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, which five-year period ended September 30, 2014. The value of this
loss sharing agreement was considered in determining fair values of loans and foreclosed assets
acquired. The loss sharing agreement is subject to the Bank following servicing procedures as
specified in the agreement with the FDIC. The expected reimbursements under the loss sharing
agreement were recorded as an indemnification asset at their preliminary estimated fair value of $62.2
million on the acquisition date. Based upon the acquisition date fair values of the net assets acquired,
no goodwill was recorded. The transaction resulted in a preliminary one-time gain of $45.9 million,
which was included in Noninterest Income in the Company’s Consolidated Statement of Income for
the year ended December 31, 2009. During 2010, the Company continued to analyze its estimates of
99
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 2015, 2014 and 2013 was $-0-, $-0- and $104,000, 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
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 2015, 2014 and 2013 was $-0-, $105,000 and $974,000, respectively.
100
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 2015, 2014 and 2013 was $459,000, $544,000 and $636,000, respectively.
In addition to the loan and FDIC indemnification assets noted above, the acquisition consisted of
other assets with a fair value of approximately $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.
101
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Valley Bank
On June 20, 2014, Great Southern Bank entered into a purchase and assumption agreement with
the FDIC to purchase a substantial portion of the loans and investment securities, as well as certain
other assets, and assume all of the deposits, as well as certain other liabilities, of Valley Bank
(“Valley”), a full-service bank headquartered in Moline, Illinois, with significant operations in
Iowa. This transaction did not include a loss sharing agreement. The acquisition added banking
centers in new markets for the Company in eastern Iowa and enhanced our market presence in
central Iowa.
In this transaction, the Company acquired assets with a fair value of approximately $378.7 million
(approximately 10.0% of the Company’s total consolidated assets at acquisition) and assumed
liabilities with a fair value of approximately $367.9 million (approximately 9.8% of the Company’s
total consolidated assets at acquisition). Based upon the acquisition date fair values of the net
assets acquired, no goodwill was recorded. The transaction resulted in a one-time gain of $10.8
million, which was included in Noninterest Income in the Company’s Consolidated Statement of
Income for the year ended December 31, 2014. During 2014, the Company continued to analyze
its estimates of the fair values of the assets acquired and liabilities assumed. The Company
finalized its analysis of these assets and liabilities without adjustments to the initial fair value
estimates. The Bank recorded the fair value of the acquired loans at their estimated fair value of
$165.1 million. A premium was recorded in conjunction with the fair value of the acquired loans
and the amount amortized to yield during 2015 and 2014 was $794,000 and $501,000, respectively.
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 non-performing 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, 2015, 2014 and 2013, 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
102
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
agreements. This resulted in corresponding adjustments during the years ended December 31,
2015, 2014 and 2013, 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:
Year Ended December 31,
2015
2014
2013
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
13,720
$
31,461
$
40,947
Decrease in FDIC indemnification asset
as a result of accretable yield increase
(5,056)
(23,129)
(32,597)
The adjustments, along with those made in previous years, impacted the Company’s Consolidated
Statements of Income as follows:
Interest income
Noninterest income
Net impact to pre-tax income
Year Ended December 31,
2015
2014
2013
28,531
(19,534)
(In Thousands)
$
34,974
(28,740)
8,997
$
6,234
$
$
$
$
35,211
(29,451)
5,760
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 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. For the loan pools acquired in 2012 and 2011, the cash flow
estimates have increased, beginning in 2012. For the loan pools acquired in 2014, the cash flow
estimates have increased, beginning at the end of 2014. This resulted in increased income that was
spread on a level-yield basis over the remaining expected lives of the loan pools.
Because these adjustments will be recognized over the 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 $12.0 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 $(8.6) million. Of the
remaining adjustments, we expect to recognize $9.1 million of interest income and $(6.0) million
of non-interest income (expense) during 2016. Additional adjustments may be recorded in future
periods from the FDIC-assisted acquisitions, as the Company continues to estimate expected cash
flows from the acquired 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
103
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
credit adjustments estimated for each loan pool (as discussed above) and the loss sharing
percentages outlined in the Purchase and Assumption Agreement with the FDIC. These cash flows
were discounted to reflect the uncertainty of the timing and receipt of the loss sharing
reimbursement from the FDIC. The loss sharing asset is also separately measured from the related
foreclosed real estate.
The loss sharing agreement on the InterBank transaction includes a clawback provision whereby if
credit loss performance is better than certain pre-established thresholds, then a portion of the
monetary benefit is shared with the FDIC. The pre-established threshold for credit losses is $115.7
million for this transaction. The monetary benefit required to be paid to the FDIC under the
clawback provision, if any, will occur shortly after the termination of the loss sharing agreement,
which in the case of InterBank is 10 years from the acquisition date.
At December 31, 2015, 2014 and 2013, the Bank’s internal estimate of credit performance was
expected to be better than the threshold set by the FDIC in the loss sharing agreement. Therefore,
a separate clawback liability totaling $6.6 million, $6.1 million and $3.7 million was recorded at
December 31, 2015, 2014 and 2013, 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.
In addition, beginning in the three months ended December 31, 2014, the Company's net interest
margin has been impacted by additional yield accretion recognized in conjunction with updated
estimates of the fair value of the loan pools acquired in the June 2014 Valley Bank FDIC-assisted
transaction. Beginning with the three months ended December 31, 2014, the cash flow estimates
have increased for certain of the Valley Bank loan pools primarily based on significant loan
repayments and also due to collection of certain loans, thereby reducing loss expectations on
certain of the loan pools. This resulted in increased income that was spread on a level-yield basis
over the remaining expected lives of these loan pools. The Valley Bank transaction does not
include a loss sharing agreement with the FDIC. Therefore, there is no related indemnification
asset. The entire amount of the discount adjustment will be accreted to interest income over time
with no offsetting impact to non-interest income. The amount of the Valley Bank discount
adjustment accreted to interest income for 2015 was $5.7 million, and is included in the impact on
net interest income/net interest margin amount in the table above.
TeamBank Loans, Foreclosed Assets and Indemnification Asset
The following tables present the balances of the loans, discount and FDIC indemnification asset
related to the TeamBank transaction at December 31, 2015 and 2014. Through December 31,
2015, gross loan balances (due from the borrower) were reduced approximately $407.1 million
since the transaction date, because of $274.1 million of repayments by the borrower, $61.7 million
of transfers to foreclosed assets and $71.3 million of charge-downs to customer loan balances.
Based upon the collectability analyses performed at the time of 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.
104
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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
FDIC indemnification asset
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
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
29,115
$
(1,285)
(27,660)
170
90%
154
241
395
$
$
—
—
—
—
0 %
—
—
—
—
December 31, 2014
Loans
Foreclosed
Assets
(In Thousands)
$
43,855
$
132
(1,923)
(41,560)
372
85%
315
359
674
$
—
(119)
13
77%
10
—
10
FDIC indemnification asset
$
Vantus Bank Loans, Foreclosed Assets and Indemnification Asset
The following tables present the balances of the loans, discount and FDIC indemnification asset
related to the Vantus Bank transaction at December 31, 2015 and 2014. Through December 31,
2015, gross loan balances (due from the borrower) were reduced approximately $299.7 million
since the transaction date, because of $253.8 million of repayments by the borrower, $16.6 million
105
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
of transfers to foreclosed assets and $29.3 million of charge-downs to customer loan balances.
Based upon the collectability analyses performed at the time of 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.
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
31,818
$
608
(470)
(31,092)
256
61%
156
319
475
$
$
—
(418)
190
0%
—
—
—
December 31, 2014
Loans
Foreclosed
Assets
(In Thousands)
$
42,138
$
1,084
(504)
(40,997)
637
72%
461
324
785
$
$
—
(894)
190
0%
—
—
—
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
FDIC indemnification asset
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
FDIC indemnification asset
106
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Sun Security Bank Loans, Foreclosed Assets and Indemnification Asset
The following tables present the balances of the loans, discount and FDIC indemnification asset
related to the Sun Security Bank transaction at December 31, 2015 and 2014. Through December
31, 2015, gross loan balances (due from the borrower) were reduced approximately $190.6 million
since the transaction date, because of $130.8 million of repayments by the borrower, $28.2 million
of transfers to foreclosed assets and $31.6 million of charge-downs to customer loan balances.
Based upon the collectability analyses performed at the time of 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 $1.3 million expected loss remaining, $259,000 is non-loss share discount.
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, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
43,855
$
557
(2,171)
(40,349)
1,335
34%
456
1,725
(36)
—
(461)
96
80%
77
—
(63)
14
FDIC indemnification asset
$
2,145
$
107
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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, 2014
Loans
Foreclosed
Assets
(In Thousands)
$
59,618
$
2,325
(3,341)
(52,166)
4,111
65%
2,676
2,662
(267)
—
(1,488)
837
80%
670
—
(64)
606
FDIC indemnification asset
$
5,071
$
InterBank Loans, Foreclosed Assets and Indemnification Asset
The following tables present the balances of the loans, discount and FDIC indemnification asset
related to the InterBank transaction at December 31, 2015 and 2014. Through December 31, 2015,
gross loan balances (due from the borrower) were reduced approximately $199.7 million since the
transaction date, because of $163.9 million of repayments by the borrower, $14.4 million of
transfers to foreclosed assets and $21.4 million of charge-offs to customer loan balances. Based
upon the collectability analyses performed at the time of 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, 2015, 2014 and 2013
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
193,654
$
2,110
902
(4,901)
(170,308)
19,347
83%
16,032
2,360
3,920
(1,801)
20,511
$
$
—
—
(1,392)
718
80%
575
—
—
(33)
542
December 31, 2014
Loans
Foreclosed
Assets
(In Thousands)
$
244,977
$
4,494
1,361
(19,566)
(201,830)
24,942
82%
20,509
3,620
15,652
(2,967)
36,814
$
$
—
—
(3,986)
508
80%
406
—
—
(33)
373
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss sharing value
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Valley Bank Loans and Foreclosed Assets
The following tables present the balances of the loans and discount related to the Valley Bank
transaction at December 31, 2015 and 2014. Through December 31, 2015, gross loan balances
(due from the borrower) were reduced approximately $83.4 million since the transaction date,
because of $75.6 million of repayments by the borrower, $1.6 million of transfers to foreclosed
assets and $6.2 million of charge-offs to customer loan balances. The Valley Bank transaction did
not include a loss sharing agreement; however, the loans were recorded at a discount, which is
accreted to yield over the life of the loans. Based upon the collectability analyses performed at the
time of 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.
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
109,791
$
1,017
719
(3,213)
—
—
(93,436)
13,861
$
$
(995)
22
December 31, 2014
Loans
Foreclosed
Assets
(In Thousands)
$
145,845
$
1,514
(1,519)
(121,982)
23,858
$
$
778
—
—
(778)
—
Initial basis, 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
Initial basis, 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
110
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Changes in the accretable yield for acquired loan pools were as follows for the years ended December
31, 2015, 2014 and 2013:
TeamBank
Vantus
Bank
Sun
Security
Bank
(In Thousands)
InterBank
Valley
Bank
Balance, January 1, 2013
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2013
Additions
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2014
Accretion
Reclassification from nonaccretable
difference(1)
$
12,128
(9,473)
$
13,538
(8,940)
$
11,259
(16,885)
$ 42,574
(28,667)
$
—
—
—
4,747
7,402
—
(4,138)
3,601
6,865
(3,265)
205
1,127
16,739
26,188
5,725
—
(3,835)
2,563
4,453
(2,541)
1,448
11,113
—
(10,590)
40,095
—
(37,994)
—
22,976
(4,788)
7,429
33,991
(7,056)
7,952
(5,487)
3,459
36,092
(28,767)
11,132
(10,975)
9,022
8,159
Balance, December 31, 2015
$
3,805
$
3,360
$
5,924
$ 16,347
$
8,316
(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, InterBank
and Valley Bank for the year ended December 31, 2015, totaling $40,000, $1.1 million, $2.0
million, $4.8 million and $759,000, respectively; for TeamBank, Vantus Bank, Sun Security
Bank, InterBank and Valley Bank for the year ended December 31, 2014, totaling $3.2 million,
$2.4 million, $3.9 million, $9.2 million and $(9.6 million), respectively; and 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.
111
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Note 5: Other Real Estate Owned
Major classifications of other real estate owned at December 31, 2015 and 2014, 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
Acquired foreclosed assets no longer covered by
FDIC loss sharing agreements, net of discounts
Acquired foreclosed assets not covered by FDIC
loss sharing agreements, net of discounts (Valley Bank)
2015
2014
(In Thousands)
$
—
7,016
12,133
—
1,375
2,150
3,608
—
1,109
27,391
1,834
460
995
$
223
9,857
17,168
—
3,353
2,625
1,632
59
624
35,541
5,695
879
778
Foreclosed assets held for sale, net
30,680
42,893
Other real estate owned not acquired through
foreclosure
1,213
2,945
Other real estate owned
$
31,893
$
45,838
As of December 31, 2015, other real estate owned not acquired through foreclosure included nine
properties, eight 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.
During the year ended December 31, 2015, four properties which had previously been part of other
real estate owned not acquired through foreclosure were sold at a total net gain of $697,000. The
properties sold included three former branch locations, which were sold at a total net gain of
$270,000, as well as vacant land which was sold at a gain of $427,000.
At December 31, 2015, residential mortgage loans totaling $2.4 million were in the process of
foreclosure, $2.1 million of which were acquired loans. Of the $2.1 million of acquired loans,
$1.5 million are covered by loss sharing agreements and $646,000 were acquired in the Valley
Bank transaction.
112
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Expenses applicable to other real estate owned for the years ended December 31, 2015, 2014 and
2013, included the following:
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental income
2015
2014
(In Thousands)
2013
$
$
$
(397)
890
2,033
$
(91)
3,343
2,384
(231)
1,384
2,915
2,526
$
5,636
$
4,068
Note 6:
Premises and Equipment
Major classifications of premises and equipment at December 31, 2015 and 2014, stated at cost,
were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2015
2014
(In Thousands)
$
39,395
87,333
56,051
182,779
53,124
$
35,577
85,128
50,311
171,016
46,175
$
129,655
$
124,841
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, 2015, the Company had
thirteen investments, with a net carrying value of $25.1 million. At December 31, 2014, the
Company had thirteen investments, with a net carrying value of $29.6 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 proportional amortization
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.
113
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The remaining federal affordable housing tax credits to be utilized over a maximum of 15 years
were $32.7 million as of December 31, 2015, 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 $25.1 million, assuming all projects currently
under construction are completed and funded as planned. The Company’s usage of federal
affordable housing tax credits approximated $6.3 million, $6.0 million and $7.1 million during
2015, 2014 and 2013, respectively. Investment amortization amounted to $4.9 million, $4.7
million and $5.0 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Investments in Community Development Entities
The Company has invested in certain limited partnerships that were formed to develop and operate
business and real estate projects located in low-income communities. At December 31, 2015, the
Company had four investments, with a net carrying value of $3.5 million. At December 31, 2014,
the Company had four investments, with a net carrying value of $5.1 million. Due to the
Company’s inability to exercise any significant influence over any of the investments in qualified
Community Development Entities, they are all accounted for using the cost method. Each of the
partnerships provides federal New Market Tax Credits over a seven-year credit allowance period.
In each of the first three years, credits totaling five percent of the original investment are allowed
on the credit allowance dates and for the final four years, credits totaling six percent of the original
investment are allowed on the credit allowance dates. Each of the partnerships must be invested in
a qualified Community Development Entity on each of the credit allowance dates during the
seven-year period to utilize the tax credits. If the Community Development Entities cease to
qualify during the seven-year period, the credits may be denied for any credit allowance date and a
portion of the credits previously taken may be subject to recapture with interest. The investments
in the Community Development Entities cannot be redeemed before the end of the seven-year
period.
The remaining federal New Market Tax Credits to be utilized over a maximum of seven years were
$4.7 million as of December 31, 2015. Amortization of the investments in partnerships is expected
to be approximately $3.3 million. The Company’s usage of federal New Market Tax Credits
approximated $2.3 million, $2.3 million and $2.3 million during 2015, 2014 and 2013,
respectively. Investment amortization amounted to $1.7 million, $1.7 million and $1.6 million for
the years ended December 31, 2015, 2014 and 2013, 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.
114
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Note 8: Deposits
Deposits at December 31, 2015 and 2014, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2015
2014
(In Thousands, Except
Interest Rates)
—
$
571,629
$
518,266
0.24% - 0.19%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,408,850
1,980,479
863,865
381,956
39,592
1,137
1,304
293
1,288,147
1,375,100
1,893,366
798,932
227,476
61,146
8,065
1,435
420
1,097,474
$
3,268,626
$
2,990,840
The weighted average interest rate on certificates of deposit was 0.85% and 0.78% at
December 31, 2015 and 2014, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater
than $100,000 was approximately $493.6 million and $402.0 million at December 31, 2015 and
2014, respectively. The Bank utilizes brokered deposits as an additional funding source. The
aggregate amount of brokered deposits was approximately $283.7 million and $173.5 million at
December 31, 2015 and 2014, respectively.
At December 31, 2015, scheduled maturities of certificates of deposit were as follows:
2016
2017
2018
2019
2020
Thereafter
Retail
Brokered
(In Thousands)
Total
$
727,380
186,133
57,968
12,536
15,644
4,738
$
202,089
79,267
2,392
—
—
—
$
929,469
265,400
60,360
12,536
15,644
4,738
$
1,004,399
$
283,748
$
1,288,147
115
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
A summary of interest expense on deposits for the years ended December 31, 2015, 2014 and
2013, is as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2015
2014
(In Thousands)
2013
$
$
2,858
10,739
(86)
13,511
$
$
3,088
8,264
(127)
11,225
$
$
3,551
8,871
(76)
12,346
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2015 and 2014, consisted of the
following:
December 31, 2015
December 31, 2014
Due In
Amount
2015
2016
2017
2018
2019
2020
2021 and thereafter
$
—
232,071
30,826
81
28
—
500
263,506
Unamortized fair value adjustment
40
Weighted
Average
Interest
Rate
Weighted
Average
Interest
Rate
Amount
(In Thousands)
—%
0.42
3.26
5.14
5.14
—
5.54
0.76
$
240,065
70
30,826
81
28
—
500
271,570
71
0.41%
5.14
3.26
5.14
5.14
—
5.54
0.75
$
263,546
$
271,641
Also included in the Bank’s FHLB advances at December 31, 2015 and December 31, 2014, was 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.
In June 2014 the Company prepaid a total of $80 million of its Federal Home Loan Bank advances
and $50 million of structured repurchase agreements (see Note 12) as part of a strategy to utilize
the Bank’s liquidity and improve net interest margin. As a result, the Company incurred one-time
116
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
prepayment penalties totaling $7.4 million, which were included in other operating expenses in
2014.
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, 2015 and 2014. Loans with
carrying values of approximately $1.21 billion and $1.10 billion were pledged as collateral for
outstanding advances at December 31, 2015 and 2014, respectively. The Bank had potentially
available $505.5 million remaining on its line of credit under a borrowing arrangement with the
FHLB of Des Moines at December 31, 2015.
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2015 and 2014, are summarized as follows:
Notes payable – Community Development
Equity Funds
Overnight borrowings from the Federal Home Loan
Bank
Securities sold under reverse repurchase agreements
2015
2014
(In Thousands)
$
1,295
$
1,451
—
116,182
41,000
168,993
$
117,477
$
211,444
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 term of one-month or less.
Short-term borrowings had weighted average interest rates of 0.04% and 0.08% at December 31,
2015 and 2014, respectively. Short-term borrowings averaged approximately $192.1 million and
$165.2 million for the years ended December 31, 2015 and 2014, respectively. The maximum
amounts outstanding at any month end were $219.5 million and $211.4 million, respectively,
during those same periods.
117
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The following table represents the Company’s securities sold under reverse repurchase
agreements, by collateral type and remaining contractual maturity at December 31, 2015 and 2014:
FHLBank CD
Mortgage-backed securities – GNMA, FNMA, FHLMC
2015
Overnight and
Continuous
2014
Overnight and
Continuous
(In Thousands)
$
$
—
116,182
116,182
$
$
10,000
158,993
168,993
Note 11: Federal Reserve Bank Borrowings
At December 31, 2015 and 2014, the Bank had $633.7 million and $563.2 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, 2015 or 2014.
Note 12: Structured Repurchase Agreements
In September 2008, the Company entered into a structured repurchase borrowing transaction for
$50 million. This borrowing bore interest at a fixed rate of 4.34%, was scheduled to mature
September 15, 2015, and had a call provision that allowed the repurchase counterparty to call the
borrowing quarterly. The Company pledged investment securities to collateralize this borrowing.
In June 2014, the Company elected to repay this structured repurchase borrowing and incurred a
one-time prepayment penalty (see Note 9).
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 1.93% and 1.83% at December 31, 2015 and 2014,
respectively.
118
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 bore a floating
distribution rate equal to 90-day LIBOR plus 1.40%. The Trust III securities were redeemable at
the Company’s option beginning October 2012, and if not sooner redeemed, matured 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 1.64% at December 31, 2014.
In July 2015, the Company was the successful bidder in an auction of the $5.0 million aggregate
liquidation amount of floating rate cumulative trust preferred securities issued in 2007 by Great
Southern Capital Trust III. The Company purchased the trust preferred securities at a discount,
which resulted in a pre-tax gain of approximately $1.1 million. Subsequent to the purchase, which
resulted in the Company’s ownership of all of the outstanding common and preferred securities of
Great Southern Capital Trust III, such securities were canceled and the principal amount of the
Company’s related debentures, which had equaled the aggregate liquidation amount of the
outstanding common and preferred securities of Great Southern Capital Trust III, was reduced to
zero.
At December 31, 2015 and 2014, subordinated debentures issued to capital trusts are summarized
as follows:
2015
2014
(In Thousands)
Subordinated debentures
$
25,774
$
30,929
Note 14:
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2015 and 2014,
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, 2015 and 2014.
119
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
During the years ended December 31, 2015, 2014 and 2013, the provision for income taxes
included these components:
2015
2014
(In Thousands)
2013
Taxes currently payable
Deferred income taxes
Income taxes
$
$
20,234
(4,670)
15,564
$
$
20,013
(6,260)
13,753
$
$
17,013
(8,839)
8,174
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
Write-down of foreclosed assets
Write-down of fixed assets
Other
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,
2015
2014
(In Thousands)
$
13,848
259
1,302
4,056
417
—
19,882
(6,483)
(1,549)
(1,991)
(515)
(3,369)
(435)
(185)
(14,527)
$
13,452
317
1,527
3,970
—
350
19,616
(6,443)
(1,494)
(2,176)
(508)
(3,895)
(4,738)
(236)
(19,490)
Net deferred tax asset
$
5,355
$
126
120
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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
2015
35.0%
(2.4)
(8.1)
1.4
(0.8)
2014
35.0%
(3.0)
(9.5)
1.5
—
2013
35.0%
(4.6)
(12.5)
1.6
—
25.1%
24.0%
19.5%
The Company and its consolidated subsidiaries have not been audited recently by the Internal
Revenue Service (IRS) or the State of Missouri with respect to income or franchise tax returns and,
as such, tax years through December 31, 2005, have been closed without audit. The Company,
through one of its subsidiaries, is a partner in two partnerships currently under Internal Revenue
Service examination for 2006 and 2007. As a result, the Company’s 2006 and subsequent tax years
remain open for examination. The examinations of the partnerships have been advanced during
2015. One of the partnerships has advanced to Tax Court because a settlement was not reached at
the IRS appeals level. The Company believes the partnership has a strong case and intends to
defend its existing positions in Tax Court. The other partnership is at the IRS appeals level. The
Company does not currently expect significant adjustments to its financial statements from these
partnership examinations.
The Company is currently in administrative appeals with the State of Kansas for its 2010 through
2012 tax years. The Company protested the state’s initial assessment and expects to have an
informal conference with the Kansas Department of Revenue. The Company does not currently
expect significant adjustments to its financial statements from this state examination.
Note 15: Disclosures About Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:
(cid:120) Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted
unadjusted prices in active markets for identical assets that the Company has the ability to
access at the measurement date. An active market for the asset is a market in which transactions
for the asset or liability occur with sufficient frequency and volume to provide pricing
information on an ongoing basis.
(cid:120) Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained from sources
121
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
independent of the reporting entity including quoted prices for similar assets, quoted prices for
securities in inactive markets and inputs derived principally from or corroborated by observable
market data by correlation or other means.
(cid:120) Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source
independent of the reporting entity or the reporting entity's own assumptions that are supported
by little or no market activity or observable inputs.
Financial instruments are broken down as follows by recurring or nonrecurring measurement
status. Recurring assets are initially measured at fair value and are required to be remeasured at
fair value in the financial statements at each reporting date. Assets measured on a nonrecurring
basis are assets that, due to an event or circumstance, were required to be remeasured at fair value
after initial recognition in the financial statements at some time during the reporting period.
The Company considers transfers between the levels of the hierarchy to be recognized at the end of
related reporting periods. From December 31, 2014 to December 31, 2015, the interest rate
derivative asset and the interest rate derivative liability were transferred from Level 3 to Level 2 of
the hierarchy. The core valuation of these derivative assets and liabilities, including termination or
settlement value, are derived from observable market rates and are considered Level 2. Only the
credit valuation adjustment of these derivative assets and liabilities is considered Level 3 based on
its inputs, and that portion is immaterial to the overall value of the derivatives.
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, 2015 and 2014:
122
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Fair Value Measurements Using
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
(In Thousands)
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
19,781
161,214
78,031
—
2,711
(2,725)
19,514
257,798
85,040
—
—
—
—
—
—
—
—
—
—
—
—
—
2,502
(2,187)
Fair Value
$
$
19,781
161,214
78,031
3,830
2,711
(2,725)
19,514
257,798
85,040
3,154
2,502
(2,187)
December 31, 2015
U.S. government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
Interest rate derivative asset
Interest rate derivative liability
December 31, 2014
U.S. government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
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, 2015 and 2014, 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, 2015. For assets classified within Level 3 of the
fair value hierarchy, the process used to develop the reported fair value is described below.
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, state and
municipal bonds and certain other investments. 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, 2015 and 2014.
123
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Interest Rate Derivatives
The fair value is estimated using forward-looking interest rate curves and is determined using
observable market rates and, therefore, are classified within Level 2 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.
Interest
Rate Derivative
Asset
(In Thousands)
$
$
1,859
228
2,087
496
(2,583)
—
Interest Rate
Cap Derivative
Asset
Designated
as Hedging
Instrument
(In Thousands)
$
$
685
(270)
415
(287)
(128)
—
Balance, January 1, 2014
Net change in fair value
Balance, December 31, 2014
Net change in fair value
Transfer to level 2
Balance, December 31, 2015
Balance, January 1, 2014
Net change in fair value
Balance, December 31, 2014
Net change in fair value
Transfer to level 2
Balance, December 31, 2015
124
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Balance, January 1, 2014
Net change in fair value
Balance, December 31, 2014
Net change in fair value
Transfer to level 2
Balance, December 31, 2015
Nonrecurring Measurements
Interest
Rate Derivative
Liability
(In Thousands)
$
$
1,613
574
2,187
538
(2,725)
—
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, 2015 and 2014:
December 31, 2015
Impaired loans
Foreclosed assets held for sale
December 31, 2014
Impaired loans
Foreclosed assets held for sale
Fair Value
$
$
$
$
13,896
1,722
11,658
6,975
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
—
—
—
—
$
$
$
$
$
$
$
$
—
—
—
—
$
$
$
$
13,896
1,722
11,658
6,975
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.
125
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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, 2015 and 2014, 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.
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, 2015 and 2014, 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
126
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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, 2015 and 2014, 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, 2015 and 2014.
FDIC Indemnification Asset
As part of certain 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, 2015 and 2014, the carrying value was $395,000 and $684,000,
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, 2015 and 2014, the carrying value of the FDIC indemnification asset
was $475,000 and $785,000, 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, 2015 and 2014, the carrying value of the FDIC
indemnification asset was $2.2 million and $5.7 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, 2015 and 2014, the carrying value of the FDIC indemnification asset
was $21.1 million and $37.2 million, respectively.
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 five-year agreements for Team Bank and Vantus
Bank ended prior to December 31, 2015. 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
127
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 of these 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.
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.
128
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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.
December 31, 2015
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
December 31, 2014
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
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Subordinated debentures
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
$
199,183
353
12,261
$
199,183
384
12,261
3,340,536
10,930
15,303
3,268,626
263,546
117,477
25,774
1,080
3,355,924
10,930
15,303
3,271,318
264,331
117,477
25,774
1,080
Commitments to originate loans
Letters of credit
Lines of credit
—
145
—
—
145
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
$
218,647
450
14,579
3,038,848
11,219
16,893
2,990,840
271,641
211,444
30,929
1,067
$
218,647
499
14,579
3,047,741
11,219
16,893
2,996,226
273,568
211,444
30,929
1,067
—
92
—
—
92
—
1
2
2
3
3
3
3
3
3
3
3
3
3
3
129
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Note 16: Operating Leases
The Company has entered into various operating leases at several of its locations. Some of the
leases have renewal options.
At December 31, 2015, future minimum lease payments were as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$
936
786
582
415
317
215
$
3,251
Rental expense was $1.2 million, $1.1 million and $1.0 million for the years ended December 31,
2015, 2014 and 2013, respectively.
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 a 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 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
130
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 part of the Valley Bank FDIC-assisted acquisition, the Company acquired seven loans with
related interest rate swaps. Valley’s swap program differed from the Company’s in that Valley did
not have back to back swaps with the customer and a counterparty. Two of the seven acquired
loans with interest rate swaps have paid off. The notional amount of the five remaining Valley
swaps is $3.9 million at December 31, 2015. As of December 31, 2015, the Company had 28
interest rate swaps totaling $123.0 million in notional amount with commercial customers, and 28
interest rate swaps with the same notional amount with third parties related to its program. As of
December 31, 2014, the Company had 28 interest rate swaps totaling $125.1 million in notional
amount with commercial customers, and 28 interest rate swaps with the same notional amount with
third parties related to its program. During the years ended December 31, 2015 and 2014, the
Company recognized net losses of $43,000 and $345,000, 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. One 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
such that the Company will have an effective interest rate on that portion of its trust preferred
securities no higher than 2.37%. The agreement became effective on August 1, 2013 and has a
term of four years. The other agreement, with a notional amount of $5 million, was terminated
when the Company purchased the related trust preferred securities in July 2015. See Note 13 for
more information on the trust preferred securities transaction. The terminated agreement stated
that the Company paid 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 have risen above a certain
threshold, the counterparty would reimburse the Company for interest paid such that the Company
would have an effective interest rate on that portion of its trust preferred securities no higher than
2.17%.
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. During the years ended December 31, 2015 and 2014, the
Company recognized $-0- in noninterest income related to changes in the fair value of these
derivatives. During the years ended December 31, 2015 and 2014, the Company recognized
$187,000 and $19,000, respectively, in interest expense related to the amortization of the cost of
these interest rate caps. During the year ended December 31, 2015, one of the agreements was
terminated as noted above. As part of this termination, the remaining cost of the cash flow hedge,
$95,000, was recognized as interest expense in 2015 (included in the $187,000 discussed here).
131
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The table below presents the fair value of the Company’s derivative financial instruments as well
as their classification on the Consolidated Statements of Financial Condition:
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
2015
December 31,
2014
(In Thousands)
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
Prepaid expenses and other assets
Prepaid expenses and other assets
Accrued expenses and other liabilities
$
$
$
$
$
$
128
128
2,583
2,583
2,725
2,725
$
$
$
$
$
$
415
415
2,087
2,087
2,187
2,187
The following tables present the effect of derivative instruments on the statements of
comprehensive income:
Cash Flow Hedges
2015
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2014
(In Thousands)
2013
Interest rate cap, net of income taxes
$
(50)
$
(164)
$
(34)
132
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Agreements with Derivative Counterparties
The Company has agreements with its derivative counterparties. If the Company defaults on any
of its indebtedness, including a 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, 2015, 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 $2.8 million. The Company has minimum collateral posting thresholds with its
derivative counterparties. At December 31, 2015, 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 $4.5 million of collateral to satisfy the agreement. As of December 31,
2014, 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
$2.1 million. At December 31, 2014, 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 $3.1 million of collateral to satisfy the agreement. If the Company had breached any of
these provisions at December 31, 2015 and 2014, it could have been required to settle its
obligations under the agreements at the termination value.
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, 2015 and 2014, the Bank had outstanding commitments to originate loans and
fund commercial construction loans aggregating approximately $120.8 million and $130.0 million,
respectively. The commitments extend over varying periods of time with the majority being
disbursed within a 30- to 180-day period.
133
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 $13.4
million and $12.7 million at December 31, 2015 and 2014, 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 $32.1
million and $24.2 million at December 31, 2015 and 2014, respectively, with $29.5 million and
$21.7 million, respectively, of the letters of credit having terms up to five years and $2.6 million
and $3.5 million, respectively, of the letters of credit having terms over five years. Of the amount
having terms over five years, $1.7 million and $2.5 million at December 31, 2015 and 2014,
respectively, consisted of an outstanding letter of credit to guarantee the payment of principal and
interest on a Multifamily Housing Refunding Revenue Bond Issue.
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 $2.1 million and $2.5 million at
December 31, 2015 and 2014, 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, 2015, the Bank had granted unused lines of credit to borrowers aggregating
approximately $485.9 million and $105.4 million for commercial lines and open-end consumer
lines, respectively. At December 31, 2014, the Bank had granted unused lines of credit to
134
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
borrowers aggregating approximately $386.4 million and $92.3 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 its market areas. Although the Bank has a diversified portfolio, loans (excluding those covered
by loss sharing agreements) aggregating approximately $555.7 million and $524.7 million at
December 31, 2015 and 2014, respectively, are secured primarily by apartments, condominiums,
residential and commercial land developments, industrial revenue bonds and other types of
commercial properties in the St. Louis, Missouri, area.
Note 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 premises and equipment
to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
2015
2014
(In Thousands)
2013
$12,185
3,316
—
3,055
$19,975
1,805
202
2,896
$45,941
11,303
2,111
2,606
15,984
13,096
15,833
8,510
19,426
17,351
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 this plan
for the years ended December 31, 2015, 2014 and 2013, were approximately $742,000, $731,000
and $744,000, respectively. The Company’s contributions to the Pentegra DB Plan were not more
than 5% of the total contributions to the plan. The funded status of the plan as of July 1, 2015 and
2014, was 101.58% and 108.86%, respectively. The funded status was calculated by taking the
market value of plan assets, which reflected contributions received through June 30, 2015 and
2014, 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
135
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
compensation and also matches an additional 50% of the employee’s contribution on the next 2%
of the employee’s compensation. Employer contributions charged to expense for this plan for the
years ended December 31, 2015, 2014 and 2013, were approximately $951,000, $1.1 million and
$870,000, respectively.
Note 21: Stock Compensation Plans
The Company established the 2003 Stock Option and Incentive Plan (the “2003 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 598,224 shares of common stock. 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 the 2003
Plan; however, existing outstanding awards under the 2003 Plan were not affected. At
December 31, 2015, 265,182 options were outstanding under the 2003 Plan.
The 2013 Plan 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, 2015,
368,550 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, 2015, 2014 and 2013
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, 2013
Granted from 2003 plan
Exercised
Forfeited from terminated plan(s)
Termination of 2003 Plan
Available to grant from 2013 Plan
Granted from 2013 Plan
Balance, December 31, 2013
Granted from 2013 plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
Balance, December 31, 2014
Granted from 2013 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
326,622
(3,100)
—
46,818
(370,340)
—
700,000
(116,500)
583,500
(147,400)
—
—
10,700
446,800
(129,350)
—
—
14,000
733,292
3,100
(106,367)
(46,818)
—
583,207
—
116,500
699,707
147,400
(153,287)
(22,022)
(10,700)
661,098
129,350
(134,263)
(8,453)
(14,000)
$
24.227
23.957
19.687
27.202
29.515
25.597
32.450
27.088
27.387
30.204
26.560
49.199
25.403
24.941
33.389
Balance, December 31, 2015
331,450
633,732
$
31.297
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. The Company’s historical forfeitures of its share-based awards have not been material.
137
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 for the years ended December 31, 2015, 2014
and 2013:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2015
2014
2013
$0.88
1.66%
5 years
24.42%
$9.59
$0.80
1.40%
5 years
18.95%
$4.20
$0.72
1.53%
5 years
24.80%
$5.22
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, 2015:
Weighted
Average
Exercise
Price
$26.560
49.199
25.403
30.208
31.297
Weighted
Average
Remaining
Contractual
Term
6.72 years
7.22 years
Options
661,098
129,350
(134,263)
(22,453)
633,732
Options outstanding, January 1, 2015
Granted
Exercised
Forfeited
Options outstanding, December 31, 2015
Options exercisable, December 31, 2015
221,568
23.518
4.72 years
For the years ended December 31, 2015, 2014 and 2013, options granted were 129,350, 147,400,
and 119,600, 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, 2015, 2014 and 2013, was $2.3 million, $932,000 and
$858,000, respectively. Cash received from the exercise of options for the years ended
December 31, 2015, 2014 and 2013, was $3.4 million, $2.4 million and $1.2 million, respectively.
The actual tax benefit realized for the tax deductions from option exercises totaled $2.1 million,
$858,000 and $764,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
138
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
The following table presents the activity related to nonvested options under all plans for the year
ended December 31, 2015.
Nonvested options, January 1, 2015
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$28.148
49.199
24.299
30.051
Options
390,047
129,350
(87,349)
(19,884)
Nonvested options, December 31, 2015
412,164
35.479
Weighted
Average
Grant Date
Fair Value
$4.480
9.586
4.591
4.946
6.039
At December 31, 2015, there was $2.3 million of total unrecognized compensation cost related to
nonvested options granted under the Company’s plans. This compensation cost is expected to be
recognized through 2020, with the majority of this expense recognized in 2016 and 2017.
The following table further summarizes information about stock options outstanding at
December 31, 2015:
Range of
Exercise Prices
$8.360 to $19.530
$21.320 to $24.820
$25.480 to $29.860
$30.660 to $39.050
$41.500 to $50.710
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
Number
Outstanding
80,449
129,593
138,770
169,570
115,350
5.50 years
6.02 years
6.55 years
7.69 years
9.88 years
Weighted
Average
Exercise
Price
$17.834
23.694
28.632
32.628
50.478
Options Exercisable
Number
Exercisable
57,639
82,473
57,586
23,870
—
Weighted
Average
Exercise
Price
$17.281
23.094
27.408
30.660
—
633,732
7.22 years
31.297
221,568
23.518
139
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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:
2015
2014
(In Thousands)
Net unrealized gain on available-for-sale securities
$
9,282
$
11,129
Net unrealized loss on derivatives used for cash flow hedges
Tax effect
(391)
8,891
(3,227)
(304)
10,825
(3,789)
Net-of-tax amount
$
5,664
$
7,036
140
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Amounts reclassified from AOCI and the affected line items in the statements of income during the
years ended December 31, 2015, 2014 and 2013, were as follows:
Amounts Reclassified
from AOCI
2015
2014
(In Thousands)
2013
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
2
$
2,139
$
243
(1)
(749)
(85) Tax (expense) benefit
1
$
1,390
$
158
Unrealized gains on available-
for-sale securities
Income taxes
Total reclassifications out of
AOCI
$
$
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 U.S. GAAP,
regulatory reporting practices, and regulatory capital standards. 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 regulatory reporting standards to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table below as of
December 31, 2015) of Total and Tier I Capital (as defined) to risk-weighted assets (as defined), of
Tier I Capital (as defined) to adjusted tangible assets (as defined) and of Common Equity Tier 1
Capital (as defined) to risk-weighted assets (as defined). Management believes, as of December
31, 2015, that the Bank met all capital adequacy requirements to which it was then subject.
As of December 31, 2015, 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 as of December 31, 2015, the Bank must have maintained minimum
Total capital, Tier I capital, Tier 1 Leverage capital and Common Equity Tier 1 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, 2015, 2014 and 2013
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
(Dollars In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2015
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$452,637
$434,334
12.6%
12.1%
(cid:116) $288,279
(cid:116) $288,180
(cid:116) 8.0%
(cid:116) 8.0%
N/A
(cid:116) $360,225
N/A
(cid:116) 10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$414,488
$396,185
11.5%
11.0%
(cid:116) $216,209
(cid:116) $216,135
(cid:116) 6.0%
(cid:116) 6.0%
N/A
(cid:116) $288,180
N/A
(cid:116) 8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2014
Total risk-based capital
$414,488
$396,185
10.2%
9.8%
(cid:116) $162,576
(cid:116) $161,986
(cid:116) 4.0%
(cid:116) 4.0%
N/A
(cid:116) $202,482
N/A
(cid:116) 5.0%
$389,460
$396,157
10.8%
11.0%
(cid:116) $162,157
(cid:116) $162,101
(cid:116) 4.5%
(cid:116) 4.5%
N/A
(cid:116) $234,146
N/A
(cid:116) 6.5%
Great Southern Bancorp, Inc.
Great Southern Bank
$473,689
$410,291
14.5%
12.6%
(cid:116) $261,062
(cid:116) $260,919
(cid:116) 8.0%
(cid:116) 8.0%
N/A
(cid:116) $326,149
N/A
(cid:116) 10.0%
Tier I risk-based capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$435,254
$371,856
13.3%
11.4%
(cid:116) $130,531
(cid:116) $130,459
(cid:116) 4.0%
(cid:116) 4.0%
N/A
(cid:116) $195,689
N/A
(cid:116) 6.0%
$435,254
$371,856
11.1%
9.5%
(cid:116) $156,395
(cid:116) $156,197
(cid:116) 4.0%
(cid:116) 4.0%
N/A
(cid:116) $195,247
N/A
(cid:116) 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, 2015 and 2014, the Company and
the Bank exceeded their minimum capital requirements then in effect. 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, 2015, 2014 and 2013
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 the Circuit Court of Greene County,
Missouri by a customer alleging that the fees associated with the Bank’s automated overdraft
program in connection with its debit cards and ATM cards constitute unlawful interest in violation
of Missouri’s usury laws. The Court has certified a class of Bank customers who have paid
overdraft fees on their checking accounts pursuant to the Bank’s automated overdraft program.
The Bank intends to contest this case vigorously. 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 2015, 2014 and 2013:
2015
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
Net income available to common
shareholders
Earnings per common share – diluted
47,906
3,781
1,300
—
(56)
27,242
3,874
11,653
11,508
0.83
$
45,734
3,725
1,300
—
3,457
27,949
4,214
12,003
11,858
0.85
$
45,755
4,230
1,703
2
5,120
30,014
3,732
11,196
11,051
0.79
$
44,956
4,261
1,216
—
5,060
29,145
3,744
11,650
11,531
0.81
143
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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
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
$
$
2014
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
42,294
4,328
1,691
73
924
25,894
2,487
8,818
—
8,818
8,673
0.63
$
44,384
4,413
1,462
569
10,631
34,399
3,687
11,054
—
11,054
10,909
0.79
$
47,607
3,501
945
321
1,778
29,398
3,951
11,590
—
11,590
11,445
0.83
$
49,077
3,559
53
1,176
1,398
31,168
3,628
12,067
—
12,067
11,923
0.86
2013
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
47,356
5,224
8,225
34
2,924
25,920
2,517
8,394
—
8,394
8,249
0.60
$
43,481
4,980
3,671
97
2,327
26,712
2,221
8,224
—
8,224
8,079
0.59
$
43,019
4,555
2,677
110
929
26,156
2,121
8,439
—
8,439
8,294
0.61
$
44,939
4,444
2,813
2
(865)
26,830
1,315
8,672
—
8,672
8,528
0.62
144
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2015 and 2014, and statements
of income, comprehensive income and cash flows for the years ended December 31, 2015, 2014
and 2013, 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
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 income
December 31,
2015
2014
(In Thousands)
$
$
$
$
$
$
20,009
3,830
403,174
1,335
428,348
3,403
944
25,774
—
139
24,371
368,053
5,664
64,836
3,154
385,046
1,466
454,502
3,126
702
30,929
57,943
138
22,345
332,283
7,036
$
428,348
$
454,502
145
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Statements of Income
Income
Dividends from subsidiary bank
Interest and dividend income
Gain on redemption of trust
preferred securities and sale of
non-marketable 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
2015
2014
(In Thousands)
2013
$
27,000
5
$
36,000
22
$
24,000
20
1,416
(7)
28,414
1,139
714
1,853
26,561
(91)
—
(20)
—
13
36,002
24,033
1,198
567
1,765
1,132
560
1,692
34,237
(388)
22,341
(365)
26,652
34,625
22,706
19,850
8,904
11,023
$
46,502
$
43,529
$
33,729
146
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
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 redemption of trust preferred
securities
Net realized gains on sales of non-marketable
securities
Amortization of interest rate derivative
Changes in
Prepaid expenses and other assets
Accounts payable and accrued expenses
Income taxes
Net cash provided by operating activities
Investing Activities
(Investment)/Return of principal - other investments
Net cash provided by (used in) investing
activities
Financing Activities
Purchase of interest rate derivative
Redemption of preferred stock
Redemption of trust preferred securities
Purchases of the Company’s common stock
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
2015
2014
(In Thousands)
2013
$
46,502
$
43,529
$
33,729
(19,850)
382
(1,115)
(301)
204
(27)
63
55
25,913
16
16
—
(57,943)
(3,885)
—
(12,290)
3,362
(70,756)
(44,827)
64,836
20,009
730
(8,904)
565
—
—
19
(3)
(67)
43
35,182
20
20
—
—
—
(512)
(11,257)
2,438
(9,331)
25,871
38,965
64,836
570
$
$
(11,023)
443
—
—
—
4
(146)
1
23,008
(13)
(13)
(738)
—
—
—
(7,964)
1,242
(7,460)
15,535
23,430
38,965
565
$
$
$
$
147
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
Statements of Comprehensive Income
2015
2014
(In Thousands)
2013
Net Income
$
46,502
$
43,529
$
33,729
Unrealized appreciation on available-for-sale securities,
net of taxes of $273, $100 and $302, for 2015,
2014 and 2013, respectively
Change in fair value of cash flow hedge, net of taxes
(credit) of $(34), $(88) and $(19) for 2015, 2014 and
2013, respectively
Comprehensive income (loss) of subsidiaries
400
185
561
(50)
(1,722)
(164)
4,553
(34)
(14,715)
Comprehensive Income
$
45,130
$
48,103
$
19,541
Note 28: 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 all 58,000 shares of the Company’s
preferred stock, issued to Treasury in December 2008 pursuant to Treasury’s TARP Capital
Purchase Program (the “CPP Preferred Stock”). The shares of CPP Preferred Stock were
redeemed at their liquidation amount of $1,000 per share plus the accrued but unpaid dividends to
the redemption date.
The SBLF Preferred Stock qualified as Tier 1 capital. The holders of SBLF Preferred Stock were
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, could 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 was 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 $(249.7 million). Based upon the increase in the Bank’s level of QSBL over the adjusted
baseline level, the dividend rate had been 1.0%. For the tenth calendar quarter through four and
148
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
one-half years after issuance, the dividend rate was fixed at between one percent (1%) and seven
percent (7%) based upon the level of qualifying loans. The Company’s dividend rate was 1.0%
during 2015, and was expected to remain at 1% until four and one half years after the issuance,
which is March 2016. After four and one half years from issuance, the dividend rate would have
increased to 9% (including a quarterly lending incentive fee of 0.5%).
On December 15, 2015, the Company (with the approval of its federal banking regulator)
redeemed all 57,943 shares of the SBLF Preferred Stock at their liquidation amount of $1,000 per
share plus accrued but unpaid dividends to the redemption date. The redemption of the SBLF
Preferred Stock was completed using internally available funds.
Note 29: Consolidation of Banking Centers
On September 24, 2015, the Company announced plans to consolidate operations of 16 banking
centers into other nearby Great Southern banking center locations. As part of an ongoing
performance review of its entire banking center network, Great Southern evaluated each location
for a number of criteria, including access and availability of services to affected customers, the
proximity of other Great Southern banking centers, profitability and transaction volumes, and
market dynamics. This review culminated in the approval of the consolidation of these banking
centers by the Great Southern Board of Directors. Subsequent to this announcement, the Bank
entered into separate definitive agreements to sell two of the 16 banking centers, including all of
the associated deposits (totaling approximately $20 million), to separate bank purchasers. The sale
of one of the banking centers was completed on February 19, 2016 and the sale of the other
banking center is expected to be completed on or around March 18, 2016. The closing of the
remaining 14 facilities, which resulted in the transfer of approximately $127 million in deposits
and banking center operations to other Great Southern locations, occurred at the close of business
on January 8, 2016.
Note 30: Acquisition of Loans, Deposits and Branches
On September 30, 2015, the Company announced that it entered into a purchase and assumption
agreement to acquire 12 branches and related deposits and loans in the St. Louis, Mo., area from
Cincinnati-based Fifth Third Bank. The acquisition was completed at the close of business on
January 29, 2016.
The deposits assumed totaled approximately $228 million and had a weighted average rate of
approximately 0.28%, the composition of which was: demand deposits and NOW accounts – 42%;
money market accounts – 40%; and time deposits and IRAs – 18%.
The loans acquired totaled approximately $159 million and had a weighted average yield of
approximately 3.92%, the composition of which was: one- to four-family residential – 75%;
commercial real estate – 8%; home equity lines – 10%; commercial business – 5%; and consumer
and other – 2%. The one- to four-family residential loans are primarily loans made to professional
149
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
individuals in the St. Louis market, such as doctors and persons working in the field of medicine.
Approximately 55% of the total balance of these loans have fixed rates of interest for varying terms
up to 30 years. Approximately 45% of the total balance of these loans have rates of interest that
are fixed for varying terms (generally three to seven years), with rates that adjust annually
thereafter.
150
annual report 2015