may 9, 2017
28th annual meeting
of Shareholders
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 $4.6 billion in total assets, with nearly 1,300 dedicated associates
serving 182,000 households.
Headquartered in Springfield, Mo., the Company operates 108
offices in nine states, including 104 retail banking centers in Missouri,
Arkansas, Iowa, Kansas, Minnesota and Nebraska, three commercial
loan offices in Dallas, Tex., Tulsa, Okla., and Chicago, Ill., 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, 2016, there were 13,968,386 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,
2016, was $54.65.
High/Low Stock Price
2016
2015
2014
High
Low
High
Low
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend Declarations
45.00
41.29
43.54
56.70
35.47
34.56
34.48
38.35
$40.44
42.95
43.42
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
2016
2015
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$.22
.22
.22
.22
$.20
.22
.22
.22
$.20
.20
.20
.20
C2
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 at
GreatSouthernBank.com, the SEC website or
without charge by request to:
Kelly Polonus
Great Southern Bancorp, Inc.
P.O. Box 9009
Springfield, MO 65808
INVESTOR RELATIONS
Kelly Polonus
Great Southern Bank
P.O. Box 9009
Springfield, MO 65808
AUDITORS
BKD, LLP
P.O. Box 1190
Springfield, MO 65801-1190
LEGAL COUNSEL
Silver, Freedman, Taff 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: 800-952-9245
computershare.com
our view
94
years
and counting
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
To our shareholders
On behalf of the nearly 1,300 Great Southern associates, we are pleased to present
our 2016 Annual Report – “Always a Longer View.” Always considering a long-term
view is central to how we do business at Great Southern, whether it relates to our
customers, associates, communities or shareholders. This guiding principle has been
the key to our success for 94 years and, if anything, we follow this principle more
closely than ever. We guard against making short-sighted decisions that deliver only
near-term benefit; we want our decisions and subsequent actions to provide benefit
over the long term. We acknowledge that it is not always easy. It requires visionary
thinking and planning, a sharp focus, patience, and many times, fortitude. Many of our
accomplishments in 2016, which are shared below, reflect our long-view philosophy
and we believe that these activities will pay dividends in the years to come. Again, it
is our privilege to report the Company’s 2016 results, and more importantly, what lies
ahead for 2017 and beyond.
Expanding by strategic opportunity
In January 2016, we completed the purchase of 12 banking centers and related
deposits and certain loans in the St. Louis market from Cincinnati-based Fifth Third
Bank, which more than doubled both our banking center network and our number
of customer deposit accounts in this market. We added more than 12,000 customer
households and a team of talented, experienced associates. Loans acquired totaled
approximately $159 million and deposits assumed totaled approximately $228 million.
While this transaction was immediately accretive to earnings, we were not focused
on short-term results. We viewed this as an opportunity to significantly increase
our infrastructure and scale for future lasting growth. We now have 19 well-placed
banking centers that put us in a position to grow our presence in an important market.
Optimizing our customer access networks
During 2016, the Company decreased its banking center network from 110 to 104
full-service retail offices, which serve more than 182,000 households in six states.
Our banking center network and lines of business are regularly evaluated to ensure
we are serving customers in the best way possible and in response to their changing
needs and preferences. Thus, we open banking centers and invest resources where
customer demand leads, and from time to time, consolidate banking centers when
market conditions dictate.
In 2016, we made the difficult decision to consolidate operations of 16 banking
centers into other nearby Great Southern offices. Each consolidated office was
evaluated on a number of criteria, including access and availability of services to
1
2016
affected customers, the proximity of other Great Southern
banking centers, profitability, transaction volumes, and
market dynamics. Of these 16 consolidated banking
centers, 11 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. In addition, in
early 2016, two Missouri banking centers, with associated
deposits, were sold to separate buyers.
We continue to believe that banking centers are the most
important delivery channel for our customers, but also
the most expensive and dynamic channel. We constantly
analyze our system of banking centers to ensure efficiency.
As evidence of our analysis, consider our activities over the
last four years. We have acquired 24 offices – 13 banking
centers in Missouri and 11 in Iowa through our various
acquisitions. A total of five new offices were opened in
Omaha, Neb., Fayetteville, Ark., Ferguson, Mo., Columbia,
Mo., and Overland Park, Kan. Thirty-one banking centers
were consolidated into other Great Southern offices –
24 in Missouri, six in Iowa and one in Kansas; a total of
six banking centers were relocated to better facilities in
Springfield, Mo., Maple Grove, Minn., Ava, Mo., Ames,
Iowa, and Omaha, Neb.(two offices); and two Missouri
banking centers were sold. None of these decisions were
made to boost short-term profit, but rather to position the
Company for long-term growth.
Stand-alone commercial lending offices with the right local
team of lenders provide a compelling economic business
model. These offices have proven to be successful for our
Company through the years. We started with commercial
lending offices more than 10 years ago in St. Louis,
Kansas City and Northwest Arkansas and we’ve since
established retail banking networks in each of these market
areas. Three years ago, stand-alone commercial lending
offices were opened in Tulsa and Dallas, with both offices
providing significant commercial loan production and
efficient overhead. In the first quarter of 2017, we opened
a commercial loan production office in downtown Chicago.
A local and highly experienced commercial lender was
hired to manage that office. Other markets are also being
considered for future sites.
While we are focusing on fine-tuning our brick-and-mortar
network, we are also concentrating on other delivery
channels, such as mobile banking. Customer preferences
regularly change; the challenge is how to address these
preferences when individual customers desire change
at varying degrees and speeds. It’s a balancing act,
especially with the fast pace of technology. Again in
2016, we experienced significant growth in the number
of our mobile app users. More and more customers are
discovering the ease and simplicity of mobile banking
services, whether it’s transferring money, making a
total assets
$4.55 B
total deposits
$3.68 B
total loans
$3.76 B
total net income
$45.34 M
i
n
o
l
l
B
i
i
n
o
l
l
m
i
0
4
$
12 13 14 15 2016
12 13 14 15 2016
12 13 14 15 2016
0
12 13 14 15 2016
4
$
0
2
deposit using the smartphone’s camera or receiving alert
messages. Enhancing the functionality of our mobile app is
a priority with the latest being a person-to-person electronic
payment service called Send Money, which allows Great
Southern debit card customers to send one-time transfers to
recipients at any financial institution.
Fighting fraud
Debit card fraud in the banking industry continues to be
a significant issue. In 2016, we, along with most banks,
experienced significant losses due to compromised systems
at various merchants.
We are working hard to fight debit card fraud and fraud in
general. In partnership with our customers, we enhanced
our services to help protect our customers’ accounts and
reduce future fraud loss to the Company.
For example, chip-enabled debit cards have been issued
to the entire deposit customer base. Chip debit cards offer
customers an added layer of security, providing enhanced
protection against fraud, especially counterfeit cards.
Furthermore, we implemented Fraud Watch, a debit card
transaction notification system that automatically alerts
customers in real time to potentially fraudulent activity on
their Great Southern debit cards. We expect a healthy return
on investment in this anti-fraud system by reducing fraud
losses for years to come.
Restructuring
for scope and size
Chief Lending Officer Steve Mitchem will retire from the
Company in April 2017 after more than 27 years of dedicated
service. During his tenure, the Company’s loan portfolio
grew from $360 million, with lending operations primarily
in the southwest Missouri region, to $3.8 billion with
lending operations in nine states. In early 2016, Steve and
Management began planning for his retirement to ensure
a smooth management transition. At that time, the lending
division was restructured to better reflect the Company’s
size and scope. The lending division now has two separate
areas of responsibility – loan production led by John Bugh
and credit administration led by Kevin Baker. John and Kevin
book value
per common share
$30.77
0
3
$
5
2
$
0
2
$
2012
2013 2014 2015 2016
total return
5 year cumulative*
$261.23
$100
Great Southern Bancorp Inc
NASDAQ Composite
NASDAQ Financial
2011
2012
2013
2014
2015
2016
* 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, 2011, through December 31, 2016. The
graph assumes that $100 was invested in GSBC Common Stock on
December 31, 2011, and that all dividends were reinvested.
3
are long-term Great Southern lenders, who each have more
than 27 years of banking experience. We appreciate Steve’s
commitment and leadership; he will be greatly missed and
we wish him a healthy and enjoyable retirement.
Increasing our capital strength
Strong capital is a priority for our Company. Changes in the
economic cycle seem to produce strategic opportunities.
Winners in banking are those that have available capital
and are thus able to take advantage of the opportunities
that may arise. Even while our capital levels significantly
exceeded regulatory thresholds, in August 2016, we took
advantage of attractive market pricing to raise additional
regulatory capital by participating in a public sale of $75
million of 5.25% Fixed-to-Floating Rate Subordinated Notes.
The Notes were sold at par, resulting in net proceeds,
after underwriting discounts, commissions and insurance
costs, of approximately $73.5 million. These funds are
being used for general corporate purposes, including a
contribution of capital to the Bank to support organic growth
and possible opportunistic acquisitions. We fully recognize
this additional capital has a temporary negative effect on
earnings, but in the long term, it positions us for growth and
strategic opportunities.
Working for results
We are pleased with the performance of our Company in
2016. We will provide a few highlights here, but we invite
you to review detailed information in this Annual Report and
our 2016 Form 10-K filed with the Securities and Exchange
Commission.
Earnings for the year ended December 31, 2016, were
$45.3 million, or $3.21 per diluted common share. Return
on average common equity was 10.93%, return on average
assets was 1.04%, and net interest margin was 4.05%. The
Company ended the year with assets of $4.6 billion. Total
stockholders’ equity was $429.8 million, or 9.4% of assets,
equivalent to a book value of $30.77 per common share.
Relationships with new and existing commercial and
consumer customers increased significantly in 2016. We
maintained strong company-wide loan production, which
was somewhat offset by repayment headwinds, resulting
in net loan growth of $499.7 million, or 16.6%. Net loan
4
growth excludes loans previously acquired in FDIC-
assisted transactions and mortgage loans held for sale,
but includes the loans acquired from Fifth Third. Increased
loan production occurred across several loan types,
primarily multi-family loans, commercial real estate loans,
construction loans, consumer loans and home equity lines
of credit, and came from most of Great Southern’s primary
lending locations, including Springfield, St. Louis, Kansas
City, Des Moines and Minneapolis, as well as our Dallas
and Tulsa loan production offices. Since the end of 2015,
our largest increases in outstanding balances by loan type
were in multi-family residential mortgages at $232.4 million
and commercial real estate at $136.8 million. While loan
growth in 2016 was strong, this growth was not produced
by succumbing to pricing pressures or other competitive
forces. Our underwriting remains conservative and we grow
the loan portfolio one quality relationship at a time. As we
shared earlier in this letter, over the last 27 years, we have
grown the loan portfolio from $360 million to $3.8 billion.
This growth did not occur evenly and will not likely occur
evenly in the future. There will be years that economic
conditions and the competitive landscape allow for stronger
growth, and years where growth may not be so strong.
What will be consistent is our commitment to conduct
our credit activities in the best long-term interest of our
shareholders.
Credit quality continued to improve in 2016. Non-performing
assets, excluding FDIC-covered and formerly covered non-
performing assets and other FDIC-assisted acquired assets,
at December 31, 2016, were $39.3 million, a decrease
of $4.7 million from $44.0 million at December 31, 2015.
Non-performing assets as a percentage of total assets
were 0.86% at December 31, 2016, compared to 1.07% at
December 31, 2015.
Total deposits, including deposits from Fifth Third branches,
increased $408.6 million, or 12.5%, from the end of 2015.
We experienced net growth in core deposits (checking
and savings accounts and certificates of deposit) of
$368.1 million, and $40.5 million in wholesale funding. We
are quite pleased with this net growth in core deposits,
in consideration of the potential disruption caused by the
banking center consolidations and sales that occurred
during the year. Our deposit mix is a source of strength with
checking and savings accounts representing approximately
59.6% of the deposit portfolio and retail certificates of
deposit making up approximately 31.6%.
looking to 2017 and beyond
We will capitalize on our strengths and prepare for the
challenges that will likely come our way with continued
economic and political uncertainty. Maintaining a sharp
focus on developing and expanding customer relationships,
sustaining a strong credit discipline and driving operational
efficiencies will be our priorities. We have built an attractive
franchise in vibrant markets with excellent potential for
organic growth. Our geographic footprint is a proven
strength for our lending team as it allows us to make loans
in many different market areas, giving us the ability to grow
at a reasonable rate with rational pricing and structure.
Likewise on the retail side, we are optimistic about
developing relationships in our banking center network,
which has the capacity to bring on considerably more
business without commensurate growth in our expense
base. We anticipate that increased competition for deposits
to support loan demand and the possibility of rising interest
rates will be a challenge on the funding side. Again, the size
and scope of our Company will prove advantageous as we
can increase funding by offering geographically targeted
deposit products with special pricing, helping us reduce the
risk of cannibalization and increased funding costs in the
entire deposit portfolio.
Moving forward, we pledge to keep in mind the long-term
interests of those we serve. For our associates, we want
to make our Company a great place to work and grow
professionally. For our customers, it is our mission to build
winning and lasting relationships by providing the right
products and services delivered how and when they prefer.
For our many communities, we strive to support causes
and address needs to help them be even better places to
live and work. And finally, for our shareholders, we desire
to provide a superior long-term return on their investment
in our Company. It is not realistic to expect our Company,
or any company, to significantly increase earnings year after
year. In any given year, we may be subject to competitive
and economic forces, interest rate fluctuations and other
variables that may affect earnings. We will not be pressured
into making short-sighted decisions, like loose credit
underwriting to increase earnings, which could hurt the
long-term prospects for our Company. All of our decisions
keep our shareholders’ long-term interests in mind as we go
about our daily work.
2017and what lies ahead
Finally, we owe a debt of gratitude to our Board of Directors
for their guidance and support. In November 2016, we lost
an exemplary Director and dear friend with the passing of
Grant Q. Haden. He is sorely missed. As of March 1, 2017,
we warmly welcomed two new Directors to our Board –
Debra Mallonee (Shantz) Hart and Kevin Ausburn. We value
diversity of talent, knowledge and experience in our Board
members, and we are confident that these new members
will contribute a wealth of knowledge and complement and
strengthen our existing Board.
Thank you for your support of Great Southern. We invite
your feedback at any time.
Sincerely yours,
5
William V. TurnerJoseph W. Turner seeing opportunity
for lasting growth
We won’t claim to have foreseen our future
growth in 1923, but we can say how it came
about. We determined to look beyond our doors,
not in search of the nearest open spot, but for
places where we could fill a need, diversify our
company and find future long-term growth.
We started with one office in downtown
Springfield, Mo. As our customer base grew, so
did we. Eventually, the Great Southern sun could
be seen rising throughout southwest Missouri.
As we looked to neighboring states, we found
metropolitan areas that provided lending
opportunities and a larger customer base to
service. We weighed every expansion carefully,
making sure each was a good fit.
We now operate 108 offices across nine states;
Missouri, Iowa, Arkansas, Kansas, Minnesota,
Nebraska, Texas, Oklahoma, and Illinois.
What's Next
We have positioned ourselves in strong and
vibrant markets throughout our footprint, and we
continue to identify the capacity for growth in
each. With the assistance of our knowledgeable
and enthusiastic associates, we remain focused
on deepening customer relationships and
growing both our deposits and our loan portfolio.
2 %
19
% 4% 2% 3 % 1
4
$3.54 B
%
7
%
%
6
%
9
Legacy Loans
% by region
as of 12/31/16
8%
4%
12% 1
% 3.8 % 4.6 %
6 . 7% 5.9% 2.7% 1.4
$3.71 B
3.7
1
%
6
.
7
%
.
6
%
3
8
.
3
%
%
6
.
5
1
Deposits
% by region
as of 12/31/16
2016
6
Des Moines/Central IA KS Other Quad Cities Northwest ARSpringfield MO Other St Louis Kansas City Sioux City NE MNNorthwest AR KS OtherSt Louis Kansas City Springfield MO other IA+NE+SD TX OK MN AR Other Other regions
Communities with
Banking Centers
Stand-alone
Commercial
Lending Offices
70+
communities
9
states
locations
2016
100+
2010
75
2007
39
1923
1
long-term growth
7
Des Moines/Central IA KS Other Quad Cities Northwest ARSpringfield MO Other St Louis Kansas City Sioux City NE MNNorthwest AR KS OtherSt Louis Kansas City Springfield MO other IA+NE+SD TX OK MN AR Other Other regions staying ahead with customers
Our approach to customer service not only establishes solid
relationships, but also allows us to build the kind of trust that gains us
a special place in our customers' daily lives. As the industry changes,
we continue to be more than their bank; we are who they rely on
because we know them, their families and their needs.
We remain focused on being relevant with our customers. Despite
the rise in smartphone popularity and mobile banking capabilities, we
confirmed our belief through various focus groups and surveys that
consumers continue to want the ability to access and speak with
experts in person when they have questions about their financial
needs. The opportunity to interact with our customers in a personal
manner reinforces our commitment to build winning relationships
and provides us with an opportunity to expand and deepen existing
relationships.
Smart expansion
We continue to invest in key markets that demonstrate success and
future growth potential. The 2016 acquisition in St. Louis more than
doubled our presence in an already successful market. Through the
hard work and familiar faces of our associates, we were successful
in retaining a significant number of customer deposits from acquired
accounts. In addition to the investment in St. Louis, our commitment
to the Omaha market led to the relocation of two leased facilities to
permanently-owned buildings offering better accessibility, visibility and
coverage for our customers.
1923
936
customers
2016
182,000+
customer households
services per
household
3.1
10 years+
average length of
retail customer relationship
(including acquisitions)
relationships made
now
8
& beyond
Even great relationships can be
greater as we get to know our
customers better.
Deepening each
relationship
We deepen customer relationships
by listening to our customers and
understanding their current and
future needs. We then provide the
right products to address these
needs with a clear understanding
of how the products work. If we
get this right, strengthening both
customer loyalty and share of wallet
will likely follow.
We developed an effective 2-2-2
“welcome” program that ensures
our associates reach out personally
to new customers in a timely,
consistent and helpful manner.
First with a handwritten thank
you two days after establishing a
relationship, followed by phone
calls after both two weeks and
two months to be sure our new
customer is satisfied and to build on
the relationship.
Using marketing analytics, we can
better know our customers and
their relationships. This knowledge
supports our goal to strengthen
relationships and our marketing
strategies to seek out the best
opportunities for our customers.
These analytics further our efforts
to identify key customer prospects
and tailor our message to obtain
better results.
Continuous change
for the better
We actively seek new products
and services that our customers
will find useful and beneficial. In
2016, we introduced chip debit
cards to provide additional security
for our debit card customers. Chip
technology offers an additional layer
of security, providing enhanced
protection against fraud when
using a chip-enabled terminal. Each
time a chip debit card is used at
a chip-enabled terminal, a unique
transaction code is generated that
cannot be replicated, making it more
difficult for criminals to fraudulently
duplicate the card.
In October 2016, we began offering
a popular 15-month promotional
certificate of deposit earning 1.11%
APY; to date, this product has
resulted in more than $100 million
in deposits.
growing trends
in 2016
Downloads
up 29%
Mobile
App
23% more app logins
73% more
$ deposited
Mobile check
deposit
102%
increase in
New
Users
text banking
new users
up 42%
27% more
online loan
applications
submitted
and tomorrow
9
focused on what we do best
The Company’s overall loan portfolio is diverse by
type and represents a wide array of consumer and
commercial customer relationships as shown in the
graphic to the right. The largest segment of our loan
portfolio is commercial real estate loans, a niche and
an area of expertise for our Company for decades.
2016 was a record production year for commercial
lending with more than $1.2 billion loans originated.
Seven of the 12 commercial loan offices in our
franchise each produced in excess of $100 million in
new commercial loans in 2016.
Our lending achievements are a result of our
experienced and growing lending team. Led by
commercial lending market managers with an average
of more than 20 years of lending experience, we are
well positioned to serve lending needs throughout our
footprint. To leverage additional opportunities, in 2016,
we added more lenders to our Minneapolis, Dallas
and Kansas City markets. In addition, we introduced a
Credit Analyst Training program to further strengthen
our lending team in the long term. The program
involves six months of general training prior to being
assigned to a commercial lending office.
As we look forward, we continue to focus on
developing relationships and growing the loan portfolio
with high-quality loans. A commitment to sustaining
a strong credit discipline is central to our portfolio
management, and the Bank’s Loan Committee, which
meets twice weekly, keeps these credit discipline
principles top-of-mind.
positive gains
10
Multi-family Housing
Single-family Homes
$3.54 billion
Legacy Loan Portfolio
as of 12/31/16 *includes Home Equity Loans of $108,906
6%
Restaurant
19%
Office
3%
Recreational
32%
Retail
1%
Storage
15%
Health Care
6%
Other
10%
Industrial
8%
Hotel/Motel
$1.16 billion Commercial Real Estate Loans by type
as of 12/31/16
2017
$378.85 million
Construction & Land
Development Loans
by type
as of 12/31/16
53% Apartments
4% Residential Land Development
10% Commercial Land Development
1% Industrial
3% Health Care
14% Retail
1% Motels/Hotels
6% Office
5% Other
3% Single Family
chicago bound
The decision to expand our commercial lending
presence to Chicago wasn’t an overnight
decision. Geographically, Illinois fits well within
our footprint throughout the Midwest and we
have several existing clients who are based
out of, or have assets in, Chicago. The stable
commercial real estate market and opportunities
were very attractive; however, we knew
selecting a qualified individual to manage this
new market was paramount to its success. After
more than two years of considering this market,
we were introduced to Rick Percifield. Rick
brings more than thirty years of banking and
lending experience in the Chicago area to our
Company and he is based in downtown Chicago.
positive markets
11
always the bigger
picture
Through our Community Matters program,
we’re focused on making a sustainable impact
by lending and investing in our local economies,
financially contributing to community partners to
meet area needs, and encouraging our associates
to volunteer in meaningful projects and financial
education activities.
Every community has its own unique
characteristics, its own needs and its own story;
however, one thing always remains the same, it
is home to its members. We understand that the
strength and livelihood of where we live depends
on the commitment and involvement of its
residents. That is why community matters to us.
our teams
Our new regional Community Matters Teams are
vital in fulfilling our Community Matters program
on a local level. Comprised of area bank leaders
with diverse perspectives and experience, they
develop unique plans to ensure we recognize and
address the needs of their region, building strong
community partnerships and encouraging their
employees to be active in civic and local nonprofit
activities.
Great Southern Bank
Donations & Sponsorships
$1,000,000+
associate donations
$94,000+
organizations we support
900+
impactful
involved
12
Education
We support a variety of educational and literacy programs
to make learning possible for children and adults of all ages
through our strong partnerships with schools, colleges
and universities, and organizations that offer specialized
educational programs.
Health and Human Services
We partner with charities that give direct assistance to
people in need, providing a wide range of services from
sheltering the homeless to developing our youth. We also
work with health organizations that offer support to patients
and their families.
Community Development
We provide financing and support for programs that
increase access to affordable housing, stimulate our local
economies, and promote economic growth.
Arts and Culture
We contribute to activities, programs and events that offer
enrichment through cultural and artistic experiences, as well
as preserving history.
schools visited
141+
4,000+
students reached
community development
Community Development Lending
Community Investments
Small Business Lending
engaged
invested
13
Directors
of Great Southern Bancorp, Inc. & Great Southern Bank
William V. Turner
Chairman of the Board
Joseph W. Turner
President and Chief Executive Officer
Kevin R. Ausburn
Board Member
Chairman and CEO, SMC
Packaging Group
Larry D. Frazier
Board Member
Retired – Hollister, Mo.
William E. Barclay
Board Member
Retired – Springfield, Mo.
Julie Turner Brown
Board Member
Shareholder, Carnahan, Evans,
Cantwell & Brown, P.C.
Thomas J. Carlson
Board Member
President, Mid America
Management, Inc.
Debra Mallonee
(Shantz) Hart
Board Member
Attorney; Owner, Housing
Plus, LLC and Sustainable
Housing Solutions
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
Leadership team
Tammy Baurichter
Controller
John Bugh
Chief Sales Lending Officer
Kris Conley
Director of Retail Banking
Debbie Flowers
Director of Credit
Risk Administration
Lin Thomason*
Director of Information
Services
Doug Marrs*
Director of Operations
Steve Mitchem*
Chief Lending Officer
Bryan Tiede
Director of Risk Management
Joseph Turner*
President and
Chief Executive Officer
*Denotes Executive Officer
Kevin Baker
Chief Credit Officer
Rex Copeland*
Chief Financial Officer
Kelly Polonus
Director of Communications
and Marketing
Matt Snyder
Director of Human Resources
14
In Memoriam
Grant Q. Haden
Grant Q. Haden, a board member of Great Southern
for six years, passed away on November 24, 2016.
Grant practiced law for almost 25 years and was a
founding member of the Springfield, Mo. law firm
of Haden, Cowherd & Bullock LLC. In addition to
serving on the Great Southern Board, Grant served as
the president of the Ozarks Trails Council of the Boy
Scouts of America, as an elder at First and Calvary
Presbyterian Church and on the board of CoxHealth.
Grant is survived by his wife, CeCe, sons Jonathan
and Ben, and daughter, Emily.
During his time on the Board of Directors, Grant
offered support and insight while also serving on the
audit, compensation, nominating and stock option
committees. He is greatly missed and remembered
for his passion, dedication and a life well lived.
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, 2016, 2015, 2014, 2013 and 2012, 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.
2016
2015
December 31,
2014
(Dollars in Thousands)
2013
2012
$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
$3,560,250
2,446,769
40,116
555,281
53,514
2,808,626
343,795
$3,955,182
2,346,467
40,649
807,010
68,874
3,153,193
391,114
419,745
361,802
2,784,106
3,824,493
3,007,588
402,670
217,877
108
380,698
322,755
2,403,544
3,789,876
2,996,941
378,650
192,323
96
369,874
311,931
2,326,273
4,005,613
3,199,683
352,282
197,733
107
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
$4,550,663
3,776,411
37,400
213,872
32,658
3,677,230
416,786
429,806
429,806
3,659,360
4,370,793
3,475,887
414,799
231,272
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
Subordinated notes
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 investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
Income from continuing operations before income taxes
Provision for income taxes
Net income from continuing operations
Discontinued operations
Income from discontinued operations, net of income taxes
Net income
Preferred stock dividends and discount accretion
Net income available to common shareholders
For the Year Ended December 31,
2016
2015
2014
(In Thousands)
2013
2012
$ 178,883 $ 177,240 $ 172,569 $ 163,903 $ 170,163
23,345
193,508
10,793
183,362
7,111
184,351
14,892
178,795
6,292
185,175
17,387
1,214
1,137
803
1,578
22,119
163,056
9,281
153,775
1,097
21,666
3,941
2,873
—
1,747
66
—
13,511
1,707
65
714
—
15,997
168,354
5,519
162,835
1,136
19,841
3,888
2
—
2,129
(43 )
—
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
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
—
20,720
4,430
2,610
617
—
28,377
165,131
43,863
121,268
1,036
19,087
5,505
2,666
(680 )
1,028
(38 )
31,312
(6,935 )
4,055
28,510
(18,345 )
4,973
13,581
(27,868 )
4,229
14,731
(25,260 )
4,566
5,315
(18,693 )
4,779
46,002
60,377
26,077
3,791
3,482
2,228
1,708
3,483
3,191
4,111
1,681
1,910
8,388
120,427
61,858
16,516
45,342
58,682
25,985
3,787
3,566
2,317
1,333
3,235
2,713
2,526
1,680
1,750
6,776
114,350
62,006
15,564
46,502
56,032
23,541
3,578
3,837
2,404
1,464
2,866
3,957
5,636
1,720
1,519
14,305
120,859
57,282
13,753
43,529
52,468
20,658
3,315
4,189
2,165
1,303
2,868
4,348
4,068
2,108
1,228
6,900
105,618
41,903
8,174
33,729
51,262
20,179
3,301
4,476
1,572
1,389
2,768
4,323
8,748
1,825
1,258
7,502
108,603
58,667
14,580
44,087
—
45,342
—
4,619
48,706
608
$ 45,342 $ 45,948 $ 42,950 $ 33,150 $ 48,098
—
43,529
579
—
33,729
579
—
46,502
554
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)
At or For the Year Ended December 31,
2016
2015
2014
2013
2012
$ 3.26
3.21
3.21
0.88
30.77
13,912
13,968
14,141
(Number of shares in thousands)
$ 2.43
2.42
$ 3.14
3.10
$ 3.33
3.28
3.28
0.86
28.67
13,818
13,888
14,000
3.10
0.80
26.30
13,700
13,755
13,876
2.42
0.72
23.60
13,635
13,674
13,715
$ 3.55
3.54
3.20
0.72
22.94
13,534
13,596
13,592
1.04 %
1.14 %
1.14 %
0.89 %
1.22 %
10.93
0.65
2.76
3.93
3.60
4.05
62.86
2.10
27.41
12.13
0.33
2.81
4.44
3.80
4.53
62.85
2.48
26.22
12.63
0.39
3.16
4.74
3.86
4.84
66.30
2.77
25.81
10.52
0.14
2.79
4.60
3.88
4.70
64.05
2.66
29.75
16.55
1.49
2.71
4.53
3.57
4.61
51.44
1.56
20.34
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
1.04 %
1.20 %
1.02
265.60
0.29
0.86
0.37
1.28
230.24
0.20
1.07
0.49
1.34 %
1.39
471.77
0.24
1.11
0.26
1.92 %
2.21 %
2.46
201.53
0.91
1.75
0.80
2.98
180.84
2.43
1.84
0.94
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
(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.
18
102.70 %
102.58 %
102.09 %
87.12 %
74.42 %
121.33
121.60
120.95
116.03
110.12
9.5 %
9.2
9.4 %
9.6
9.0 %
9.0
8.5 %
8.9
7.4 %
7.7
10.8
13.6
9.9
10.2
11.8
12.7
10.8
11.8
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
—
3.80 x
14.07 x
4.66 x
20.01 x
4.41 x
11.59 x
3.07 x
6.44 x
3.22 x
8.66 x
(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.
2 0 1 6 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
60 Report of Independent Registered Public Accounting Firm
61 Consolidated Statements of Financial Condition
63 Consolidated Statements of Income
65 Consolidated Statements of Comprehensive Income
66 Consolidated Statements of Stockholders’ Equity
68 Consolidated Statements of Cash Flows
71 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 stockholder 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) the ability to adapt successfully to technological changes to meet customers' needs and developments in
the marketplace; (xi) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or
cyber theft, and that such security measures might not protect against systems failures or interruptions; (xii) 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;
(xiii) changes in accounting principles, policies or guidelines; (xiv) monetary and fiscal policies of the Federal Reserve Board and the
U.S. Government and other governmental initiatives affecting the financial services industry; (xv) results of examinations of the
Company and the Bank by their regulators, including the possibility that the regulators may, among other things, require the Company
to increase its allowance for loan losses or to write-down assets; (xvi) costs and effects of litigation, including settlements and
judgments; and (xvii) 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.
1
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 "Item 1. Business - Allowances for Losses on Loans and
Foreclosed Assets" in the Company’s 2016 Annual Report on Form 10-K. 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 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 asset involves a high degree of judgment and complexity. The carrying value of
the acquired loans and the FDIC indemnification asset 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 acquired assets and assumed 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,
2016, 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,
2
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, 2016, goodwill consisted of $5.4 million at the Bank reporting unit,
which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches from Fifth Third
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, 2016, the amortizable intangible assets consisted of core deposit intangibles of $7.1 million, including $3.8
million related to the Fifth Third Bank transaction in January 2016, $1.8 million related to the Valley Bank transaction in June 2014
and $519,000 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, 2016. While the Company believes no impairment existed at December 31, 2016, 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 and the subsequent housing market correction and subprime mortgage crisis,
the United States entered into a significant prolonged economic downturn. Unemployment rose from 4.7% in November 2007 to peak
at 10.0% 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. Economic conditions have
improved considerably over the past few years as indicated by increasing consumer confidence levels, increased economic activity and
low unemployment levels.
The national unemployment rate decreased from 5.0% as of December 2015 to 4.7% as of December 2016. The labor force
participation rate, which is the share of working-age Americans who are either employed or are actively looking for a job, remained
level at 63%. The economy added 156,000 jobs in December 2016, with employment gains predominantly occurring in health care
and social assistance. Job growth totaled 2.2 million in 2016, which was less than the 2.7 million increase in 2015. As of December
31, 2016, the unemployment rate for the Midwest, where most of the Company’s business is conducted, was at 4.1% significantly
lower than the 4.6% U.S. rate. Unemployment rates at December 31, 2016, were: Missouri at 4.4%, Arkansas at 3.9%, Kansas at
4.2%, Iowa at 3.6%, Nebraska at 3.4%, Minnesota at 3.9%, Oklahoma at 5.0% and Texas at 4.6%. A few state unemployment rates
increased compared to December 2015 levels; however, Oklahoma was the only state with an unemployment rate greater than the
national average. Oklahoma was affected by job losses in the manufacturing, mining and logging industries. Of the metropolitan
areas in which Great Southern Bank does business, the Tulsa market area had the highest unemployment level at December 31, 2016
at 5.0%. The unemployment rate at 3.9 % for the Springfield market area was below the national average reported as of December 31,
2016. Metropolitan areas in Arkansas, 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 536,000 units in December 2016, according to
the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This represents a 10.4% decrease since
November 2016 and a 0.4% drop from the December 2015 rate of 538,000. The median sales price of new houses sold in December
2016 was $322,500, with an average sales price of $384,000. The seasonally adjusted estimate of new houses for sale at the end of
December 2016 was 259,000, which represented a supply of 5.8 months at the current sales rate. Sales of existing single-family
homes closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions
and historically low supply levels. In December, existing sales decreased 2.8% resulting in sales only 0.7% higher than a year ago.
First-time buyers made up 32% of those transactions, the biggest share in four years, easing concerns that a shortage of affordable
houses has been pushing entry-level buyers out of the market. The median existing-home price for all housing types in December was
$232,200, up 4% from December 2015 ($223,200). Total housing inventory at the end of December dropped 10.8% to 1.65 million
existing homes available for sale, which is the lowest level since National Association of Realtors began tracking the supply of all
housing types in 1999. Unsold inventory is at a 3.6 month supply at the current sales pace.
3
22
Distressed sales, which include foreclosures and short sales, rose to 7% in December, down from 8% a year ago. Foreclosures sold for
an average discount of 20% below market value, while short sales were discounted 10%.
The performance of commercial real estate markets has improved throughout the Company’s market areas as shown by increased real
estate sales and financing activity. According to real estate services firm CoStar Group, retail, office and industrial types of
commercial real estate properties continue to improve or remain stable 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.
Loss Sharing Agreements
On April 26, 2016, Great Southern Bank executed an agreement with the FDIC to terminate the loss sharing agreements for Team
Bank, Vantus Bank and Sun Security Bank, effective immediately. The agreement required the FDIC to pay $4.4 million to settle all
outstanding items related to the terminated loss sharing agreements. As a result of entering into the agreement, assets that were
covered by the terminated loss sharing agreements, including covered loans in the amount of $61.5 million and covered other real
estate owned in the amount of $468,000 as of March 31, 2016, were reclassified as non-covered assets effective April 26, 2016. In
anticipation of terminating the loss sharing agreements, an impairment of the related indemnification assets was recorded during the
three months ended March 31, 2016 in the amount of $584,000. On the date of the termination, the indemnification asset balances
(and certain other receivables from the FDIC) related to Team Bank, Vantus Bank and Sun Security Bank, which totaled $4.4 million
at March 31, 2016, became $0 as a result of the receipt of funds from the FDIC as outlined in the termination agreement. There will
be no future effects on non-interest income (expense) related to adjustments or amortization of the indemnification assets for Team
Bank, Vantus Bank or Sun Security Bank; however, adjustments and amortization related to the InterBank indemnification asset and
loss sharing agreement will continue. The remaining accretable yield adjustments that affect interest income are not changed by this
transaction and continue to be recognized for all FDIC-assisted transactions in the same manner as they have been previously.
The termination of the loss sharing agreements for the TeamBank, Vantus Bank and Sun Security Bank transactions has had no impact
on the yields for the loans that were previously covered under these agreements. All future recoveries, gains, losses and expenses
related to these previously covered assets will now be recognized entirely by Great Southern Bank since the FDIC will no longer be
sharing in such gains or losses. Accordingly, the Company’s future earnings will be positively impacted to the extent the Company
recognizes gains on any sales or recoveries in excess of the carrying value of such assets. Similarly, the Company’s future earnings
will be negatively impacted to the extent the Company recognizes expenses, losses or charge-offs related to such assets.
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, 2016, Great Southern's total assets increased $446.5 million, or 10.9%, from $4.10 billion at
December 31, 2015, to $4.55 billion at December 31, 2016. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2016 and December 31, 2015” section.
Loans. In the year ended December 31, 2016, Great Southern's net loans increased $419.4 million, or 12.6%, from $3.34 billion at
December 31, 2015, to $3.76 billion at December 31, 2016. Partially offsetting the increase in loans was a decrease of $79.7 million
in the FDIC-acquired loan portfolios. Excluding previously acquired covered and non-covered loans and mortgage loans held for sale,
but including the loans acquired from Fifth Third Bank, total loans increased $499.7 million from December 31, 2015 to December 31,
2016. The increases occurred across several loans types, primarily in other residential (multi-family) loans, commercial real estate
loans, one- to four-family residential loans, consumer loans and home equity lines of credit. The increase was primarily due to loan
growth in our existing banking center network, and also due to the loans acquired from Fifth Third Bank during the year. 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 2016 or prior years. The Company's strategy continues to be focused on maintaining credit risk and interest rate risk at
appropriate levels.
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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, 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 (including
multi-family). Generally, the Company considers these types of loans to involve a higher degree of risk compared to some other types
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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 collateral, if any, in relation to the proposed loan amount.
Of the total loan portfolio at December 31, 2016 and 2015, 75.9% and 73.5%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2016 and 2015, commercial real estate and commercial construction
loans were 42.1% and 42.8% 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,
2016 and 2015, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 12% and 15% 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, 2016 and 2015, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
19% and 18% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions, but including loans
acquired from Fifth Third Bank), 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 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 2016
Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio has increased from 46% as of December 31, 2010 to 57% as of December 31,
2016 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 commercial construction and consumer loans, both of which typically have loans with short durations. Of the total
amount of fixed rate loans in our portfolio as of December 31, 2016, approximately 77% 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, 2016, our interest rate risk models indicated a one-year
interest rate earnings sensitivity position that is fairly neutral. For further discussion of our interest rate sensitivity gap and the
processes used to manage our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk – How
We Measure the Risks to Us Associated with Interest Rate Changes.” For discussion of the risk factors associated with interest rate
changes, see “Risk Factors – We may be adversely affected by interest rate changes.”
While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans
with loan-to-value ratios at that level are minimal. Private mortgage insurance is typically required for loan amounts above the 80%
level. Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved. 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
5
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, 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 (including
multi-family). 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 collateral, if any, in relation to the proposed loan amount.
Of the total loan portfolio at December 31, 2016 and 2015, 75.9% and 73.5%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2016 and 2015, commercial real estate and commercial construction
loans were 42.1% and 42.8% 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,
2016 and 2015, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 12% and 15% 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, 2016 and 2015, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
19% and 18% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions, but including loans
acquired from Fifth Third Bank), 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 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 2016
Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio has increased from 46% as of December 31, 2010 to 57% as of December 31,
2016 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 commercial construction and consumer loans, both of which typically have loans with short durations. Of the total
amount of fixed rate loans in our portfolio as of December 31, 2016, approximately 77% 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, 2016, our interest rate risk models indicated a one-year
interest rate earnings sensitivity position that is fairly neutral. For further discussion of our interest rate sensitivity gap and the
processes used to manage our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk – How
We Measure the Risks to Us Associated with Interest Rate Changes.” For discussion of the risk factors associated with interest rate
changes, see “Risk Factors – We may be adversely affected by interest rate changes.”
While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans
with loan-to-value ratios at that level are minimal. Private mortgage insurance is typically required for loan amounts above the 80%
level. Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved. 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
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December 31, 2016 and December 31, 2015, an estimated 0.2% and 0.2%, respectively, of total owner occupied one- to four-family
residential loans had loan-to-value ratios above 100% at origination. At December 31, 2016 and December 31, 2015, an estimated
1.3% and 2.1%, respectively, of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at
origination.
At December 31, 2016, troubled debt restructurings totaled $21.1 million, or 0.6% of total loans, down $23.9 million from $45.0
million, or 1.3% of total loans, at December 31, 2015. 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 years ended December 31, 2016 and 2015, respectively, no loans were restructured into multiple
new loans. For further information on troubled debt restructurings, see Note 3 of the accompanying audited financial statements.
The loss sharing agreement for InterBank with the FDIC is subject to limitations on the types of losses covered and the length of time
losses are covered, and is conditioned upon the Bank complying with its requirements in the agreement with the FDIC, including
requirements regarding servicing and other loan administration matters. The original terms of the loss sharing agreement extends for
ten years for single family real estate loans and for five years for other loans. As noted above, the loss sharing agreements for Team
Bank, Vantus Bank and Sun Security Bank were terminated on April 26, 2016.
At December 31, 2016, approximately five 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 four to twelve years. At December 31, 2016,
approximately six months 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 to two years. While the expected repayments for certain of the acquired loans
extend beyond the terms of the loss sharing agreement, 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 agreement. 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 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 a loss sharing agreement. If a charge down occurs to a loan pool that is covered by the 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 (both current and terminated) 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, 2016, 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, 2016, available-for-sale securities decreased $49.0 million, or 18.6%,
from $262.9 million at December 31, 2015, to $213.9 million at December 31, 2016. The decrease was primarily due to calls of
municipal securities, sales of certain mortgage-backed securities, the sale of an investment in a managed equity fund held by the
Company, and normal monthly payments received related to the portfolio of mortgage-backed securities, partially offset by the
purchase of certain mortgage-backed securities. The Company was required to divest the investment it held in the managed equity
fund as a result of regulations recently adopted by the Federal Reserve Board. Other investment securities were reduced because they
were no longer needed for pledging for public fund deposits.
Premises and Equipment, net. Great Southern had net premises and equipment of $140.6 million at December 31, 2016, an increase
of $10.9 million, or 8.4%, from $129.7 million at December 31, 2015. The increase in premises and equipment was primarily due to
the acquisition of 12 branches from Fifth Third Bank in January 2016. For further information on the acquisition, see the Company’s
March 31, 2016 Quarterly Report on Form 10-Q.
Goodwill and Other Intangible Assets. The Company's goodwill and other intangible assets totaled $12.5 million at December 31,
2016, an increase of $6.7 million, or 117.1%, compared to $5.8 million at December 31, 2015. The increase was due to the goodwill
and core deposit intangible amounts recorded during the three months ended March 31, 2016 related to the Fifth Third Bank branch
acquisition, as discussed above in the “Goodwill and Intangible Assets” section of this report.
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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, 2016, total deposit balances increased $408.6
million, or 12.5%. Transaction account balances increased $212.0 million, while retail certificates of deposit increased $156.1 million.
These increases were primarily a result of the Bank’s assumption of deposits as part of the Fifth Third Bank branch acquisition in
January 2016, as well as growth at existing branches and new retail certificate of deposit product offerings. Great Southern Bank
customer deposits totaling $14.0 million and $12.2 million, at December 31, 2016 and December 31, 2015, 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 $310.3 million at December 31, 2016, an
increase of $38.8 million from $271.5 million at December 31, 2015.
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.
Short-term Borrowings and Federal Home Loan Bank Advances. Federal Home Loan Bank advances decreased $232.0 million
from $263.5 million at December 31, 2015 to $31.5 million at December 31, 2016. The decreased advances were replaced with
overnight fed funds borrowings through the FHLBank based on funding needs. As such, short-term borrowings increased by $171.0
million, from $1.3 million at December 31, 2015 to $172.3 million at December 31, 2016. The overnight fed funds borrowing rate
was lower than the one week or longer term rates for FHLBank advances, so the Company elected to utilize the overnight borrowings.
Subordinated Notes. In August 2016, the Company issued $75 million of 5.25% fixed-to-floating rate Subordinated Notes due
August 15, 2026. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other
issuance costs, of approximately $73.5 million. The Company intends to use the net proceeds of the offering for general corporate
purposes.
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 increases of
0.25% on December 16, 2015 and 0.25% on December 14, 2016, the FRB last changed interest rates on December 16, 2008. Great
Southern has a substantial portion of its loan portfolio ($1.02 billion at December 31, 2016) which is tied to the one-month LIBOR
index and will adjust at least once within 90 days after December 31, 2016. Of these loans, $471 million had interest rate floors.
Great Southern also has a significant portfolio of loans ($387 million at December 31, 2016) which are tied to a "prime rate" of
interest and will adjust immediately with changes to the “prime rate” of interest. Most of these loans are tied to some national index of
"prime," while some are indexed to "Great Southern Bank prime" (GSB prime). The Company had elected to leave its GSB prime rate
at 5.00%, but increased this rate to 5.25% in December 2015 following the FRB rate increase. The GSB prime rate was not changed
following the FRB rate increase in December 2016. This does not affect a large number of customers, as there is no longer a
significant portion of the loan portfolio indexed to the GSB prime rate. 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, however, subject to the risk that
borrowers will seek to refinance elsewhere at the lower market rate. Because the Federal Funds rate is already very low, there may
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also be a negative impact on the Company's net interest income due to the Company's inability to significantly lower its funding costs
in the current competitive rate 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 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 mortgage-backed securities and 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 had been mitigated by the positive effects of the Company’s loans which have
interest rate floors. At December 31, 2016, the Company had a portfolio (excluding the loans acquired in the FDIC-assisted
transactions) of prime-based loans totaling approximately $387 million with rates that change immediately with changes to the prime
rate of interest. Of those loans, $382 million also had interest rate floors. These floors were at varying rates, with $8 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, $298 million of these loans have floor rates between 2.75% and 5.0%. At December 31, 2016, $93 million of these loans
were at their floor rates. Also included in these prime-based loans at December 31, 2016, the Company had a portfolio (excluding the
loans acquired in the FDIC-assisted transactions) of GSB prime-based loans totaling approximately $60 million with rates that change
immediately with changes to the GSB prime rate of interest. Of those loans, $58 million also had interest rate floors. At December 31,
2016, $16 million of the $58 million GSB prime rate loans with interest rate floors were at their floor rates. The loan yield for the total
loan portfolio was approximately 83 basis points, 106 basis points and 141 basis points higher than the national "prime rate of interest"
at December 31, 2016, 2015 and 2014, 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. In early 2016 and all of 2015 and 2014, 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. This is no
longer the case for the TeamBank, Vantus Bank and Sun Security Bank transactions, subsequent to April 26, 2016 (due to the
termination of the related loss sharing agreements effective as of that date). It is still the case for InterBank loans. 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, 2016 and 2015.”
Business Initiatives
The Company completed several initiatives to expand and enhance the franchise in 2016.
During 2016, the Company decreased its banking center network from 110 to 104 full-service retail offices. The Company regularly
evaluates its banking center network and lines of business to ensure that it is serving customers in the best way possible. The banking
center network constantly evolves with changes in customer needs and preferences, emerging technology and local market
developments. In response to these changes, the Company opens banking centers and invests resources where customer demand leads,
and from time to time, consolidates banking centers when market conditions dictate.
On January 29, 2016, Great Southern completed the acquisition of 12 branches and related deposits and loans from Cincinnati-based
Fifth Third Bank in the St. Louis market area. This acquisition increased Great Southern's St. Louis-area banking center total from
eight to ultimately 19 offices and doubled its customer deposit base in this market. The deposits assumed totaled approximately $228
million and the loans acquired totaled approximately $159 million.
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Throughout 2016, the Company consolidated operations of 16 banking centers into other nearby Great Southern offices. Each
consolidated office was evaluated on 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. Of these 16
consolidated banking centers, eleven were in Missouri, four in Iowa and one was in Kansas. Nine of these banking centers were
acquired as part of various FDIC-assisted acquisitions. In addition, the Company also sold two Missouri banking centers, with
associated deposits, to separate buyers in early 2016. The Great Southern banking center located in Thayer, Mo., was sold on February
19, 2016, and the office in Buffalo, Mo., was sold on March 18, 2016.
In addition, in January 2017, two leased banking centers were replaced by two new owned offices in the Omaha, Neb., metropolitan
market area. Both new locations offer better convenience and access to area customers. Great Southern operates four offices in the
Omaha market area.
The Company executed an agreement with the FDIC to terminate loss sharing agreements related to the FDIC-assisted acquisitions of
TeamBank, Vantus Bank and Sun Security Bank in April 2016. The agreement required the FDIC to pay $4.4 million to settle all
outstanding items related to the terminated loss sharing agreements. As a result of entering into the agreement, assets that were
covered by the terminated loss sharing agreements, including covered loans in the amount of $61.5 million and covered other real
estate owned in the amount of $468,000 as of March 31, 2016, were reclassified as non-covered assets effective April 26, 2016. More
information about this agreement can be found in the Company's Form 10-Q for the quarter ended March 31, 2016.
In July 2016, the Company filed a universal shelf registration statement (Form S-3) with the Securities and Exchange Commission.
This registration allows the Company to expeditiously offer investors up to a total of $250 million in common stock, preferred stock,
trust preferred securities or debt obligations. With the Board's prior approval, public offerings can be made at various times and for
various amounts depending on the needs of the Company.
In August 2016, utilizing the shelf registration statement, the Company completed the public offering and sale of $75 million of its
5.25% Fixed-to-Floating Rate Subordinated Notes due August 15, 2026. The Notes were sold at par, resulting in net proceeds, after
underwriting discounts, commissions and expenses, of approximately $73.5 million. The Company intends to use the net proceeds of
the offering for general corporate purposes.
In October 2016, the Company began mass issuing chip-enabled debit cards in phases to its deposit customer base. The mass issuance
was completed in February 2017. Chip debit cards offer customers an added layer of security, providing enhanced protection against
fraud. Chip debit cards are also available instantly at all Great Southern banking centers.
The Company expects to open a commercial loan production office in downtown Chicago in the first quarter of 2017. A local and
highly experienced commercial lender has been hired to manage that office. The Company also operates commercial loan production
offices in Tulsa, Okla., and Dallas.
A person-to-person (P2P) electronic payment service was introduced in early February 2017. Available for retail customers through
the Company's smartphone mobile banking applications, the P2P service allows Great Southern debit card customers to send one-time
transfers to recipients at any financial institution.
The Company's chief lending officer, Steve Mitchem, previously announced his plans to retire from the Company in April 2017. Mr.
Mitchem joined Great Southern in 1990. During his tenure, the Company's loan portfolio grew from $360 million, with lending
operations primarily in the southwest Missouri region, to $3.8 billion with lending operations in eight states. Mr. Mitchem and the
Company began planning for his pending retirement more than a year ago to ensure a smooth management transition. At that time, the
Company restructured the lending division to better reflect the Company's size and scope. The lending division now has two separate
areas of responsibility – loan production led by John Bugh and credit administration led by Kevin Baker. Mr. Bugh and Mr. Baker are
long-term Great Southern lenders, who each have more than 27 years of banking experience.
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,
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centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, with
broad rulemaking authority for a wide range of consumer protection laws that apply to all banks, require new capital rules (discussed
below), change the assessment base for federal deposit insurance, repeal the federal prohibitions on the payment of interest on demand
deposits, amend the account balance limit for federal deposit insurance protection, and increase the authority of the Federal Reserve
Board to examine the Company and its non-bank subsidiaries.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over a number of 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. The Bank is currently exempt from the rule on the basis of asset size.
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. The new capital conservation buffer requirement began phasing in beginning on January 1,
2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount will increase an equal amount each year
until the buffer requirement of greater than 2.5% of risk-weighted assets is fully implemented on January 1, 2019.
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%, and must not be subject to an order, agreement or directive mandating a specific capital
level.
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, 2016 and December 31, 2015
During the year ended December 31, 2016, total assets increased by $446.5 million to $4.55 billion. The increase was primarily
attributable to the loan, premises and equipment and intangible assets related to the Fifth Third Bank branch acquisition, as well as an
increase in loans originated by the Bank and cash and cash equivalents, partially offset by reductions in available-for-sale investment
securities and the FDIC indemnification asset.
Net loans increased $419.4 million to $3.76 billion at December 31, 2016. Outstanding and undisbursed balances of other residential
(multi-family) loans increased $243.8 million, or 58.1%, commercial construction loans increased $179.8 million, or 29.9%,
commercial real estate loans increased $143.4 million, or 13.7%, owner occupied one- to four-family residential loans increased $90.1
million, or 81.7%, and consumer auto loans increased $54.3 million, or 12.4%. Partially offsetting these increases was a decrease in
net loans acquired through the FDIC-assisted transactions of $79.7 million, or 22.0%, primarily because of loan repayments.
Related to the loans purchased in the 2012, 2011 and 2009 FDIC-assisted transactions, the Company originally recorded
indemnification assets which represented payments expected to be received from the FDIC through loss sharing agreements. As noted
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previously, the loss sharing agreements for Team Bank, Vantus Bank and Sun Security Bank, and the related remaining
indemnification assets were terminated during 2016. The remaining balance of the FDIC indemnification is related to InterBank, and
the total amount at December 31, 2016 was $13.1 million, a decrease of $11.0 million from $24.1 million at December 31, 2015,
$21.1 million of which related to InterBank. 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 $49.0 million, or 18.6%, as compared to December 31, 2015. The decrease was primarily due
to calls of municipal securities and U. S. government agency securities, sales of certain mortgage-backed securities, the sale of an
investment in a managed equity fund held by the Company, and normal monthly payments received related to the portfolio of
mortgage-backed securities, partially offset by the purchase of certain mortgage-backed securities. The Company was required to
divest the investment it held in the managed equity fund as a result of regulations recently adopted by the Federal Reserve Board.
Other investment securities were reduced because they were no longer needed for pledging for public fund deposits. The available-
for-sale securities portfolio was 4.7% and 6.4% of total assets at December 31, 2016 and 2015, respectively.
Cash and cash equivalents were $279.8 million at December 31, 2016, an increase of $80.6 million, or 40.5%, from $199.2 million at
December 31, 2015. During the year ended December 31, 2016, cash and cash equivalents increased primarily due to the cash
received in the Fifth Third Bank transaction, sales of and payments received on available-for-sale securities, increases in deposits and
the net proceeds of the issuance of $75.0 million of subordinated notes. This increase in cash and cash equivalents was partially offset
by using a portion of the cash to fund loan growth.
Net premises and equipment increased $10.9 million from December 31, 2015, primarily due to the branches acquired in the Fifth
Third Bank transaction, partially offset by the transfer of branch properties closed in January 2016 to other real estate owned and the
sale of two branches.
The Company's goodwill and other intangible assets totaled $12.5 million at December 31, 2016, an increase of $6.7 million, or
117.1%, compared to $5.8 million at December 31, 2015. The increase was due to the goodwill and core deposit intangible amounts
recorded during the three months ended March 31, 2016 related to the Fifth Third Bank branch acquisition, as discussed above in the
“Goodwill and Intangible Assets” section of this report.
Total liabilities increased $414.9 million from $3.71 billion at December 31, 2015 to $4.12 billion at December 31, 2016. The increase
was primarily attributable to an increase in deposits and the issuance of subordinated notes. Deposits increased due to the deposits
assumed in the Fifth Third Bank branch transaction, as well as growth in the Company’s existing deposits and brokered deposits. In
the year ended December 31, 2016, total deposit balances increased $408.6 million, or 12.5%. Transaction account balances increased
$212.0 million during the year ended December 31, 2016, while retail certificates of deposit increased $156.1 million during the year
ended December 31, 2016.
Federal Home Loan Bank advances decreased $232.0 million, from $263.5 million at December 31, 2015 to $31.5 million at
December 31, 2016. The decreased advances were replaced with overnight fed funds borrowings through the FHLBank based on
funding needs. As such, short-term borrowings increased by $171.0 million, from $1.3 million at December 31, 2015 to $172.3
million at December 31, 2016. The overnight fed funds borrowing rate was lower than the one week or longer term rates for
FHLBank advances, so the Company elected to utilize the overnight borrowings.
In August 2016, the Company issued $75 million of 5.25% fixed-to-floating rate Subordinated Notes due August 15, 2026. The notes
were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately
$73.5 million. The Company intends to use the net proceeds of the offering for general corporate purposes.
Total stockholders' equity increased $31.6 million from $398.2 million at December 31, 2015 to $429.8 million at December 31, 2016.
The Company recorded net income of $45.3 million for the year ended December 31, 2016, and dividends declared on common stock
were $12.2 million. Accumulated other comprehensive income decreased $4.1 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 $2.6 million due to stock option exercises.
Results of Operations and Comparison for the Years Ended December 31, 2016 and 2015
General
Net income decreased $1.2 million, or 2.5%, during the year ended December 31, 2016, compared to the year ended December 31,
2015. Net income was $45.3 million for the year ended December 31, 2016 compared to $46.5 million for the year ended December
31, 2015. This decrease was due to an increase in non-interest expense of $6.1 million, or 5.3%, a decrease in net interest income of
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$5.3 million, or 3.1%, an increase in the provision for loan losses of $3.8 million, or 68.2% and an increase in provision for income
taxes of $952,000, or 6.1%, partially offset by an increase in non-interest income of $14.9 million, or 109.9%. Net income available
to common shareholders was $45.3 million for the year ended December 31, 2016 compared to $45.9 million for the year ended
December 31, 2015.
Total Interest Income
Total interest income increased $824,000, or 0.4%, during the year ended December 31, 2016 compared to the year ended December
31, 2015. The increase was due to a $1.6 million, or 0.9%, increase in interest income on loans, partially offset by an $819,000, or
11.5%, decrease in interest income on investment securities and other interest-earning assets. Interest income on loans increased in
2016 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 2016 compared to 2015 primarily due to lower average balances, partially
offset by higher average rates of interest.
Interest Income - Loans
During the year ended December 31, 2016 compared to the year ended December 31, 2015, interest income on loans increased due to
higher average balances, partially offset by lower average interest rates. Interest income increased $21.8 million as the result of higher
average loan balances, which increased from $3.24 billion during the year ended December 31, 2015, to $3.66 billion during the year
ended December 31, 2016. The higher average balances were primarily due to organic loan growth, in addition to the loans obtained
as part of the Fifth Third Bank branch acquisition. Interest income decreased $20.2 million as the result of lower average interest rates
on loans. The average yield on loans decreased from 5.48% during the year ended December 31, 2015 to 4.89% during the year ended
December 31, 2016. This decrease was due to lower overall loan rates, and a lower amount of accretion income in the current year
resulting from the increases in expected cash flows to be received from the FDIC-acquired loan pools, which is discussed in Note 4 of
the accompanying audited financial statements.
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 the collection of certain loans, thereby reducing loss expectations of certain
loan pools, resulting in adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools. The loss
sharing agreements for the Team Bank, Vantus Bank and Sun Security Bank transactions were terminated in April 2016, and the
related indemnification assets were reduced to $-0- at that time. The Valley Bank transaction does not include a loss sharing
agreement with the FDIC. Therefore, for these four acquisition transactions, there is no related indemnification asset. The entire
amount of the discount adjustment has been and will be accreted to interest income over time with no offsetting impact to non-interest
income. For the loan pools acquired in the InterBank transaction, the increases in expected cash flows also reduce the amount of
expected reimbursements under the loss sharing agreement with the FDIC, which is recorded as an indemnification asset. Therefore,
the expected indemnification asset has also been reduced, resulting in adjustments to be amortized on a comparable basis over the
remainder of the loss sharing agreement or the remaining expected life of the loan pools, whichever is shorter. For the years ended
December 31, 2016 and 2015, the adjustments increased interest income by $16.4 million and $28.5 million, respectively, and
decreased non-interest income by $7.0 million and $19.5 million, respectively. The net impact to pre-tax income was $9.4 million and
$9.0 million, respectively, for the years ended December 31, 2016 and 2015.
As of December 31, 2016, the remaining accretable yield adjustment that will affect interest income is $6.3 million and the remaining
adjustment to the indemnification assets related to InterBank, including the effects of the clawback liability, that will affect non-
interest income (expense) is $(2.5) million. The $6.3 million of accretable yield adjustment relates to Team Bank, Vantus Bank, Sun
Security Bank, InterBank and Valley Bank. The expense, as noted, is only related to InterBank, as there is no longer, nor will there be
in the future, indemnification asset amortization expense related to Team Bank, Vantus Bank or Sun Security Bank due to the early
termination of the remaining related loss sharing agreements for those transactions in April 2016. Of the remaining adjustments, we
expect to recognize $4.3 million of interest income and $(1.7) million of non-interest income (expense) during 2017. 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. Apart from the yield accretion, the average yield on loans was 4.44% during the year ended
December 31, 2016, compared to 4.60% during the year ended December 31, 2015, as a result of loan pay-offs, normal amortization
of higher-rate loans and new loans that were made at current lower market rates. Interest income also decreased due to significant
interest recoveries in the prior year period, as discussed in the paragraph below.
In the year ended December 31, 2015, the Company collected $891,000 on certain acquired loans which had previously not been
expected to be collectible. These collections were recorded as interest income in 2015 and had a positive impact on the net interest
margin in that year of approximately three basis points. As the loans were subject to loss sharing agreements at that time, 80% of the
amounts collected, or $713,000, was recorded in 2015 and included in non-interest income under "accretion (amortization) of income
related to business acquisitions."
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Interest Income - Investments and Other Interest-earning Assets
Interest income on investments and other interest-earning assets decreased $819,000 in the year ended December 31, 2016 compared
to the year ended December 31, 2015. Interest income decreased $1.9 million as a result of a decrease in average balances from
$483.0 million during the year ended December 31, 2015, to $366.3 million during the year ended December 31, 2016. Average
balances of securities decreased due to certain U. S. government agency securities and municipal securities being called, the sale of
certain mortgage-backed securities, normal monthly payments received related to the portfolio of mortgage-backed securities, and the
sale during the year of an investment in a managed equity fund held by the Company. Interest income increased $1.1 million due to
an increase in average interest rates from 1.47% during the year ended December 31, 2015 to 1.72% during the year ended December
31, 2016, due to a higher portion of the investment portfolio in tax-exempt municipal bonds and higher market rates of interest on
other interest-bearing deposits in financial institutions.
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, 2016, the Company had cash and cash equivalents of $279.8
million compared to $199.2 million at December 31, 2015. See "Net Interest Income" for additional information on the impact of this
interest activity.
Total Interest Expense
Total interest expense increased $6.1 million, or 38.3%, during the year ended December 31, 2016, when compared with the year
ended December 31, 2015, due to an increase in interest expense on deposits of $3.9 million, or 28.7%, an increase in interest expense
on the newly issued subordinated notes of $1.6 million, an increase in interest expense on short-term and structured repo borrowings
of $1.1 million, or 1,649.2%, and an increase in interest expense on subordinated debentures issued to capital trust of $89,000, or
12.5%, partially offset by a decrease in interest expense on FHLBank advances of $493,000, or 28.9%.
Interest Expense - Deposits
Interest on demand deposits increased $832,000 due to an increase in average rates from 0.20% during the year ended December 31,
2015, to 0.26% during the year ended December 31, 2016. Interest on demand deposits increased $198,000 due to an increase in
average balances from $1.40 billion in the year ended December 31, 2015, to $1.50 billion in the year ended December 31, 2016. The
increase in average balances of interest-bearing demand deposits was primarily a result of the deposits assumed as part of the Fifth
Third Bank branch acquisition, partially offset by decreases in certain deposit types, such as public funds.
Interest expense on time deposits increased $1.8 million as a result of an increase in average rates of interest from 0.85% during the
year ended December 31, 2015, to 0.98% during the year ended December 31, 2016. Interest expense on time deposits increased $1.0
million due to an increase in average balances of time deposits from $1.26 billion during the year ended December 31, 2015, to $1.37
billion during the year ended December 31, 2016. 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. 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, Subordinated
Debentures Issued to Capital Trust and Subordinated Notes
Interest expense on FHLBank advances decreased due to lower average balances, partially offset by higher average rates of interest.
Interest expense on FHLBank advances decreased $1.4 million due to a decrease in average balances from $175.9 million during the
year ended December 31, 2015, to $68.3 million during the year ended December 31, 2016. This decrease was primarily due to the
paydown and partial replacement of short-term FHLBank advances with overnight fed funds borrowings from the FHLBank. Partially
offsetting the decrease due to reduced average balances was an increase in interest expense of $919,000 due to an increase in average
interest rates from 0.97% in the year ended December 31, 2015, to 1.78% in the year ended December 31, 2016. The increase in the
average rate was due to a change in the mix of advances compared to the prior year. Short-term advances with very low interest rates
were utilized more significantly in the prior year, which caused the overall average rate to be lower. In the current year, the Company
utilized more overnight borrowings from the FHLBank which are included in short-term borrowings, with the remaining balance of
FHLBank advances being longer term at a higher rate.
Interest expense on short-term borrowings and repurchase agreements increased $996,000 due to average rates that increased from
0.03% in the year ended December 31, 2015, to 0.35% in the year ended December 31, 2016. The increase was due to a change in the
mix of borrowings in the current period, during which overnight fed funds borrowings from the FHLBank were increased, which are
at a higher interest rate than customer repurchase agreements. Interest expense on short-term borrowings and repurchase agreements
increased $76,000 due to an increase in average balances from $192.1 million during the year ended December 31, 2015, to $327.7
million during the year ended December 31, 2016, which is primarily due to an increase in short-term borrowings from the FHLBank.
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During the year ended December 31, 2016, compared to the year ended December 31, 2015, interest expense on subordinated
debentures issued to capital trusts increased $168,000 due to higher average interest rates. The average interest rate was 2.48% in
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2015, compared to 3.12% in 2016. 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 $79,000 due to a decrease in
average balances from $28.8 million for the year ended December 31, 2015 to $25.8 million during the year ended December 31, 2016.
The average balance decreased because the Company redeemed $5.0 million of its subordinated debentures issued to capital trust
during 2015. 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.
In August 2016, the Company issued $75 million of 5.25% fixed-to-floating rate subordinated notes due August 15, 2026. The notes
were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately
$73.5 million. Interest expense on the subordinated notes for the year ended December 31, 2016 was $1.6 million.
Net Interest Income
Net interest income for the year ended December 31, 2016 decreased $5.3 million to $163.1 million compared to $168.4 million for
the year ended December 31, 2015. Net interest margin was 4.05% for the year ended December 31, 2016, compared to 4.53% in 2015,
a decrease of 48 basis points. In both years, the Company’s net interest income and margin have been significantly impacted by the
increases in expected cash flows to be received from the FDIC-acquired loan pools and the resulting increase to accretable yield,
which was discussed previously in “Interest Income – Loans” and is discussed in Note 4 of the accompanying audited financial
statements. The positive impact of these changes on the years ended December 31, 2016 and 2015 were increases in interest income
of $16.4 million and $28.5 million, respectively, and increases in net interest margin of 41 basis points and 77 basis points,
respectively. Excluding the positive impact of the additional yield accretion, net interest margin decreased 12 basis points during the
year ended December 31, 2016. The decrease in net interest margin was primarily due to a decrease in average interest rate on loans
(primarily due to decreased interest income on loans acquired in the FDIC-assisted transactions) and an increase in the average interest
rate on time deposits and borrowings, partially offset by an increase in the average interest rate on investment securities.
The Company's overall interest rate spread decreased 51 basis points, or 11.5%, from 4.44% during the year ended December 31, 2015,
to 3.93% during the year ended December 31, 2016. The decrease was due to a 36 basis point decrease in the weighted average yield
on interest-earning assets and a 15 basis point increase in the weighted average rate paid on interest-bearing liabilities. In comparing
the two years, the yield on loans decreased 59 basis points while the yield on investment securities and other interest-earning assets
increased 25 basis points. The rate paid on deposits increased 10 basis points, the rate paid on FHLBank advances increased 81 basis
points, the rate paid on short-term borrowings increased 32 basis points and the rate paid on subordinated debentures issued to capital
trust increased 64 basis points. In addition, the new subordinated notes paid interest at an average rate of 553 basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will
cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision
charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix,
actual and potential losses identified in the loan portfolio, economic conditions, and internal as well as external reviews. 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, financial analysis, 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.
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million during the year ended December 31, 2016, which is primarily due to an increase in short-term borrowings from the FHLBank.
During the year ended December 31, 2016, compared to the year ended December 31, 2015, interest expense on subordinated
debentures issued to capital trusts increased $168,000 due to higher average interest rates. The average interest rate was 2.48% in
2015, compared to 3.12% in 2016. 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 $79,000 due to a decrease in
average balances from $28.8 million for the year ended December 31, 2015 to $25.8 million during the year ended December 31, 2016.
The average balance decreased because the Company redeemed $5.0 million of its subordinated debentures issued to capital trust
during 2015. 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.
In August 2016, the Company issued $75 million of 5.25% fixed-to-floating rate subordinated notes due August 15, 2026. The notes
were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately
$73.5 million. Interest expense on the subordinated notes for the year ended December 31, 2016 was $1.6 million.
Net Interest Income
Net interest income for the year ended December 31, 2016 decreased $5.3 million to $163.1 million compared to $168.4 million for
the year ended December 31, 2015. Net interest margin was 4.05% for the year ended December 31, 2016, compared to 4.53% in 2015,
a decrease of 48 basis points. In both years, the Company’s net interest income and margin have been significantly impacted by the
increases in expected cash flows to be received from the FDIC-acquired loan pools and the resulting increase to accretable yield,
which was discussed previously in “Interest Income – Loans” and is discussed in Note 4 of the accompanying audited financial
statements. The positive impact of these changes on the years ended December 31, 2016 and 2015 were increases in interest income
of $16.4 million and $28.5 million, respectively, and increases in net interest margin of 41 basis points and 77 basis points,
respectively. Excluding the positive impact of the additional yield accretion, net interest margin decreased 12 basis points during the
year ended December 31, 2016. The decrease in net interest margin was primarily due to a decrease in average interest rate on loans
(primarily due to decreased interest income on loans acquired in the FDIC-assisted transactions) and an increase in the average interest
rate on time deposits and borrowings, partially offset by an increase in the average interest rate on investment securities.
The Company's overall interest rate spread decreased 51 basis points, or 11.5%, from 4.44% during the year ended December 31, 2015,
to 3.93% during the year ended December 31, 2016. The decrease was due to a 36 basis point decrease in the weighted average yield
on interest-earning assets and a 15 basis point increase in the weighted average rate paid on interest-bearing liabilities. In comparing
the two years, the yield on loans decreased 59 basis points while the yield on investment securities and other interest-earning assets
increased 25 basis points. The rate paid on deposits increased 10 basis points, the rate paid on FHLBank advances increased 81 basis
points, the rate paid on short-term borrowings increased 32 basis points and the rate paid on subordinated debentures issued to capital
trust increased 64 basis points. In addition, the new subordinated notes paid interest at an average rate of 553 basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will
cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision
charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix,
actual and potential losses identified in the loan portfolio, economic conditions, and internal as well as external reviews. 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, financial analysis, 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.
14
33
The provision for loan losses increased $3.8 million, to $9.3 million, during the year ended December 31, 2016, when compared with
the year ended December 31, 2015. At December 31, 2016, the allowance for loan losses was $37.4 million, a decrease of $749,000
from December 31, 2015. Total net charge-offs were $10.0 million and $5.8 million for the years ended December 31, 2016 and 2015,
respectively. Excluding those related to loans covered by loss sharing agreements, six relationships made up $5.5 million of the total
$10.0 million in net charge-offs for the year ended December 31, 2016. Gross charge-offs for the year were partially offset by
recoveries, including recoveries on two separate relationships totaling $1.1 million, which had previously been charged off. During
the year ended December 31, 2016, $3.8 million of the $10.0 million of net charge-offs were in the consumer auto category. General
market conditions and unique circumstances related to individual borrowers and projects 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.
At December 31, 2016, loans acquired in the InterBank FDIC-assisted transaction were covered by a loss sharing agreement between
the FDIC and Great Southern Bank, which affords Great Southern Bank at least 80% protection from losses in the acquired portfolio
of loans. The FDIC loss sharing agreement is subject to limitations on the types of losses covered and the length of time losses are
covered and is conditioned upon the Bank complying with its requirements in the agreement with the FDIC. These limitations are
described in detail in Note 4 of the accompanying financial statements. In April 2016, the loss sharing agreements for Team Bank,
Vantus Bank and Sun Security Bank were terminated. Loans acquired from the FDIC related to Valley Bank did not have a loss
sharing agreement. All 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 date. 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.
The allowance for loan losses as a percentage of total loans, excluding acquired covered and non-covered loans, was 1.04% and 1.20%
at December 31, 2016 and 2015, respectively. Management considers the allowance for loan losses adequate to cover losses inherent
in the Company's loan portfolio at December 31, 2016, 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 and potential
problem loans, 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. In addition, these assets were initially recorded at
their estimated fair values as of their acquisition dates. The overall performance of the loan pools acquired in 2009, 2011 and 2012 in
FDIC-assisted transactions 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; therefore, these loan pools are analyzed rather than the individual loans.
As previously discussed, the remaining loss sharing agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated
in April 2016. Loss sharing agreements covering single-family loans and foreclosed assets and non-single-family loans and foreclosed
assets related to the Inter Savings Bank FDIC-assisted acquisition are still in place in accordance with their contractual terms.
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 and formerly covered non-performing assets and other FDIC-assisted acquired assets,
at December 31, 2016, were $39.3 million, a decrease of $4.7 from $44.0 million at December 31, 2015. Non-performing assets,
excluding FDIC-covered and formerly covered non-performing assets and other FDIC-assisted acquired assets, as a percentage of total
assets were 0.86% at December 31, 2016, compared to 1.07% at December 31, 2015.
Compared to December 31, 2015, non-performing loans decreased $2.5 million to $14.1 million at December 31, 2016, and foreclosed
assets decreased $2.1 million to $25.2 million at December 31, 2016. Non-performing commercial real estate loans comprised $4.4
million, or 31.3%, of the total of $14.1 million of non-performing loans at December 31, 2016. The majority of the decrease in the
commercial real estate category was due to one relationship where the notes were sold and the loans paid off after charge-offs of $2.0
million during 2016. Another relationship totaling $982,000 was transferred to foreclosed assets. In addition, $3.1 million of the
15
34
transfers to foreclosed assets in the commercial real estate category and approximately $670,000 of the charge-offs were related to
transfers to foreclosed assets in the commercial real estate category and approximately $670,000 of the charge-offs were related to
transfers to foreclosed assets in the commercial real estate category and approximately $670,000 of the charge-offs were related to
another relationship. Non-performing commercial business loans were $3.1 million, or 21.9%, of total non-performing loans at
another relationship. Non-performing commercial business loans were $3.1 million, or 21.9%, of total non-performing loans at
another relationship. Non-performing commercial business loans were $3.1 million, or 21.9%, of total non-performing loans at
December 31, 2016. The increase in non-performing commercial business loans was primarily due to the addition of one relationship
December 31, 2016. The increase in non-performing commercial business loans was primarily due to the addition of one relationship
December 31, 2016. The increase in non-performing commercial business loans was primarily due to the addition of one relationship
in 2016. Non-performing consumer loans were $2.6 million, or 18.7%, of total non-performing loans at December 31, 2016. Non-
in 2016. Non-performing consumer loans were $2.6 million, or 18.7%, of total non-performing loans at December 31, 2016. Non-
in 2016. Non-performing consumer loans were $2.6 million, or 18.7%, of total non-performing loans at December 31, 2016. Non-
performing one-to four-family residential loans comprised $2.0 million, or 13.9%, of the total non-performing loans at December 31,
performing one-to four-family residential loans comprised $2.0 million, or 13.9%, of the total non-performing loans at December 31,
performing one-to four-family residential loans comprised $2.0 million, or 13.9%, of the total non-performing loans at December 31,
2016. Non-performing land development loans were $1.7 million, or 12.2%, of total non-performing loans at December 31, 2016.
2016. Non-performing land development loans were $1.7 million, or 12.2%, of total non-performing loans at December 31, 2016.
2016. Non-performing land development loans were $1.7 million, or 12.2%, of total non-performing loans at December 31, 2016.
The increase in non-performing land development loans was primarily due to the addition of one relationship in 2016.
The increase in non-performing land development loans was primarily due to the addition of one relationship in 2016.
The increase in non-performing land development loans was primarily due to the addition of one relationship in 2016.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2016, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2016, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2016, was as follows:
Beginning
Beginning
Beginning
Balance,
Balance,
Balance,
Removed
Removed
Removed
Transfers to
Transfers to
Transfers to
Transfers to
Transfers to
Transfers to
from Non-
from Non-
from Non-
Potential
Potential
Potential
Foreclosed
Foreclosed
Foreclosed
Ending
Ending
Ending
Balance,
Balance,
Balance,
January 1
January 1
January 1
Additions
Additions
Additions
Performing
Performing
Performing
Problem Loans
Problem Loans
Problem Loans
Assets
Assets
Assets
Charge-Offs
Charge-Offs
Charge-Offs
Payments
Payments
Payments
December 31
December 31
December 31
(In Thousands)
(In Thousands)
(In Thousands)
One- to four-family construction
One- to four-family construction
One- to four-family construction
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
Subdivision construction
Subdivision construction
Subdivision construction
Land development
Land development
Land development
Commercial construction
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Other commercial
Consumer
Consumer
Consumer
—
—
—
139
139
139
—
—
—
1,357
1,357
1,357
—
—
—
13,488
13,488
13,488
288
288
288
1,297
1,297
1,297
143
143
143
1,635
1,635
1,635
—
—
—
1,834
1,834
1,834
178
178
178
6,949
6,949
6,949
3,448
3,448
3,448
4,842
4,842
4,842
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(84)
(84)
(84)
(103)
(103)
(103)
—
—
—
—
—
—
—
—
—
(259)
(259)
(259)
—
—
—
—
—
—
(78)
(78)
(78)
(114)
(114)
(114)
—
—
—
—
—
—
—
—
—
(412)
(412)
(412)
—
—
—
—
—
—
(34)
(34)
(34)
109
109
109
(30)
(30)
(30)
(26)
(26)
(26)
1,718
1,718
1,718
—
—
—
—
—
—
—
—
—
(197)
(197)
(197)
(433)
(433)
(433)
1,962
1,962
1,962
(16)
(16)
(16)
—
—
—
162
162
162
(7,249)
(7,249)
(7,249)
(3,455)
(3,455)
(3,455)
(5,329)
(5,329)
(5,329)
4,404
4,404
4,404
—
—
—
(666)
(666)
(666)
(185)
(185)
(185)
(385)
(385)
(385)
3,088
3,088
3,088
(990)
(990)
(990)
(1,472)
(1,472)
(1,472)
2,638
2,638
2,638
Total
Total
Total
$
$
$
16,569 $
16,569 $
16,569 $
19,029 $
19,029 $
19,029 $
(343) $
(343) $
(343) $
(295) $
(295) $
(295) $
(8,327) $
(8,327) $
(8,327) $
(4,873) $
(4,873) $
(4,873) $
(7,679) $
(7,679) $
(7,679) $
14,081
14,081
14,081
At December 31, 2016, the non-performing commercial real estate category included 10 loans, seven of which were added during the
At December 31, 2016, the non-performing commercial real estate category included 10 loans, seven of which were added during the
At December 31, 2016, the non-performing commercial real estate category included 10 loans, seven of which were added during the
year. The largest relationship in this category, which was added prior to 2016, totaled $1.7 million, or 38.5% of the total category, and
year. The largest relationship in this category, which was added prior to 2016, totaled $1.7 million, or 38.5% of the total category, and
year. The largest relationship in this category, which was added prior to 2016, totaled $1.7 million, or 38.5% of the total category, and
is collateralized by a theatre property in Branson, Mo. One relationship in this category, which had a balance of $6.5 million at
is collateralized by a theatre property in Branson, Mo. One relationship in this category, which had a balance of $6.5 million at
is collateralized by a theatre property in Branson, Mo. One relationship in this category, which had a balance of $6.5 million at
December 31, 2015, had $2.0 million in charge-offs and $5.1 million in payments (net of operating funds advanced) during the year.
December 31, 2015, had $2.0 million in charge-offs and $5.1 million in payments (net of operating funds advanced) during the year.
December 31, 2015, had $2.0 million in charge-offs and $5.1 million in payments (net of operating funds advanced) during the year.
The relationship was collateralized by three operating long-term health care facilities in Missouri. These related notes were sold
The relationship was collateralized by three operating long-term health care facilities in Missouri. These related notes were sold
The relationship was collateralized by three operating long-term health care facilities in Missouri. These related notes were sold
during 2016 for payment of the amount of the remaining balances after the charge-offs, resulting in a balance of zero at December 31,
during 2016 for payment of the amount of the remaining balances after the charge-offs, resulting in a balance of zero at December 31,
during 2016 for payment of the amount of the remaining balances after the charge-offs, resulting in a balance of zero at December 31,
2016. During 2016, $3.1 million of the transfers to foreclosed assets in the commercial real estate category and approximately
2016. During 2016, $3.1 million of the transfers to foreclosed assets in the commercial real estate category and approximately
2016. During 2016, $3.1 million of the transfers to foreclosed assets in the commercial real estate category and approximately
$670,000 of the charge-offs were related to another relationship. This relationship is secured by property located in the Branson, Mo.,
$670,000 of the charge-offs were related to another relationship. This relationship is secured by property located in the Branson, Mo.,
$670,000 of the charge-offs were related to another relationship. This relationship is secured by property located in the Branson, Mo.,
area, and includes a lakefront resort, marina and related amenities, condominiums and lots. In addition to those relationships already
area, and includes a lakefront resort, marina and related amenities, condominiums and lots. In addition to those relationships already
area, and includes a lakefront resort, marina and related amenities, condominiums and lots. In addition to those relationships already
discussed, $3.8 million of the transfers to foreclosed assets in the commercial real estate category during the year related to three
discussed, $3.8 million of the transfers to foreclosed assets in the commercial real estate category during the year related to three
discussed, $3.8 million of the transfers to foreclosed assets in the commercial real estate category during the year related to three
additional relationships. The non-performing commercial business category included five loans, four of which were added during
additional relationships. The non-performing commercial business category included five loans, four of which were added during
additional relationships. The non-performing commercial business category included five loans, four of which were added during
2016. The largest loan in this category, which was added in 2016, totaled $3.0 million, or 95.6% of the total category, and is secured
2016. The largest loan in this category, which was added in 2016, totaled $3.0 million, or 95.6% of the total category, and is secured
2016. The largest loan in this category, which was added in 2016, totaled $3.0 million, or 95.6% of the total category, and is secured
by the borrower’s interest in a condo project in Branson, Mo. The Bank’s lending involvement with this project dates back to 2005.
by the borrower’s interest in a condo project in Branson, Mo. The Bank’s lending involvement with this project dates back to 2005.
by the borrower’s interest in a condo project in Branson, Mo. The Bank’s lending involvement with this project dates back to 2005.
This project had experienced some performance difficulties in the past and a new borrower became involved in this project during
This project had experienced some performance difficulties in the past and a new borrower became involved in this project during
This project had experienced some performance difficulties in the past and a new borrower became involved in this project during
2013. The non-performing one- to four-family residential category included 38 loans, 27 of which were added during 2016. The non-
2013. The non-performing one- to four-family residential category included 38 loans, 27 of which were added during 2016. The non-
2013. The non-performing one- to four-family residential category included 38 loans, 27 of which were added during 2016. The non-
performing land development category included two loans. The largest loan in this category, which was originated in 2007, totaled
performing land development category included two loans. The largest loan in this category, which was originated in 2007, totaled
performing land development category included two loans. The largest loan in this category, which was originated in 2007, totaled
$1.6 million, or 95.1% of the total category, and was collateralized by land in the St. Louis, Mo. area. The non-performing consumer
$1.6 million, or 95.1% of the total category, and was collateralized by land in the St. Louis, Mo. area. The non-performing consumer
$1.6 million, or 95.1% of the total category, and was collateralized by land in the St. Louis, Mo. area. The non-performing consumer
category included 188 loans, 174 of which were added during 2016.
category included 188 loans, 174 of which were added during 2016.
category included 188 loans, 174 of which were added during 2016.
Foreclosed Assets. Of the total $32.7 million of other real estate owned at December 31, 2016, $1.4 million represents the fair value of
Foreclosed Assets. Of the total $32.7 million of other real estate owned at December 31, 2016, $1.4 million represents the fair value of
Foreclosed Assets. Of the total $32.7 million of other real estate owned at December 31, 2016, $1.4 million represents the fair value of
foreclosed assets covered by FDIC loss sharing agreements, $316,000 represents the fair value of foreclosed assets previously covered
foreclosed assets covered by FDIC loss sharing agreements, $316,000 represents the fair value of foreclosed assets previously covered
foreclosed assets covered by FDIC loss sharing agreements, $316,000 represents the fair value of foreclosed assets previously covered
by FDIC loss sharing agreements, $2.0 million represents foreclosed assets related to Valley Bank and not covered by loss sharing
by FDIC loss sharing agreements, $2.0 million represents foreclosed assets related to Valley Bank and not covered by loss sharing
by FDIC loss sharing agreements, $2.0 million represents foreclosed assets related to Valley Bank and not covered by loss sharing
agreements, $9,000 represents other repossessed assets related to acquired loans, and $3.7 million represents properties which were
agreements, $9,000 represents other repossessed assets related to acquired loans, and $3.7 million represents properties which were
agreements, $9,000 represents other repossessed assets related to acquired loans, and $3.7 million represents properties which were
not acquired through foreclosure, including former branch locations that have been closed and are held for sale and land which was
not acquired through foreclosure, including former branch locations that have been closed and are held for sale and land which was
not acquired through foreclosure, including former branch locations that have been closed and are held for sale and land which was
acquired for a potential branch location . The acquired loss share covered and non-covered foreclosed and other assets acquired in the
acquired for a potential branch location . The acquired loss share covered and non-covered foreclosed and other assets acquired in the
acquired for a potential branch location . The acquired loss share covered and non-covered foreclosed and other assets acquired in the
FDIC-assisted transactions and the properties not acquired through foreclosure are not included in the following table and discussion
FDIC-assisted transactions and the properties not acquired through foreclosure are not included in the following table and discussion
FDIC-assisted transactions and the properties not acquired through foreclosure are not included in the following table and discussion
of other real estate owned. Because sales of foreclosed properties exceeded additions, total foreclosed assets decreased. Activity in
of other real estate owned. Because sales of foreclosed properties exceeded additions, total foreclosed assets decreased. Activity in
of other real estate owned. Because sales of foreclosed properties exceeded additions, total foreclosed assets decreased. Activity in
foreclosed assets during the year ended December 31, 2016, was as follows:
foreclosed assets during the year ended December 31, 2016, was as follows:
foreclosed assets during the year ended December 31, 2016, was as follows:
16
16
16
35
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
$
$
—
7,016
12,133
—
1,375
2,150
3,608
—
1,109
— $
—
—
—
477
—
7,094
—
13,332
(In Thousands)
— $
(362)
(1,247)
—
(435)
(1,252)
(6,170)
—
(12,450)
— $
—
—
—
—
146
—
—
—
— $
(294)
—
—
(200)
(90)
(691)
—
—
—
6,360
10,886
—
1,217
954
3,841
—
1,991
Total
$
27,391
$
20,903 $
(21,916) $
146 $
(1,275) $
25,249
At December 31, 2016, the land development category of foreclosed assets included 22 properties, the largest of which was located in
northwest Arkansas and had a balance of $1.4 million, or 12.6% of the total category. Of the total dollar amount in the land
development category of foreclosed assets, 39.1% and 33.1% was located in the Branson, Mo. area and in the northwest Arkansas area,
respectively, including the largest property previously mentioned. The subdivision construction category of foreclosed assets included
27 properties, the largest of which was located in the Springfield, Mo. metropolitan area and had a balance of $1.2 million, or 19.4%
of the total category. Of the total dollar amount in the subdivision construction category of foreclosed assets, 29.4% and 19.4% is
located in Branson, Mo. and Springfield, Mo., respectively, including the largest property previously mentioned. The commercial real
estate category of foreclosed assets included six properties. The largest relationship in the commercial real estate category, which
includes two properties which were added during 2016, totaled $1.5 million, or 39.6% of the total category, and is made up of
commercial retail property in Texas and Georgia, which was previously in non-performing loans. The second largest relationship in
the commercial real estate category, which was added during 2016, totaled $1.3 million, or 33.3% of the total category, and is a hotel
located in the western United States, which was previously in non-performing loans. The $6.2 million in sales in the commercial real
estate category of foreclosed assets was primarily from three properties. Sales of $2.1 million related to a property which is located in
southeast Missouri and was added in 2015. Sales of $2.9 million related to a property located in the Branson, Mo., area, and included
a lakefront resort, marina and related amenities, condominiums and lots. Sales of $982,000 related to a motel property located in
Springfield, Mo. The one-to four-family residential category of foreclosed assets included nine properties, of which the largest
relationship, with one property in the southwest Missouri area, had a balance of $421,000, or 34.6% of the total category. Of the total
dollar amount in the one-to- four-family category of foreclosed assets, 44.4% is located in the Branson, Mo., area. The other
residential category of foreclosed assets included five properties, four of which were part of the same condominium community,
located in Branson, Mo. and had a balance of $694,000, or 72.7% of the total category. The sales of $1.3 million in the other
residential category were from six additional properties that were part of the same condominium community which were sold during
2016. The larger amount of additions and sales under consumer loans are due to a higher volume of repossessions of automobiles,
which generally are subject to a shorter repossession process. Compared to previous years, in 2016 the Company experienced
increased levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans.
Potential Problem Loans. Potential problem loans decreased $5.8 million during the year ended December 31, 2016, from $12.8
million at December 31, 2015 to $7.0 million at December 31, 2016. This decrease was due to $6.0 million in loans transferred to the
non-performing category, $2.6 million in loans removed from potential problem loans due to improvements in the credits, $2.2 million
in charge-offs, $65,000 in loans transferred to foreclosed assets, and $3.4 million in payments on potential problem loans, partially
offset by the addition of $8.5 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, 2016,
was as follows:
17
36
Beginning
Beginning
Balance,
Balance,
Removed
Removed
Transfers to
Transfers to
Transfers to
Transfers to
from Potential
from Potential
Non-
Non-
Foreclosed
Foreclosed
Ending
Ending
Balance,
Balance,
January 1
January 1
Additions
Additions
Problem
Problem
Performing
Performing
Assets
Assets
Charge-Offs
Charge-Offs
Payments
Payments
December 31
December 31
(In Thousands)
(In Thousands)
One- to four-family construction
One- to four-family construction
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
Subdivision construction
Subdivision construction
Land development
Land development
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Consumer
Consumer
288
288
4,130
4,130
—
—
844
844
1,956
1,956
5,286
5,286
181
181
134
134
—
—
5
5
—
—
196
196
178
178
7,626
7,626
284
284
221
221
(141)
(141)
(143)
(143)
—
—
—
—
(410)
(410)
—
—
—
—
—
—
(101)
(101)
(178)
(178)
(1,802)
(1,802)
(5,544)
(5,544)
(153)
(153)
(126)
(126)
—
—
(75)
(75)
—
—
—
—
—
—
—
—
—
—
—
—
(4)
(4)
—
—
—
—
(65)
(65)
(2)
(2)
(23)
(23)
—
—
(1,956)
(1,956)
—
—
—
—
4,135
4,135
—
—
439
439
—
—
(2,142)
(2,142)
(1,362)
(1,362)
2,062
2,062
(68)
(68)
—
—
(40)
(40)
(32)
(32)
204
204
122
122
—
—
—
—
—
—
—
—
Total
Total
$
$
12,819 $
12,819 $
8,510 $
8,510 $
(2,632) $
(2,632) $
(6,041) $
(6,041) $
(65) $
(65) $
(2,212) $
(2,212) $
(3,417) $
(3,417) $
6,962
6,962
At December 31, 2016, the land development category of potential problem loans included three loans. The largest loan in this
At December 31, 2016, the land development category of potential problem loans included three loans. The largest loan in this
category, which was added prior to 2016 and is collateralized by property in the Branson, Mo., area, totaled $3.8 million, or 92.9% of
category, which was added prior to 2016 and is collateralized by property in the Branson, Mo., area, totaled $3.8 million, or 92.9% of
the total category. The commercial real estate category of potential problem loans included four loans, all of which were added prior
the total category. The commercial real estate category of potential problem loans included four loans, all of which were added prior
to 2016. The largest relationship in this category contains two loans, with a total balance of $1.3 million, or 63.4% of the commercial
to 2016. The largest relationship in this category contains two loans, with a total balance of $1.3 million, or 63.4% of the commercial
real estate category. This relationship is collateralized by commercial entertainment property and other property in Branson, Mo.
real estate category. This relationship is collateralized by commercial entertainment property and other property in Branson, Mo.
Two relationships made up $4.5 million in transfers to non-performing assets and $1.8 million in charge-offs in the commercial real
Two relationships made up $4.5 million in transfers to non-performing assets and $1.8 million in charge-offs in the commercial real
estate category during 2016. These relationships are discussed above under non-performing loans. Of the $1.4 million in payments in
estate category during 2016. These relationships are discussed above under non-performing loans. Of the $1.4 million in payments in
this category, 95% was related to one loan, which was paid in full during 2016. The other residential category of potential problem
this category, 95% was related to one loan, which was paid in full during 2016. The other residential category of potential problem
loans has a balance of zero at December 31, 2016. During the year, payment was received in full on one loan which was previously
loans has a balance of zero at December 31, 2016. During the year, payment was received in full on one loan which was previously
included in the other residential category of potential problem loans totaling $2.0 million. This loan was to the same borrower that
included in the other residential category of potential problem loans totaling $2.0 million. This loan was to the same borrower that
was referenced above in the land development category.
was referenced above in the land development category.
Non-Interest Income
Non-Interest Income
Non-interest income for the year ended December 31, 2016 was $28.5 million compared with $13.6 million for the year ended
Non-interest income for the year ended December 31, 2016 was $28.5 million compared with $13.6 million for the year ended
December 31, 2015. The increase of $14.9 million, or 109.9 %, was primarily the result of the following items:
December 31, 2015. The increase of $14.9 million, or 109.9 %, was primarily the result of the following items:
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was reduced to
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was reduced to
$6.9 million for the year ended December 31, 2016, compared to $18.3 million for the year ended December 31, 2015. The
$6.9 million for the year ended December 31, 2016, compared to $18.3 million for the year ended December 31, 2015. The
amortization expense for the year ended December 31, 2016, consisted of the following items: $5.8 million of amortization expense
amortization expense for the year ended December 31, 2016, consisted of the following items: $5.8 million of amortization expense
related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios, $584,000 of impairment to
related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios, $584,000 of impairment to
certain indemnification assets and $1.4 million of amortization of the clawback liability. The impairment of the indemnification asset
certain indemnification assets and $1.4 million of amortization of the clawback liability. The impairment of the indemnification asset
was recorded pursuant to the expected loss on the FDIC loss share termination agreements that occurred in April 2016, as discussed in
was recorded pursuant to the expected loss on the FDIC loss share termination agreements that occurred in April 2016, as discussed in
the Company’s March 31, 2016 Quarterly Report on Form 10-Q. Partially offsetting the expense was income from the accretion of
the Company’s March 31, 2016 Quarterly Report on Form 10-Q. Partially offsetting the expense was income from the accretion of
the discount related to the indemnification asset for the InterBank acquisition of $896,000.
the discount related to the indemnification asset for the InterBank acquisition of $896,000.
Net realized gains on sales of available-for-sale securities: During 2016, the Company sold an investment held at the holding
Net realized gains on sales of available-for-sale securities: During 2016, the Company sold an investment held at the holding
company level for a gain of $2.7 million. This investment, the original amount of which was $1.0 million, was made in a managed
company level for a gain of $2.7 million. This investment, the original amount of which was $1.0 million, was made in a managed
equity fund. The Company was required to divest this investment as a result of recent regulations enacted by the Federal Reserve
equity fund. The Company was required to divest this investment as a result of recent regulations enacted by the Federal Reserve
Board. There were no material gains on sales of investments in 2015.
Board. There were no material gains on sales of investments in 2015.
Service charges and ATM fees: Service charges and ATM fees increased $1.8 million compared to the prior year, primarily due to the
Service charges and ATM fees: Service charges and ATM fees increased $1.8 million compared to the prior year, primarily due to the
additional accounts acquired in the Fifth Third Bank transaction in January 2016, which have had high levels of debit card activity,
additional accounts acquired in the Fifth Third Bank transaction in January 2016, which have had high levels of debit card activity,
and overall higher levels of point-of-sale card activity.
and overall higher levels of point-of-sale card activity.
Other income: Other income decreased $918,000 compared to the prior year. During 2015, the Company recorded a $1.1 million
Other income: Other income decreased $918,000 compared to the prior year. During 2015, the Company recorded a $1.1 million
gain when it redeemed the trust preferred securities previously issued by Great Southern Capital Trust III at a discount. Also in 2015,
gain when it redeemed the trust preferred securities previously issued by Great Southern Capital Trust III at a discount. Also in 2015,
18
18
37
the Company sold a banking center building in Nebraska at a net gain of $671,000. In addition, during 2015, the Company recognized
a $300,000 gain on the sale of a non-marketable investment. The Company recognized a $257,000 gain on the sale of the Thayer,
Mo., branch and deposits during the first quarter of 2016 and a $110,000 gain was recognized on the sale of the Buffalo, Mo., branch
and deposits during the first quarter of 2016. In addition, in 2016, a gain of $238,000 was recognized on sales of fixed assets
unrelated to the branch sales.
Non-Interest Expense
Total non-interest expense increased $6.0 million, or 5.3%, from $114.4 million in the year ended December 31, 2015, to $120.4
million in the year ended December 31, 2016. The Company’s efficiency ratio for the year ended December 31, 2016 was 62.86%,
slightly higher than the 62.85% in 2015. The 2016 ratio was negatively affected by the increase in non-interest expense and the
decrease in net interest income, offset by an increase in non-interest income. The Company’s ratio of non-interest expense to average
assets decreased from 2.81% for the year ended December 31, 2015, to 2.76% for the year ended December 31, 2016. The decrease in
the current year ratio was due to the increase in average assets in 2016 compared to 2015, partially offset by the increase in non-
interest expense. Average assets for the year ended December 31, 2016, increased $303.4 million, or 7.5%, from the year ended
December 31, 2015. The following were key items related to the increase in non-interest expense for the year ended December 31,
2016 as compared to the year ended December 31, 2015:
Fifth Third Bank branch acquisition expenses: The Company incurred approximately $1.4 million of expenses during 2016 related to
the acquisition of certain branches of Fifth Third Bank, versus approximately $482,000 in acquisition related expenses in the prior
year. Those expenses for 2016 (net of prior year expense, if applicable), included approximately $317,000 of legal, audit and other
professional fees expense, approximately $294,000 of computer license and support expense, approximately $436,000 in charges to
replace former Fifth Third Bank customer checks with Great Southern Bank checks, and approximately $54,000 of travel, meals and
other expenses related to the transaction and similar costs incurred during the year. A number of these increases are discussed in the
related categories below.
Salaries and employee benefits: Salaries and employee benefits increased $1.7 million over the prior year period. Salaries increased
due to additional employee costs related to the branches acquired from Fifth Third Bank during the first quarter of 2016 ($2.3 million
during 2016), which was partially offset by the reduction in expenses related to the 16 banking centers which were closed or sold
during the first quarter of 2016 ($1.7 million during the prior year). The remaining increase was due to increased staffing due to
growth in lending and other operational areas.
Expense on foreclosed assets: Expense on foreclosed assets increased $1.6 million compared to the prior year due to expenses and
valuation write-downs of foreclosed assets, and the loss on final disposition of certain assets during the current year. During 2016,
expenses and loss on final disposition of two related properties totaling $320,000 were incurred. In addition, approximately $912,000
in valuation write-downs, primarily related to these two properties, were taken during 2016. Collection expenses and losses on sales of
non-real estate assets (primarily automobiles) increased $652,000 in 2016 compared to 2015. The Company has increased its
consumer lending, primarily in indirect automobile lending, significantly in the past few years. The Company does not currently
expect significant increases in this type of lending in future periods.
Other operating expenses: Other operating expenses increased $1.6 million in the year ended December 31, 2016 compared to 2015.
Of this amount, $436,000 relates to check charges to replace Fifth Third customer checks as part of the acquisition in the first quarter
of 2016. There was also increased expense due to higher levels of debit card and check fraud losses in 2016. These losses totaled
$1.9 million in 2016 compared to $619,000 in 2015. A large portion of the increase related to debit card fraud that resulted from a
data security breach at a national retail merchant which operates stores in many of our markets, affecting some of our debit card
customers who transacted business with the merchant. The losses incurred by the Company resulted from regulatory requirements
that banks reimburse debit card customers for unauthorized transactions. In regard to this particular merchant breach, we currently
believe that further loss exposure will not be significant.
Legal, audit and other professional fees: Legal, audit and other professional fees increased $478,000 from the prior year due to legal
and professional fees related to the Fifth Third transaction, legal fees related to the resolution of two large non-performing loan
relationships, and increased audit and accounting fees.
Supplies expense: Supplies expense increased $375,000 compared to the prior year primarily due to approximately $318,000 of one-
time costs incurred to stock a supply of chip-enabled debit cards. In October 2016, the Company began mass issuing chip-enabled
debit cards to its deposit customer base.
Provision for Income Taxes
19
38
the Company sold a banking center building in Nebraska at a net gain of $671,000. In addition, during 2015, the Company recognized
a $300,000 gain on the sale of a non-marketable investment. The Company recognized a $257,000 gain on the sale of the Thayer,
Mo., branch and deposits during the first quarter of 2016 and a $110,000 gain was recognized on the sale of the Buffalo, Mo., branch
and deposits during the first quarter of 2016. In addition, in 2016, a gain of $238,000 was recognized on sales of fixed assets
unrelated to the branch sales.
Non-Interest Expense
Total non-interest expense increased $6.0 million, or 5.3%, from $114.4 million in the year ended December 31, 2015, to $120.4
million in the year ended December 31, 2016. The Company’s efficiency ratio for the year ended December 31, 2016 was 62.86%,
slightly higher than the 62.85% in 2015. The 2016 ratio was negatively affected by the increase in non-interest expense and the
decrease in net interest income, offset by an increase in non-interest income. The Company’s ratio of non-interest expense to average
assets decreased from 2.81% for the year ended December 31, 2015, to 2.76% for the year ended December 31, 2016. The decrease in
the current year ratio was due to the increase in average assets in 2016 compared to 2015, partially offset by the increase in non-
interest expense. Average assets for the year ended December 31, 2016, increased $303.4 million, or 7.5%, from the year ended
December 31, 2015. The following were key items related to the increase in non-interest expense for the year ended December 31,
2016 as compared to the year ended December 31, 2015:
Fifth Third Bank branch acquisition expenses: The Company incurred approximately $1.4 million of expenses during 2016 related to
the acquisition of certain branches of Fifth Third Bank, versus approximately $482,000 in acquisition related expenses in the prior
year. Those expenses for 2016 (net of prior year expense, if applicable), included approximately $317,000 of legal, audit and other
professional fees expense, approximately $294,000 of computer license and support expense, approximately $436,000 in charges to
replace former Fifth Third Bank customer checks with Great Southern Bank checks, and approximately $54,000 of travel, meals and
other expenses related to the transaction and similar costs incurred during the year. A number of these increases are discussed in the
related categories below.
Salaries and employee benefits: Salaries and employee benefits increased $1.7 million over the prior year period. Salaries increased
due to additional employee costs related to the branches acquired from Fifth Third Bank during the first quarter of 2016 ($2.3 million
during 2016), which was partially offset by the reduction in expenses related to the 16 banking centers which were closed or sold
during the first quarter of 2016 ($1.7 million during the prior year). The remaining increase was due to increased staffing due to
growth in lending and other operational areas.
Expense on foreclosed assets: Expense on foreclosed assets increased $1.6 million compared to the prior year due to expenses and
valuation write-downs of foreclosed assets, and the loss on final disposition of certain assets during the current year. During 2016,
expenses and loss on final disposition of two related properties totaling $320,000 were incurred. In addition, approximately $912,000
in valuation write-downs, primarily related to these two properties, were taken during 2016. Collection expenses and losses on sales of
non-real estate assets (primarily automobiles) increased $652,000 in 2016 compared to 2015. The Company has increased its
consumer lending, primarily in indirect automobile lending, significantly in the past few years. The Company does not currently
expect significant increases in this type of lending in future periods.
Other operating expenses: Other operating expenses increased $1.6 million in the year ended December 31, 2016 compared to 2015.
Of this amount, $436,000 relates to check charges to replace Fifth Third customer checks as part of the acquisition in the first quarter
of 2016. There was also increased expense due to higher levels of debit card and check fraud losses in 2016. These losses totaled
$1.9 million in 2016 compared to $619,000 in 2015. A large portion of the increase related to debit card fraud that resulted from a
data security breach at a national retail merchant which operates stores in many of our markets, affecting some of our debit card
customers who transacted business with the merchant. The losses incurred by the Company resulted from regulatory requirements
that banks reimburse debit card customers for unauthorized transactions. In regard to this particular merchant breach, we currently
believe that further loss exposure will not be significant.
Legal, audit and other professional fees: Legal, audit and other professional fees increased $478,000 from the prior year due to legal
and professional fees related to the Fifth Third transaction, legal fees related to the resolution of two large non-performing loan
relationships, and increased audit and accounting fees.
Supplies expense: Supplies expense increased $375,000 compared to the prior year primarily due to approximately $318,000 of one-
time costs incurred to stock a supply of chip-enabled debit cards. In October 2016, the Company began mass issuing chip-enabled
debit cards to its deposit customer base.
Provision for Income Taxes
The Company’s effective tax rate was 26.7% and 25.1% for the years ended December 31, 2016 and 2015, respectively, which was
lower than the statutory federal tax rate of 35%, due primarily to the utilization of certain investment tax credits 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 26-28% of pre-tax net income, assuming it continues to maintain or increase its use of investment
tax credits and maintain or increase its pre-tax net income. 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.
19
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
$5.0 million, $4.4 million and $3.2 million for 2016, 2015 and 2014, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
39
20
Dec. 31,
2016(2)
Yield/
Rate
4.16%
4.07
4.19
3.85
4.37
5.83
5.21
4.58
3.13
0.66
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 538,776
535,793
1,146,983
394,051
316,526
693,550
33,681
$ 28,674
25,052
53,516
18,059
17,389
34,176
2,017
5.32%
4.68
4.67
4.58
5.49
4.93
5.99
$ 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
3,659,360
178,883
4.89
3,235,787
177,240
5.48
2,784,106
172,569
6.20
249,484
116,812
5,741
551
2.30
0.47
330,328
152,720
6,797
314
2.06
0.21
495,155
185,072
10,467
326
2.11
0.18
4.35
4,025,656
185,175
4.60
3,718,835
184,351
4.96
3,464,333
183,362
5.29
108,593
236,544
$4,370,793
106,326
242,238
$4,067,399
96,665
263,495
$3,824,493
0.26
1.01
0.63
0.50
2.49
5.45
3.30
$ 1,496,837
1,370,935
2,867,772
3,888
13,499
17,387
0.26
0.98
0.61
$ 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
327,658
1,137
0.35
192,055
65
0.03
188,906
1,099
0.58
25,774
28,526
68,325
803
1,578
1,214
3.12
5.53
1.78
28,754
—
175,873
714
2.48
— —
0.97
1,707
30,929
—
171,997
567
1.83
— —
1.69
2,910
0.76
3,318,055
22,119
0.67
3,058,230
15,997
0.52
2,864,288
15,801
0.55
608,115
29,824
3,955,994
414,799
$4,370,793
541,714
28,772
3,628,716
438,683
$4,067,399
535,132
22,403
3,421,823
402,670
$3,824,493
3.59%
$163,056
3.93%
4.05%
$168,354
4.44%
4.53%
$167,561
4.74%
4.84%
121.3%
121.6%
120.9%
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
Subordinated notes
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 $72.0 million, $79.9 million and $87.9 million for 2016,
2015 and 2014, respectively. In addition, average tax-exempt industrial revenue bonds were $32.0 million, $36.1 million and $38.5 million in 2016, 2015 and
2014, respectively. Interest income on tax-exempt assets included in this table was $3.8 million, $4.4 million and $5.2 million for 2016, 2015 and 2014,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $3.7 million, $4.2 million and $5.0 million for 2016, 2015 and
2014, respectively.
(2) The yield/rate on loans at December 31, 2016 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 2016 results of operations.
21
40
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, 2016 vs.
December 31, 2015
Year Ended
December 31, 2015 vs.
December 31, 2014
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
Interest-earning assets:
Loans receivable
Investment securities
Other interest-earning assets
Total interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
Short-term borrowings and
structured repo
Subordinated debentures issued
to capital trust
Subordinated notes
FHLBank advances
Total interest-bearing liabilities
Net interest income
$
832
1,825
2,657
996
168
—
919
4,740
(23,862) $
$
(20,188) $
740
326
(19,122)
$
21,831
(1,796)
(89)
19,946
$
1,643
(1,056)
237
824
(21,429) $
(272)
50
$
26,100
(3,398)
(62)
(21,651)
22,640
4,671
(3,670)
(12)
989
(230)
2,516
2,286
198
1,021
1,219
1,030
2,846
3,876
(176)
741
565
(54)
1,775
1,721
76
1,072
(1,052)
18
(1,034)
(79)
1,578
(1,412)
1,382
18,564
$
89
1,578
(493)
6,122
(5,298) $
189
—
(1,267)
(1,565)
(20,086) $
(42)
—
64
1,761
20,879
$
147
—
(1,203)
196
793
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.
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
22
41
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.
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.”
23
42
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
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
24
43
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 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,
Total Interest Expense
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
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
24
$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.
Provision for Loan Losses and Allowance for Loan Losses
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
25
44
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
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.
26
45
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2015, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2015, was as follows:
Beginning
Beginning
Balance,
Balance,
Removed
Removed
Transfers to
Transfers to
Transfers to
Transfers to
from Non-
from Non-
Potential
Potential
Foreclosed
Foreclosed
Ending
Ending
Balance,
Balance,
January 1
January 1
Additions
Additions
Performing
Performing
Problem Loans
Problem Loans
Assets
Assets
Charge-Offs
Charge-Offs
Payments
Payments
December 31
December 31
One- to four-family construction
One- to four-family construction
$
$
— $
— $
— $
— $
Subdivision construction
Subdivision construction
Land development
Land development
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Consumer
Consumer
(In Thousands)
(In Thousands)
— $
— $
109
109
144
144
—
—
1,361
1,361
—
—
13,391
13,391
415
415
2,175
2,175
— $
— $
—
—
—
—
—
—
(451)
(451)
—
—
(1,469)
(1,469)
(56)
(56)
(198)
(198)
— $
— $
—
—
(50)
(50)
—
—
(340)
(340)
—
—
—
—
(35)
(35)
(114)
(114)
— $
— $
—
—
—
—
—
—
(316)
(316)
—
—
(2,620)
(2,620)
—
—
(188)
(188)
— $
— $
—
—
255
255
—
—
1,665
1,665
—
—
4,699
4,699
411
411
1,117
1,117
(55)
(55)
(197)
(197)
—
—
(66)
(66)
—
—
(22)
(22)
(384)
(384)
(514)
(514)
(54)
(54)
(13)
(13)
—
—
—
—
—
—
139
—
139
—
(496)
(496)
—
—
1,357
1,357
—
—
(491)
(491)
13,488
13,488
(63)
(63)
288
288
(981)
(981)
1,297
1,297
Total
Total
$
$
8,147 $
8,147 $
17,595 $
17,595 $
(2,174) $
(2,174) $
(539) $
(539) $
(3,124) $
(3,124) $
(1,238) $
(1,238) $
(2,098) $
(2,098) $
16,569
16,569
At December 31, 2015, the non-performing commercial real estate category included nine loans, five of which were transferred from
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
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
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
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
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
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
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
property in the Branson, Mo., area, including a lakefront resort, marina and related amenities, condominiums and lots. This borrower
has been in business for over 30 years and a bank customer since 1992. In 2015, the project experienced declining occupancy rates
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
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.
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-
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, 83 of which were added during the year.
performing consumer category included 101 loans, 83 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. 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
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
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
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
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
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
exceeded additions, total foreclosed assets decreased. Activity in foreclosed assets during the year ended December 31, 2015, was as
follows:
follows:
27
27
46
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,
$2.9 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 $1.2 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 17.6% 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.
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:
28
47
Beginning
Beginning
Balance,
Balance,
Removed
Removed
Transfers to
Transfers to
Transfers to
Transfers to
from Potential
from Potential
Non-
Non-
Foreclosed
Foreclosed
Ending
Ending
Balance,
Balance,
January 1
January 1
Additions
Additions
Problem
Problem
Performing
Performing
Assets
Assets
Charge-Offs
Charge-Offs
Payments
Payments
December 31
December 31
(In Thousands)
(In Thousands)
One- to four-family construction
One- to four-family construction
$
$
1,312 $
1,312 $
368 $
368 $
(683) $
(683) $
— $
— $
Subdivision construction
Subdivision construction
Land development
Land development
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Consumer
Consumer
4,252
4,252
5,857
5,857
—
—
1,906
1,906
1,956
1,956
8,043
8,043
1,435
1,435
214
214
863
863
—
—
—
—
489
489
—
—
10,254
10,254
131
131
227
227
(3,750)
(3,750)
(2,012)
(2,012)
—
—
(796)
(796)
—
—
(670)
(670)
(464)
(464)
(199)
(199)
(139)
(139)
—
—
—
—
(349)
(349)
—
—
(10,687)
(10,687)
(21)
(21)
(17)
(17)
— $
— $
—
—
—
—
—
—
— $
— $
(997) $
(997) $
—
—
—
—
—
—
—
—
(650)
(650)
576
576
(3)
(3)
—
—
3,842
3,842
—
—
(157)
(157)
—
—
—
—
—
—
—
—
(14)
(14)
(235)
(235)
844
844
—
—
—
—
1,956
1,956
(1,433)
(1,433)
(221)
(221)
5,286
5,286
(527)
(527)
(373)
(373)
(5)
(5)
(86)
(86)
181
181
134
134
Total
Total
$
$
24,975 $
24,975 $
12,332 $
12,332 $
(8,574) $
(8,574) $
(11,213) $
(11,213) $
(157) $
(157) $
(1,979) $
(1,979) $
(2,565) $
(2,565) $
12,819
12,819
At December 31, 2015, the commercial real estate category of potential problem loans included 10 loans, seven of which were added
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
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
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
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
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.
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
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,
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
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
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
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
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,
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
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
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
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
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.
loans which were removed from potential problem loans in the subdivision construction category.
Non-Interest Income
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
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:
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
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.
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,
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:
2014, primarily as a result of the following items:
Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $18.3
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
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: $18.0 million of amortization expense related to the
expense for the year ended December 31, 2015, consisted of the following items: $18.0 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
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 $892,000.
clawback liability. In addition, the Company collected amounts on various problem assets acquired from the FDIC totaling $892,000.
Under the loss sharing agreements, 80% of these collected amounts must be remitted to the FDIC; therefore, the Company recorded a
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 $714,000. Partially offsetting the expense was income from the accretion of the discount related to the
liability and related expense of $714,000. Partially offsetting the expense was income from the accretion of the discount related to the
29
29
48
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.
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
30
49
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.
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, 2016, the Company had commitments of approximately $142.0 million to fund loan originations, $781.8 million of
unused lines of credit and unadvanced loans, and $26.4 million of outstanding letters of credit.
31
50
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2016. Additional information regarding these contractual obligations is discussed further in Notes 8, 9, 10, 11, 12, 13, 14, 17 and 20 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
Subordinated notes
Operating leases
Dividends declared but not paid
Payments Due In:
One Year or
Less
Over One to
Five
Years
Over Five
Years
Total
$ 2,192,504
1,036,958
30,843
286,023
—
—
819
3,073
(In Thousands)
$ —
443,944
109
—
—
—
1,458
—
$ —
3,824
500
—
25,774
73,537
72
—
$ 2,192,504
1,484,726
31,452
286,023
25,774
73,537
2,349
3,073
$3,550,220
$445,511
$103,707
$4,099,438
The Company's primary sources of funds are customer deposits, FHLBank advances, other borrowings, loan repayments, unpledged
securities, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes
particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not
to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements
deposits with less expensive alternative sources of funds.
At December 31, 2016 and 2015, 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, 2016
$551.0 million
602.0 million
December 31, 2015
$505.5 million
633.7 million
279.8 million
50.7 million
199.2 million
59.8 million
Statements of Cash Flows. During the years ended December 31, 2016, 2015 and 2014, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
2016 and 2015, and positive cash flows from investing activities during the year ended December 31, 2014. The Company
experienced positive cash flows from financing activities during the years ended December 31, 2016 and 2015, and negative cash
flows from financing activities during the year ended December 31, 2014.
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 $80.1 million, $71.4
million and $67.4 million during the years ended December 31, 2016, 2015 and 2014, respectively.
During the years ended December 31, 2016 and 2015, investing activities used cash of $198.1 million and $196.2 million, respectively,
primarily due to the net increases and purchases of loans, partially offset by the net repayment or sales of investment securities.
During the year ended December 31, 2014, investing activities provided cash of $35.9 million, primarily due to the cash received from
the FDIC-assisted acquisitions 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
32
51
agreements, dividend payments to stockholders, issuance of subordinated notes (2016) and redemption of preferred stock (2015).
Financing activities provided cash flows of $198.7 million and $105.3 million during the years ended December 31, 2016 and 2015,
respectively, primarily due to increases in customer deposit balances, partially offset by net increases or decreases in various
borrowings, dividend payments to stockholders, issuance of subordinated notes and redemption of preferred stock. Financing
activities used cash flows of $112.6 million during the year ended December 31, 2014, 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, 2016, total stockholders’ equity and common stockholders’ equity were $429.8 million, or 9.4% of total assets,
equivalent to a book value of $30.77 per common share. 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, 2016, the Company’s tangible common equity to tangible assets ratio was 9.2% as compared to 9.6% at December 31,
2015.
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%, a minimum Tier 1 risk-based capital ratio
of 6.00%, 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%, a minimum Tier 1 risk-based capital ratio of
8.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%. On December 31, 2016,
the Bank's common equity Tier 1 capital ratio was 11.8%, its Tier 1 capital ratio was 11.8%, its total capital ratio was 12.7% and its
Tier 1 leverage ratio was 10.8%. As a result, as of December 31, 2016, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. On December 31, 2015, the Bank's common equity Tier 1 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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2016, the Company's common equity Tier 1 capital ratio was 10.2%, its Tier 1 capital ratio was 10.8%, its total capital
ratio was 13.6% and its Tier 1 leverage ratio was 9.9%. 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, 2016, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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.
In addition to the minimum common equity Tier 1 capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, the
Company and the Bank will have to maintain a capital conservation buffer consisting of additional common equity Tier 1 capital
greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends,
repurchasing shares, and paying discretionary bonuses. The new capital conservation buffer requirement began phasing in beginning
on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount will increase an equal
amount each year until the buffer requirement of greater than 2.5% of risk-weighted assets is fully implemented on January 1, 2019.
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”). 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
33
52
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 one percent (1%) based upon the level of qualifying loans. 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, 2016, the Company declared common stock cash dividends of $0.88 per share
(27.4% of net income per common share) and paid common stock cash dividends of $0.88 per share. 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. 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, 2016, was paid to stockholders on
January 13, 2017. In addition, the Company paid preferred dividends as described below in years prior to 2016.
While the SBLF Preferred Stock was outstanding, 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
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
years ended December 31, 2016 and 2015, the Company did not repurchase any shares of its common stock. During the years ended
December 31, 2016 and 2015, the Company issued 80,454 shares of stock at an average price of $26.47 per share and 133,126 shares
of stock at an average price of $25.26 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.
34
53
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, 2016, Great Southern's interest rate risk models indicate that, generally, rising interest rates are expected to
have a positive impact on the Company’s net interest income, while declining interest rates would have a negative impact on net
interest income. We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in
rates. The results of our modeling indicate that net interest income is not likely to be materially affected either positively or negatively
in the first twelve months following a rate change, regardless of any changes in interest rates, because our portfolios are relatively well
matched in a twelve-month horizon. The effects of interest rate changes, if any, are expected to be more impacting to net interest
income in the 12 to 36 months following a rate change.
The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increases of
0.25% on December 16, 2015 and 0.25% on December 14, 2016, the FRB last changed interest rates on December 16, 2008. Great
Southern has a substantial portion of its loan portfolio ($1.02 billion at December 31, 2016) which is tied to the one-month LIBOR
index and will adjust at least once within 90 days after December 31, 2016. Of these loans, $471 million had interest rate floors.
Great Southern also has a significant portfolio of loans ($387 million at December 31, 2016) which are tied to a "prime rate" of
interest and will adjust immediately with changes to the “prime rate” of interest.
As discussed under “General-Net Interest Income and Interest Rate Risk Management,” at December 31, 2016 and 2015, there were
$387 million and $424 million, respectively, of adjustable rate loans which were tied to a prime rate of interest which had interest rate
floors. In previous years, when the market rates of interest began to fall, Great Southern had elected to leave its GSB prime at 5.00%
for those loans that are indexed to GSB prime rather than a national prime rate of interest. This current rate for GSB prime loans is
5.25%. At December 31, 2016 and 2015, there were $60 million and $114 million, respectively, of loans indexed to GSB prime.
While these interest rate floors and, to a lesser extent, the utilization of the GSB 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,” 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 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
35
54
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
Directors sets the asset and liability policies of Great Southern which are implemented by the Asset and Liability Committee. The
Asset and Liability Committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior
management. The purpose of the Asset and Liability Committee is to communicate, coordinate and control asset/liability management
consistent with Great Southern's business plan and board-approved policies. The Asset and Liability Committee establishes and
monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and
liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital
adequacy, growth, risk and profitability goals. The Asset and Liability Committee meets on a monthly basis to review, among other
things, economic conditions and interest rate outlook, current and projected liquidity needs and capital positions and anticipated
changes in the volume and mix of assets and liabilities. At each meeting, the Asset and Liability Committee recommends appropriate
strategy changes based on this review. The Chief Financial Officer or his designee is responsible for reviewing and reporting on the
effects of the policy implementations and strategies to the Board of Directors at their monthly meetings.
In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital
targets, Great Southern has focused its strategies on originating adjustable rate loans 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 18 of the accompanying audited financial
statements.
36
55
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2016. 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 debt securities(1)
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
$
$
$
$
December 31,
2017
2018
2019
2020
2021
(Dollars In Thousands)
Thereafter
Total
Fair Value
2016
159,566
0.66 %
11,792 $
6.59 %
— $
—
—
—
5,137 $
5.40 %
247
7.36 %
—
—
—
—
—
—
14,677 $ 18,145 $ 6,247 $
5.65 %
5.95 %
—
—
5.68 %
—
—
—
—
3.91 %
4.13 %
420,580 $ 251,315 $ 269,927 $ 179,832 $ 242,455 $
3.76 %
265,720 $ 215,849 $ 323,787 $ 275,856 $ 402,022 $
5.33 %
— $
—
4.18 %
—
—
4.86 %
—
—
5.18 %
—
—
4.62 %
—
—
3.80 %
3.82 %
—
—
157,874
2.23 %
—
—
548,628
3.69 %
450,544
6.25 %
13,034
$
$
$
$
$
159,566
0.66 %
213,872
3.16 %
247
7.36 %
1,912,737
3.85 %
1,933,778
5.21 %
13,034
159,566
213,872
258
1,914,727
1,938,531
13,034
$
2.46 %
$
2.46 %
Total financial assets
$
857,658 $ 472,548 $ 608,391 $ 473,833 $ 650,724 $ 1,170,080
$
4,233,234
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 notes
Weighted average rate
Subordinated debentures
Weighted average rate
$
$
$ 1,036,958 $ 276,535 $
1.16 %
—
—
—
—
85 $
5.14 %
—
—
—
—
—
—
0.89 %
$ 1,539,216
0.26 %
653,288
—
30,836 $
3.26 %
286,023
0.50 %
—
—
—
—
$
70,408 $ 49,427 $ 47,574 $
1.94 %
1.86 %
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
$
—
—
—
—
— $
—
—
—
1.57 %
—
—
—
—
30
5.14 %
—
—
—
—
—
—
3,824
1.85 %
—
—
—
—
501
5.54 %
—
—
75,000
$
5.45 %
$
2.49 %
25,774
1,484,726
1.01 %
1,539,216
0.26 %
653,288
—
31,452
3.30 %
286,023
0.50 %
$
$
$
$
$
75,000
$
5.45 %
25,774
$
2.49 %
1,491,247
1,539,216
653,288
32,379
286,023
76,031
25,774
Total financial liabilities
$ 3,546,321 $ 276,620 $
70,438 $ 49,427 $ 47,574 $
105,099
$
4,095,479
_______________
(1)
Available-for-sale debt securities include approximately $146.0 million of mortgage-backed securities which pay interest and principal monthly to the
Company. Of this total, $130.6 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.
37
56
Repricing
Financial Assets:
Interest bearing deposits
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(2)
Weighted average rate
Federal Home Loan Bank advances
Weighted average rate
Short-term borrowings
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
December 31,
2017
2018
2019
2020
2021
Thereafter Total
(Dollars In Thousands)
$
$
159,566
0.66 %
46,117
3.03 %
—
—
$ 1,672,590
3.85 %
265,720
4.18 %
13,034
$
$
$
$
—
—
7,858 $
4.53 %
247
7.36 %
35,788 $
3.81 %
—
—
27,968 $
4.18 %
—
—
88,165 $
3.82 %
$ 215,849 $ 323,787 $
4.86 %
—
—
4.62 %
—
—
$
—
—
18,145 $
5.95 %
—
—
41,006 $
4.21 %
—
—
16,846 $
3.06 %
—
—
50,363 $
4.07 %
275,856 $ 402,022 $
5.33 %
—
—
5.18 %
—
—
2.46 %
— $
—
96,938 $
2.37 %
— $
—
159,566
0.66 %
213,872
3.16 %
247
7.36 %
24,825 $ 1,912,737
3.85 %
450,544 $ 1,933,778
5.21 %
13,034
3.53 %
6.25 %
— $
—
$
2.46 %
2016
Fair Value
$
$
$
159,566
213,872
258
$ 1,914,727
$ 1,938,531
13,034
$ 2,157,027
$ 259,742 $ 439,920 $
335,007 $ 469,231 $
572,307 $ 4,233,234
$ 1,036,958
$ 1,539,216
0.89 %
$ 276,535 $
1.16 %
—
—
—
—
85 $
5.14 %
—
—
—
—
—
—
$
0.26 %
—
—
30,836
3.26 %
286,023
0.50 %
—
—
25,774
2.49 %
$
$
$
70,408 $
1.57 %
—
—
—
—
30
5.14 %
—
—
—
—
—
—
49,427 $
1.86 %
—
—
—
—
—
—
—
—
—
—
—
—
47,574 $
1.94 %
—
—
— $
—
— $
—
—
—
—
$
—
—
—
1.01 %
0.26 %
$
3,824 $ 1,484,726
1.85 %
— $ 1,539,216
—
653,288 $
—
501 $
5.54 %
— $
—
$
5.45 %
— $
—
653,288
—
31,452
3.30 %
286,023
0.50 %
5.45 %
25,774
75,000
75,000
$
2.49 %
$
$
$
$ 1,491,247
$ 1,539,216
653,288
32,379
286,023
76,031
25,774
Total financial liabilities
$ 2,918,807
$ 276,620 $
70,438 $
49,427 $
47,574 $
732,613 $ 4,095,479
Periodic repricing GAP
$
(761,780 )
$
(16,878 ) $ 369,482 $ 285,580 $ 421,657 $
(160,306 ) $
137,755
Cumulative repricing GAP
$
(761,780 )
$ (778,658 ) $ (409,176 ) $
(123,596 ) $ 298,061
$
137,755
_______________
(1) Available-for-sale debt securities include approximately $146.0 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $130.6 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.
38
57
58
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2016 and 2015
59
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and
the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2016, 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, 2016, 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, 2017, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
BKD, LLP
Springfield, Missouri
March 3, 2017
60
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2016 and 2015
(In Thousands, Except Per Share Data)
Assets
Cash
Interest-bearing deposits in other financial institutions
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
2016
2015
$
120,203
$
115,198
159,566
279,769
83,985
199,183
213,872
262,856
247
16,445
353
12,261
Loans receivable, net of allowance for loan losses of $37,400 and $38,149 at
December 31, 2016 and 2015, respectively
3,759,966
3,340,536
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
13,145
11,875
45,649
32,658
24,082
10,930
59,322
31,893
140,596
129,655
12,500
13,034
10,907
5,758
15,303
12,057
Total assets
$
4,550,663
$
4,104,189
See Notes to Consolidated Financial Statements
61
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
Subordinated notes
Accrued interest payable
Advances from borrowers for taxes and insurance
Accrued expenses and other liabilities
$
2016
2015
$
3,677,230
31,452
113,700
172,323
25,774
73,537
2,723
4,643
19,475
3,268,626
263,546
116,182
1,295
25,774
—
1,080
4,681
24,778
Total liabilities
4,120,857
3,705,962
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2016 and 2015 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2016 – 13,968,386 shares, 2015 –
13,887,932 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes of $887
and $3,227 at December 31, 2016 and 2015, respectively
—
—
140
25,942
402,166
1,558
—
—
139
24,371
368,053
5,664
Total stockholders’ equity
429,806
398,227
Total liabilities and stockholders’ equity
$
4,550,663
$
4,104,189
62
2
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2016, 2015 and 2014
(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
Subordinated notes
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 investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
2016
2015
2014
$
$
178,883
6,292
185,175
$
177,240
7,111
184,351
172,569
10,793
183,362
17,387
1,214
1,137
803
1,578
22,119
163,056
9,281
153,775
1,097
21,666
3,941
2,873
1,747
66
—
(6,935)
4,055
28,510
60,377
26,077
3,791
3,482
2,228
1,708
3,483
3,191
4,111
1,681
1,910
8,388
120,427
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
1,750
6,776
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
1,519
14,305
120,859
See Notes to Consolidated Financial Statements
3
63
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2016, 2015 and 2014
(In Thousands, Except Per Share Data)
2016
2015
2014
Income Before Income Taxes
$
61,858
$
62,066
$
57,282
Provision for Income Taxes
Net Income
Preferred Stock Dividends
Net Income Available to Common Shareholders
Earnings Per Common Share
Basic
Diluted
16,516
45,342
—
15,564
46,502
554
13,753
43,529
579
45,342
$
45,948
$
42,950
3.26
3.21
$
$
3.33
3.28
$
$
3.14
3.10
$
$
$
See Notes to Consolidated Financial Statements
4
64
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2016, 2015 and 2014
(In Thousands)
Net Income
$
45,342
$
46,502
$
43,529
2016
2015
2014
Unrealized appreciation (depreciation) on available-for-
sale securities, net of taxes (credit) of $(1,346), $(528)
and $3,301 for 2016, 2015 and 2014, respectively
Less: reclassification adjustment for gains included in
net income, net of taxes of $(1,043), $(1) and $(749)
for 2016, 2015 and 2014, respectively
Change in fair value of cash flow hedge, net of taxes
(credit) of $50, $(34) and $(88) for 2016, 2015 and
2014, respectively
(2,363)
(1,321)
6,128
(1,830)
(1)
(1,390)
87
(50)
(164)
Other comprehensive income (loss)
(4,106)
(1,372)
4,574
Comprehensive Income
$
41,236
$
45,130
$
48,103
See Notes to Consolidated Financial Statements
5
65
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2016, 2015 and 2014
(In Thousands, Except Per Share Data)
SBLF
Preferred
Stock
Common
Stock
Balance, January 1, 2014
$
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.80 per share
SBLF preferred stock dividends accrued (1.0%)
Other comprehensive income
Purchase of the Company’s common stock
Reclassification of treasury stock per Maryland law
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%)
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Redemption of SBLF preferred stock
Balance, December 31, 2015
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.88 per share
Other comprehensive loss
Reclassification of treasury stock per Maryland law
$
57,943
—
—
—
—
—
—
—
57,943
—
—
—
—
—
—
(57,943)
—
—
—
—
—
—
Balance, December 31, 2016
$
—
$
137
—
—
—
—
—
—
1
138
—
—
—
—
—
1
—
139
—
—
—
—
1
140
See Notes to Consolidated Financial Statements
66
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
$
$
19,567
—
2,778
—
—
—
—
—
22,345
—
2,026
—
—
—
—
—
24,371
—
1,571
—
—
—
$
300,589
43,529
—
(10,968)
(579)
—
—
(288)
332,283
46,502
—
(11,896)
(553)
—
1,717
—
368,053
45,342
—
(12,250)
—
1,021
2,462
—
—
—
—
4,574
—
—
7,036
—
—
—
—
(1,372)
—
—
5,664
—
—
—
(4,106)
—
Treasury
Stock
Total
$ —
—
225
—
—
—
(512)
287
$ 380,698
43,529
3,003
(10,968)
(579)
4,574
(512)
—
—
—
1,718
—
—
—
(1,718)
—
—
—
1,022
—
—
(1,022)
419,745
46,502
3,744
(11,896)
(553)
(1,372)
—
(57,943)
398,227
45,342
2,593
(12,250)
(4,106)
—
$
25,942
$
402,166
$
1,558
$
—
$
429,806
67
6
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2016, 2015 and 2014
(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 other real estate
owned
Gain on purchase of additional business units
Gain on sale of 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
2016
2015
2014
$
45,342
156,835
(156,036)
$
46,502
158,730
(155,680)
$
43,529
156,632
(160,074)
9,816
3,656
483
9,281
(3,941)
(2,873)
—
—
(249)
489
—
(368)
4,423
(66)
(3,621)
(535)
12,655
(2,720)
7,484
80,055
10,465
3,430
382
5,519
(3,888)
(2)
(301)
(1,115)
(465)
(1,132)
—
—
10,595
43
(4,670)
289
3,982
3,354
(4,609)
71,429
8,747
3,242
565
4,151
(4,133)
(2,139)
—
—
18
2,996
(10,805)
—
22,692
345
(6,260)
1,227
8,430
502
(2,232)
67,433
See Notes to Consolidated Financial Statements
7
68
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2016, 2015 and 2014
(In Thousands)
2016
2015
2014
Investing Activities
Net change in loans
Purchase of loans
Proceeds from sale of student loans
Cash received from purchase of additional business units
Cash received from FDIC loss sharing reimbursements
Cash paid for sale of business units
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of foreclosed assets
Capitalized costs on foreclosed assets
Proceeds from 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
$
(79,891)
(210,810)
368
44,363
831
(17,821)
(10,878)
1,178
28,362
(146)
—
106
55,000
60,827
(71,904)
2,269
$
(190,154)
(117,634)
$
—
—
2,599
—
(16,697)
1,883
23,497
(20)
351
97
56,169
63,463
(21,339)
1,590
(340,135)
(101,832)
—
189,437
8,377
—
(17,954)
203
21,706
(199)
—
355
220,169
103,475
(40,661)
(7,071)
Net cash provided by (used in) investing activities
(198,146)
(196,195)
35,870
See Notes to Consolidated Financial Statements
8
69
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2016, 2015 and 2014
(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
Proceeds from issuance of subordinated notes
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
2016
2015
2014
$
$
$
162,763
36,126
1,793,000
(2,025,070)
168,546
73,472
—
(38)
—
—
(12,232)
—
2,110
191,224
87,113
6,509,500
(6,517,564)
(93,967)
—
—
(248)
(3,885)
(57,943)
(12,290)
—
3,362
(116,139)
(160,144)
4,231,000
(4,083,315)
74,768
—
(50,000)
580
—
—
(11,257)
(512)
2,438
Net cash provided by (used in) financing activities
198,677
105,302
(112,581)
Increase (Decrease) in Cash and Cash Equivalents
80,586
(19,464)
(9,278)
Cash and Cash Equivalents, Beginning of Year
199,183
218,647
227,925
Cash and Cash Equivalents, End of Year
$
279,769
$
199,183
$
218,647
See Notes to Consolidated Financial Statements
9
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 Bank also originates commercial loans from lending offices
in Dallas, Texas and Tulsa, Oklahoma. 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. In addition, the Company considers that the determination
of the carrying value of goodwill and intangible assets involves a high degree of judgment and
complexity.
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,
GSTC Investments, LLC, GS-RE Holding, LLC (including its wholly owned subsidiary, GS RE
71
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 2016 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.
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
72
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
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
73
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
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.
74
13
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
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, or were, 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. During 2016, the Company and the FDIC mutually agreed to terminate certain of
these loss sharing agreements prior to their contractual termination dates. 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.
14
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
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.
During 2016, these assets were moved from furniture, fixtures and equipment to other real estate
owned. A further valuation allowance of $430,000 related to these properties in other real estate
owned not acquired through foreclosure was recorded during the year ended December 31, 2016, as
the Company believes that the market value of some of these properties has declined further. No
asset impairment was recognized during the year ended December 31, 2014.
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.
76
15
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Deposit intangibles
TeamBank
Vantus Bank
Sun Security Bank
InterBank
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2016
2015
(In Thousands)
$
5,396
$
—
—
613
327
519
1,800
3,845
7,104
$
12,500
$
1,169
105
207
964
472
641
2,200
—
4,589
5,758
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.
77
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Earnings per common share (EPS) were computed as follows:
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
2016
2014
2015
(In Thousands, Except Per Share Data)
45,342
$
46,502
$
43,529
45,342
$
45,948
$
42,950
13,912
13,818
13,700
229
182
176
14,141
14,000
13,876
3.26
3.21
$
$
3.33
3.28
$
$
3.14
3.10
$
$
$
$
Options outstanding at December 31, 2016, 2015 and 2014, to purchase 108,450, 117,600 and 500
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, 2016, 2015 and 2014,
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, 2016, 2015 and 2014, share-based compensation expense
totaling $483,000, $382,000 and $565,000, 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, 2016 and 2015, cash equivalents consisted of interest-bearing
deposits in other financial institutions. At December 31, 2016, 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
17
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
for the current period by applying the provisions of the enacted tax law to the taxable income or
excess of deductions over revenues. The Company determines deferred income taxes using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based
on the tax effects of the differences between the book and tax bases of assets and liabilities, and
enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon examination. The term “more likely
than not” means a likelihood of more than 50 percent; the terms examined and upon examination also
include resolution of the related appeals or litigation processes, if any. A tax position that meets the
more-likely-than-not recognition threshold is initially and subsequently measured as the largest
amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement
with a taxing authority that has full knowledge of all relevant information. The determination of
whether or not a tax position has met the more-likely-than-not recognition threshold considers the
facts, circumstances and information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of
evidence available, it is more likely than not that some portion or all of a deferred tax asset will not
be realized. At December 31, 2016 and 2015, 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 18.
As required by FASB ASC 815, the Company records all derivatives in the statement of financial
condition at fair value. The accounting for changes in the fair value of derivatives depends on the
intended use of the derivative, whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied
the criteria necessary to apply hedge accounting.
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, 2016 and 2015, respectively, was $53.8 million and $58.9
million.
79
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Recent Accounting Pronouncements
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 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 does not expect the new standard to result in a material change to our accounting for
revenue because the majority of our financial instruments are not within the scope of Topic 606,
however, it may result in new disclosure requirements.
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.
The Company is currently assessing the impact that this guidance may have, on its consolidated
financial statements, but it is not expected to have a material impact.
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 periods presented
at the time of adoption. Based on the Company’s leases outstanding at December 31, 2016, we do
not expect the new standard to have a material impact on our consolidated statements of financial
condition or our consolidated statements of income, although an increase to assets and liabilities will
occur at the time of adoption. The Company’s new leases and lease modifications and renewals prior
to the implementation date could impact the level of materiality.
In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. The Update amends several aspects of the
accounting for employee share-based payment transactions, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the
statement of cash flows. The Update is effective for the Company for interim and annual periods
beginning after December 15, 2016. The guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
80
19
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic
326). The Update amends guidance on reporting credit losses for assets held at amortized cost basis
and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates
the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect
its current estimate of all expected credit losses. This Update affects entities holding financial assets
and net investment in leases that are not accounted for at fair value through net income. The
amendments affect loans, debt securities, trade receivables, net investments in leases, off balance
sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the
scope that have the contractual right to receive cash. For public companies, the update is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal
years. All entities may adopt the amendments in this update earlier as of the fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. The Company is
assessing our data and system needs and is evaluating the impact of adopting the new guidance. We
expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the
beginning of the first reporting period in which the new standard is effective, but cannot yet
determine the magnitude of any such one-time adjustment, or the overall impact of the new guidance
on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The
Update provides guidance on how certain cash receipts and payments are presented and classified in
the statement of cash flows. The amendments in the Update are to be applied retrospectively. The
Update is effective for the Company for interim and annual periods beginning after December 15,
2017, and early adoption is permitted. This guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740). The Update
provides guidance on the accounting for the income tax consequences of intra-entity transfers of
assets other than inventory. Under this guidance, companies will be required to recognize the income
tax consequences of an intra-entity asset transfer when the transfer occurs. The Update is effective
for the Company for annual and interim periods beginning after December 15, 2017. The Company
is currently assessing the impact that this guidance will have on its consolidated financial statements,
but it is not expected to have a material impact.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations - Clarifying the
Definition of a Business (Topic 805). The amendments in this Update provide a more robust
framework to use in determining when a set of assets and activities is a business. The amendments
provide more consistency in applying the guidance, reduce the costs of application, and make the
definition of a business more operable. The amendments in this Update become effective for the
Company for annual periods and interim periods beginning after December 15, 2017. The Company
is currently evaluating the impact of adopting the new guidance on the consolidated financial
statements, but it is not expected to have a material impact.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying
the Test for Goodwill Impairment (Topic 350). To simplify the subsequent measurement of goodwill,
the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill
impairment test should be performed by comparing the fair value of a reporting unit with its carrying
20
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
amount and an impairment charge should be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative
assessment for a reporting unit to determine if the qualitative impairment test is necessary. The
nature of and reason for the change in accounting principle should be disclosed upon transition. The
amendments in this update should be adopted for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after
January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the
consolidated financial statements, but it is not expected to have a material impact.
Note 2:
Investments in Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
Mortgage-backed securities
States and political subdivisions
U.S. government agencies
Mortgage-backed securities
States and political subdivisions
Other securities
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
146,491
64,682
$
(In Thousands)
1,045
3,163
$
1,501
8
$
146,035
67,837
211,173
$
4,208
$
1,509
$
213,872
$
$
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
$
—
2,038
5,081
2,983
$
219
601
1
—
19,781
161,214
78,031
3,830
Amortized
Cost
$
20,000
159,777
72,951
847
$
253,575
$
10,102
$
821
$
262,856
At December 31, 2016, the Company’s mortgage-backed securities portfolio consisted of FHLMC
securities totaling $57.2 million, FNMA securities totaling $52.1 million and GNMA securities
totaling $36.7 million. At December 31, 2016, $130.6 million of the Company’s mortgage-backed
securities had variable rates of interest and $15.4 million had fixed rates of interest.
The amortized cost and fair value of available-for-sale securities at December 31, 2016, 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.
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21
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
After one through five years
After five through ten years
After ten years
Securities not due on a single maturity date
Amortized
Cost
Fair
Value
(In Thousands)
$
633
7,987
56,062
146,491
$
642
8,189
59,006
146,035
$
211,173
$
213,872
The amortized cost and fair values of securities classified as held to maturity were as follows:
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
247
$
11
$
—
$
258
Amortized
Cost
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
353
$
31
$
—
$
384
The held-to-maturity securities at December 31, 2016, 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
$
247
$
258
83
22
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
The amortized cost and fair values of securities pledged as collateral was as follows at December 31,
The amortized cost and fair values of securities pledged as collateral was as follows at December 31,
2016 and 2015:
2016 and 2015:
Public deposits
Public deposits
Collateralized borrowing
Collateralized borrowing
accounts
accounts
Other
Other
2016
2016
2015
2015
Amortized
Cost
Amortized
Cost
Fair
Fair
Value
Value
Amortized
Amortized
Cost
Cost
Fair
Value
Fair
Value
(In Thousands)
(In Thousands)
$
$
57,841
57,841
$
$
59,082
59,082
$
$
60,355
60,355
$
$
62,288
62,288
98,787
98,787
6,599
6,599
97,498
97,498
6,813
6,813
131,813
131,813
5,149
5,149
131,950
131,950
5,330
5,330
$
$
163,227
163,227
$
$
163,393
163,393
$
$
197,317
197,317
$
$
199,568
199,568
Certain investments in debt securities are reported in the financial statements at an amount less than
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, 2016 and 2015, was
their historical cost. Total fair value of these investments at December 31, 2016 and 2015, was
approximately $104.5 million and $75.2 million, respectively, which is approximately 48.8% and
approximately $104.5 million and $75.2 million, respectively, which is approximately 48.8% and
28.6% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.
28.6% 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
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
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these debt securities are temporary.
declines in fair value for these debt securities are temporary.
The following table shows the Company’s gross unrealized losses and fair value, aggregated by
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
investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2016 and 2015:
unrealized loss position at December 31, 2016 and 2015:
Description of Securities
Description of Securities
Mortgage-backed securities
Mortgage-backed securities
States and political
States and political
subdivisions
subdivisions
Less than 12 Months
Less than 12 Months
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
2016
2016
12 Months or More
12 Months or More
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
Total
Total
Unrealized
Losses
Unrealized
Losses
Fair
Fair
Value
Value
$ 102,296
$ 102,296
$
$
(1,501)
(1,501)
$
$
(In Thousands)
(In Thousands)
$
$
—
—
2,164
2,164
(8)
(8)
—
—
$ 104,460
$ 104,460
$
$
(1,509)
(1,509)
$
$
—
—
$
$
—
—
—
—
—
—
$ 102,296
$ 102,296
$
$
(1,501)
(1,501)
2,164
2,164
(8)
(8)
$ 104,460
$ 104,460
$
$
(1,509)
(1,509)
84
23
23
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
Less than 12 Months
Less than 12 Months
Less than 12 Months
Fair
Fair
Fair
Value
Value
Value
Unrealized
Unrealized
Unrealized
Losses
Losses
Losses
2015
2015
2015
12 Months or More
12 Months or More
12 Months or More
Fair
Fair
Fair
Value
Value
Value
Unrealized
Unrealized
Unrealized
Losses
Losses
Losses
Fair
Fair
Fair
Value
Value
Value
Total
Total
Total
Unrealized
Losses
Losses
Unrealized
Unrealized
Losses
$
$
$
19,781
19,781
19,781
45,146
45,146
45,146
$
$
$
$
$
$
(219)
(219)
(219)
(348)
(348)
(348)
(In Thousands)
(In Thousands)
(In Thousands)
$
$
$
—
—
—
9,382
9,382
9,382
—
—
—
(253)
(253)
(253)
$
$
$
19,781
54,528
19,781
19,781
54,528
54,528
$
$
$
(219)
(601)
(219)
(219)
(601)
(601)
—
—
—
—
—
—
909
909
909
(1)
(1)
(1)
909
909
909
(1)
(1)
(1)
Description of Securities
Description of Securities
Description of Securities
U.S. government agencies
U.S. government agencies
U.S. government agencies
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities
States and political
States and political
States and political
subdivisions
subdivisions
subdivisions
$
$
$
64,927
64,927
64,927
$
$
$
Other-than-Temporary Impairment
Other-than-Temporary Impairment
Other-than-Temporary Impairment
(567)
(567)
(567)
$
$
$
10,291
10,291
10,291
$
$
$
(254)
(254)
(254)
$
$
$
75,218
75,218
75,218
$
$
$
(821)
(821)
(821)
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting
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
guidance for beneficial interests in securitized financial assets or will be evaluated for impairment
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.
under the accounting guidance for investments in debt and equity securities.
under the accounting guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental
The accounting guidance for beneficial interests in securitized financial assets provides incremental
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
impairment guidance for a subset of the debt securities within the scope of the guidance for
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
investments in debt and equity securities. For securities where the security is a beneficial interest in
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
securitized financial assets, the Company uses the beneficial interests in securitized financial asset
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
impairment model. For securities where the security is not a beneficial interest in securitized
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
financial assets, the Company uses the debt and equity securities impairment model. The Company
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
does not currently have securities within the scope of this guidance for beneficial interests in
does not currently have securities within the scope of this guidance for beneficial interests in
securitized financial assets.
securitized financial assets.
securitized financial assets.
The Company routinely conducts periodic reviews to identify and evaluate each investment security to
The Company routinely conducts periodic reviews to identify and evaluate each investment security to
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
determine whether an other-than-temporary impairment has occurred. The Company considers the
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
length of time a security has been in an unrealized loss position, the relative amount of the unrealized
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
loss compared to the carrying value of the security, the type of security and other factors. If certain
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
criteria are met, the Company performs additional review and evaluation using observable market
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
values or various inputs in economic models to determine if an unrealized loss is other than
values or various inputs in economic models to determine if an unrealized loss is other than
temporary. The Company uses quoted market prices for marketable equity securities and uses broker
temporary. The Company uses quoted market prices for marketable equity securities and uses broker
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
pricing quotes based on observable inputs for equity investments that are not traded on a stock
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
exchange. For nonagency collateralized mortgage obligations, to determine if the unrealized loss is
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
other than temporary, the Company projects total estimated defaults of the underlying assets
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
(mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the
(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
marketplace (severity) in order to determine the projected collateral loss. The Company also
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
evaluates any current credit enhancement underlying these securities to determine the impact on cash
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
flows. If the Company determines that a given security position will be subject to a write-down or
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.
loss, the Company records the expected credit loss as a charge to earnings.
loss, the Company records the expected credit loss as a charge to earnings.
During 2016, 2015 and 2014, no securities were determined to have impairment that had become other
During 2016, 2015 and 2014, no securities were determined to have impairment that had become other
During 2016, 2015 and 2014, no securities were determined to have impairment that had become other
than temporary.
than temporary.
than temporary.
85
24
24
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016 and 2015, 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
2016
2015
(In Thousands)
$
$
21,737
17,186
50,624
780,614
200,340
136,924
1,186,906
663,378
348,628
25,065
494,233
70,001
108,753
134,356
72,569
76,234
4,387,548
(585,313)
(37,400)
(4,869)
3,759,966
$
$
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
33,338
93,436
3,800,915
(418,702)
(38,149)
(3,528)
3,340,536
86
25
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
Classes of loans by aging were as follows:
Classes of loans by aging were as follows:
December 31, 2016
December 31, 2016
30-59 Days 60-89 Days Over 90 Total Past
30-59 Days 60-89 Days Over 90 Total Past
Past Due Past Due
Past Due Past Due
Days
Days
Due
Due
Total
Total
Loans
Loans
Current Receivable Still Accruing
Current Receivable Still Accruing
Total Loans
Total Loans
> 90 Days Past
> 90 Days Past
Due and
Due and
(In Thousands)
(In Thousands)
family residential
One- to four-family
Non-owner occupied one- to
four-family residential
One- to four-family
residential construction
residential construction
Subdivision construction
Subdivision construction
Land development
Land development
Commercial construction
Commercial construction
Owner occupied one- to four-
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Commercial real estate
Other residential
Other residential
Commercial business
Commercial business
Industrial revenue bonds
Industrial revenue bonds
Consumer auto
Consumer auto
Consumer other
Consumer other
Home equity lines of credit
Home equity lines of credit
Acquired FDIC-covered
Acquired FDIC-covered
loans, net of discounts
loans, net of discounts
Acquired loans no longer
Acquired loans no longer
covered by FDIC loss
covered by FDIC loss
sharing agreements,
sharing agreements,
net of discounts
net of discounts
Acquired non-covered loans,
net of discounts
Acquired non-covered loans,
net of discounts
$
$
$
$
—
—
—
—
413
413
—
—
—
—
—
—
584
584
—
—
$
$
—
—
109
109
1,718
1,718
—
—
$
$
—
—
109
109
2,715
2,715
—
—
$
$
21,737 $
21,737 $
17,077
17,077
47,909
47,909
780,614
780,614
21,737 $
21,737 $
17,186
17,186
50,624
50,624
780,614
780,614
1,760
1,760
388
388
1,125
1,125
3,273
3,273
197,067
197,067
200,340
200,340
309
309
1,969
1,969
4,632
4,632
1,741
1,741
—
—
8,252
8,252
1,103
1,103
136
136
278
278
1,988
1,988
—
—
24
24
—
—
2,451
2,451
278
278
158
158
404
404
4,404
4,404
162
162
3,088
3,088
—
—
1,989
1,989
649
649
433
433
991
991
8,361
8,361
4,794
4,794
4,853
4,853
—
—
12,692
12,692
2,030
2,030
727
727
135,933
135,933
1,178,545
1,178,545
658,584
658,584
343,775
343,775
25,065
25,065
481,541
481,541
67,971
67,971
108,026
108,026
136,924
136,924
1,186,906
1,186,906
663,378
663,378
348,628
348,628
25,065
25,065
494,233
494,233
70,001
70,001
108,753
108,753
4,476
4,476
1,201
1,201
8,226
8,226
13,903
13,903
120,453
120,453
134,356
134,356
1,356
1,356
552
552
1,401
1,401
3,309
3,309
69,260
69,260
72,569
72,569
851
26,998
851
26,998
173
173
8,075
8,075
2,854
26,562
2,854
26,562
3,878
61,635
3,878
61,635
72,356
72,356
4,325,913
4,325,913
76,234
76,234
4,387,548
4,387,548
Less FDIC-supported loans,
Less FDIC-supported loans,
and acquired non-covered
and acquired non-covered
loans, net of discounts
loans, net of discounts
6,683
6,683
1,926
1,926
12,481
12,481
21,090
21,090
262,069
262,069
283,159
283,159
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
301
301
222
222
—
—
523
523
523
523
Total
Total
$ 20,315
$ 20,315
$
$
6,149
6,149
$ 14,081
$ 14,081
$ 40,545
$ 40,545
$ 4,063,844 $ 4,104,389 $
$ 4,063,844 $ 4,104,389 $
—
—
87
26
26
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
(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
Less FDIC-supported loans,
and acquired non-covered
loans, net of discounts
$
$
649
—
2,245
1
1,217
—
1,035
—
1,020
—
3,351
943
212
7,936
—
—
148
—
345
—
471
—
9
—
891
236
123
$
—
—
139
—
$
649
—
2,532
1
$
22,877 $
38,504
55,908
600,793
23,526 $
38,504
58,440
600,794
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
603
9,712
18,251
217,820
236,071
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 $
88
27
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Nonaccruing loans are summarized as follows:
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family
$
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
December 31,
2016
2015
(In Thousands)
$
—
109
1,718
—
1,125
404
4,404
162
3,088
—
1,989
649
433
—
—
139
—
715
345
13,488
—
288
—
721
576
297
Total
$
14,081
$
16,569
89
28
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
The following tables present the activity in the allowance for loan losses by portfolio segment for the years
The following tables present the activity in the allowance for loan losses by portfolio segment for the years
ended December 31, 2016, 2015 and 2014, respectively. Also presented are the balance in the allowance
ended December 31, 2016, 2015 and 2014, respectively. 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
for loan losses and the recorded investment in loans based on portfolio segment and impairment method as
of the years ended December 31, 2016, 2015, and 2014, respectively:
of the years ended December 31, 2016, 2015, and 2014, respectively:
December 31, 2016
December 31, 2016
One- to Four-
One- to Four-
Family
Family
Residential
Residential
and
and
Commercial Commercial Commercial
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Construction Residential Real Estate Construction Business
Other
Other
Consumer
Consumer
Total
Total
Allowance for Loan Losses
Allowance for Loan Losses
Balance, January 1, 2016
Balance, January 1, 2016
Provision (benefit)
Provision (benefit)
charged to expense
charged to expense
Losses charged off
Losses charged off
Recoveries
Recoveries
Balance,
Balance,
December 31, 2016
December 31, 2016
Ending balance:
Ending balance:
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
accounted for under
ASC 310-30
ASC 310-30
Loans
Loans
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
accounted for under
ASC 310-30
ASC 310-30
(In Thousands)
(In Thousands)
$
$
4,900
4,900
$
$
3,190
3,190
$
$
14,738
14,738
$
$
3,019
3,019
$
$
4,203
4,203
$
$
8,099
8,099
$ 38,149
$ 38,149
(2,407)
(2,407)
(229)
(229)
58
58
2,260
2,260
(16)
(16)
52
52
5,632
5,632
(5,653)
(5,653)
1,221
1,221
(827)
(827)
(31)
(31)
123
123
(926)
(926)
(589)
(589)
327
327
5,549
5,549
(8,751)
(8,751)
3,458
3,458
9,281
9,281
(15,269)
(15,269)
5,239
5,239
$
$
2,322
2,322
$
$
5,486
5,486
$
$
15,938
15,938
$
$
2,284
2,284
$
$
3,015
3,015
$
$
8,355
8,355
$ 37,400
$ 37,400
$
$
570
570
$
$
—
—
$
$
2,209
2,209
$
$
1,291
1,291
$
$
1,295
1,295
$
$
997
997
$
$
6,362
6,362
$
$
1,628
1,628
$
$
5,396
5,396
$
$
13,507
13,507
$
$
953
953
$
$
1,681
1,681
$
$
7,248
7,248
$ 30,413
$ 30,413
$
$
124
124
$
$
90
90
$
$
222
222
$
$
40
40
$
$
39
39
$
$
110
110
$
$
625
625
$
$
6,015
6,015
$
$
3,812
3,812
$
$
10,507
10,507
$
$
6,023
6,023
$
$
4,539
4,539
$
$
3,385
3,385
$ 34,281
$ 34,281
$
$
370,172
370,172
$ 659,566
$ 659,566
$ 1,176,399
$ 1,176,399
$
$
825,215
825,215
$
$
369,154
369,154
$
$
669,602
669,602
$4,070,108
$4,070,108
$
$
155,378
155,378
$ 29,600
$ 29,600
$
$
54,208
54,208
$
$
2,191
2,191
$
$
6,429
6,429
$
$
35,353
35,353
$ 283,159
$ 283,159
90
29
29
Allowance for Loan Losses
Allowance for Loan Losses
Balance, January 1, 2015
Balance, January 1, 2015
Provision (benefit)
Provision (benefit)
$
$
charged to expense
charged to expense
Losses charged off
Recoveries
Losses charged off
Recoveries
Balance,
December 31, 2015
Balance,
December 31, 2015
Ending balance:
Ending balance:
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
ASC 310-30
accounted for under
ASC 310-30
Loans
Loans
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
ASC 310-30
accounted for under
ASC 310-30
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
December 31, 2015
December 31, 2015
One- to Four-
One- to Four-
Family
Family
Residential
Residential
and
and
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Construction Residential Real Estate Construction Business
Commercial Commercial Commercial
Other
Other
Consumer
Consumer
Total
Total
(In Thousands)
(In Thousands)
3,455
3,455
$
$
2,941
2,941
$
$
19,773
19,773
$
$
3,562
3,562
$
$
3,679
3,679
$
$
5,025
5,025
$ 38,435
$ 38,435
1,428
1,428
(80)
(80)
97
97
193
193
(2)
(2)
58
58
(2,753)
(2,753)
(2,584)
(2,584)
302
302
(619)
(619)
(329)
(329)
405
405
1,450
1,450
(1,202)
(1,202)
276
276
5,820
5,820
(5,315)
(5,315)
2,569
2,569
5,519
5,519
(9,512)
(9,512)
3,707
3,707
$
$
4,900
4,900
$
$
3,190
3,190
$
$
14,738
14,738
$
$
3,019
3,019
$
$
4,203
4,203
$
$
8,099
8,099
$ 38,149
$ 38,149
$
$
731
731
$
$
—
—
$
$
2,556
2,556
$
$
1,391
1,391
$
$
1,115
1,115
$
$
300
300
$
$
6,093
6,093
$
$
3,464
3,464
$
$
3,122
3,122
$
$
11,888
11,888
$
$
1,570
1,570
$
$
2,862
2,862
$
$
7,647
7,647
$ 30,553
$ 30,553
$
$
705
705
$
$
68
68
$
$
294
294
$
$
58
58
$
$
226
226
$
$
152
152
$
$
1,503
1,503
$
$
6,129
6,129
$
$
9,533
9,533
$
$
34,629
34,629
$
$
7,555
7,555
$
$
2,365
2,365
$
$
1,950
1,950
$ 62,161
$ 62,161
$
$
316,052
316,052
$ 410,016
$ 410,016
$ 1,008,845
$ 1,008,845
$
$
651,679
651,679
$
$
392,577
392,577
$
$
596,740
596,740
$3,375,909
$3,375,909
$
$
194,697
194,697
$ 35,945
$ 35,945
$
$
73,148
73,148
$
$
4,981
4,981
$
$
10,500
10,500
$
$
43,574
43,574
$ 362,845
$ 362,845
91
30
30
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
December 31, 2014
December 31, 2014
One- to Four-
One- to Four-
Family
Family
Residential
Residential
and
and
Other
Other
Construction Residential Real Estate Construction
(In Thousands)
Construction Residential Real Estate Construction
(In Thousands)
Commercial Commercial Commercial
Commercial Commercial Commercial
Business
Business
Consumer
Consumer
Total
Total
Allowance for Loan Losses
Allowance for Loan Losses
Balance, January 1, 2014
Balance, January 1, 2014
Provision (benefit)
Provision (benefit)
$
$
6,235
6,235
$
$
2,678
2,678
$
$
16,939
16,939
$
$
4,464
4,464
$
$
6,451
6,451
$
$
3,349
3,349
$ 40,116
$ 40,116
charged to expense
charged to expense
Losses charged off
Recoveries
Losses charged off
Recoveries
(1,025)
(1,025)
(2,251)
(2,251)
496
496
227
227
(1)
(1)
37
37
1,855
1,855
(2,160)
(2,160)
3,139
3,139
(957)
(957)
(126)
(126)
181
181
409
409
(3,286)
(3,286)
105
105
3,642
3,642
(4,005)
(4,005)
2,039
2,039
4,151
4,151
(11,829)
(11,829)
5,997
5,997
Balance,
December 31, 2014
Balance,
December 31, 2014
Ending balance:
Ending balance:
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
ASC 310-30
accounted for under
ASC 310-30
Loans
Loans
Individually evaluated
Individually evaluated
for impairment
for impairment
Collectively evaluated
Collectively evaluated
for impairment
for impairment
Loans acquired and
Loans acquired and
accounted for under
ASC 310-30
accounted for under
ASC 310-30
$
$
3,455
3,455
$
$
2,941
2,941
$
$
19,773
19,773
$
$
3,562
3,562
$
$
3,679
3,679
$
$
5,025
5,025
$ 38,435
$ 38,435
$
$
829
829
$
$
—
—
$
$
1,751
1,751
$
$
1,507
1,507
$
$
823
823
$
$
232
232
$
$
5,142
5,142
$
$
2,532
2,532
$
$
2,923
2,923
$
$
16,671
16,671
$
$
1,905
1,905
$
$
2,805
2,805
$
$
4,321
4,321
$ 31,157
$ 31,157
$
$
94
94
$
$
18
18
$
$
1,351
1,351
$
$
150
150
$
$
51
51
$
$
472
472
$
$
2,136
2,136
$
$
11,488
11,488
$
$
9,804
9,804
$
$
28,641
28,641
$
$
7,601
7,601
$
$
2,725
2,725
$
$
1,480
1,480
$ 61,739
$ 61,739
$
$
288,066
288,066
$ 382,610
$ 382,610
$
$
917,235
917,235
$
$
437,424
437,424
$
$
392,348
392,348
$
$
466,174
466,174
$2,883,857
$2,883,857
$
$
234,158
234,158
$ 48,470
$ 48,470
$
$
107,278
107,278
$
$
1,937
1,937
$
$
17,789
17,789
$
$
48,903
48,903
$ 458,535
$ 458,535
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other
tables in Note 3 as follows:
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other
tables in Note 3 as follows:
• The one- to four-family residential and construction segment includes the one- to four-
• 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 construction, subdivision construction, owner occupied one- to four-
family residential and non-owner occupied one- to four-family residential classes.
family residential and non-owner occupied one- to four-family residential classes.
• The other residential segment corresponds to the other residential class.
• The other residential segment corresponds to the other residential class.
• The commercial real estate segment includes the commercial real estate and industrial
• The commercial real estate segment includes the commercial real estate and industrial
revenue bonds classes.
revenue bonds classes.
• The commercial construction segment includes the land development and commercial
• The commercial construction segment includes the land development and commercial
construction classes.
construction classes.
• The commercial business segment corresponds to the commercial business class.
• The commercial business segment corresponds to the commercial business class.
92
31
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
• 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, 2016 and 2015, was 4.58% and
4.56%, 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 $266.2 million and $237.7
million at December 31, 2016 and 2015, respectively. In addition, available lines of credit on these loans
were $60.5 million and $32.3 million at December 31, 2016 and 2015, 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, 2016, 2015 and 2014:
December 31, 2016
Year Ended
December 31, 2016
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
—
818
6,023
—
3,290
1,907
10,507
3,812
4,539
—
2,097
812
476
$
—
829
6,120
—
3,555
2,177
12,121
3,812
4,652
—
2,178
887
492
—
131
1,291
—
374
65
2,209
—
1,295
—
629
244
124
$
$
—
948
8,020
—
3,267
1,886
23,928
6,813
2,542
—
1,307
884
417
—
46
304
—
182
113
984
258
185
—
141
70
32
Total
$
34,281
$
36,823
$
6,362
$
50,012
$
2,315
93
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2015
Year Ended
December 31, 2015
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
—
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
$
$
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
December 31, 2014
Year Ended
December 31, 2014
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
$
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
$
$
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
33
94
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
At December 31, 2016, $18.1 million of impaired loans had specific valuation allowances totaling $6.4
million. 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. For impaired loans which were nonaccruing, interest of approximately
$1.5 million, $1.0 million and $1.1 million would have been recognized on an accrual basis during the
years ended December 31, 2016, 2015 and 2014, 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 2016, 2015 and 2014 by type of
modification:
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Construction and land development
Commercial business
Consumer
2016
Interest Only
Term
Combination
(In Thousands)
Total
Modification
$
$
60
2,946
429
—
—
$
—
—
—
38
59
$
3,435
$
97
$
—
—
—
—
—
—
$
60
2,946
429
38
59
$
3,532
2015
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Commercial business
Consumer
$
$
—
—
—
—
$
407
115
1,095
97
$
164
—
—
—
$
—
$
1,714
$
164
$
571
115
1,095
97
1,878
34
95
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
2014
2014
2014
Interest Only
Interest Only
Interest Only
Term
Term
Term
Combination
Combination
Combination
(In Thousands)
(In Thousands)
(In Thousands)
Total
Total
Total
Modification
Modification
Modificati on
Mortgage loans on real estate:
Mortgage loans on real estate:
Mortgage loans on real estate:
One- to four-family
One- to four-family
One - to four -family
residential construction
residential construction
residential construction
$
$
$
Subdivision construction
Subdivision construction
Subdivision construction
Residential one-to-four family
Residential one-to-four family
Residential one -to-four family
Commercial
Commercial
Commercial
Other residential
Other residential
Other residential
Commercial
Commercial
Commercial
Consumer
Consumer
Consumer
$
$
$
—
—
—
—
—
—
308
308
308
506
506
506
—
—
—
—
—
—
—
—
—
$
$
$
—
—
—
250
250
250
426
426
426
1,928
1,928
1,928
1,881
1,881
1,881
1,150
1,150
1,150
145
145
145
$
$
$
223
223
223
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
223
223
223
250
250
250
734
734
734
2,434
2,434
2,434
1,881
1,881
1,881
1,150
1,150
1,150
145
145
145
$
$
$
814
814
814
$
$
$
5,780
5,780
5,780
$
$
$
223
223
223
$
$
$
6,817
6,817
6,817
At December 31, 2016, the Company had $21.1 million of loans that were modified in troubled debt
At December 31, 2016, the Company had $21.1 million of loans that were modified in troubled debt
At December 31, 2016, the Company had $21.1 million of loans that were modified in troubled debt
restructurings and impaired, as follows: $5.0 million of construction and land development loans, $7.4
restructurings and impaired, as follows: $5.0 million of construction and land development loans, $7.4
restructurings and impaired, as follows: $5.0 million of construction and land development loans, $7.4
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
estate loans, $1.3 million of commercial business loans and $296,000 of consumer loans. Of the total
estate loans, $1.3 million of commercial business loans and $296,000 of consumer loans. Of the total
estate loans, $1.3 million of commercial business loans and $296,000 of consumer loans. Of the total
troubled debt restructurings at December 31, 2016, $18.6 million were accruing interest and $7.9 million
troubled debt restructurings at December 31, 2016, $18.6 million were accruing interest and $7.9 million
troubled debt restructurings at December 31, 2016, $18.6 million were accruing interest and $7.9 million
were classified as substandard using the Company’s internal grading system which is described below.
were classified as substandard using the Company’s internal grading system which is described below.
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
The Company had no troubled debt restructurings which were modified in the previous 12 months and
The Company had no troubled debt restructurings which were modified in the previous 12 months and
subsequently defaulted during the year ended December 31, 2016. When loans modified as troubled debt
subsequently defaulted during the year ended December 31, 2016. When loans modified as troubled debt
subsequently defaulted during the year ended December 31, 2016. When loans modified as troubled debt
restructuring have subsequent payment defaults, the defaults are factored into the determination of the
restructuring have subsequent payment defaults, the defaults are factored into the determination of the
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
allowance for loan losses to ensure specific valuation allowances reflect amounts considered
allowance for loan losses to ensure specific valuation allowances reflect amounts considered
uncollectible. At December 31, 2015, the Company had $45.0 million of loans that were modified in
uncollectible. At December 31, 2015, the Company had $45.0 million of loans that were modified in
uncollectible. 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
troubled debt restructurings and impaired, as follows: $7.9 million of construction and land development
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
loans, $13.5 million of single family and multi-family residential mortgage loans, $21.3 million of
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.
commercial real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans.
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
Of the total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and
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. At December
$12.2 million were classified as substandard using the Company’s internal grading system. At December
$12.2 million were classified as substandard using the Company’s internal grading system. At December
31, 2014, the Company had $47.6 million of loans that were modified in troubled debt restructurings and
31, 2014, the Company had $47.6 million of loans that were modified in troubled debt restructurings and
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
impaired, as follows: $8.3 million of construction and land development loans, $13.8 million of single
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
family and multi-family residential mortgage loans, $23.3 million of commercial real estate loans, $1.9
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
million of commercial business loans and $324,000 of consumer loans. Of the total troubled debt
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
restructurings at December 31, 2014, $39.2 million were accruing interest and $18.3 million were
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.
classified as substandard using the Company’s internal grading system.
classified as substandard using the Company’s internal grading system.
During the year ended December 31, 2016, borrowers with loans designated as troubled debt
During the year ended December 31, 2016, borrowers with loans designated as troubled debt
During the year ended December 31, 2016, borrowers with loans designated as troubled debt
restructurings totaling $431,000 met the criteria for placement back on accrual status. This criteria is
restructurings totaling $431,000 met the criteria for placement back on accrual status. This criteria is
restructurings totaling $431,000 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
generally a minimum of six months of payment performance under original or modified terms. The
generally a minimum of six months of payment performance under original or modified terms. The
$431,000 was made up of $235,000 of residential mortgage loans, $100,000 of commercial real estate
$431,000 was made up of $235,000 of residential mortgage loans, $100,000 of commercial real estate
$431,000 was made up of $235,000 of residential mortgage loans, $100,000 of commercial real estate
loans, $96,000 of consumer loans.
loans, $96,000 of consumer loans.
loans, $96,000 of consumer loans.
96
96
35
35
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 and previously
covered loans are evaluated using this internal grading system. These loans are accounted for in pools
and the loans acquired in the Inter Savings Bank FDIC transaction are currently substantially covered
through loss sharing agreements with the FDIC. The acquired non-covered loans are also evaluated using
this internal grading system, and are also accounted for in pools. Minimal adverse classification in these
acquired loan pools was identified as of December 31, 2016 and 2015, respectively. See Note 4 for
further discussion of the acquired loan pools and remaining loss sharing agreements.
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.
97
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2016
Special
Mention Substandard Doubtful
(In Thousands)
Total
$
20,771
14,059
39,925
780,614
198,835
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
135,930
1,160,280
658,846
342,685
25,065
492,165
69,338
108,290
134,356
72,552
76,234
$
966
2,729
5,140
—
67
465
20,154
4,370
2,651
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
398
5,559
—
1,438
529
6,472
162
3,292
—
2,068
663
463
—
17
—
— $
—
—
—
21,737
17,186
50,624
780,614
—
—
—
—
—
—
—
—
—
200,340
136,924
1,186,906
663,378
348,628
25,065
494,233
70,001
108,753
—
134,356
—
—
72,569
76,234
Total
$ 4,329,945
$
36,542
$
—
$
21,061
$
— $ 4,387,548
98
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
$
—
263
6,992
—
$
728
3,407
—
—
587
—
516
18,805
8,422
1,303
—
—
—
—
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
236,055
—
—
16
—
236,071
33,237
91,614
—
—
—
—
101
1,822
—
—
33,338
93,436
Total
$ 3,724,302
$
36,888
$ 8,400
$
31,325
$
— $ 3,800,915
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, 2016 and 2015, loans outstanding to these directors and
executive officers are summarized as follows:
99
38
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Balance, beginning of year
New loans
Payments
Balance, end of year
2016
2015
(In Thousands)
$
$
$
14,287
14,299
(3,793)
16,028
3,390
(5,131)
24,793
$
14,287
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 shared 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 included 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 originally was to extend for
ten years for 1-4 family real estate loans and for five years for other loans. The five-year period
ended March 31, 2014 and the ten-year period was terminated early, effective April 26, 2016, by
mutual agreement of Great Southern Bank and the FDIC. See “Loss Sharing Agreements” below.
Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.
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 shared 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 included 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 originally was to extend for ten years for
39
100
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
1-4 family real estate loans and for five years for other loans. The five-year period ended September
30, 2014 and the ten-year period was terminated early, effective April 26, 2016, by mutual agreement
of Great Southern Bank and the FDIC. See “Loss Sharing Agreements” below. Based upon the
acquisition date fair values of the net assets acquired, no goodwill was recorded.
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 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 originally was to extend for ten years for 1-4 family
real estate loans and for five years for other loans but was terminated early, effective April 26,
2016, by mutual agreement of Great Southern Bank and the FDIC. See “Loss Sharing
Agreements” below. Based upon the acquisition date fair values of the net assets acquired, no
goodwill was recorded. A discount was recorded in conjunction with the fair value of the acquired
loans and the amount accreted to yield during 2016, 2015 and 2014 was $-0-, $-0- and $105,000,
respectively.
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 on the acquisition date. Based upon the acquisition date fair
values of the net assets acquired, no goodwill was recorded. 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
101
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
recorded in conjunction with the fair value of the acquired loans and the amount amortized to yield
during 2016, 2015 and 2014 was $359,000, $459,000 and $544,000, respectively.
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, a
full-service bank headquartered in Moline, Illinois, with significant operations in Iowa. This
transaction did not include a loss sharing agreement.
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 2016, 2015 and 2014 was $491,000, $794,000 and
$501,000, respectively.
Loss Sharing Agreements
On April 26, 2016, Great Southern Bank executed an agreement with the FDIC to terminate the
loss sharing agreements for TeamBank, Vantus Bank and Sun Security Bank, effective
immediately. The agreement required the FDIC to pay $4.4 million to settle all outstanding items
related to the terminated loss sharing agreements. As a result of entering into the agreement, assets
that were covered by the terminated loss sharing agreements, including covered loans in the
amount of $61.5 million and covered other real estate owned in the amount of $468,000 as of
March 31, 2016, were reclassified as non-covered assets effective April 26, 2016. In anticipation
of terminating the loss sharing agreements, an impairment of the related indemnification assets was
recorded during the three months ended March 31, 2016 in the amount of $584,000. On the date of
the termination, the indemnification asset balances (and certain other receivables from the FDIC)
related to TeamBank, Vantus Bank and Sun Security Bank, which totaled $4.4 million, net of
impairment, at March 31, 2016, became $-0- as a result of the receipt of funds from the FDIC as
outlined in the termination agreement. There will be no future effects on non-interest income
(expense) related to adjustments or amortization of the indemnification assets for TeamBank,
Vantus Bank or Sun Security Bank; however, adjustments and amortization related to the
InterBank indemnification asset and loss sharing agreement will continue. The remaining
accretable yield adjustments that affect interest income are not changed by this transaction and will
continue to be recognized for all FDIC-assisted transactions in the same manner as they have been
previously.
The termination of the loss sharing agreements for the TeamBank, Vantus Bank and Sun Security
Bank transactions have no impact on the yields for the loans that were previously covered under
41
102
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
these agreements. All post-termination recoveries, gains, losses and expenses related to these
previously covered assets are recognized entirely by Great Southern Bank since the FDIC no
longer shares in such gains or losses. Accordingly, the Company’s earnings are positively impacted
to the extent the Company recognizes gains on any sales or recoveries in excess of the carrying
value of such assets. Similarly, the Company’s future earnings will be negatively impacted to the
extent the Company recognizes expenses, losses or charge-offs related to such assets.
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, 2016, 2015 and 2014, increases in expected cash
flows related to the acquired loan portfolios resulted in adjustments to the accretable yield to be
spread over the estimated remaining lives of the loans on a level-yield basis. The increases in
expected cash flows also reduced the amount of expected reimbursements under the loss sharing
agreements, when applicable. This resulted in corresponding adjustments during the years ended
December 31, 2016, 2015 and 2014, 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,
2016
2015
2014
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
10,598
$
13,720
$
31,461
Decrease in FDIC indemnification asset
as a result of accretable yield increase
(2,744)
(5,056)
(23,129)
103
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The adjustments, along with those made in previous years, impacted the Company’s Consolidated
Statements of Income as follows:
Interest income
Noninterest income
Year Ended December 31,
2016
2015
2014
(In Thousands)
$
16,393
(7,033)
$
28,531
(19,534)
$
34,974
(28,740)
Net impact to pre-tax income
$
9,360
$
8,997
$
6,234
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 (and, therefore, has decreased over time). The increases in expected cash
flows also reduced the amount of expected reimbursements under the loss sharing agreements with
the FDIC (to the extent such an agreement was in place), which were recorded as indemnification
assets. Therefore, the expected indemnification assets had 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. Since the early terminations of all other loss sharing agreements on April 26,
2016, only the loans and other real estate owned acquired in the InterBank transaction have been
covered by a loss sharing agreement and have indemnification assets remaining. Additional
estimated cash flows totaling approximately $10.6 million were recorded in the year ended
December 31, 2016 related to these loan pools, with a corresponding reduction in expected
reimbursement from the FDIC (solely related to the InterBank transaction) of approximately $2.7
million in the year ended December 31, 2016.
Because these adjustments will be recognized over the remaining lives of the loan pools and the
remainder of the loss sharing agreement, respectively, they will impact future periods as well. The
remaining accretable yield adjustment that will affect interest income is $6.3 million and the
remaining adjustment to the indemnification asset, including the effects of the clawback liability,
that will affect non-interest income (expense) is $(2.5) million. The $6.3 million of accretable
yield adjustment relates to TeamBank, Vantus Bank, Sun Security Bank, InterBank and Valley
Bank. The expense, as noted, is only related to InterBank, as there is no longer, nor will there be in
the future, indemnification asset amortization expense related to TeamBank, Vantus Bank or Sun
Security Bank due to the early termination of the remaining related loss sharing agreements for
those transactions in April 2016. Of the remaining adjustments, we expect to recognize $4.3
million of interest income and $(1.7) million of non-interest income (expense) during 2017.
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
credit adjustments estimated for each loan pool (as discussed above) and the loss sharing
43
104
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
percentages outlined in the applicable 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, 2016, 2015 and 2014, 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, $6.6 million and $6.1 million was recorded at of
December 31, 2016, 2015 and 2014, respectively. As changes in the fair values of the loans and
foreclosed assets are determined due to changes in expected cash flows, changes in the amount of
the clawback liability will occur.
TeamBank 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, 2016 and 2015. Through December 31,
2016, gross loan balances (due from the borrower) were reduced approximately $417.3 million
since the transaction date because of $284.5 million of repayments by the borrower, $61.7 million
of transfers to foreclosed assets and $71.1 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.
105
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
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
$
18,838
$
(846)
(17,833)
Expected loss remaining
$
159
$
14
—
(14)
—
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
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
$
29,115
$
(1,285)
(27,660)
170
90%
154
241
FDIC indemnification asset
$
395
$
—
—
—
—
0 %
—
—
—
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, 2016 and 2015. Through December 31,
2016, gross loan balances (due from the borrower) were reduced approximately $307.8 million
since the transaction date because of $262.0 million of repayments by the borrower, $16.7 million
of transfers to foreclosed assets and $29.1 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.
106
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
$
241
$
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
23,712
$
15
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
31,818
$
608
(239)
(23,232)
(470)
(31,092)
256
61%
156
319
—
(15)
—
—
(418)
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
$
475
$
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, 2016 and 2015. Through December
31, 2016, gross loan balances (due from the borrower) were reduced approximately $200.9 million
since the transaction date because of $141.6 million of repayments by the borrower, $28.4 million
of transfers to foreclosed assets and $30.9 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.
107
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
33,579
$
365
(1,086)
(31,499)
—
(286)
Expected loss remaining
$
994
$
79
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
$
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, 2016 and 2015. Through December 31, 2016,
gross loan balances (due from the borrower) were reduced approximately $243.6 million since the
transaction date because of $204.0 million of repayments by the borrower, $16.6 million of
transfers to foreclosed assets and $23.0 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
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss sharing value
FDIC loss share clawback
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
149,657
$
1,417
543
(1,984)
(134,355)
13,861
84%
11,644
953
1,586
(1,038)
—
—
(1,417)
—
—
—
—
—
—
—
FDIC indemnification asset
$
13,145
$
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss sharing value
FDIC loss share clawback
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
December 31, 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)
—
—
(1,392)
718
80%
575
—
—
(33)
FDIC indemnification asset
$
20,511
$
542
109
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016 and 2015. Through December 31, 2016, gross loan balances
(due from the borrower) were reduced approximately $108.9 million since the transaction date
because of $98.5 million of repayments by the borrower, $3.0 million of transfers to foreclosed
assets and $7.4 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.
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
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
84,283
$
1,973
228
(2,121)
—
—
(76,231)
6,159
$
$
(1,952)
21
December 31, 2015
Loans
Foreclosed
Assets
(In Thousands)
$
109,791
$
1,017
719
(3,213)
—
—
(93,436)
13,861
$
$
(995)
22
110
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Changes in the accretable yield for acquired loan pools were as follows for the years ended December
31, 2016, 2015 and 2014:
TeamBank
Vantus Bank Security Bank
(In Thousands)
InterBank
Valley Bank
Sun
Balance, January 1, 2014
Additions
Accretion
Reclassification from nonaccretable
difference(1)
$
Balance, December 31, 2014
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2015
Accretion
Reclassification from nonaccretable
difference(1)
7,402
—
(4,138)
3,601
6,865
(3,265)
205
3,805
(1,834)
506
$
5,725
—
(3,835)
2,563
4,453
(2,541)
1,448
3,360
(1,877)
1,064
$
11,113
—
(10,590)
$
40,095
—
(37,994)
$
—
22,976
(4,788)
7,429
33,991
(7,056)
7,952
(5,487)
3,459
5,924
(3,832)
2,185
36,092
(28,767)
11,132
(10,975)
9,022
8,159
16,347
(13,964)
8,316
(11,933)
6,129
8,414
Balance, December 31, 2016
$
2,477
$
2,547
$
4,277
$
8,512
$
4,797
(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, 2016, totaling $506,000, $1.0 million, $1.8
million, $2.7 million and $1.6 million, respectively; 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; and 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.
111
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Note 5: Other Real Estate Owned
Major classifications of other real estate owned at December 31, 2016 and 2015, 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)
Foreclosed assets held for sale, net
Other real estate owned not acquired through
foreclosure
2016
2015
(In Thousands)
$
—
6,360
10,886
—
1,217
954
3,841
—
1,991
25,249
1,426
316
1,952
28,943
$
—
7,016
12,133
—
1,375
2,150
3,608
—
1,109
27,391
1,834
460
995
30,680
3,715
1,213
Other real estate owned
$
32,658
$
31,893
As of December 31, 2016, other real estate owned not acquired through foreclosure included 17
properties, 16 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, 2016, 15 former branch locations were added to other real estate
owned not acquired through foreclosure due to the closing of those branches. Seven former branch
locations have been sold during the year at a net gain of $858,000, which is included in the gain of
sales of other real estate owned amount in the table below.
At December 31, 2016, residential mortgage loans totaling $3.6 million were in the process of
foreclosure, $3.5 million of which were acquired loans. Of the $3.5 million of acquired loans, $2.6
million are covered by loss sharing agreements, $275,000 were previously covered by loss sharing
agreements and $662,000 were acquired in the Valley Bank transaction.
112
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Expenses applicable to other real estate owned for the years ended December 31, 2016, 2015 and 2014,
included the following:
2016
2015
(In Thousands)
2014
Net gain on sales of real estate
Valuation write-downs
Operating expenses, net of rental income
$
$
(68)
431
3,748
$
(397)
890
2,033
(91)
3,343
2,384
$
4,111
$
2,526
$
5,636
Note 6: Premises and Equipment
Major classifications of premises and equipment at December 31, 2016 and 2015, stated at cost, were
as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2016
2015
(In Thousands)
$
$
43,582
95,169
57,217
195,968
55,372
39,395
87,333
56,051
182,779
53,124
$
140,596
$
129,655
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, 2016, the Company had
thirteen investments, with a net carrying value of $21.8 million. At December 31, 2015, the
Company had thirteen investments, with a net carrying value of $25.1 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.
The remaining federal affordable housing tax credits to be utilized over a maximum of 15 years were
$27.1 million as of December 31, 2016, 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 $21.0 million, assuming all projects currently under
construction are completed and funded as planned. The Company’s usage of federal affordable
housing tax credits approximated $6.2 million, $6.3 million and $6.0 million during 2016, 2015 and
52
113
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
2014, respectively. Investment amortization amounted to $4.4 million, $4.9 million and $4.7 million
for the years ended December 31, 2016, 2015 and 2014, 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, 2016, the
Company had two investments, with a net carrying value of $1.9 million. At December 31, 2015, the
Company had four investments, with a net carrying value of $3.5 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
$2.2 million as of December 31, 2016. Amortization of the investments in partnerships is expected
to be approximately $1.6 million. The Company’s usage of federal New Market Tax Credits
approximated $2.3 million, $2.3 million and $2.3 million during 2016, 2015 and 2014, respectively.
Investment amortization amounted to $1.7 million, $1.7 million and $1.7 million for the years ended
December 31, 2016, 2015 and 2014, 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
53
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Note 8: Deposits
Deposits at December 31, 2016 and 2015, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2016
2015
(In Thousands, Except
Interest Rates)
—
$
653,288
$
571,629
0.26% - 0.24%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,539,216
2,192,504
695,738
737,649
48,777
1,119
1,171
272
1,484,726
1,408,850
1,980,479
863,865
381,956
39,592
1,137
1,304
293
1,288,147
$
3,677,230
$
3,268,626
The weighted average interest rate on certificates of deposit was 1.01% and 0.85% at December 31,
2016 and 2015, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than
$100,000 was approximately $634.7 million and $493.6 million at December 31, 2016 and 2015,
respectively. The Bank utilizes brokered deposits as an additional funding source. The aggregate
amount of brokered deposits was approximately $324.3 million and $283.7 million at December 31,
2016 and 2015, respectively.
At December 31, 2016, scheduled maturities of certificates of deposit were as follows:
2017
2018
2019
2020
2021
Thereafter
Retail
Brokered
(In Thousands)
Total
$
726,594
262,625
70,408
49,427
47,574
3,824
$
310,364
13,910
—
—
—
—
$
1,036,958
276,535
70,408
49,427
47,574
3,824
$
1,160,452
$
324,274
$
1,484,726
115
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
A summary of interest expense on deposits for the years ended December 31, 2016, 2015 and 2014,
is as follows:
2016
2015
(In Thousands)
2014
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
3,888
13,598
(99)
2,858
10,739
(86)
$
3,088
8,264
(127)
$
17,387
$
13,511
$
11,225
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2016 and 2015, consisted of the
following:
December 31, 2016
December 31, 2015
Due In
Amount
$
2016
2017
2018
2019
2020
2021
2022 and thereafter
Unamortized fair value adjustment
—
30,826
81
28
—
—
500
31,435
17
Weighted
Average
Interest
Rate
Amount
(In Thousands)
—%
$
3.26
5.14
5.14
—
—
5.54
3.30
232,071
30,826
81
28
—
—
500
263,506
40
Weighted
Average
Interest
Rate
0.42%
3.26
5.14
5.14
—
—
5.54
0.76
$
31,452
$
263,546
Also included in the Bank’s FHLB advances at December 31, 2016 and December 31, 2015, 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
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
55
116
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
specifically pledged as collateral for advances at December 31, 2016 and 2015. Loans with carrying
values of approximately $1.12 billion and $1.21 billion were pledged as collateral for outstanding
advances at December 31, 2016 and 2015, respectively. The Bank had potentially available $551.0
million remaining on its line of credit under a borrowing arrangement with the FHLB of Des Moines
at December 31, 2016.
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2016 and 2015, are summarized as follows:
Notes payable – Community Development
Equity Funds
Overnight borrowings from the Federal Home Loan Bank
Securities sold under reverse repurchase agreements
2016
2015
(In Thousands)
$
$
1,323
171,000
113,700
1,295
—
116,182
$
286,023
$
117,477
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 0.50% and 0.04% at December 31,
2016 and 2015, respectively. Short-term borrowings averaged approximately $327.7 million and
$192.1 million for the years ended December 31, 2016 and 2015, respectively. The maximum
amounts outstanding at any month end were $523.1 million and $219.5 million, respectively, during
those same periods.
The following table represents the Company’s securities sold under reverse repurchase agreements,
by collateral type and remaining contractual maturity at December 31, 2016 and 2015:
2016
Overnight and
Continuous
2015
Overnight and
Continuous
(In Thousands)
FHLBank CD
Mortgage-backed securities – GNMA, FNMA, FHLMC
$ 16,202
97,498
$ —
116,182
$ 113,700
$ 116,182
117
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Note 11: Federal Reserve Bank Borrowings
At December 31, 2016 and 2015, the Bank had $602.0 million and $633.7 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, 2016 or 2015.
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 2.49% and 1.93% at December 31, 2016 and 2015,
respectively.
In July 2007, Great Southern Capital Trust III (Trust III), a statutory trust formed by the Company for
the purpose of issuing the securities, issued a $5.0 million aggregate liquidation amount of floating
rate cumulative trust preferred securities. The Trust III securities 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.
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
118
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
outstanding common and preferred securities of Great Southern Capital Trust III, was reduced to
zero.
outstanding common and preferred securities of Great Southern Capital Trust III, was reduced to
zero.
At December 31, 2016 and 2015, subordinated debentures issued to capital trusts are summarized as
follows:
At December 31, 2016 and 2015, subordinated debentures issued to capital trusts are summarized as
follows:
2016
2016
2015
2015
(In Thousands)
(In Thousands)
Subordinated debentures
Subordinated debentures
$
$
25,774
25,774
$
$
25,774
25,774
Note 14: Subordinated Notes
Note 14: Subordinated Notes
On August 8, 2016, the Company completed the public offering and sale of $75.0 million of its
On August 8, 2016, the Company completed the public offering and sale of $75.0 million of its
subordinated notes. The notes are due August 15, 2026, and have a fixed interest rate of 5.25% until
subordinated notes. The notes are due August 15, 2026, and have a fixed interest rate of 5.25% until
August 15, 2021, at which time the rate becomes floating at a rate equal to three-month LIBOR plus
August 15, 2021, at which time the rate becomes floating at a rate equal to three-month LIBOR plus
4.087%. The Company may call the notes at par beginning on August 15, 2021, and on any
4.087%. The Company may call the notes at par beginning on August 15, 2021, and on any
scheduled interest payment date thereafter. The notes were sold at par, resulting in net proceeds,
scheduled interest payment date thereafter. The notes were sold at par, resulting in net proceeds,
after underwriting discounts and commissions, legal, accounting and other professional fees, of
after underwriting discounts and commissions, legal, accounting and other professional fees, of
approximately $73.5 million. Total debt issuance costs, totaling approximately $1.5 million, were
approximately $73.5 million. Total debt issuance costs, totaling approximately $1.5 million, were
deferred and are being amortized over the expected life of the notes, which is 10 years. Amortization
deferred and are being amortized over the expected life of the notes, which is 10 years. Amortization
of the debt issuance costs during the year ended December 31, 2016 totaled $64,000, and is included
of the debt issuance costs during the year ended December 31, 2016 totaled $64,000, and is included
in interest expense on subordinated notes in the consolidated statements of income, resulting in an
in interest expense on subordinated notes in the consolidated statements of income, resulting in an
imputed interest rate of 5.47%.
imputed interest rate of 5.47%.
At December 31, 2016 and, 2015, subordinated notes are summarized as follows:
At December 31, 2016 and, 2015, subordinated notes are summarized as follows:
Subordinated notes
Subordinated notes
Less: unamortized debt issuance costs
Less: unamortized debt issuance costs
2016
2016
2015
2015
(In Thousands)
(In Thousands)
$
$
$
75,000
1,463
$
73,537
$
75,000
1,463
73,537
$
$
$
—
—
—
—
—
—
Note 15:
Note 15:
Income Taxes
Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2016 and 2015,
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, 2016 and 2015.
The Company files a consolidated federal income tax return. As of December 31, 2016 and 2015,
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, 2016 and 2015.
During the years ended December 31, 2016, 2015 and 2014, the provision for income taxes included
these components:
During the years ended December 31, 2016, 2015 and 2014, the provision for income taxes included
these components:
119
58
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
2016
2015
(In Thousands)
2014
Taxes currently payable
Deferred income taxes
Income taxes
$
$
20,137
(3,621)
$
20,234
(4,670)
$
20,013
(6,260)
16,516
$
15,564
$
13,753
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
Difference in basis for acquired assets and
liabilities
$
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,
2016
2015
(In Thousands)
13,576
364
1,288
3,300
535
4,533
23,596
(6,425)
(1,805)
(1,651)
(728)
(980)
—
(318)
(11,907)
$
13,848
259
1,302
4,056
417
—
19,882
(6,483)
(1,549)
(1,991)
(515)
(3,369)
(435)
(185)
(14,527)
Net deferred tax asset
$
11,689
$
5,355
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
2016
35.0%
(2.1)
(7.3)
1.1
—
2015
35.0%
(2.4)
(8.1)
1.4
(0.8)
2014
35.0%
(3.0)
(9.5)
1.5
—
26.7%
25.1%
24.0%
59
120
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The Company and its consolidated subsidiaries have not been audited recently by the Internal
Revenue Service (IRS) 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 2016. One of the partnerships has advanced to Tax Court and has entered a Motion
for Entry of Decision with an agreed upon settlement. 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 under State of Missouri income and franchise tax examinations for its
2013 through 2015 tax years and is in administrative appeals with the State of Kansas for its 2010
through 2012 tax years. The Company protested the initial assessment of the State of Kansas and is
having ongoing discussions with the Kansas Department of Revenue. The Company does not
currently expect significant adjustments to its financial statements from these state examinations.
Note 16: 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:
• Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted
unadjusted prices in active markets for identical assets that the Company has the ability to
access at the measurement date. An active market for the asset is a market in which transactions
for the asset or liability occur with sufficient frequency and volume to provide pricing
information on an ongoing basis.
• Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained from sources
independent of the reporting entity including quoted prices for similar assets, quoted prices for
securities in inactive markets and inputs derived principally from or corroborated by observable
market data by correlation or other means.
• Significant unobservable inputs (Level 3): Inputs that reflect 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.
121
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The Company considers transfers between the levels of the hierarchy to be recognized at the end of
related reporting periods.
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, 2016 and 2015:
Fair Value Measurements Using
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
146,035
67,837
1,663
(1,699)
19,781
161,214
78,031
3,830
2,711
(2,725)
(In Thousands)
$
$
—
—
—
—
—
—
—
—
—
—
$
$
146,035
67,837
1,663
(1,699)
19,781
161,214
78,031
—
2,711
(2,725)
—
—
—
—
—
—
—
—
—
—
December 31, 2016
Mortgage-backed securities
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
December 31, 2015
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, 2016 and 2015, 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, 2016. 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
122
61
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
values derived from the independent pricing service’s proprietary computerized models. There were
no recurring Level 3 securities at both December 31, 2016 and 2015.
values derived from the independent pricing service’s proprietary computerized models. There were
no recurring Level 3 securities at both December 31, 2016 and 2015.
Interest Rate Derivatives
values derived from the independent pricing service’s proprietary computerized models. There were
no recurring Level 3 securities at both December 31, 2016 and 2015.
Interest Rate Derivatives
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.
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.
Nonrecurring Measurements
Nonrecurring Measurements
Nonrecurring Measurements
The following tables present the fair value measurement of assets measured at fair value on a
nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements
fall at December 31, 2016 and 2015:
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, 2016 and 2015:
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.
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, 2016 and 2015:
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
(In Thousands)
Other
Observable
Inputs
(Level 2)
(In Thousands)
Inputs
(Level 2)
Observable
Other
Fair Value
Fair Value
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
Assets
(Level 1)
for Identical
Observable
Unobservable
Other
Significant
Inputs
(Level 2)
Inputs
(Level 3)
(In Thousands)
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
8,280
1,604
13,896
1,722
Fair Value
$
$
$
$
8,280
1,604
13,896
1,722
$
$
$
$
Significant
Significant
$
$
Unobservable
Inputs
(Level 3)
Unobservable
Inputs
(Level 3)
December 31, 2016
Impaired loans
8,280
—
Foreclosed assets held for sale
1,604
$
—
December 31, 2015
Impaired loans
13,896
—
Foreclosed assets held for sale
1,722
—
13,896
1,604
8,280
1,722
$
$
$
$
$
December 31, 2016
Impaired loans
December 31, 2016
Impaired loans
Foreclosed assets held for sale
Foreclosed assets held for sale
December 31, 2015
Impaired loans
December 31, 2015
Impaired loans
Foreclosed assets held for sale
Foreclosed assets held for sale
$
$
$
$
$
8,280
8,280
$
$
1,604
1,604
$
$
13,896
13,896
$
$
1,722
1,722
$
$
$
$
$
—
$
—
—
$
—
—
$
—
—
$
—
$
$
$
$
—
—
—
—
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.
Following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying statements of financial condition, as well as
the general classification of such assets pursuant to the valuation hierarchy. For assets classified
within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is
described below.
Loans Held for Sale
Following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying statements of financial condition, as well as
the general classification of such assets pursuant to the valuation hierarchy. For assets classified
within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is
described below.
Loans Held for Sale
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value
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
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
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
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
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,
market risk. The Company typically does not have commercial loans held for sale. At December 31,
2016 and 2015, the aggregate fair value of mortgage loans held for sale exceeded their
2016 and 2015, 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.
cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value.
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,
2016 and 2015, 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.
123
62
62
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016 and 2015, are shown in the table above (net of reserves).
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are initially recorded at fair value less estimated cost to sell at the date
of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and
the assets are carried at the lower of carrying amount or fair value less estimated cost to sell.
Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy. The
foreclosed assets represented in the table above have been re-measured during the years ended
December 31, 2016 and 2015, 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, 2016 and 2015.
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. Certain of these loss sharing
agreements were mutually terminated by the Company and the FDIC during 2016.
124
63
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016 and 2015, the carrying value was $-0- and $395,000, 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, 2016 and 2015, the carrying value of the FDIC indemnification asset was
$-0- and $475,000, 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, 2016 and 2015, the carrying value of the FDIC
indemnification asset was $-0- and $2.2 million, respectively.
Under the InterBank agreement, the FDIC agreed to reimburse the Bank for 80% of realized losses.
The indemnification asset was originally recorded at fair value on the acquisition date (April 27,
2012) and at December 31, 2016 and 2015, the carrying value of the FDIC indemnification asset was
$13.1 million and $21.1 million, respectively.
From the dates of acquisition, each of the four loss sharing agreements were scheduled to extend ten
years for 1-4 family real estate loans and five years for other loans. The loss sharing assets are
measured separately from the loan portfolios because they are not contractually embedded in the loans
and are not transferable with the loans should the Bank choose to dispose of them. Fair values on the
acquisition dates were estimated using projected cash flows available for loss sharing based on the
credit adjustments estimated for each loan pool and the loss sharing percentages. These cash flows
were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements
from the FDIC. The loss sharing assets are also separately measured from the related foreclosed real
estate. Although the assets are contractual receivables from the FDIC, they do not have effective
interest rates. The Bank will collect the assets over the next several years. The amount ultimately
collected will depend on the timing and amount of collections and charge-offs on the acquired assets
covered by the loss sharing agreements. While the assets were recorded at their estimated fair values
on the acquisition dates, it is not practicable to complete fair value analyses on a quarterly or annual
basis. Estimating the fair value of the FDIC indemnification asset would involve preparing fair value
analyses of the entire portfolios of loans and foreclosed assets covered by the loss sharing agreements
from all four acquisitions on a quarterly or annual basis. The loss sharing agreements for TeamBank,
Vantus Bank and Sun Security Bank were terminated on April 26, 2016, and the carrying value of the
related indemnification assets became $0. The termination of the loss sharing agreements is discussed
in Note 4.
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.
125
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
Subordinated Notes
The fair values used by the Company are obtained from quoted market prices and recent live trades
of the Company’s subordinated notes.
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.
126
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016
December 31, 2015
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
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
$ 279,769
247
16,445
$ 279,769
258
16,445
3,759,966
11,875
13,034
3,766,709
11,875
13,034
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
3,677,230
31,452
286,023
25,774
73,537
2,723
3,683,751
32,379
286,023
25,774
76,031
2,723
—
92
—
—
92
—
Note 17: Operating Leases
1
2
2
3
3
3
3
3
3
3
2
3
3
3
3
$ 199,183
353
12,261
$ 199,183
384
12,261
3,340,536
10,930
15,303
3,355,924
10,930
15,303
3,268,626
263,546
117,477
25,774
—
1,080
3,271,318
264,331
117,477
25,774
—
1,080
—
145
—
—
145
—
1
2
2
3
3
3
3
3
3
3
-
3
3
3
3
The Company has entered into various operating leases at several of its locations. Some of the leases
have renewal options.
At December 31, 2016, future minimum lease payments were as follows (in thousands):
2017
2018
2019
2020
2021
Thereafter
$
819
581
405
323
149
72
$
2,349
Rental expense was $973,000, $1.2 million and $1.1 million for the years ended December 31, 2016,
2015 and 2014, respectively.
127
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Note 18: Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages
economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount,
sources and duration of its assets and liabilities. In the normal course of business, the Company may
use derivative financial instruments (primarily interest rate swaps) from time to time to assist in its
interest rate risk management. 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 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
$3.7 million at December 31, 2016. As of December 31, 2016, the Company had 26 interest rate
swaps totaling $110.7 million in notional amount with commercial customers, and 26 interest rate
swaps with the same notional amount with third parties related to its program. 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. During the years ended December 31, 2016 and 2015, the Company
recognized net gains and (losses) of $66,000 and $(43,000), 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
67
128
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 Item 8, Financial Statements and
Supplementary Information, in the Company’s December 31, 2015 Annual Report on Form 10-K for
more information on the trust preferred securities purchase 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, 2016, 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, 2016, 2015 and 2014, the Company recognized $225,000,
$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).
129
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The table below presents the fair value of the Company’s derivative financial instruments as well as
their classification on the Consolidated Statements of Financial Condition:
Derivatives designated as
hedging instruments
Interest rate caps
Total derivatives designated
as hedging instruments
Derivatives not designated
as hedging instruments
Asset Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Liability Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2016
2015
(In Thousands)
Prepaid expenses and other assets
$
40
$
128
$
40
$
128
Prepaid expenses and other assets
$
1,623
$
2,583
$
1,623
$
2,583
Accrued expenses and other liabilities
$
1,699
$
2,725
$
1,699
$
2,725
The following tables present the effect of derivative instruments on the statements of
comprehensive income:
Cash Flow Hedges
2016
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2015
(In Thousands)
2014
Interest rate cap, net of income taxes
$
87
$
(50)
$
(164)
130
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016, 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 $1.6 million. The Company has minimum collateral posting thresholds with its
derivative counterparties. At December 31, 2016, 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 $6.0 million of collateral to satisfy the agreement. 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.
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. If the Company had breached any of these provisions
at December 31, 2016 and 2015, it could have been required to settle its obligations under the
agreements at the termination value.
Note 19: Commitments and Credit Risk
Commitments to Originate Loans
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since a significant portion of the
commitments may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory, property and equipment,
commercial real estate and residential real estate.
At December 31, 2016 and 2015, the Bank had outstanding commitments to originate loans and fund
commercial construction loans aggregating approximately $126.1 million and $120.8 million,
respectively. The commitments extend over varying periods of time with the majority being
disbursed within a 30- to 180-day period.
Mortgage loans in the process of origination represent amounts that the Bank plans to fund within a
normal period of 60 to 90 days, many of which are intended for sale to investors in the secondary
market. Total mortgage loans in the process of origination amounted to approximately $15.9 million
and $13.4 million at December 31, 2016 and 2015, respectively.
131
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 $26.4
million and $32.1 million at December 31, 2016 and 2015, respectively, with $25.1 million and $29.5
million, respectively, of the letters of credit having terms up to five years and $1.3 million and $2.6
million, respectively, of the letters of credit having terms over five years. Of the amount having
terms over five years, $1.3 million and $1.7 million at December 31, 2016 and 2015, 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 $2.1 million at
December 31, 2016 and 2015, 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, 2016, the Bank had granted unused lines of credit to borrowers aggregating
approximately $658.4 million and $123.4 million for commercial lines and open-end consumer lines,
respectively. 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.
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 $677.3 million and $555.7 million at December
31, 2016 and 2015, respectively, are secured primarily by apartments, condominiums, residential and
71
132
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
commercial land developments, industrial revenue bonds and other types of commercial properties in
the St. Louis, Missouri, area.
Note 20: Additional Cash Flow Information
Noncash Investing and Financing Activities
Real estate acquired in settlement of
loans
Sale and financing of foreclosed assets
Conversion of premises and equipment
to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
Note 21: Employee Benefits
2016
2015
(In Thousands)
2014
$26,076
3,334
6,985
3,073
$12,185
3,316
—
3,055
$19,975
1,805
202
2,896
20,476
9,554
15,984
13,096
15,833
8,510
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, 2016, 2015 and 2014, were approximately $725,000, $742,000 and $731,000,
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, 2016 and 2015, was
98.50% and 101.58%, respectively. The funded status was calculated by taking the market value of
plan assets, which reflected contributions received through June 30, 2016 and 2015, respectively,
divided by the funding target. No collective bargaining agreements are in place that require
contributions to the Pentegra DB Plan.
The Company has a defined contribution retirement plan covering substantially all employees. The
Company matches 100% of the employee’s contribution on the first 3% of the employee’s
compensation and also matches an additional 50% of the employee’s contribution on the next 2% of
the employee’s compensation. Employer contributions charged to expense for this plan for the years
ended December 31, 2016, 2015 and 2014, were approximately $1.2 million, $951,000 and $1.1
million, respectively.
Note 22: 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
72
133
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
outstanding awards under the 2003 Plan were not affected. At December 31, 2016, 198,259 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, 2016, 462,944
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.
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, 2014
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)
Balance, December 31, 2015
Granted from 2013 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
583,500
(147,400)
—
—
10,700
446,800
(129,350)
—
—
14,000
331,450
(131,000)
—
—
19,025
699,707
147,400
(153,287)
(22,022)
(10,700)
661,098
129,350
(134,263)
(8,453)
(14,000)
633,732
131,000
(81,812)
(2,692)
(19,025)
$
25.597
32.450
27.088
27.387
30.204
26.560
49.199
25.403
24.941
33.389
31.297
41.228
26.472
22.654
39.123
Balance, December 31, 2016
219,475
661,203
$
33.672
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.
73
134
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
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, 2016, 2015
and 2014:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2016
$0.88
1.27%
5 years
22.08%
$6.59
2015
$0.88
1.66%
5 years
24.42%
$9.59
2014
$0.80
1.40%
5 years
18.95%
$4.20
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, 2016:
Options outstanding, January 1, 2016
Granted
Exercised
Forfeited
Options outstanding, December 31, 2016
Weighted
Average
Exercise
Price
$31.297
41.228
26.472
37.082
33.672
Weighted
Average
Remaining
Contractual
Term
7.22 years
7.23 years
Options
633,732
131,000
(81,812)
(21,717)
661,203
Options exercisable, December 31, 2016
247,920
24.367
5.13 years
For the years ended December 31, 2016, 2015 and 2014, options granted were 131,000, 129,350, and
147,400, 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, 2016, 2015 and 2014, was $1.4 million, $2.3 million and $932,000,
respectively. Cash received from the exercise of options for the years ended December 31, 2016,
2015 and 2014, was $2.1 million, $3.4 million and $2.4 million, respectively. The actual tax benefit
realized for the tax deductions from option exercises totaled $1.3 million, $2.1 million and $858,000
for the years ended December 31, 2016, 2015 and 2014, respectively.
135
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The following table presents the activity related to nonvested options under all plans for the year
ended December 31, 2016.
Nonvested options, January 1, 2016
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$35.479
41.228
27.770
38.248
Options
412,164
131,000
(109,744)
(20,137)
Nonvested options, December 31, 2016
413,283
39.253
Weighted
Average
Grant Date
Fair Value
$6.039
6.592
4.337
6.779
6.631
At December 31, 2016, there was $2.5 million of total unrecognized compensation cost related to
nonvested options granted under the Company’s plans. This compensation cost is expected to be
recognized through 2021, with the majority of this expense recognized in 2017 and 2018.
The following table further summarizes information about stock options outstanding at December 31,
2016:
Range of
Exercise Prices
$8.360 to $19.530
$21.320 to $24.820
$25.480 to $29.860
$32.590 to $39.050
$41.300 to $50.710
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
Number
Outstanding
65,559
111,650
115,672
133,772
234,550
4.54 years
5.01 years
5.83 years
7.85 years
9.38 years
Weighted
Average
Exercise
Price
$17.911
23.683
28.767
32.997
45.635
Options Exercisable
Number
Exercisable
65,559
88,540
63,229
28,592
2,000
Weighted
Average
Exercise
Price
$17.911
23.408
28.151
32.590
41.300
661,203
7.23 years
33.672
247,920
24.367
Note 23: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of
certain significant estimates and current vulnerabilities due to certain concentrations. Estimates
related to the allowance for loan losses are reflected in Note 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
75
136
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 24: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’
equity, are as follows:
2016
2015
(In Thousands)
Net unrealized gain on available-for-sale securities
$
2,699
$
9,282
Net unrealized loss on derivatives used for cash flow hedges
Tax effect
(254)
2,445
(391)
8,891
(887)
(3,227)
Net-of-tax amount
$
1,558
$
5,664
Amounts reclassified from AOCI and the affected line items in the statements of income during the
years ended December 31, 2016, 2015 and 2014, were as follows:
Amounts Reclassified
from AOCI
2016
2015
(In Thousands)
2014
Unrealized gains on available-for-
sale securities
$
2,873 $
2 $
2,139
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
Income taxes
(1,043)
(1)
(749) Tax (expense) benefit
Total reclassifications out of
AOCI
$
1,830 $
1 $
1,390
Note 25: 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.
76
137
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016) 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,
2016, that the Bank met all capital adequacy requirements to which it was then subject.
As of December 31, 2016, 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, 2016, 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.
138
77
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
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.
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
Actual
Amount
Amount
Ratio
Ratio
For Capital
For Capital
Adequacy Purposes
Adequacy Purposes
Amount
Amount
Ratio
(Dollars In Thousands)
(Dollars In Thousands)
Ratio
To Be Well
To Be Well
Capitalized Under
Capitalized Under
Prompt Corrective
Prompt Corrective
Action Provisions
Action Provisions
Ratio
Ratio
Amount
Amount
As of December 31, 2016
Total capital
As of December 31, 2016
Total capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Tier I capital
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Tier I leverage capital
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Common equity Tier I capital
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
As of December 31, 2015
Total capital
As of December 31, 2015
Total capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Tier I capital
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Tier I leverage capital
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
Common equity Tier I capital
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Great Southern Bank
Great Southern Bank
$556,106
$520,989
$556,106
$520,989
$443,706
$483,589
$443,706
$483,589
$443,706
$483,589
$443,706
$483,589
$418,687
$483,569
$418,687
$483,569
$452,637
$434,334
$452,637
$434,334
$414,488
$396,185
$414,488
$396,185
$414,488
$396,185
$414,488
$396,185
$389,460
$396,157
$389,460
$396,157
13.6%
12.7%
13.6%
12.7%
≥ $327,610
≥ $327,505
≥ $327,610
≥ $327,505
≥ 8.0%
≥ 8.0%
≥ 8.0%
≥ 8.0%
10.8%
11.8%
10.8%
11.8%
≥ $245,707
≥ $245,629
≥ $245,707
≥ $245,629
≥ 6.0%
≥ 6.0%
≥ 6.0%
≥ 6.0%
9.9%
10.8%
9.9%
10.8%
≥ $178,693
≥ $178,643
≥ $178,693
≥ $178,643
≥ 4.0%
≥ 4.0%
≥ 4.0%
≥ 4.0%
10.2%
11.8%
10.2%
11.8%
≥ $184,280
≥ $184,222
≥ $184,280
≥ $184,222
≥ 4.5%
≥ 4.5%
≥ 4.5%
≥ 4.5%
12.6%
12.1%
12.6%
12.1%
≥ $288,279
≥ $288,180
≥ $288,279
≥ $288,180
≥ 8.0%
≥ 8.0%
≥ 8.0%
≥ 8.0%
11.5%
11.0%
11.5%
11.0%
≥ $216,209
≥ $216,135
≥ $216,209
≥ $216,135
≥ 6.0%
≥ 6.0%
≥ 6.0%
≥ 6.0%
10.2%
9.8%
10.2%
9.8%
≥ $162,576
≥ $161,986
≥ $162,576
≥ $161,986
≥ 4.0%
≥ 4.0%
≥ 4.0%
≥ 4.0%
10.8%
11.0%
10.8%
11.0%
≥ $162,157
≥ $162,101
≥ $162,157
≥ $162,101
≥ 4.5%
≥ 4.5%
≥ 4.5%
≥ 4.5%
N/A
N/A
≥ $409,382
≥ $409,382
N/A
≥ 10.0%
N/A
≥ 10.0%
N/A
N/A
≥ $327,505
≥ $327,505
N/A
≥ 8.0%
N/A
≥ 8.0%
N/A
N/A
≥ $223,304
≥ $223,304
N/A
≥ 5.0%
N/A
≥ 5.0%
N/A
N/A
≥ $266,098
≥ $266,098
N/A
≥ 6.5%
N/A
≥ 6.5%
N/A
N/A
≥ $360,225
≥ $360,225
N/A
≥ 10.0%
N/A
≥ 10.0%
N/A
N/A
≥ $288,180
≥ $288,180
N/A
≥ 8.0%
N/A
≥ 8.0%
N/A
N/A
≥ $202,482
≥ $202,482
N/A
≥ 5.0%
N/A
≥ 5.0%
N/A
N/A
≥ $234,146
≥ $234,146
N/A
≥ 6.5%
N/A
≥ 6.5%
The Company and the Bank are subject to certain restrictions on the amount of dividends that may be
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, 2016 and 2015, the Company and the
declared without prior regulatory approval. At December 31, 2016 and 2015, the Company and the
Bank exceeded their minimum capital requirements then in effect. The entities may not pay
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. In addition to
dividends which would reduce capital below the minimum requirements shown above. In addition to
the minimum capital ratios, the new capital rules include a capital conservation buffer, under which a
the minimum capital ratios, the new capital 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
banking organization must have CET1 more than 2.5% above each of its minimum risk-based capital
139
78
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
ratios in order to avoid restrictions on paying dividends, repurchasing shares, and paying certain
discretionary bonuses, phased in at an additional 0.625% per year beginning January 1, 2016. The
net unrealized gain or loss on available-for-sale securities is not included in computing regulatory
capital.
Note 26: 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. A judgment was issued in favor of a defendant bank in a
similar lawsuit where the lawsuit alleged that overdraft fees violate Missouri's usury laws. The Court
has entered a stay in the Bank's litigation pending a decision on appeal in the other usury litigation.
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 27: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2016, 2015 and 2014:
2016
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
$
45,746
4,627
2,101
3
4,974
30,920
3,279
9,793
9,793
0.70
$
45,636
4,974
2,300
2,735
8,916
29,807
4,937
12,534
12,534
0.89
$
46,856
5,828
2,500
144
7,090
30,657
3,740
11,221
11,221
0.80
46,937
6,690
2,380
(9)
7,530
29,043
4,560
11,794
11,794
0.83
79
140
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
2014
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
42,294
4,328
1,691
73
924
25,894
2,487
8,818
8,673
0.63
$
44,384
4,413
1,462
569
10,631
34,399
3,687
11,054
10,909
0.79
$
47,607
3,501
945
321
1,778
29,398
3,951
11,590
11,445
0.83
$
49,077
3,559
53
1,176
1,398
31,168
3,628
12,067
11,923
0.86
141
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Note 28: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2016 and 2015, and statements of
income, comprehensive income and cash flows for the years ended December 31, 2016, 2015 and
2014, 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
Deferred income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Deferred income taxes
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2016
2015
(In Thousands)
$
$
$
$
37,716
—
494,947
89
1,214
20,009
3,830
403,174
—
1,335
533,966
$
428,348
$
4,849
—
25,774
73,537
140
25,942
402,166
1,558
3,403
944
25,774
—
139
24,371
368,053
5,664
$
533,966
$
428,348
142
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
2016
2015
(In Thousands)
2014
$
12,000
—
$
27,000
5
$
36,000
22
2,735
2
14,737
1,322
2,381
3,703
1,416
(7)
28,414
1,139
714
1,853
—
(20)
36,002
1,198
567
1,765
11,034
(241)
26,561
(91)
34,237
(388)
11,275
26,652
34,625
34,067
19,850
8,904
$
45,342
$
46,502
$
43,529
143
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
Net realized gains on sales of available-for-sale
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
Proceeds from sales of available-for-sale securities
Investment in subsidiary
(Investment)/Return of principal - other investments
Net cash provided by (used in) investing
activities
Financing Activities
Proceeds from issuance of subordinated notes
Redemption of preferred stock
Redemption of trust preferred securities
Purchases of the Company’s common stock
Dividends paid
Stock options exercised
Net cash provided by (used in) financing
activities
Increase (Decrease) in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2016
2015
(In Thousands)
2014
$
45,342
$
46,502
$
43,529
(34,067)
483
—
—
(2,735)
289
175
1,495
(206)
10,776
3,583
(60,000)
(2)
(56,419)
73,472
—
—
—
(12,232)
2,110
63,350
17,707
20,009
37,716
846
(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
83
$
$
$
$
144
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Statements of Comprehensive Income
2016
2015
(In Thousands)
2014
Net Income
$
45,342
$
46,502
$
43,529
Unrealized appreciation on available-for-sale securities,
net of taxes (credit) of $(90), $273 and $100, for
2016, 2015 and 2014, respectively
Reclassification adjustment for gains included in net
income, net of (taxes) credit of $(993), $0 and $0,
for 2016, 2015 and 2014, respectively
Change in fair value of cash flow hedge, net of taxes
(credit) of $50, $(34) and $(88) for 2016, 2015 and
2014, respectively
Comprehensive income (loss) of subsidiaries
(158)
(1,742)
87
(2,293)
400
—
(50)
(1,722)
185
—
(164)
4,553
Comprehensive Income
$
41,236
$
45,130
$
48,103
Note 29: 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 one-half years after issuance, the
145
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 30: 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 was
completed on 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 31: 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
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.
146
85
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The fair values of the assets acquired and liabilities assumed in the transaction were as follows:
Assets
Cash and cash equivalents
Loans receivable
Premises and equipment
Accrued interest receivable
Core deposit intangible
Deferred income taxes
Total assets acquired
Liabilities
Total deposits
Accrued interest payable
Advances from borrowers for taxes and insurance
Accounts payable and accrued expenses
Total liabilities assumed
January 29,
2016
(In Thousands)
$
44,363
157,524
17,990
410
4,424
100
224,811
228,528
50
403
58
229,039
Goodwill recognized on business acquisition
$
4,228
This acquisition was determined to constitute a business combination in accordance with FASB
ASC 805. Based upon the acquisition date fair values of the net liabilities acquired, goodwill of
$4.2 million was recorded. The goodwill is deductible for tax purposes. Details related to the
purchase accounting adjustments are as follows:
January 29,
2016
(In Thousands)
Deposit premium per Purchase and Assumption Agreement
$
(7,135)
Purchase accounting adjustments
Deposits
Loans
Deferred income taxes
Core deposit intangible
(277)
(1,340)
100
4,424
Goodwill recognized on business acquisition
$
4,228
147
86
148
2016 annual report
4