greater
expectations
2017
AN NUAL REPORT
FOR STOCKHOLDERS
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
800-749-7113
AUDITORS
BKD, L.L.P.
P.O. Box 1190
Springfield, MO 65801-1190
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
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
Shareholder correspondence:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight correspondence:
Computershare
462 S. 4th St., Suite 1600
Louisville, KY 40202
800-368-5948
781-575-4223 outside of the U.S.
Hearing Impaired # TDD: 800-952-9245
Questions and inquires via our website
computershare.com
29th Annual Meeting
of Stockholders
MAY 9, 2018
Great Southern Operations Center
218 S. Glenstone, Springfield, MO
Corporate Profile
Stock
Information
Great Southern Bank was founded in 1923, with a $5,000
investment, four employees and 936 customers. Today, it
has grown to $4.4 billion in total assets, with nearly 1,300
dedicated associates serving 173,000 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.
The Company’s common stock is listed on the NASDAQ
Global Select Market under the symbol “GSBC.”
As of December 31, 2017, there were 14,087,533 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, 2017, was $51.65.
High/Low Stock Price
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
2017
High Low
High
Low
$55.45 $47.35 $45.00 $35.47
41.29 34.56
43.54 34.48
56.70 38.35
55.10
47.25
56.00 47.50
58.45 50.55
2015
High
Low
$40.44 $35.10
42.95 37.44
43.42 37.54
52.94 42.11
Dividend Declarations
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
$.22
.24
.24
.24
2016
$.22
.22
.22
.22
2015
$.20
.22
.22
.22
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
To our
Stockholders
Having greater expectations
for ourselves helps us fulfill
our Company’s mission to
build winning relationships
with our customers,
associates, communities
and stockholders.
It is our pleasure to present our 2017 Annual
Report entitled Greater Expectations. The theme
of Greater Expectations underscores our Com-
pany’s desire to keep raising the bar to make
Great Southern the bank of choice for custom-
ers and the investment of choice for investors.
In 2017, as in every year, we challenged
ourselves on many fronts to make Great South-
ern an even better company for those we serve.
We also understand that those we serve have a
similar view; they place greater expectations on
us to serve their needs with better products and
services, delivered when, where and how they
desire.
In the following pages of our Annual Report, we
provide you with highlights that showcase just
a few examples of the work that we are doing to
build customer relationships and to improve our
Company. In 2017, you will see that we focused
on improving our products and enhancing our
delivery channels, especially in our suite of
Mobile Banking services and ATM capabilities.
Key technological upgrades, which included a
new stream-lined commercial lending platform
and a state-of-the-art debit card fraud preven-
tion system, were also implemented to benefit
our customers.
Another major 2017 project was the roll-out of
a company-wide process improvement initia-
tive we call Process Matters. Using the principles
and tested methodology of Lean Six Sigma,
Process Matters cross-functional teams in
2
specific process workshops evaluate current
We are pleased with the performance of our
end-to-end processes and identify issues that
Company in 2017. We’ll provide a general
could cause inefficiencies or delays for our
summary here, but we invite you to review the
customers. To date, several operational process-
financial information in this Annual Report, or in
es have been reworked. Outcomes for each
our other Company filings.
workshop have been impressive resulting in
reduced customer wait times, decreased
Earnings for the year ended December 31, 2017,
internal costs and overall increased efficiency.
were $51.6 million, or $3.64 per diluted common
We are equally impressed with how our associ-
share. Return on average common equity was
ates have embraced Process Matters and their
11.32%, return on average assets was 1.16%, and
motivation to make Great Southern work better
net interest margin was 3.74%. The Company
for our customers.
ended the year with assets of $4.4 billion. Total
stockholders’ equity was $471.7 million, or 10.7%
In 2017, we also focused on better and more
of assets, equivalent to a book value of $33.48
comprehensive training programs for our
per common share.
associates, whether in a traditional classroom
setting or through online methods. We are
During 2017, we experienced strong commercial
strongly committed to provide our associates
and construction loan production, solid credit
the tools and knowledge they need to success-
quality, a stable core net interest margin, and
fully fulfill the requirements of their current
consistent expense containment. For the
position with the Company and to progress in
second year in a row, our commercial lenders
their career.
originated more than $1 billion in new loans.
Total gross loans, including the undisbursed
Finally, you will see in this Annual Report some
portion of loans and excluding FDIC-assisted
illustrations of the work we do to help our
acquired loans and mortgages held for sale,
communities be even greater places to live,
increased $248.9 million, or 6.1%, from the end
work and play. We share this information about
of 2016. This increase was partially offset by
our work and investments not to be self-pro-
expected decreases in the consumer loan
moting, but to showcase just a few of the
portfolio (down about $144 million) and one- to
endless possibilities of how we all can work
four-family residential loans. Outstanding loan
together to address community needs.
balances were also negatively impacted by
significant loan payoffs during 2017, resulting in
our outstanding loan balance at the end of 2017
being down slightly from the end of 2016.
we grow the loan portfolio one quality relation-
Also, in 2017, the Company executed an agree-
million in 2016.
Total loan production occurred across several
underwriting guidelines on automobile lending
loan types, primarily multi-family loans, com-
in the latter part of 2016. Management took this
mercial real estate loans, and commercial
step in an effort to improve credit quality in the
construction loans and came from most of
portfolio and lower delinquencies and
Great Southern’s primary lending locations,
charge-offs. Charge-offs in the auto loan
including St. Louis, Kansas City, Tulsa, Dallas,
portfolio that occurred during 2017 were
Chicago, Minneapolis, and Springfield. Since the
primarily related to loans originated prior to the
end of 2016, our largest increases in outstand-
change in underwriting guidelines. This change
ing balances by loan type were in non-specula-
in underwriting also resulted in a lower level of
tive commercial construction loans at $101
origination volume and, as such, the outstand-
million, multi-family residential mortgages at
ing balance of the Company's automobile loans
$67 million, and commercial real estate loans at
declined approximately $144 million in the year
$55 million. While loan production was strong
ended December 31, 2017. We expect to see
in 2017, it was not produced by succumbing to
further declines in the automobile loan totals
price pressures or other competitive forces. Our
through 2018 as well.
underwriting criteria remains conservative and
ship at a time. It is important to note that our
ment with the Federal Deposit Insurance
overall loan growth will not occur evenly over
Corporation (FDIC) to terminate the loss
time. There will be years that economic condi-
sharing agreements related to the 2012
tions and the competitive landscape will allow
FDIC-assisted acquisition of Maple Grove,
for stronger growth, and years where growth
Minn.-based Inter Savings Bank. The termina-
may not be so robust. What will remain
tion of the loss sharing agreements for the Inter
constant is our commitment to conduct our
Savings Bank transaction have no impact on
credit activities with a long-term view and the
the yields for the loans that were previously
interest of our stockholders in mind.
covered under these agreements. All future
recoveries, gains, losses and expenses related to
Credit quality continued to improve in 2017. At
these previously covered assets will be recog-
December 31, 2017, non-performing assets,
nized entirely by Great Southern Bank since the
excluding FDIC-acquired non-performing
FDIC will no longer be sharing in such gains or
assets, were $27.8 million, a decrease of $11.5
losses. This agreement terminated the last
million from $39.3 million at December 31, 2016.
outstanding loss sharing agreements related to
Non-performing assets as a percentage of total
the Bank’s four FDIC-assisted acquisitions from
assets were 0.63% at December 31, 2017, com-
2009 through 2012. In April 2016, the Company
pared to 0.86% at December 31, 2016. Total net
executed an agreement with the FDIC to
charge-offs were $10.0 million during 2017.
terminate loss sharing agreements related to
Approximately $6.1 million of the $10.0 million
the FDIC-assisted acquisitions of TeamBank,
of net charge-offs were in the consumer auto
Vantus Bank and Sun Security Bank.
category. Four commercial loan relationships,
which were originated prior to 2008, made up
Our core net interest margin for the year ended
$2.5 million of the net charge-off total in 2017.
December 31, 2017, decreased by two basis
In response to a more challenging consumer
31, 2016. The core net interest margin excludes
credit environment, the Company tightened its
the impact of the additional yield accretion
points compared to the year ended December
recognized in conjunction with updated
estimates of the fair value of the loan pools
acquired in FDIC-assisted transactions. Expense
containment remains a major focus for the
Company. Total non-interest expenses were
$114.2 million in 2017 compared to $120.2
In December 2017, the new federal tax reform
legislation was signed into law. We expect the
tax reform package to have positive implications
for the U.S. economy, which we anticipate will
benefit the banking industry, including Great
Southern. Included with the tax reform, the
corporate federal income tax rate was perma-
nently lowered to 21% from the prior maximum
rate of 35%, effective for tax years commencing
January 1, 2018. We currently expect our
effective tax rate (combined federal and state) to
decrease from approximately 26.7% in 2017 to
approximately 15.5% to 17.5% in 2018, mainly as
a result of the lower federal corporate tax rate.
Our effective income tax rate is expected to
continue to be less than the statutory rate due
primarily to investments in low-income housing
tax credit projects and tax-exempt obligations.
The effective tax rate could change in future
periods based on changes in the level of invest-
ments in tax credit projects and tax-exempt
obligations, as well as changes in the level of
overall pre-tax earnings.
It is our pleasure to present our 2017 Annual
Report entitled Greater Expectations. The theme
of Greater Expectations underscores our Com-
pany’s desire to keep raising the bar to make
Great Southern the bank of choice for custom-
ers and the investment of choice for investors.
In 2017, as in every year, we challenged
ourselves on many fronts to make Great South-
ern an even better company for those we serve.
We also understand that those we serve have a
similar view; they place greater expectations on
us to serve their needs with better products and
services, delivered when, where and how they
desire.
In the following pages of our Annual Report, we
provide you with highlights that showcase just
a few examples of the work that we are doing to
build customer relationships and to improve our
Company. In 2017, you will see that we focused
on improving our products and enhancing our
delivery channels, especially in our suite of
Mobile Banking services and ATM capabilities.
Key technological upgrades, which included a
new stream-lined commercial lending platform
and a state-of-the-art debit card fraud preven-
tion system, were also implemented to benefit
our customers.
Another major 2017 project was the roll-out of
a company-wide process improvement initia-
tive we call Process Matters. Using the principles
and tested methodology of Lean Six Sigma,
Process Matters cross-functional teams in
Our financial performance
in 2017
specific process workshops evaluate current
end-to-end processes and identify issues that
could cause inefficiencies or delays for our
customers. To date, several operational process-
es have been reworked. Outcomes for each
workshop have been impressive resulting in
reduced customer wait times, decreased
internal costs and overall increased efficiency.
We are equally impressed with how our associ-
ates have embraced Process Matters and their
motivation to make Great Southern work better
for our customers.
In 2017, we also focused on better and more
comprehensive training programs for our
associates, whether in a traditional classroom
setting or through online methods. We are
strongly committed to provide our associates
the tools and knowledge they need to success-
fully fulfill the requirements of their current
position with the Company and to progress in
their career.
Finally, you will see in this Annual Report some
illustrations of the work we do to help our
communities be even greater places to live,
work and play. We share this information about
our work and investments not to be self-pro-
moting, but to showcase just a few of the
endless possibilities of how we all can work
together to address community needs.
We are pleased with the performance of our
Company in 2017. We’ll provide a general
summary here, but we invite you to review the
financial information in this Annual Report, or in
our other Company filings.
Earnings for the year ended December 31, 2017,
were $51.6 million, or $3.64 per diluted common
share. Return on average common equity was
11.32%, return on average assets was 1.16%, and
net interest margin was 3.74%. The Company
ended the year with assets of $4.4 billion. Total
stockholders’ equity was $471.7 million, or 10.7%
of assets, equivalent to a book value of $33.48
per common share.
During 2017, we experienced strong commercial
and construction loan production, solid credit
quality, a stable core net interest margin, and
consistent expense containment. For the
second year in a row, our commercial lenders
originated more than $1 billion in new loans.
Total gross loans, including the undisbursed
portion of loans and excluding FDIC-assisted
acquired loans and mortgages held for sale,
increased $248.9 million, or 6.1%, from the end
of 2016. This increase was partially offset by
expected decreases in the consumer loan
portfolio (down about $144 million) and one- to
four-family residential loans. Outstanding loan
balances were also negatively impacted by
significant loan payoffs during 2017, resulting in
our outstanding loan balance at the end of 2017
being down slightly from the end of 2016.
3
we grow the loan portfolio one quality relation-
Also, in 2017, the Company executed an agree-
million in 2016.
Total loan production occurred across several
underwriting guidelines on automobile lending
loan types, primarily multi-family loans, com-
in the latter part of 2016. Management took this
mercial real estate loans, and commercial
step in an effort to improve credit quality in the
construction loans and came from most of
portfolio and lower delinquencies and
Great Southern’s primary lending locations,
charge-offs. Charge-offs in the auto loan
including St. Louis, Kansas City, Tulsa, Dallas,
portfolio that occurred during 2017 were
Chicago, Minneapolis, and Springfield. Since the
primarily related to loans originated prior to the
end of 2016, our largest increases in outstand-
change in underwriting guidelines. This change
ing balances by loan type were in non-specula-
in underwriting also resulted in a lower level of
tive commercial construction loans at $101
origination volume and, as such, the outstand-
million, multi-family residential mortgages at
ing balance of the Company's automobile loans
$67 million, and commercial real estate loans at
declined approximately $144 million in the year
$55 million. While loan production was strong
ended December 31, 2017. We expect to see
in 2017, it was not produced by succumbing to
further declines in the automobile loan totals
price pressures or other competitive forces. Our
through 2018 as well.
underwriting criteria remains conservative and
ship at a time. It is important to note that our
ment with the Federal Deposit Insurance
overall loan growth will not occur evenly over
Corporation (FDIC) to terminate the loss
time. There will be years that economic condi-
sharing agreements related to the 2012
tions and the competitive landscape will allow
FDIC-assisted acquisition of Maple Grove,
for stronger growth, and years where growth
Minn.-based Inter Savings Bank. The termina-
may not be so robust. What will remain
tion of the loss sharing agreements for the Inter
constant is our commitment to conduct our
Savings Bank transaction have no impact on
credit activities with a long-term view and the
the yields for the loans that were previously
interest of our stockholders in mind.
covered under these agreements. All future
recoveries, gains, losses and expenses related to
Credit quality continued to improve in 2017. At
these previously covered assets will be recog-
December 31, 2017, non-performing assets,
nized entirely by Great Southern Bank since the
excluding FDIC-acquired non-performing
FDIC will no longer be sharing in such gains or
assets, were $27.8 million, a decrease of $11.5
losses. This agreement terminated the last
million from $39.3 million at December 31, 2016.
outstanding loss sharing agreements related to
Non-performing assets as a percentage of total
the Bank’s four FDIC-assisted acquisitions from
assets were 0.63% at December 31, 2017, com-
2009 through 2012. In April 2016, the Company
pared to 0.86% at December 31, 2016. Total net
executed an agreement with the FDIC to
charge-offs were $10.0 million during 2017.
terminate loss sharing agreements related to
Approximately $6.1 million of the $10.0 million
the FDIC-assisted acquisitions of TeamBank,
of net charge-offs were in the consumer auto
Vantus Bank and Sun Security Bank.
category. Four commercial loan relationships,
which were originated prior to 2008, made up
Our core net interest margin for the year ended
$2.5 million of the net charge-off total in 2017.
December 31, 2017, decreased by two basis
In response to a more challenging consumer
31, 2016. The core net interest margin excludes
credit environment, the Company tightened its
the impact of the additional yield accretion
points compared to the year ended December
recognized in conjunction with updated
estimates of the fair value of the loan pools
acquired in FDIC-assisted transactions. Expense
containment remains a major focus for the
Company. Total non-interest expenses were
$114.2 million in 2017 compared to $120.2
In December 2017, the new federal tax reform
legislation was signed into law. We expect the
tax reform package to have positive implications
for the U.S. economy, which we anticipate will
benefit the banking industry, including Great
Southern. Included with the tax reform, the
corporate federal income tax rate was perma-
nently lowered to 21% from the prior maximum
rate of 35%, effective for tax years commencing
January 1, 2018. We currently expect our
effective tax rate (combined federal and state) to
decrease from approximately 26.7% in 2017 to
approximately 15.5% to 17.5% in 2018, mainly as
a result of the lower federal corporate tax rate.
Our effective income tax rate is expected to
continue to be less than the statutory rate due
primarily to investments in low-income housing
tax credit projects and tax-exempt obligations.
The effective tax rate could change in future
periods based on changes in the level of invest-
ments in tax credit projects and tax-exempt
obligations, as well as changes in the level of
overall pre-tax earnings.
It is our pleasure to present our 2017 Annual
Report entitled Greater Expectations. The theme
of Greater Expectations underscores our Com-
pany’s desire to keep raising the bar to make
Great Southern the bank of choice for custom-
ers and the investment of choice for investors.
In 2017, as in every year, we challenged
ourselves on many fronts to make Great South-
ern an even better company for those we serve.
We also understand that those we serve have a
similar view; they place greater expectations on
us to serve their needs with better products and
services, delivered when, where and how they
desire.
In the following pages of our Annual Report, we
provide you with highlights that showcase just
a few examples of the work that we are doing to
build customer relationships and to improve our
Company. In 2017, you will see that we focused
on improving our products and enhancing our
delivery channels, especially in our suite of
Mobile Banking services and ATM capabilities.
Key technological upgrades, which included a
new stream-lined commercial lending platform
and a state-of-the-art debit card fraud preven-
tion system, were also implemented to benefit
our customers.
Another major 2017 project was the roll-out of
a company-wide process improvement initia-
tive we call Process Matters. Using the principles
and tested methodology of Lean Six Sigma,
Process Matters cross-functional teams in
specific process workshops evaluate current
We are pleased with the performance of our
end-to-end processes and identify issues that
Company in 2017. We’ll provide a general
could cause inefficiencies or delays for our
summary here, but we invite you to review the
customers. To date, several operational process-
financial information in this Annual Report, or in
es have been reworked. Outcomes for each
our other Company filings.
workshop have been impressive resulting in
reduced customer wait times, decreased
Earnings for the year ended December 31, 2017,
internal costs and overall increased efficiency.
were $51.6 million, or $3.64 per diluted common
We are equally impressed with how our associ-
share. Return on average common equity was
ates have embraced Process Matters and their
11.32%, return on average assets was 1.16%, and
motivation to make Great Southern work better
net interest margin was 3.74%. The Company
for our customers.
ended the year with assets of $4.4 billion. Total
stockholders’ equity was $471.7 million, or 10.7%
In 2017, we also focused on better and more
of assets, equivalent to a book value of $33.48
comprehensive training programs for our
per common share.
associates, whether in a traditional classroom
setting or through online methods. We are
During 2017, we experienced strong commercial
strongly committed to provide our associates
and construction loan production, solid credit
the tools and knowledge they need to success-
quality, a stable core net interest margin, and
fully fulfill the requirements of their current
consistent expense containment. For the
position with the Company and to progress in
second year in a row, our commercial lenders
their career.
originated more than $1 billion in new loans.
Total gross loans, including the undisbursed
Finally, you will see in this Annual Report some
portion of loans and excluding FDIC-assisted
illustrations of the work we do to help our
acquired loans and mortgages held for sale,
communities be even greater places to live,
increased $248.9 million, or 6.1%, from the end
work and play. We share this information about
of 2016. This increase was partially offset by
our work and investments not to be self-pro-
expected decreases in the consumer loan
moting, but to showcase just a few of the
portfolio (down about $144 million) and one- to
endless possibilities of how we all can work
four-family residential loans. Outstanding loan
together to address community needs.
balances were also negatively impacted by
significant loan payoffs during 2017, resulting in
our outstanding loan balance at the end of 2017
being down slightly from the end of 2016.
Total Return
5 year cumulative*
$225.71
Great Southern Bancorp Inc
NASDAQ Composite
NASDAQ Financial
$100
2012 2013 2014
2015 2016 2017
* 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, 2012,
through December 31, 2017. The graph assumes that $100 was invested in GSBC
Common Stock on December 31, 2012, and that all dividends were reinvested.
per common share
Book Value
$33.48
2017
30.77
28.67
26.30
23.60
2013
2014
2015
2016
TOTAL
NET INCOME
$51.56M
2017
2016
2015
2014
2013
$30
$40
$50
TOTAL
ASSETS
$4.41B
TOTAL
DEPOSITS
$3.60B
TOTAL
LOANS
$3.73B
$4B
$3B
$2B
$1B
$3B
$2B
$1B
$3B
$2B
$1B
2013 2014 2015 2016 2017
we grow the loan portfolio one quality relation-
Also, in 2017, the Company executed an agree-
million in 2016.
Total loan production occurred across several
underwriting guidelines on automobile lending
loan types, primarily multi-family loans, com-
in the latter part of 2016. Management took this
mercial real estate loans, and commercial
step in an effort to improve credit quality in the
construction loans and came from most of
portfolio and lower delinquencies and
Great Southern’s primary lending locations,
charge-offs. Charge-offs in the auto loan
including St. Louis, Kansas City, Tulsa, Dallas,
portfolio that occurred during 2017 were
Chicago, Minneapolis, and Springfield. Since the
primarily related to loans originated prior to the
end of 2016, our largest increases in outstand-
change in underwriting guidelines. This change
ing balances by loan type were in non-specula-
in underwriting also resulted in a lower level of
tive commercial construction loans at $101
origination volume and, as such, the outstand-
million, multi-family residential mortgages at
ing balance of the Company's automobile loans
$67 million, and commercial real estate loans at
declined approximately $144 million in the year
$55 million. While loan production was strong
ended December 31, 2017. We expect to see
in 2017, it was not produced by succumbing to
further declines in the automobile loan totals
price pressures or other competitive forces. Our
through 2018 as well.
underwriting criteria remains conservative and
ship at a time. It is important to note that our
ment with the Federal Deposit Insurance
overall loan growth will not occur evenly over
Corporation (FDIC) to terminate the loss
time. There will be years that economic condi-
sharing agreements related to the 2012
tions and the competitive landscape will allow
FDIC-assisted acquisition of Maple Grove,
for stronger growth, and years where growth
Minn.-based Inter Savings Bank. The termina-
may not be so robust. What will remain
tion of the loss sharing agreements for the Inter
constant is our commitment to conduct our
Savings Bank transaction have no impact on
credit activities with a long-term view and the
the yields for the loans that were previously
interest of our stockholders in mind.
covered under these agreements. All future
recoveries, gains, losses and expenses related to
Credit quality continued to improve in 2017. At
these previously covered assets will be recog-
December 31, 2017, non-performing assets,
nized entirely by Great Southern Bank since the
excluding FDIC-acquired non-performing
FDIC will no longer be sharing in such gains or
assets, were $27.8 million, a decrease of $11.5
losses. This agreement terminated the last
million from $39.3 million at December 31, 2016.
outstanding loss sharing agreements related to
Non-performing assets as a percentage of total
the Bank’s four FDIC-assisted acquisitions from
assets were 0.63% at December 31, 2017, com-
2009 through 2012. In April 2016, the Company
pared to 0.86% at December 31, 2016. Total net
executed an agreement with the FDIC to
charge-offs were $10.0 million during 2017.
terminate loss sharing agreements related to
Approximately $6.1 million of the $10.0 million
the FDIC-assisted acquisitions of TeamBank,
of net charge-offs were in the consumer auto
Vantus Bank and Sun Security Bank.
category. Four commercial loan relationships,
which were originated prior to 2008, made up
Our core net interest margin for the year ended
$2.5 million of the net charge-off total in 2017.
December 31, 2017, decreased by two basis
In response to a more challenging consumer
31, 2016. The core net interest margin excludes
credit environment, the Company tightened its
the impact of the additional yield accretion
points compared to the year ended December
recognized in conjunction with updated
estimates of the fair value of the loan pools
acquired in FDIC-assisted transactions. Expense
containment remains a major focus for the
Company. Total non-interest expenses were
$114.2 million in 2017 compared to $120.2
In December 2017, the new federal tax reform
legislation was signed into law. We expect the
tax reform package to have positive implications
for the U.S. economy, which we anticipate will
benefit the banking industry, including Great
Southern. Included with the tax reform, the
corporate federal income tax rate was perma-
nently lowered to 21% from the prior maximum
rate of 35%, effective for tax years commencing
January 1, 2018. We currently expect our
effective tax rate (combined federal and state) to
decrease from approximately 26.7% in 2017 to
approximately 15.5% to 17.5% in 2018, mainly as
a result of the lower federal corporate tax rate.
Our effective income tax rate is expected to
continue to be less than the statutory rate due
primarily to investments in low-income housing
tax credit projects and tax-exempt obligations.
The effective tax rate could change in future
periods based on changes in the level of invest-
ments in tax credit projects and tax-exempt
obligations, as well as changes in the level of
overall pre-tax earnings.
It is our pleasure to present our 2017 Annual
Report entitled Greater Expectations. The theme
of Greater Expectations underscores our Com-
pany’s desire to keep raising the bar to make
Great Southern the bank of choice for custom-
ers and the investment of choice for investors.
In 2017, as in every year, we challenged
ourselves on many fronts to make Great South-
ern an even better company for those we serve.
We also understand that those we serve have a
similar view; they place greater expectations on
us to serve their needs with better products and
services, delivered when, where and how they
desire.
In the following pages of our Annual Report, we
provide you with highlights that showcase just
a few examples of the work that we are doing to
build customer relationships and to improve our
Company. In 2017, you will see that we focused
on improving our products and enhancing our
delivery channels, especially in our suite of
Mobile Banking services and ATM capabilities.
Key technological upgrades, which included a
new stream-lined commercial lending platform
and a state-of-the-art debit card fraud preven-
tion system, were also implemented to benefit
our customers.
Another major 2017 project was the roll-out of
a company-wide process improvement initia-
tive we call Process Matters. Using the principles
and tested methodology of Lean Six Sigma,
Process Matters cross-functional teams in
specific process workshops evaluate current
We are pleased with the performance of our
end-to-end processes and identify issues that
Company in 2017. We’ll provide a general
could cause inefficiencies or delays for our
summary here, but we invite you to review the
customers. To date, several operational process-
financial information in this Annual Report, or in
es have been reworked. Outcomes for each
our other Company filings.
workshop have been impressive resulting in
reduced customer wait times, decreased
Earnings for the year ended December 31, 2017,
internal costs and overall increased efficiency.
were $51.6 million, or $3.64 per diluted common
We are equally impressed with how our associ-
share. Return on average common equity was
ates have embraced Process Matters and their
11.32%, return on average assets was 1.16%, and
motivation to make Great Southern work better
net interest margin was 3.74%. The Company
for our customers.
ended the year with assets of $4.4 billion. Total
stockholders’ equity was $471.7 million, or 10.7%
In 2017, we also focused on better and more
of assets, equivalent to a book value of $33.48
comprehensive training programs for our
per common share.
associates, whether in a traditional classroom
setting or through online methods. We are
During 2017, we experienced strong commercial
strongly committed to provide our associates
and construction loan production, solid credit
the tools and knowledge they need to success-
quality, a stable core net interest margin, and
fully fulfill the requirements of their current
consistent expense containment. For the
position with the Company and to progress in
second year in a row, our commercial lenders
their career.
originated more than $1 billion in new loans.
Total gross loans, including the undisbursed
Finally, you will see in this Annual Report some
portion of loans and excluding FDIC-assisted
illustrations of the work we do to help our
acquired loans and mortgages held for sale,
communities be even greater places to live,
increased $248.9 million, or 6.1%, from the end
work and play. We share this information about
of 2016. This increase was partially offset by
our work and investments not to be self-pro-
expected decreases in the consumer loan
moting, but to showcase just a few of the
portfolio (down about $144 million) and one- to
endless possibilities of how we all can work
four-family residential loans. Outstanding loan
together to address community needs.
balances were also negatively impacted by
significant loan payoffs during 2017, resulting in
our outstanding loan balance at the end of 2017
being down slightly from the end of 2016.
Total loan production occurred across several
loan types, primarily multi-family loans, com-
mercial real estate loans, and commercial
construction loans and came from most of
Great Southern’s primary lending locations,
including St. Louis, Kansas City, Tulsa, Dallas,
Chicago, Minneapolis, and Springfield. Since the
end of 2016, our largest increases in outstand-
ing balances by loan type were in non-specula-
tive commercial construction loans at $101
million, multi-family residential mortgages at
$67 million, and commercial real estate loans at
$55 million. While loan production was strong
in 2017, it was not produced by succumbing to
price pressures or other competitive forces. Our
underwriting criteria remains conservative and
we grow the loan portfolio one quality relation-
ship at a time. It is important to note that our
overall loan growth will not occur evenly over
time. There will be years that economic condi-
tions and the competitive landscape will allow
for stronger growth, and years where growth
may not be so robust. What will remain
constant is our commitment to conduct our
credit activities with a long-term view and the
interest of our stockholders in mind.
Credit quality continued to improve in 2017. At
December 31, 2017, non-performing assets,
excluding FDIC-acquired non-performing
assets, were $27.8 million, a decrease of $11.5
million from $39.3 million at December 31, 2016.
Non-performing assets as a percentage of total
assets were 0.63% at December 31, 2017, com-
pared to 0.86% at December 31, 2016. Total net
charge-offs were $10.0 million during 2017.
Approximately $6.1 million of the $10.0 million
of net charge-offs were in the consumer auto
category. Four commercial loan relationships,
which were originated prior to 2008, made up
$2.5 million of the net charge-off total in 2017.
In response to a more challenging consumer
credit environment, the Company tightened its
underwriting guidelines on automobile lending
in the latter part of 2016. Management took this
step in an effort to improve credit quality in the
portfolio and lower delinquencies and
charge-offs. Charge-offs in the auto loan
portfolio that occurred during 2017 were
primarily related to loans originated prior to the
change in underwriting guidelines. This change
in underwriting also resulted in a lower level of
origination volume and, as such, the outstand-
ing balance of the Company's automobile loans
declined approximately $144 million in the year
ended December 31, 2017. We expect to see
further declines in the automobile loan totals
through 2018 as well.
Also, in 2017, the Company executed an agree-
ment with the Federal Deposit Insurance
Corporation (FDIC) to terminate the loss
sharing agreements related to the 2012
FDIC-assisted acquisition of Maple Grove,
Minn.-based Inter Savings Bank. The termina-
tion of the loss sharing agreements for the Inter
Savings Bank transaction have 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 be recog-
nized entirely by Great Southern Bank since the
FDIC will no longer be sharing in such gains or
losses. This agreement terminated the last
outstanding loss sharing agreements related to
the Bank’s four FDIC-assisted acquisitions from
2009 through 2012. In April 2016, 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.
Our core net interest margin for the year ended
December 31, 2017, decreased by two basis
points compared to the year ended December
31, 2016. The core net interest margin excludes
the impact of the additional yield accretion
5
recognized in conjunction with updated
estimates of the fair value of the loan pools
acquired in FDIC-assisted transactions. Expense
containment remains a major focus for the
Company. Total non-interest expenses were
$114.2 million in 2017 compared to $120.2
million in 2016.
In December 2017, the new federal tax reform
legislation was signed into law. We expect the
tax reform package to have positive implications
for the U.S. economy, which we anticipate will
benefit the banking industry, including Great
Southern. Included with the tax reform, the
corporate federal income tax rate was perma-
nently lowered to 21% from the prior maximum
rate of 35%, effective for tax years commencing
January 1, 2018. We currently expect our
effective tax rate (combined federal and state) to
decrease from approximately 26.7% in 2017 to
approximately 15.5% to 17.5% in 2018, mainly as
a result of the lower federal corporate tax rate.
Our effective income tax rate is expected to
continue to be less than the statutory rate due
primarily to investments in low-income housing
tax credit projects and tax-exempt obligations.
The effective tax rate could change in future
periods based on changes in the level of invest-
ments in tax credit projects and tax-exempt
obligations, as well as changes in the level of
overall pre-tax earnings.
It is our pleasure to present our 2017 Annual
Report entitled Greater Expectations. The theme
of Greater Expectations underscores our Com-
pany’s desire to keep raising the bar to make
Great Southern the bank of choice for custom-
ers and the investment of choice for investors.
In 2017, as in every year, we challenged
ourselves on many fronts to make Great South-
ern an even better company for those we serve.
We also understand that those we serve have a
similar view; they place greater expectations on
us to serve their needs with better products and
services, delivered when, where and how they
desire.
In the following pages of our Annual Report, we
provide you with highlights that showcase just
a few examples of the work that we are doing to
build customer relationships and to improve our
Company. In 2017, you will see that we focused
on improving our products and enhancing our
delivery channels, especially in our suite of
Mobile Banking services and ATM capabilities.
Key technological upgrades, which included a
new stream-lined commercial lending platform
and a state-of-the-art debit card fraud preven-
tion system, were also implemented to benefit
our customers.
Another major 2017 project was the roll-out of
a company-wide process improvement initia-
tive we call Process Matters. Using the principles
and tested methodology of Lean Six Sigma,
Process Matters cross-functional teams in
specific process workshops evaluate current
We are pleased with the performance of our
end-to-end processes and identify issues that
Company in 2017. We’ll provide a general
could cause inefficiencies or delays for our
summary here, but we invite you to review the
customers. To date, several operational process-
financial information in this Annual Report, or in
es have been reworked. Outcomes for each
our other Company filings.
workshop have been impressive resulting in
reduced customer wait times, decreased
Earnings for the year ended December 31, 2017,
internal costs and overall increased efficiency.
were $51.6 million, or $3.64 per diluted common
We are equally impressed with how our associ-
share. Return on average common equity was
ates have embraced Process Matters and their
11.32%, return on average assets was 1.16%, and
motivation to make Great Southern work better
net interest margin was 3.74%. The Company
for our customers.
ended the year with assets of $4.4 billion. Total
stockholders’ equity was $471.7 million, or 10.7%
In 2017, we also focused on better and more
of assets, equivalent to a book value of $33.48
comprehensive training programs for our
per common share.
associates, whether in a traditional classroom
setting or through online methods. We are
During 2017, we experienced strong commercial
strongly committed to provide our associates
and construction loan production, solid credit
the tools and knowledge they need to success-
quality, a stable core net interest margin, and
fully fulfill the requirements of their current
consistent expense containment. For the
position with the Company and to progress in
second year in a row, our commercial lenders
their career.
originated more than $1 billion in new loans.
Total gross loans, including the undisbursed
Finally, you will see in this Annual Report some
portion of loans and excluding FDIC-assisted
illustrations of the work we do to help our
acquired loans and mortgages held for sale,
communities be even greater places to live,
increased $248.9 million, or 6.1%, from the end
work and play. We share this information about
of 2016. This increase was partially offset by
our work and investments not to be self-pro-
expected decreases in the consumer loan
moting, but to showcase just a few of the
portfolio (down about $144 million) and one- to
endless possibilities of how we all can work
four-family residential loans. Outstanding loan
together to address community needs.
balances were also negatively impacted by
significant loan payoffs during 2017, resulting in
our outstanding loan balance at the end of 2017
being down slightly from the end of 2016.
Total loan production occurred across several
underwriting guidelines on automobile lending
loan types, primarily multi-family loans, com-
in the latter part of 2016. Management took this
mercial real estate loans, and commercial
step in an effort to improve credit quality in the
construction loans and came from most of
portfolio and lower delinquencies and
Great Southern’s primary lending locations,
charge-offs. Charge-offs in the auto loan
including St. Louis, Kansas City, Tulsa, Dallas,
portfolio that occurred during 2017 were
Chicago, Minneapolis, and Springfield. Since the
primarily related to loans originated prior to the
end of 2016, our largest increases in outstand-
change in underwriting guidelines. This change
ing balances by loan type were in non-specula-
in underwriting also resulted in a lower level of
tive commercial construction loans at $101
origination volume and, as such, the outstand-
million, multi-family residential mortgages at
ing balance of the Company's automobile loans
$67 million, and commercial real estate loans at
declined approximately $144 million in the year
$55 million. While loan production was strong
ended December 31, 2017. We expect to see
in 2017, it was not produced by succumbing to
further declines in the automobile loan totals
price pressures or other competitive forces. Our
through 2018 as well.
underwriting criteria remains conservative and
we grow the loan portfolio one quality relation-
Also, in 2017, the Company executed an agree-
ship at a time. It is important to note that our
ment with the Federal Deposit Insurance
overall loan growth will not occur evenly over
Corporation (FDIC) to terminate the loss
time. There will be years that economic condi-
sharing agreements related to the 2012
tions and the competitive landscape will allow
FDIC-assisted acquisition of Maple Grove,
for stronger growth, and years where growth
Minn.-based Inter Savings Bank. The termina-
may not be so robust. What will remain
tion of the loss sharing agreements for the Inter
constant is our commitment to conduct our
Savings Bank transaction have no impact on
credit activities with a long-term view and the
the yields for the loans that were previously
interest of our stockholders in mind.
covered under these agreements. All future
recoveries, gains, losses and expenses related to
Credit quality continued to improve in 2017. At
these previously covered assets will be recog-
December 31, 2017, non-performing assets,
nized entirely by Great Southern Bank since the
excluding FDIC-acquired non-performing
FDIC will no longer be sharing in such gains or
assets, were $27.8 million, a decrease of $11.5
losses. This agreement terminated the last
million from $39.3 million at December 31, 2016.
outstanding loss sharing agreements related to
Non-performing assets as a percentage of total
the Bank’s four FDIC-assisted acquisitions from
assets were 0.63% at December 31, 2017, com-
2009 through 2012. In April 2016, the Company
pared to 0.86% at December 31, 2016. Total net
executed an agreement with the FDIC to
charge-offs were $10.0 million during 2017.
terminate loss sharing agreements related to
Approximately $6.1 million of the $10.0 million
the FDIC-assisted acquisitions of TeamBank,
of net charge-offs were in the consumer auto
Vantus Bank and Sun Security Bank.
category. Four commercial loan relationships,
which were originated prior to 2008, made up
Our core net interest margin for the year ended
$2.5 million of the net charge-off total in 2017.
December 31, 2017, decreased by two basis
In response to a more challenging consumer
31, 2016. The core net interest margin excludes
credit environment, the Company tightened its
the impact of the additional yield accretion
points compared to the year ended December
Greater expectations
in 2018 and beyond
recognized in conjunction with updated
estimates of the fair value of the loan pools
acquired in FDIC-assisted transactions. Expense
containment remains a major focus for the
Company. Total non-interest expenses were
$114.2 million in 2017 compared to $120.2
million in 2016.
In December 2017, the new federal tax reform
legislation was signed into law. We expect the
tax reform package to have positive implications
for the U.S. economy, which we anticipate will
benefit the banking industry, including Great
Southern. Included with the tax reform, the
corporate federal income tax rate was perma-
nently lowered to 21% from the prior maximum
rate of 35%, effective for tax years commencing
January 1, 2018. We currently expect our
effective tax rate (combined federal and state) to
decrease from approximately 26.7% in 2017 to
approximately 15.5% to 17.5% in 2018, mainly as
a result of the lower federal corporate tax rate.
Our effective income tax rate is expected to
continue to be less than the statutory rate due
primarily to investments in low-income housing
tax credit projects and tax-exempt obligations.
The effective tax rate could change in future
periods based on changes in the level of invest-
ments in tax credit projects and tax-exempt
obligations, as well as changes in the level of
overall pre-tax earnings.
In 2018, we mark a milestone anniversary by
celebrating 95 years of service. Just like we have
since the day we were founded in 1923, we will
approach 2018 and beyond by capitalizing on
our strengths and preparing for challenges that
lie ahead. The current U.S. economic expansion
is already more than 100 months long, the
longest expansion since World War II. The
length of this expansion and the stated intent of
the Federal Reserve Board to increase
short-term interest rates creates a fair amount
of uncertainty as to how much longer this
expansion can endure. As such, we must be
positioned to mitigate risks associated with the
present rising rate environment and the possi-
bility of a falling interest rate environment at any
time. Mitigating the risks of fluctuating interest
rates is a normal function of our asset and
liability management; the uniqueness of current
economic conditions makes it more interesting
and challenging. The Company’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. Strate-
gies for rising and falling rate scenarios are in
place and reviewed continually.
Our priorities in 2018 are straight-forward and
consistent with previous years’ priorities. We will
maintain a sharp focus on developing and
expanding customer relationships, sustain a
strong credit discipline and drive operational
6
efficiencies. 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 struc-
ture. We are exploring opportunities to open
additional loan production offices in metropoli-
tan markets, if the right local talent can be
found. 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 com-
mensurate growth in our expense base. We
anticipate that increased competition for
deposits to support loan demand and the
possibility of rising interest rates will create a
more challenging funding environment. Again,
the size and scope of our Company should
prove advantageous.
In 2018, we already have several major improve-
ment initiatives in motion. We are developing a
new deposit platform for our banking centers to
enhance the account opening experience for
our customers. A new and upgraded Online
Banking platform will be launched in late 2018,
which will provide our Online Banking custom-
ers with a better and more user-friendly experi-
ence. In addition, a new centralized call center
for all product lines will be implemented so that
our customers will have one place to call for
assistance for any of their banking needs.
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 with the access 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 stockholders, 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 that could hurt the long-term pros-
pects for our Company. Finally, we owe a debt
of gratitude to our Board of Directors for their
guidance and support. We value the diversity of
talent, knowledge and experience that our
Board members bring to Great Southern.
Thank you for your support of Great Southern.
We look to the future with greater expectations.
We invite your feedback at any time.
Sincerely yours,
In 2018, we mark a milestone anniversary by
celebrating 95 years of service. Just like we have
since the day we were founded in 1923, we will
approach 2018 and beyond by capitalizing on
our strengths and preparing for challenges that
lie ahead. The current U.S. economic expansion
is already more than 100 months long, the
longest expansion since World War II. The
length of this expansion and the stated intent of
the Federal Reserve Board to increase
short-term interest rates creates a fair amount
of uncertainty as to how much longer this
expansion can endure. As such, we must be
positioned to mitigate risks associated with the
present rising rate environment and the possi-
bility of a falling interest rate environment at any
time. Mitigating the risks of fluctuating interest
rates is a normal function of our asset and
liability management; the uniqueness of current
economic conditions makes it more interesting
and challenging. The Company’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. Strate-
gies for rising and falling rate scenarios are in
place and reviewed continually.
Our priorities in 2018 are straight-forward and
consistent with previous years’ priorities. We will
maintain a sharp focus on developing and
expanding customer relationships, sustain a
strong credit discipline and drive operational
efficiencies. 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 struc-
ture. We are exploring opportunities to open
additional loan production offices in metropoli-
tan markets, if the right local talent can be
found. 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 com-
mensurate growth in our expense base. We
anticipate that increased competition for
deposits to support loan demand and the
possibility of rising interest rates will create a
more challenging funding environment. Again,
the size and scope of our Company should
prove advantageous.
In 2018, we already have several major improve-
ment initiatives in motion. We are developing a
new deposit platform for our banking centers to
enhance the account opening experience for
our customers. A new and upgraded Online
Banking platform will be launched in late 2018,
which will provide our Online Banking custom-
ers with a better and more user-friendly experi-
ence. In addition, a new centralized call center
for all product lines will be implemented so that
our customers will have one place to call for
assistance for any of their banking needs.
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 with the access 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 stockholders, we desire to provide
We must continually work
to remain relevant to our
customers and to compete
in an ever-increasing
competitive landscape.
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 that could hurt the long-term pros-
pects for our Company. Finally, we owe a debt
of gratitude to our Board of Directors for their
guidance and support. We value the diversity of
talent, knowledge and experience that our
Board members bring to Great Southern.
Thank you for your support of Great Southern.
We look to the future with greater expectations.
We invite your feedback at any time.
Sincerely yours,
William V. Turner
Joseph W. Turner
7
POSITIVE
results
LEGACY LOAN
PORTFOLIO
$3.57B*
Commercial lending achieved another record
year for production, originating $1.26 billion in
loans during 2017. We saw strong growth in the
commercial real estate, multi-family real estate
and commercial construction and land develop-
ment areas. We’re excited about the future
growth potential in all of our markets and
confident that our experienced commercial
lending teams will continue building strong
relationships with existing and potential clients.
Financing
UP
10.4%
Multi-family
Real Estate
$713M
Commercial
Real Estate
$1.22B
UP
26.8%
Single
Family
$318M
Consumer*
$536M
Commercial
Business
$281M
Const &
Land Dev
$480M
Bonds
$22M
UP
4.7%
*Includes
Home Equity
Loans of
$115,439
affordable places for living and attractive places for working
The Chicago team surpassed their first year’s
production goal and financed several commer-
cial real estate projects. One example is the
acquisition and renovation of a 200,000+
square foot, 11-story office building in Schaum-
burg, Ill., just 26 miles northwest of downtown
Chicago. The developer plans to update this
building to position it as an attractive place to
do business and increase occupancy.
We financed a 48-unit apartment building
project in Ankeny, Iowa, which includes 43
units that are earmarked for senior citizens
whose income is at or below 60% of the area’s
median income. A 42-unit duplex community
in Ozark, Mo., was also financed and offers 33
units for low to moderate income families
earning at or below 60% of the area’s median
income.
We recognize the need for affordable housing
in many of our communities and are commit-
ted to providing financing for these types of
developments in the future.
8
RECORD YEAR
$1.26 B
COMMERCIAL LENDING PRODUCTION
$166+
MILLION
Minneapolis
First year
STRONG START
Chicago
$55+
MILLION
Other
markets
$200+
MILLION
$159+
MILLION
Kansas City
Tulsa
$163+
MILLION
LENDING
STRENGTH
MORE THAN
DOUBLED
production goal
Dallas
$190+
MILLION
St. Louis
$289+
MILLION
Better process, better time
n.Cino
We started a process improvement
initiative, called Process Matters, to
enhance our customer experience
and overall process efficiency. The
commercial loan approval process
was examined during an improve-
ment workshop and inefficiencies
were corrected. As a result, the
average commercial loan approval
time frame was reduced by nearly
50% without sacrificing our strong
credit discipline or oversight by the
Bank’s Loan Committee.
n.Cino is a cloud-based
lending platform that will
provide a streamlined
application-to-closing
experience. This platform
will reduce our redundant
and inefficient efforts, allow
us to better analyze applica-
tion data and provide better
communication between
our lending team and
borrowers.
TWICE
AS FAST
RAISING
our own bars
Stronger fraud protection
Fraud prevention is top of mind for our Compa-
ny. In 2016, we experienced one of our worst
years in debit card fraud losses. Several major
merchant breaches and widespread regional
fraud activity played primary roles in net losses
of more than $1.56 million.
In response, we introduced Chip Debit Cards
and Fraud Watch, a new, sophisticated fraud
prevention system. We’ve seen incredible results
with both Chip Debit Card and Fraud Watch in
place; our net debit card fraud losses decreased
by 73% to $415,000, despite again experiencing
multiple merchant breaches throughout the
year.
As we continue to fine tune the Fraud Watch
system, we’re able to better identify potentially
fraudulent transactions and minimize the
negative impact to our customers. We’ve heard
positive feedback about these security features.
MOBILE
CHECK
DEPOSIT
UP 30%
NET LOSSES
DOWN
$1.1M+
73% DECREASE
More Mobile Banking
Our Mobile Banking services are a part of what
makes banking with us easy and convenient.
Almost 5,000 new users enrolled in Mobile
Check Deposit (MCD) in 2017, and all MCD
users completed 114,515 transactions – an
increase of 30% from MCD transactions in
2016. We integrated Send Money, a
person-to-person payment service, into our
Mobile Banking app; with a few taps, our
customers can send funds to any mobile
phone number or email address instantly.
10
Building it better
ourselves
We continue to identify ways to
improve the customer experience. By
investing in associates with the skills to
develop customized programs, we’re
making it easier and even more secure
to bank with Great Southern.
Improving
experience
Expanding
expertise
CUSTOM
BUILT
MORE
CLASSES
BETTER
TRACKING
Dispute
Manager
When customers have unauthorized transactions on
their account, we want our dispute process to be
simple and efficient. When we couldn’t find a program
that fit our needs and wants, we developed our own
internally. Dispute Manager is customized to our
Company and streamlines the process so we can
provide credit to our customers faster.
CUSTOM
BUILT
LOWER
EXPENSES
FASTER
RESOLUTION
HAPPIER
CUSTOMERS
Training
upgrade
Associate training is essential to providing excellent
customer service. Genius, our new interactive
training portal, allows us to develop courses
internally which are personalized to our processes
and systems, integrates professional courses that
offer certification opportunities for our associates and
documents all training completed externally. By
having an holistic view of an associate’s training
history, we are positioned to better understand their
strengths and place them in roles where they can
best assist customers.
Delivering
MORE
We’re focused on continuing to
build stronger relationships with
our customers so we can better
understand their financial needs.
Above and beyond,
every time
Lauren Vogeler, our manager in Olathe, Kan., is
more than just a banker for her customers. In
October, Lauren completed a full financial
review for an individual and discovered she was
behind on many of her bills and at risk of losing
her home. Lauren developed a budgeting
financial plan to get this customer back on track
and they spoke weekly for several months to
discuss which bills to pay and how much
money was available for spending.
As of February 2018, this customer is current on
her mortgage payments and other bills because
she followed the plan. Based on what she
learned about budgeting and finances, they no
longer speak weekly – she felt comfortable
I’m thankful for a career
that allows me to make a
difference by helping people
with their finances. I care
about my customers and
want them to succeed.
Lauren Vogeler
enough to take over her finances alone. She
knows Lauren is available if help or advice is
needed in the future. Lauren gives all credit to
her customer, saying, “All I can do is make
suggestions. It’s up to them to follow that
advice and this customer did.”
Community Hero
Home Loan program
This home loan program offers special benefits
to all active and retired law enforcement
officers, firefighters, EMTs, nurses and educa-
tors. We appreciate these everyday heroes
who make our communities safer, stronger
and more prosperous places to live. It’s one
way we can return the favor.
12
building a better
HELOC
We introduced a new Home Equity Line of
Credit (HELOC) in September. Our goal was
to create a HELOC that was both more
efficient and affordable for our customers.
To do so, we changed how we obtain the
value of a home, which lowered fees and
expedited the valuation process. Our low,
fixed introductory rate for the first 24 months
is competitive and exceeds the average term
of our competitors’ introductory rates.
LONGER INTRO TERM
LOWER FEES
DEPOSIT
ATMS
$11.7M
170
new lines
new lines with
new and existing
customers
AS OF DEC 31, 2017
Future potential
More appealing products
Expanding access
More convenience
24 hr
DEPOSITS
We identified 70 outdated ATMs throughout our footprint and
began replacing them during the third quarter of 2017 and
continued into 2018. The replacement model selected provides
updated technology, including deposit capabilities, which
offers our customers the ability to complete transactions
beyond our banking center hours.
DIGITAL Wallet
We now offer all four digital wallet services: Apple
Pay, Google Pay, Samsung Pay and Masterpass.
These digital wallets provide our customers with
the convenience of paying for purchases, using
their Great Southern Debit Card, through their
mobile device.
HIGHER
standards
We want to do more than donate time and
money; we aim to make a meaningful impact.
Associates at all levels are empowered to get
involved with organizations and projects that fit
their passion and meet the needs of their
communities.
Perfect example:
Lynn Hinkle
Our annual Bill and Ann Turner Distinguished
Community Service Award honors an
outstanding associate who demonstrates
excellence in service to their community. The
2018 recipient was Lynn Hinkle, regional
banking center manager from Lee’s Summit,
Mo. Lynn’s leadership by example and willing-
ness to improve her community demonstrates
the true spirit of this award. Lynn donates her
time to several organizations, including Lee’s
Summit Cares, a group dedicated to helping
women rebuild and improve their lives. Lynn
teaches financial education and conducts mock
interviews for these women who want to
reenter the workforce.
No matter how small an act
of service may seem, it can
have an incredible impact on
someone’s life.”
Lynn Hinkle
Volunteerism is so deeply rooted in her
character that it comes naturally for Lynn to
motivate those around her to find their
passion. She sees the value in teamwork and
regularly steps in to run a banking center so
the entire staff can volunteer together.
combined impact
VOLUNTEER
HOURS
ASSOCIATE
DONATIONS
CORPORATE DONATIONS
& SPONSORSHIPS
ORGANIZATIONS
BENEFITED
8,800+ $94,000+
$1,000,000+
700+
14
Teachers for a day,
lessons for life
We participate in the American
Bankers Association’s Teach
Children to Save and Get Smart
About Credit programs for elemen-
tary and high school students.
Through this partnership, our
bankers present fun, interactive
lessons to local schools and
non-profit organizations to help
young people understand financial
concepts like saving, budgeting
and credit.
150+ PRESENTATIONS
3,500+ STUDENTS
REACHED
HURRICANE &
FLOOD RELIEF
Several of our communities experienced
significant devastation from flooding related to
storms and hurricanes. In addition to working
locally with our customers and associates
affected by the flooding, our donation of
$30,000 to the American Red Cross helped
provide food, water, clothing, medical supplies
and damage assessments for victims. We also
collected more than $6,000 in donations from
our communities and associates.
$30,000
DONATED
$6,000+
RAISED
CORE 4
Examples of how we focus our efforts and funds:
Education
Health & Human Services
Community & Economic
Development
Arts & Culture
Helping with
homeownership
We recently started a new partnership with
Neighborhood Finance Corporation (NFC), a
group that provides unique lending options to
facilitate neighborhood revitalization in the
Des Moines, Iowa area. NFC introduced a new
down payment assistance program for home-
buyers called Project Reinvest. As a new
Project Reinvest approved lender, we look
forward to offering this down payment
assistance program to applicable customers!
20,000
140
ATTENDEES
ARTISTS
BOOSTING ARTISTS
& ECONOMIES
As the title sponsor of Artsfest, the largest
fine arts festival in southwest Missouri,
our investment supports arts and culture
in the region while also promoting
economic growth. More than 20,000
patrons browse artwork, enjoy live
performances and indulge in a variety of
local culinary all on Historic Walnut
Street in Springfield, Mo. Revenue from
the event supports the Springfield
Regional Arts Council, whose mission is
to transform lives and enrich the commu-
nity through the arts. Many area
associates also volunteer during the
weekend event.
Great Southern Bancorp, Inc.
Directors
Left to right:
Earl A. Steinert, Jr. Board Member, Co-owner, EAS Investment, Enterprises, Inc.; CPA
Kevin R. Ausburn Board Member, Chairman and CEO, SMC Packaging Group
Julie Turner Brown Board Member, Shareholder, Carnahan, Evans, Cantwell & Brown, P.C.
Larry D. Frazier Board Member, Retired – Hollister, Mo.
William V. Turner Chairman of the Board
Joseph W. Turner President and Chief Executive Officer
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
Thomas J. Carlson Board Member, President, Mid America Management, Inc.
16
Great Southern Bank
Leadership Team
Kevin Baker* Chief Credit Officer
Tammy Baurichter Controller
John Bugh* Chief Lending Officer
Kris Conley Director of Retail Banking
Rex Copeland* Chief Financial Officer
Debbie Flowers Director of Credit Risk Administration
Doug Marrs* Director of Operations
Kelly Polonus Director of Communications and Marketing
Lin Thomason* Director of Information Services
Bryan Tiede Director of Risk Management
Joseph W. Turner* President and Chief Executive Officer
Matt Snyder Director of Human Resources
*Denotes Executive Officer
16
Selected Financial Data
The tables on pages 18, 19 and 20 set forth selected consolidated financial information and other
financial data of the Company. The summary statement of financial condition information and
statement of operations information are derived from our consolidated financial statements, which
have been audited by BKD, LLP. See Item 6. “Selected Financial Data,” Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8. “Financial
Statements and Supplementary Information” in the Company’s Annual Report on Form 10-K.
Results for past periods are not necessarily indicative of results that may be expected for any future
period.
Summary Statement of
Financial Condition
Information:
Assets
Loans receivable, net
Allowance for loan losses
Available-for-sale securities
Other real estate and
repossessions, 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
2017
2016
2015
2014
2013
December 31,
(Dollars in Thousands)
$4,414,521
3,734,505
36,492
179,179
$4,550,663
3,776,411
37,400
213,872
$4,104,189
3,352,797
38,149
262,856
$3,951,334
3,053,427
38,435
365,506
$3,560,250
2,446,769
40,116
555,281
22,002
3,597,144
324,097
471,662
471,662
3,814,560
4,460,196
3,598,579
455,704
230,456
104
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
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
45,838
2,990,840
514,014
53,514
2,808,626
343,795
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
18
19
Summary Statement of Operations Information:
Interest income:
Loans
Investment securities and other
For the Year Ended December 31,
2017
2016
2015
(In Thousands)
2014
2013
$ 176,654 $ 178,883 $ 177,240 $ 172,569 $ 163,903
14,892
178,795
10,793
183,362
6,407
183,061
7,111
184,351
6,292
185,175
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
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain recognized on business acquisitions
Gain (loss) on termination of loss sharing agreements
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 and repossessions
Partnership tax credit investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
Income before income taxes
Provision for income taxes
Net income
Preferred stock dividends and discount accretion
Net income available to common shareholders
18
19
20,595
1,516
747
949
4,098
27,905
155,156
9,100
146,056
17,387
1,214
1,137
803
1,578
22,119
163,056
9,281
153,775
13,511
1,707
65
714
—
15,997
168,354
5,519
162,835
1,097
21,666
3,941
2,873
1,747
66
—
(584 )
1,136
19,841
3,888
2
2,129
(43 )
—
—
1,041
21,628
3,150
—
2,231
28
—
7,705
(486 )
3,230
38,527
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
—
—
(6,351 )
4,055
28,510
(18,345 )
4,973
13,581
(27,868 )
4,229
14,731
(25,260 )
4,566
5,315
60,034
24,613
3,461
2,959
2,311
1,446
3,188
2,862
3,929
930
1,650
6,878
114,261
70,322
18,758
51,564
—
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
579
$ 51,564 $ 45,342 $ 45,948 $ 42,950 $ 33,150
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
579
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
62,066
15,564
46,502
554
Per Common Share Data:
Basic earnings per common share
Diluted earnings 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,
2017
2016
2015
2014
2013
(Number of shares in thousands)
$ 3.67
3.64
0.94
33.48
14,032
14,088
14,180
$ 3.26
3.21
0.88
30.77
13,912
13,968
14,141
$ 3.33
3.28
0.86
28.67
13,818
13,888
14,000
$ 3.14
3.10
0.80
26.30
13,700
13,755
13,876
$ 2.43
2.42
0.72
23.60
13,635
13,674
13,715
1.16 %
1.04 %
1.14 %
1.14 %
0.89 %
11.32
0.86
2.56
3.59
3.67
3.74
58.99
1.70
25.82
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
Asset Quality Ratios
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
1.01 %
0.73
324.23
0.26
0.63
0.30
1.04 %
1.02
265.60
0.29
0.86
0.37
1.20 %
1.28
230.24
0.20
1.07
0.49
1.34 %
1.39
471.77
0.24
1.11
0.26
1.92 %
2.46
201.53
0.91
1.75
0.80
Balance Sheet Ratios:
Loans to deposits
Average interest-earning assets as a percentage
Capital Ratios:
Average common stockholders’ equity to average assets
Year-end tangible common stockholders’ equity to
tangible assets(9)
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(10):
Including deposit interest
Excluding deposit interest
103.82 %
123.74
102.70 %
121.33
102.58 %
121.60
102.09 %
120.95
87.12 %
116.03
10.2 %
9.5 %
9.4 %
9.0 %
8.5 %
10.5
11.4
14.1
10.9
10.9
12.3
13.2
11.7
12.3
9.2
10.8
13.6
9.9
10.2
11.8
12.7
10.8
11.8
9.6
11.5
12.6
10.2
10.8
11.0
12.1
9.8
11.0
9.0
13.3
14.5
11.1
—
11.4
12.6
9.5
—
8.9
15.6
16.9
11.3
—
14.2
15.4
10.2
—
3.52 x
10.62 x
3.80 x
14.07 x
4.66 x
20.01 x
4.41 x
11.59 x
3.07 x
6.44 x
(1) Net income divided by average total assets.
(2) Net income divided by average stockholders' equity.
(3) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest income
plus non-interest income.
(6) Non-interest expense less non-interest income divided by
average total assets.
(7) Cash dividends per common share divided by earnings per
(8) Excludes FDIC-acquired assets.
(9) Non-GAAP Financial Measure. For additional information, including
a reconciliation to GAAP, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Non-GAAP
Financial Measures" in the Company's Annual Report on Form 10-K.
(10) 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.
common share.
20
2017
Financial Information
CONTENTS
22 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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) the possibility that the actual reduction in the Company’s effective tax rate expected to result from
H.R. 1, formerly known as the “Tax Cuts and Jobs Act” (the “Tax Reform Legislation”) might be different from the reduction
estimated by the Company; (ii) expected revenues, cost savings, earnings accretion, synergies and other benefits from the
Company's merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties
relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (iii)
changes in economic conditions, either nationally or in the Company's market areas; (iv) fluctuations in interest rates; (v) the risks of
lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in
estimates of the adequacy of the allowance for loan losses; (vi) the possibility of other-than-temporary impairments of securities held
in the Company's securities portfolio; (vii) the Company's ability to access cost-effective funding; (viii) fluctuations in real estate
values and both residential and commercial real estate market conditions; (ix) demand for loans and deposits in the Company's market
areas; (x) 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 of 2010 and its implementing regulations, the overdraft protection regulations and customers' responses thereto and the Tax
Reform Legislation; (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 limit its business activities, changes its business mix, increase its allowance for loan losses, write-down assets
or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its
liquidity and earnings; (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.
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 2017 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, prior to June 30, 2017, the FDIC indemnification asset reflect management’s best ongoing estimates of the
amounts to be realized on each of these assets. The Company has now terminated all loss sharing agreements with the FDIC and,
accordingly, no longer has an indemnification asset. 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 its acquired loan 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 did not expect to 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 was generally 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
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,
2017, the Company has one reporting unit to which goodwill has been allocated – the Bank. If the fair value of a reporting unit
exceeds its carrying value, then no impairment is recorded. If the carrying value amount exceeds the fair value of a reporting unit,
further testing is completed comparing the implied fair value of the reporting unit’s goodwill to its carrying value to measure the
amount of impairment. Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair
values of those assets to their carrying values. At December 31, 2017, 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, 2017, the amortizable intangible assets consisted of core deposit intangibles of $5.4 million, including $3.2
million related to the Fifth Third Bank transaction in January 2016, $1.4 million related to the Valley Bank transaction in June 2014
and $397,000 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.
1
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2
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 2017 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, prior to June 30, 2017, the FDIC indemnification asset reflect management’s best ongoing estimates of the
amounts to be realized on each of these assets. The Company has now terminated all loss sharing agreements with the FDIC and,
accordingly, no longer has an indemnification asset. 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 its acquired loan 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 did not expect to 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 was generally 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
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,
2017, the Company has one reporting unit to which goodwill has been allocated – the Bank. If the fair value of a reporting unit
exceeds its carrying value, then no impairment is recorded. If the carrying value amount exceeds the fair value of a reporting unit,
further testing is completed comparing the implied fair value of the reporting unit’s goodwill to its carrying value to measure the
amount of impairment. Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair
values of those assets to their carrying values. At December 31, 2017, 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, 2017, the amortizable intangible assets consisted of core deposit intangibles of $5.4 million, including $3.2
million related to the Fifth Third Bank transaction in January 2016, $1.4 million related to the Valley Bank transaction in June 2014
and $397,000 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.
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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, 2017. While the Company believes no impairment existed at December 31, 2017, 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
Nationally, approximately one-half of the suburban office markets are in an expansion market cycle -- characterized by decreasing
vacancy rates, moderate/high new construction, high absorption, moderate/high employment growth and medium/high rental rate
growth. The Company’s larger market areas in the suburban office expansion market cycle include Minneapolis, Dallas-Ft. Worth,
and St. Louis. Tulsa, Okla. and Kansas City are currently in the recovery market cycle -- typified by decreasing vacancy rates, low
new construction, moderate absorption, low/moderate employment growth and negative/low rental rate growth. Included in the retail
expansion market segment are the Company’s larger market areas -- Chicago, Minneapolis, Kansas City, Dallas-Ft. Worth, and St.
Louis. All of the Company’s larger industrial market areas are categorized as in the expansion cycle with prospects of continuing
Occupancy, absorption and rental income levels of commercial real estate properties located throughout the Company’s market areas
remain stable according to information provided by real estate services firm CoStar Group. There continues to be moderate real estate
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.
While current economic indicators show improvement nationally in employment, housing starts and prices, commercial real estate
occupancy, absorption and rental rates, our management will continue to closely monitor regional, national and global economic
conditions, as these could significantly impact our market areas.
Following the housing and mortgage crisis and correction beginning in mid-2007, 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 since as indicated by increasing
consumer confidence levels, increased economic activity and low unemployment levels.
The national unemployment rate at December 2017 remained at 4.1% for the third consecutive month. Employment levels continued
at the highest point since December 2000 and the U.S. economy added 148,000 non-farm jobs in December 2017. The health-care,
construction and manufacturing sectors added the most new jobs while the retail store sector showed losses of over 67,000 during
2017, with many retailers going out of business altogether as more people shop online. The U.S. labor force participation rate (the
share of working-age Americans who are either employed or are actively looking for a job) remained steady at 62.7% for the third
consecutive month. As of December 2017, the unemployment rate for the Midwest, where most of the Company’s business is
conducted, was at 4.0%, which is in line with the national unemployment rate of 4.1%. Unemployment rates at December 31, 2017,
for the states in which the Company operates were: Missouri at 3.5%, Arkansas at 3.7%, Kansas at 3.4%, Iowa at 2.8%, Nebraska at
2.7%, Minnesota at 3.1%, Illinois at 4.8%, Oklahoma at 4.1% and Texas at 3.9%. Of the metropolitan areas in which Great Southern
Bank does business, the Chicago area had the highest unemployment level at 4.7% as of December 2017. The Tulsa market area
unemployment rate at 4.0% was down significantly from the 5.0% rate estimated as of June 2017. The December 2017
unemployment rate at 2.8% for the Springfield market area was well below the national average. Metropolitan areas in Arkansas,
Iowa, Nebraska and Minnesota had unemployment levels among the lowest in the nation.
Sales of newly built, single-family homes were at a seasonally adjusted annual rate of 625,000 units in December 2017, according to
the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This represented a decrease of 9.3% from the
revised November rate of 689,000 units, but 14.1% above the December 2016 estimate of 548,000 units. The inventory of new homes
for sale was 295,000 at the end of December 2017, which is a 5.7 month supply at the current sales pace. In the Midwest, new home
sales decreased 3.1% from December 2016 to December 2017. Nationally, the median sales price of new houses sold in December
2017 was $335,400, up from $331,500 in September 2017 and $327,000 a year earlier. The average sales price was $398,900, up from
$379,300 in September 2017 and $382,500 in December 2016.
In December 2017, existing home sales slipped to a seasonally adjusted annual rate of 5.57 million units from 5.78 million in
November. As a whole, sales edged up 1.1% in 2017, which ended up being the best year for sales in 11 years, according to the
National Association of Realtors. The national median existing home price for all housing types was $246,800 in December 2017, up
5.8% from a year ago. This marks the 70th consecutive month of year over year gains as prices reached an all-time high. The
Midwest region existing home median sale price was $191,400, representing an increase of 5.8% from a year ago. Total housing
inventory at the end of December 2017 has dropped for the 31st consecutive month to 1.65 million units; 10.3% lower than a year ago.
Unsold inventory of existing homes as of December 2017 is a 3.2 month supply at the current sales pace, which is down from a 3.6
month supply a year ago.
The multi-family sector rebounded in 2017 after a slowdown in demand in 2016. National vacancy rates were 6.3% while our market
areas reflected the following vacancy levels; Springfield, Mo. at 6.4%, St. Louis at 5.6%, Kansas City at 7.8%, Minneapolis at 4.5%,
Tulsa, Okla. at 11.4%, Dallas-Fort Worth at 7.9% and Chicago at 6.7%. Despite supply-side pressure, rent growth in 2017 had not
slowed materially from the previous year’s pace. Demand reached its highest level on record with transaction value continuing to be
strong, and cap rates appearing to have leveled off. Supply is expected to outpace demand in 2018, putting upward pressure on
vacancies and slowing rent growth.
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good economic growth.
sales and financing activity.
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,
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.
On June 9, 2017, Great Southern Bank executed an agreement with the FDIC to terminate the loss sharing agreements for InterBank,
effective immediately. Pursuant to the termination agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items
related to the terminated loss sharing agreements. The Company recorded a pre-tax gain on the termination of $7.7 million. As a
result of entering into the termination agreement, assets that were covered by the terminated loss sharing arrangements, including
covered loans in the amount of $138.8 million and covered other real estate owned in the amount of $2.9 million as of March 31, 2017,
were reclassified as non-covered assets effective June 9, 2017.
The termination of the loss sharing agreements for the TeamBank, Vantus Bank, Sun Security Bank and InterBank transactions have
no impact on the yields for the loans that were previously covered under these agreements, as the remaining accretable yield
adjustments that affect interest income have not been changed and will continue to be recognized for all FDIC-assisted transactions in
the same manner as they have been previously. 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 future 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. There will be no future effects on non-interest income
(expense) related to adjustments or amortization of the indemnification assets for TeamBank, Vantus Bank, Sun Security Bank or
InterBank. All rights and obligations of the Bank and the FDIC under the terminated loss sharing agreements, including the settlement
of all existing loss sharing and expense reimbursement claims, have been resolved and terminated.
General
income.
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend 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 portfolios, 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
4
Nationally, approximately one-half of the suburban office markets are in an expansion market cycle -- characterized by decreasing
vacancy rates, moderate/high new construction, high absorption, moderate/high employment growth and medium/high rental rate
growth. The Company’s larger market areas in the suburban office expansion market cycle include Minneapolis, Dallas-Ft. Worth,
and St. Louis. Tulsa, Okla. and Kansas City are currently in the recovery market cycle -- typified by decreasing vacancy rates, low
new construction, moderate absorption, low/moderate employment growth and negative/low rental rate growth. Included in the retail
expansion market segment are the Company’s larger market areas -- Chicago, Minneapolis, Kansas City, Dallas-Ft. Worth, and St.
Louis. All of the Company’s larger industrial market areas are categorized as in the expansion cycle with prospects of continuing
good economic growth.
Occupancy, absorption and rental income levels of commercial real estate properties located throughout the Company’s market areas
remain stable according to information provided by real estate services firm CoStar Group. There continues to be moderate real estate
sales and financing activity.
While current economic indicators show improvement nationally in employment, housing starts and prices, commercial real estate
occupancy, absorption and rental rates, 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,
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.
On June 9, 2017, Great Southern Bank executed an agreement with the FDIC to terminate the loss sharing agreements for InterBank,
effective immediately. Pursuant to the termination agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items
related to the terminated loss sharing agreements. The Company recorded a pre-tax gain on the termination of $7.7 million. As a
result of entering into the termination agreement, assets that were covered by the terminated loss sharing arrangements, including
covered loans in the amount of $138.8 million and covered other real estate owned in the amount of $2.9 million as of March 31, 2017,
were reclassified as non-covered assets effective June 9, 2017.
The termination of the loss sharing agreements for the TeamBank, Vantus Bank, Sun Security Bank and InterBank transactions have
no impact on the yields for the loans that were previously covered under these agreements, as the remaining accretable yield
adjustments that affect interest income have not been changed and will continue to be recognized for all FDIC-assisted transactions in
the same manner as they have been previously. 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 future 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. There will be no future effects on non-interest income
(expense) related to adjustments or amortization of the indemnification assets for TeamBank, Vantus Bank, Sun Security Bank or
InterBank. All rights and obligations of the Bank and the FDIC under the terminated loss sharing agreements, including the settlement
of all existing loss sharing and expense reimbursement claims, have been resolved and terminated.
General
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend 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 portfolios, 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.
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In the year ended December 31, 2017, Great Southern's total assets decreased $136.1 million, or 3.0%, from $4.55 billion at December
31, 2016, to $4.41 billion at December 31, 2017. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2017 and December 31, 2016” section.
Loans. In the year ended December 31, 2017, Great Southern's net loans decreased $33.7 million, or 0.9%, from $3.76 billion at
December 31, 2016, to $3.73 billion at December 31, 2017. Contributing to the decrease in loans were reductions of $73.5 million in
the FDIC-acquired loan portfolios. In addition, there were higher than usual unscheduled significant paydowns on loans during 2017.
Total loan paydowns in excess of $1.0 million exceeded $600 million during 2017. Despite this, excluding FDIC-assisted acquired
loans and mortgage loans held for sale, total gross loans increased $248.9 million, or 6.1%, from December 31, 2016 to December 31,
2017. This increase was primarily in construction loans, other residential (multi-family) real estate loans and commercial real estate
loans. These increases were offset by decreases in consumer loans and one- to four-family residential loans. 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
2017 or prior years. The Company's strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate
levels.
Recent loan growth has occurred in several loan types, primarily construction loans, other residential (multi-family) real estate loans
and commercial real estate loans and in 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 Chicago, Dallas and Tulsa. Certain minimum
underwriting standards and monitoring help assure the Company's portfolio quality. Great Southern's loan committee reviews and
approves all new loan originations in excess of lender approval authorities. Generally, the Company considers commercial
construction, consumer, and commercial real estate 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. For commercial real estate, commercial
business and construction loans, the credits are subject to an analysis of the borrower's and guarantor's financial condition, credit
history, verification of liquid assets, collateral, market analysis and repayment ability. 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. To minimize construction risk, projects are monitored as construction
draws are requested by comparison to budget and with progress verified through property inspections. The geographic and product
diversity of collateral, equity requirements and limitations on speculative construction projects help to mitigate overall risk in these
loans. Underwriting standards for all loans also include loan-to-value ratio limitations which vary depending on collateral type, debt
service coverage ratios or debt payment to income ratio guidelines, where applicable, credit histories, use of guaranties and other
recommended terms relating to equity requirements, amortization, and maturity. 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 through the first half of
2016. In response to a more challenging consumer credit environment, the Company tightened its underwriting guidelines on
automobile lending in the latter part of 2016. Management took this step in an effort to improve credit quality in the portfolio and
lower delinquencies and charge-offs. 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.
Of the total loan portfolio at December 31, 2017 and 2016, 79.9% and 75.9%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2017 and 2016, commercial real estate and commercial construction
loans were 48.0% and 42.1% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions),
respectively. Commercial real estate and commercial construction loans generally afford the Bank an opportunity to increase the yield
on, and the proportion of interest rate sensitive loans in, its portfolio. They do, however, present somewhat greater risk to the Bank
because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At December 31,
2017 and 2016, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 11% and 12% 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, 2017 and 2016, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
19% and 19% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions), respectively. The
Company’s expansion into the St. Louis MSA beginning in May 2009 has provided an opportunity to not only expand its markets and
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 2017 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 54% as of December 31,
2017 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 short durations. Of the total amount of fixed
rate loans in our portfolio as of December 31, 2017, approximately 83% 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, 2017, our interest rate risk models indicated a one-year interest
rate earnings sensitivity position that is modestly positive in an increasing rates environment. 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
December 31, 2017 and 2016, an estimated 0.1% 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, 2017 and 2016, an estimated 1.5% and 1.3%, respectively, of
total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2017, troubled debt restructurings totaled $15.0 million, or 0.4% of total loans, down $6.1 million from $21.1
million, or 0.6% of total loans, at December 31, 2016. 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, 2017 and 2016, 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.
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). As noted above, the loss sharing agreements for Team Bank, Vantus Bank
and Sun Security Bank were terminated on April 26, 2016 and the loss sharing agreements for InterBank were terminated on June 9,
2017. Acquired loans are described in detail in Note 4 of the accompanying audited financial statements. For acquired loan pools, the
Company may allocate, and at December 31, 2017, 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, 2017, available-for-sale securities decreased $34.7 million, or 16.2%,
from $213.9 million at December 31, 2016, to $179.2 million at December 31, 2017. The decrease was primarily due to calls of
municipal securities and normal monthly payments received related to the portfolio of mortgage-backed securities.
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, 2017, total deposit balances decreased $80.1
million, or 2.2%. Transaction account balances increased $34.8 million to $2.23 billion at December 31, 2017, while retail certificates
of deposit decreased $50.6 million compared to December 31, 2016, to $1.11 billion at December 31, 2017. The increases in
transaction accounts were primarily a result of increases in money market deposit accounts. Certificates of deposit opened through the
Company’s internet deposit acquisition channels decreased $67.3 million during 2017, as most maturing deposits were not renewed by
the customer and fewer new such deposits were generated as a result of our rates intentionally not being in the top tier compared to our
competitors in the internet channels. These decreases were partially offset by an increase in retail certificates generated through our
banking centers. Brokered deposits, including CDARS program purchased funds, were $260.0 million at December 31, 2017, a
decrease of $64.3 million from $324.3 million at December 31, 2016.
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6
The percentage of fixed-rate loans in our loan portfolio has increased from 46% as of December 31, 2010 to 54% as of December 31,
2017 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 short durations. Of the total amount of fixed
rate loans in our portfolio as of December 31, 2017, approximately 83% 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, 2017, our interest rate risk models indicated a one-year interest
rate earnings sensitivity position that is modestly positive in an increasing rates environment. 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
December 31, 2017 and 2016, an estimated 0.1% 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, 2017 and 2016, an estimated 1.5% and 1.3%, respectively, of
total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2017, troubled debt restructurings totaled $15.0 million, or 0.4% of total loans, down $6.1 million from $21.1
million, or 0.6% of total loans, at December 31, 2016. 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, 2017 and 2016, 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.
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). As noted above, the loss sharing agreements for Team Bank, Vantus Bank
and Sun Security Bank were terminated on April 26, 2016 and the loss sharing agreements for InterBank were terminated on June 9,
2017. Acquired loans are described in detail in Note 4 of the accompanying audited financial statements. For acquired loan pools, the
Company may allocate, and at December 31, 2017, 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, 2017, available-for-sale securities decreased $34.7 million, or 16.2%,
from $213.9 million at December 31, 2016, to $179.2 million at December 31, 2017. The decrease was primarily due to calls of
municipal securities and normal monthly payments received related to the portfolio of mortgage-backed securities.
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, 2017, total deposit balances decreased $80.1
million, or 2.2%. Transaction account balances increased $34.8 million to $2.23 billion at December 31, 2017, while retail certificates
of deposit decreased $50.6 million compared to December 31, 2016, to $1.11 billion at December 31, 2017. The increases in
transaction accounts were primarily a result of increases in money market deposit accounts. Certificates of deposit opened through the
Company’s internet deposit acquisition channels decreased $67.3 million during 2017, as most maturing deposits were not renewed by
the customer and fewer new such deposits were generated as a result of our rates intentionally not being in the top tier compared to our
competitors in the internet channels. These decreases were partially offset by an increase in retail certificates generated through our
banking centers. Brokered deposits, including CDARS program purchased funds, were $260.0 million at December 31, 2017, a
decrease of $64.3 million from $324.3 million at December 31, 2016.
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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.
to be fairly neutral. Any margin gained by rate increases on loans may be somewhat offset by reduced yields from our investment
securities (to the extent investment securities are purchased) and our existing loan portfolio as payments are made and the proceeds are
potentially reinvested at lower rates on new loans originated. Interest rates on certain adjustable rate loans may reset lower according
to their contractual terms and index rate to which they are tied and new loans may be originated at lower market rates than the overall
portfolio rate. For further discussion of the processes used to manage our exposure to interest rate risk, see “Quantitative and
Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.”
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.
Federal Home Loan Bank Advances and Short Term Borrowings. The Company’s Federal Home Loan Bank advances totaled
$127.5 million at December 31, 2017, an increase of $96.0 million, or 305.4%, compared to $31.5 million at December 31, 2016. The
balance of $31.5 million at December 31, 2016, which consisted of long-term advances, were repaid prior to maturity during June
2017, resulting in expense of $340,000, which is included in the Consolidated Statements of Income under “Noninterest Expense –
Other operating expenses” during the year ended December 31, 2017, in order to reduce higher rate advances. The funds were
replaced primarily with lower rate, short-term FHLBank advances.
Short term borrowings decreased $155.7 million from $172.3 million at December 31, 2016 to $16.6 million at December 31, 2017.
The short term borrowings included overnight FHLBank borrowings of $171.0 million at December 31, 2016 and $15.0 million at
December 31, 2017. The Company utilizes both overnight borrowings and short-term FHLBank advances depending on relative
interest rates.
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 large portion of our loan portfolio is tied to one-month LIBOR, three-month LIBOR or the "prime
rate" and adjusts immediately or shortly after the index rate adjusts (subject to the effect of contractual interest rate floors on some of
the loans, which are discussed below). We monitor our sensitivity to interest rate changes on an ongoing basis (see "Quantitative and
Qualitative Disclosures About Market Risk"). In addition, our net interest income may be impacted by changes in the cash flows
expected to be received from acquired loan pools. As described in Note 4 of the accompanying audited financial statements, the
Company’s evaluation of cash flows expected to be received from acquired loan pools is on-going and increases in cash flow
expectations are recognized as increases in accretable yield through interest income. Decreases in cash flow expectations are
recognized as impairments through the allowance for loan losses.
The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increase of
0.25% on December 16, 2015, the Federal Reserve Board had last changed interest rates on December 16, 2008. This was the first rate
increase since September 29, 2006. The FRB has now also implemented rate increases of 0.25% on December 14, 2016, 0.25% on
March 15, 2017, 0.25% on June 14, 2017 and 0.25% on December 13, 2017. Great Southern has a substantial portion of its loan
portfolio ($1.31 billion at December 31, 2017) which is tied to the one-month or three-month LIBOR index and will adjust at least
once within 90 days after December 31, 2017. Of these loans, $934 million had interest rate floors. Great Southern also has a
significant portfolio of loans ($318 million at December 31, 2017) 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 a small
portion is 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, but was increased to 5.50% following the FRB rate increase in March 2017. The GSB prime
rate was not changed following the FRB rate increase in June 2017, but was increased to 5.75% following the FRB rate increase in
December 2017, and remained at that level at December 31, 2017. 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 generally low, there may
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 LIBOR-based and 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, which could
negatively impact net interest margin. The impact of the low rate environment on our net interest margin in future periods is expected
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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 early 2016 and all of 2015, 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 were 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) and for the InterBank transaction subsequent to June 2017 (due to the
termination of the related loss sharing agreements effective as of that date). Therefore, no further amortization (expense) will be
recorded relating to the reductions of expected reimbursements under the loss sharing agreements with the FDIC as all
Indemnification Assets and other balances due to/from the FDIC have been settled. The Company recorded a gain in non-interest
income during 2017 related to the termination of the InterBank loss sharing agreements. 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, 2017 and 2016.”
Business Initiatives
The Company completed several initiatives to expand and enhance the franchise in 2017.
A person-to-person (P2P) electronic payment service, called Send Money, was implemented for retail customers in February 2017.
Available 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.
A commercial loan production office opened in April 2017 in downtown Chicago in a leased office at 2 North Riverside Plaza in
the West Loop. In early 2017, a 30-year banking veteran in the Chicago area was hired to manage this office. The Company also
operates commercial loan production offices in Tulsa, Okla., and Dallas.
The Company’s chief lending officer, Steve Mitchem, retired from the Company in April 2017. Mitchem joined Great Southern in
1990. During his tenure, the Company’s loan portfolio grew from $360 million primarily in the southwest Missouri region to $3.8
billion operating in nine states. Mitchem announced his retirement more than a year prior to his official retirement date 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 has two separate areas of responsibility – loan production led by John Bugh and credit administration led
by Kevin Baker. Bugh and Baker are long-term Great Southern lenders, who each have more than 28 years of banking experience.
In April 2017, Great Southern entered into a new partnership with Lenexa, Kan.-based BASYS to serve the merchant services needs
of the Bank’s business customers. In the partnership, BASYS provides all customer support and servicing, while Great Southern is
responsible for sales production throughout the Bank’s franchise. The Bank has offered merchant services solutions for many years,
with the last vendor offering both sales and servicing support to customers. The relationship with BASYS represents a business model
change so that Great Southern can manage the sales process with its customers.
In June 2017, Great Southern Bank entered into an agreement with the FDIC that terminated loss sharing agreements related to the
Bank’s 2012 acquisition of Maple Grove, Minn.-based Inter Savings Bank through an FDIC-assisted transaction. Under the
termination agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items related to the terminated loss sharing
agreements. More information about this termination agreement can be found in the Company's Form 10-Q for the quarter ended June
30, 2017. In April 2016, 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. More information about that termination agreement can be
found in the Company's Form 10-Q for the quarter ended March 31, 2016. All loss sharing agreements related to the Bank’s FDIC-
assisted acquisitions have now been terminated.
8
to be fairly neutral. Any margin gained by rate increases on loans may be somewhat offset by reduced yields from our investment
securities (to the extent investment securities are purchased) and our existing loan portfolio as payments are made and the proceeds are
potentially reinvested at lower rates on new loans originated. Interest rates on certain adjustable rate loans may reset lower according
to their contractual terms and index rate to which they are tied and new loans may be originated at lower market rates than the overall
portfolio rate. For further discussion of the processes used to manage our exposure to interest rate risk, see “Quantitative and
Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.”
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 early 2016 and all of 2015, 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 were 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) and for the InterBank transaction subsequent to June 2017 (due to the
termination of the related loss sharing agreements effective as of that date). Therefore, no further amortization (expense) will be
recorded relating to the reductions of expected reimbursements under the loss sharing agreements with the FDIC as all
Indemnification Assets and other balances due to/from the FDIC have been settled. The Company recorded a gain in non-interest
income during 2017 related to the termination of the InterBank loss sharing agreements. 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, 2017 and 2016.”
Business Initiatives
The Company completed several initiatives to expand and enhance the franchise in 2017.
A person-to-person (P2P) electronic payment service, called Send Money, was implemented for retail customers in February 2017.
Available 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.
A commercial loan production office opened in April 2017 in downtown Chicago in a leased office at 2 North Riverside Plaza in
the West Loop. In early 2017, a 30-year banking veteran in the Chicago area was hired to manage this office. The Company also
operates commercial loan production offices in Tulsa, Okla., and Dallas.
The Company’s chief lending officer, Steve Mitchem, retired from the Company in April 2017. Mitchem joined Great Southern in
1990. During his tenure, the Company’s loan portfolio grew from $360 million primarily in the southwest Missouri region to $3.8
billion operating in nine states. Mitchem announced his retirement more than a year prior to his official retirement date 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 has two separate areas of responsibility – loan production led by John Bugh and credit administration led
by Kevin Baker. Bugh and Baker are long-term Great Southern lenders, who each have more than 28 years of banking experience.
In April 2017, Great Southern entered into a new partnership with Lenexa, Kan.-based BASYS to serve the merchant services needs
of the Bank’s business customers. In the partnership, BASYS provides all customer support and servicing, while Great Southern is
responsible for sales production throughout the Bank’s franchise. The Bank has offered merchant services solutions for many years,
with the last vendor offering both sales and servicing support to customers. The relationship with BASYS represents a business model
change so that Great Southern can manage the sales process with its customers.
In June 2017, Great Southern Bank entered into an agreement with the FDIC that terminated loss sharing agreements related to the
Bank’s 2012 acquisition of Maple Grove, Minn.-based Inter Savings Bank through an FDIC-assisted transaction. Under the
termination agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items related to the terminated loss sharing
agreements. More information about this termination agreement can be found in the Company's Form 10-Q for the quarter ended June
30, 2017. In April 2016, 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. More information about that termination agreement can be
found in the Company's Form 10-Q for the quarter ended March 31, 2016. All loss sharing agreements related to the Bank’s FDIC-
assisted acquisitions have now been terminated.
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At the end of October 2017, a new banking center at 1320 W. Battlefield in Springfield, Mo., opened that replaced a nearby leased
office at 1580 W. Battlefield. The new office offers better access and convenience for customers.
The Company continually evaluates its various customer access channels to ensure that customers are being effectively served when,
where and how they prefer. The Company’s ATM network is a part of this ongoing evaluation, which may include upgrading or
adding ATM units or removing units from certain sites. Starting at the end of the third quarter of 2017 and during 2018, a total of 70
ATMs located primarily at Great Southern banking centers will be replaced with upgraded multi-functional deposit-taking machines.
In addition, twenty off-site ATMs with low customer usage have been removed in the last few months. Further evaluation of the ATM
network is anticipated in the future. Great Southern customers can also access surcharge-free ATMs worldwide through the Allpoint
ATM Network.
On January 31, 2018, the Company distributed special cash bonuses to its more than 1,200 employees, following the enactment of the
new federal tax reform legislation. A $1,000 cash payment was made to all full-time employees and a $500 cash payment was made
to all part-time employees who were employed by the Company on December 31, 2017, and remained employed at January 31, 2018.
Effect of Federal Laws and Regulations
General. Federal legislation and regulation significantly affect the operations of the Company and the Bank, and have increased
competition among commercial banks, savings institutions, mortgage banking enterprises and other financial institutions. In particular,
the capital requirements and operations of regulated banking organizations such as the Company and the Bank have been and will be
subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances,
adversely affect the Company or the Bank.
Significant Legislation Impacting the Financial Services Industry. On July 21, 2010, sweeping financial regulatory reform legislation
entitled the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (the "Dodd-Frank Act") was signed into law. The Dodd-
Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things,
centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, with
broad rulemaking authority for a wide range of consumer protection laws that apply to all banks, require new capital rules (discussed
below), change the assessment base for federal deposit insurance, repeal the federal prohibitions on the payment of interest on demand
deposits, amend the account balance limit for federal deposit insurance protection, and increase the authority of the Federal Reserve
Board to examine the Company and its non-bank subsidiaries.
Certain aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over a number of years. 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 required 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.
Capital Rules. The federal banking agencies have adopted regulatory capital rules that substantially amended 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 on January 1, 2016 when a
buffer greater than 0.625% of risk-weighted assets was required, which amount increases 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, 2017 and December 31, 2016
During the year ended December 31, 2017, total assets decreased by $136.1 million to $4.41 billion. The decrease was primarily
attributable to decreases in cash and cash equivalents, available-for-sale investment securities, loans receivable, FDIC indemnification
asset, other real estate owned and mortgage loans held for sale.
Cash and cash equivalents were $242.3 million at December 31, 2017, a decrease of $37.5 million, or 13.4%, from $279.8 million at
December 31, 2016. During 2017, cash and cash equivalents decreased primarily due to a decrease in deposits and a decrease in total
borrowings, partially offset by a decrease in available for sale securities.
The Company’s available for sale securities decreased $34.7 million, or 16.2%, compared to December 31, 2016. The decrease was
primarily due to calls of municipal securities and normal monthly payments received related to the portfolio of mortgage-backed
securities. The available-for-sale securities portfolio was 4.1% and 4.7% of total assets at December 31, 2017 and 2016, respectively.
Net loans decreased $33.7 million from December 31, 2016 to $3.73 billion at December 31, 2017. Net loans acquired through the
FDIC-assisted transactions decreased $73.5 million, or 26.0%, during 2017 primarily because of loan repayments. Excluding FDIC-
assisted acquired loans and mortgage loans held for sale, total gross loans increased $248.9 million from December 31, 2016 to
December 31, 2017. Outstanding and undisbursed balances of commercial construction loans increased $281.0 million, or 32.3%,
other residential (multi-family) loans increased $82.3 million, or 12.4%, and commercial real estate loans increased $48.4 million, or
4.1%. Partially offsetting the increases in gross loans were decreases of consumer auto loans of $137.1 million, or 27.7%, and
decreases of owner occupied and non-owner occupied one- to four-family residential loans of $27.3 million, or 8.1%.
The FDIC indemnification asset, which was $13.1 million at December 31, 2016, was $-0- at December 31, 2017 due to the
termination during 2017 of the FDIC loss sharing agreement for InterBank, as discussed in Note 4 of the accompanying audited
financial statements.
Total liabilities decreased $178.0 million from $4.12 billion at December 31, 2016 to $3.94 billion at December 31, 2017. The
decrease was primarily attributable to a decrease in deposits and short-term borrowings, partially offset by an increase in FHLB
advances. In the year ended December 31, 2017, total deposit balances decreased $80.1 million, or 2.2%. Retail certificates of
deposit decreased $50.6 million and brokered deposits decreased $64.3 million during the year ended December 31, 2017.
Transaction account balances increased $34.8 million during the year ended December 31, 2017.
The Company’s Federal Home Loan Bank advances totaled $127.5 million at December 31, 2017, an increase of $96.0 million, or
305.4%, compared to $31.5 million at December 31, 2016. The balance of $31.5 million at December 31, 2016, which consisted of
long-term advances, were repaid prior to maturity during June 2017, resulting in expense of $340,000, which is included in the
Consolidated Statements of Income under “Noninterest Expense – Other operating expenses” during the year ended December 31,
2017. The funds were replaced during 2017 primarily with lower rate, shorter-term FHLBank advances. The Company utilizes both
overnight borrowings and short-term FHLBank advances depending on relative interest rates.
Short term borrowings decreased $155.7 million from $172.3 million at December 31, 2016 to $16.6 million at December 31, 2017.
The short term borrowings included overnight FHLBank borrowings of $171.0 million at December 31, 2016 and $15.0 million at
December 31, 2017.
Securities sold under reverse repurchase agreements with customers decreased $33.2 million, or 29.2%, from December 31, 2016 to
December 31, 2017 as these balances fluctuate over time based on customer demand for this product.
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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, 2017 and December 31, 2016
During the year ended December 31, 2017, total assets decreased by $136.1 million to $4.41 billion. The decrease was primarily
attributable to decreases in cash and cash equivalents, available-for-sale investment securities, loans receivable, FDIC indemnification
asset, other real estate owned and mortgage loans held for sale.
Cash and cash equivalents were $242.3 million at December 31, 2017, a decrease of $37.5 million, or 13.4%, from $279.8 million at
December 31, 2016. During 2017, cash and cash equivalents decreased primarily due to a decrease in deposits and a decrease in total
borrowings, partially offset by a decrease in available for sale securities.
The Company’s available for sale securities decreased $34.7 million, or 16.2%, compared to December 31, 2016. The decrease was
primarily due to calls of municipal securities and normal monthly payments received related to the portfolio of mortgage-backed
securities. The available-for-sale securities portfolio was 4.1% and 4.7% of total assets at December 31, 2017 and 2016, respectively.
Net loans decreased $33.7 million from December 31, 2016 to $3.73 billion at December 31, 2017. Net loans acquired through the
FDIC-assisted transactions decreased $73.5 million, or 26.0%, during 2017 primarily because of loan repayments. Excluding FDIC-
assisted acquired loans and mortgage loans held for sale, total gross loans increased $248.9 million from December 31, 2016 to
December 31, 2017. Outstanding and undisbursed balances of commercial construction loans increased $281.0 million, or 32.3%,
other residential (multi-family) loans increased $82.3 million, or 12.4%, and commercial real estate loans increased $48.4 million, or
4.1%. Partially offsetting the increases in gross loans were decreases of consumer auto loans of $137.1 million, or 27.7%, and
decreases of owner occupied and non-owner occupied one- to four-family residential loans of $27.3 million, or 8.1%.
The FDIC indemnification asset, which was $13.1 million at December 31, 2016, was $-0- at December 31, 2017 due to the
termination during 2017 of the FDIC loss sharing agreement for InterBank, as discussed in Note 4 of the accompanying audited
financial statements.
Total liabilities decreased $178.0 million from $4.12 billion at December 31, 2016 to $3.94 billion at December 31, 2017. The
decrease was primarily attributable to a decrease in deposits and short-term borrowings, partially offset by an increase in FHLB
advances. In the year ended December 31, 2017, total deposit balances decreased $80.1 million, or 2.2%. Retail certificates of
deposit decreased $50.6 million and brokered deposits decreased $64.3 million during the year ended December 31, 2017.
Transaction account balances increased $34.8 million during the year ended December 31, 2017.
The Company’s Federal Home Loan Bank advances totaled $127.5 million at December 31, 2017, an increase of $96.0 million, or
305.4%, compared to $31.5 million at December 31, 2016. The balance of $31.5 million at December 31, 2016, which consisted of
long-term advances, were repaid prior to maturity during June 2017, resulting in expense of $340,000, which is included in the
Consolidated Statements of Income under “Noninterest Expense – Other operating expenses” during the year ended December 31,
2017. The funds were replaced during 2017 primarily with lower rate, shorter-term FHLBank advances. The Company utilizes both
overnight borrowings and short-term FHLBank advances depending on relative interest rates.
Short term borrowings decreased $155.7 million from $172.3 million at December 31, 2016 to $16.6 million at December 31, 2017.
The short term borrowings included overnight FHLBank borrowings of $171.0 million at December 31, 2016 and $15.0 million at
December 31, 2017.
Securities sold under reverse repurchase agreements with customers decreased $33.2 million, or 29.2%, from December 31, 2016 to
December 31, 2017 as these balances fluctuate over time based on customer demand for this product.
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Total stockholders' equity increased $41.9 million from $429.8 million at December 31, 2016 to $471.7 million at December 31, 2017.
The Company recorded net income of $51.6 million for the year ended December 31, 2017, and dividends declared on common stock
were $13.2 million. Accumulated other comprehensive income decreased $317,000 due to changes in the fair value of available-for-
sale investment securities. The decrease in accumulated other comprehensive income resulted from decreases in the fair value of the
Company's available-for-sale investment securities and changes in the fair value of cash flow hedges. In addition, total stockholders’
equity increased $3.8 million due to stock option exercises.
Results of Operations and Comparison for the Years Ended December 31, 2017 and 2016
General
Net income increased $6.3 million, or 13.7%, during the year ended December 31, 2017, compared to the year ended December 31,
2016. Net income was $51.6 million for the year ended December 31, 2017 compared to $45.3 million for the year ended December
31, 2016. This increase was due to an increase in non-interest income of $10.0 million, or 35.1%, a decrease in non-interest expense
of $6.2 million, or 5.1%, and a decrease in the provision for loan losses of $181,000, or 2.0%, partially offset by a decrease in net
interest income of $7.9 million, or 4.8%, and an increase in provision for income taxes of $2.2 million, or 13.6%. Net income
available to common shareholders was $51.6 million for the year ended December 31, 2017 compared to $45.3 million for the year
ended December 31, 2016.
Total Interest Income
Total interest income decreased $2.1 million, or 1.1%, during the year ended December 31, 2017 compared to the year ended
December 31, 2016. The decrease was due to a $2.2 million, or 1.2%, decrease in interest income on loans, partially offset by a
$115,000, or 1.8%, increase in interest income on investment securities and other interest-earning assets. Interest income on loans
decreased in 2017 due to lower average rates of interest, partially offset by higher average balances of loans. The decrease in average
interest rates on loans was primarily the result of a reduction in the additional yield accretion recognized in conjunction with updated
estimates of the fair value of the acquired loan pools compared to the prior year. Interest income from investment securities and other
interest-earning assets increased during 2017 compared to 2016 primarily due to higher average rates of interest, partially offset by
lower average balances.
Interest Income – Loans
During the year ended December 31, 2017 compared to the year ended December 31, 2016, interest income on loans decreased due to
lower average interest rates, partially offset by higher average balances. Interest income decreased $9.6 million as the result of lower
average interest rates on loans. The average yield on loans decreased from 4.89% during the year ended December 31, 2016 to 4.63%
during the year ended December 31, 2017. This decrease was due to 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. The decrease was partially offset by higher overall average loan balances. Interest
income increased $7.4 million as the result of higher average loan balances, which increased from $3.66 billion during the year ended
December 31, 2016, to $3.81 billion during the year ended December 31, 2017. The higher average balances were primarily due to
organic loan growth.
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 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 loss sharing agreements
for InterBank were terminated in June 2017, and the related indemnification asset was reduced to $-0- at that time. The Valley Bank
transaction does not include a loss sharing agreement with the FDIC. Therefore, there was no remaining indemnification asset for
FDIC-assisted transactions as of December 31, 2017. The entire amount of the discount adjustment has been and will be accreted to
interest income over time with no further offsetting impact to non-interest income. For the years ended December 31, 2017 and 2016,
the adjustments increased interest income by $5.0 million and $16.4 million, respectively, and decreased non-interest income by
$634,000 and $7.0 million, respectively. The net impact to pre-tax income was $4.4 million and $9.4 million, respectively, for the
years ended December 31, 2017 and 2016.
As of December 31, 2017, the remaining accretable yield adjustment that will affect interest income is $2.6 million. As there is no
longer, nor will there be in the future, indemnification asset amortization related to Team Bank, Vantus Bank, Sun Security Bank or
InterBank due to the termination or expiration of the related loss sharing agreements for those transactions, there is no remaining
indemnification asset or related adjustments that will affect non-interest income (expense). Of the remaining adjustments affecting
interest income, we expect to recognize $1.7 million of interest income during 2018. 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 4.50% during the year ended December 31, 2017, compared to
4.44% during the year ended December 31, 2016, as a result of higher current market rates on adjustable rate loans and new loans
originated during the year.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments and other interest-earning assets increased $115,000 in the year ended December 31, 2017 compared
to the year ended December 31, 2016. Interest income increased $1.1 million due to an increase in average interest rates from 1.72%
during the year ended December 31, 2016 to 2.05% during the year ended December 31, 2017, due to higher market rates of interest
on investment securities and other interest-bearing deposits in financial institutions. Interest income decreased $1.0 million as a result
of a decrease in average balances from $366.3 million during the year ended December 31, 2016, to $329.4 million during the year
ended December 31, 2017. Average balances of securities decreased due to certain U. S. government agency securities and municipal
securities being called and the normal monthly payments received related to the portfolio of mortgage-backed securities.
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, 2017, the Company had cash and cash equivalents of $242.3
million compared to $279.8 million at December 31, 2016. See "Net Interest Income" for additional information on the impact of this
interest activity.
Total Interest Expense
Interest Expense - Deposits
Total interest expense increased $5.8 million, or 26.2%, during the year ended December 31, 2017, when compared with the year
ended December 31, 2016, due to an increase in interest expense on deposits of $3.2 million, or 18.5%, an increase in interest expense
on the subordinated notes issued during 2016 of $2.5 million, or 159.7%, an increase in interest expense on FHLBank advances of
$302,000, or 24.9%, and an increase in interest expense on subordinated debentures issued to capital trust of $146,000, or 18.2%,
partially offset by a decrease in interest expense on short-term and repurchase agreement borrowings of $390,000, or 34.3%.
Interest on demand deposits increased $653,000 due to an increase in average rates from 0.26% during the year ended December 31,
2016, to 0.30% during the year ended December 31, 2017. Interest on demand deposits increased $157,000 due to an increase in
average balances from $1.50 billion in the year ended December 31, 2016, to $1.56 billion in the year ended December 31, 2017. The
increase in average balances of interest-bearing demand deposits was primarily a result of increased balances in money market
accounts. Market interest rates on these types of accounts have increased since December 2016.
Interest expense on time deposits increased $2.0 million as a result of an increase in average rates of interest from 0.98% during the
year ended December 31, 2016, to 1.12% during the year ended December 31, 2017. Interest expense on time deposits increased
$437,000 due to an increase in average balances of time deposits from $1.37 billion during the year ended December 31, 2016, to
$1.41 billion during the year ended December 31, 2017. The increase in average balances of time deposits was primarily a result of
organic growth of retail deposits. 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. Older certificates of
deposit that renewed or were replaced with new deposits generally had a higher rate of interest due to market interest rate increases
since December 2016.
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As of December 31, 2017, the remaining accretable yield adjustment that will affect interest income is $2.6 million. As there is no
longer, nor will there be in the future, indemnification asset amortization related to Team Bank, Vantus Bank, Sun Security Bank or
InterBank due to the termination or expiration of the related loss sharing agreements for those transactions, there is no remaining
indemnification asset or related adjustments that will affect non-interest income (expense). Of the remaining adjustments affecting
interest income, we expect to recognize $1.7 million of interest income during 2018. 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 4.50% during the year ended December 31, 2017, compared to
4.44% during the year ended December 31, 2016, as a result of higher current market rates on adjustable rate loans and new loans
originated during the year.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments and other interest-earning assets increased $115,000 in the year ended December 31, 2017 compared
to the year ended December 31, 2016. Interest income increased $1.1 million due to an increase in average interest rates from 1.72%
during the year ended December 31, 2016 to 2.05% during the year ended December 31, 2017, due to higher market rates of interest
on investment securities and other interest-bearing deposits in financial institutions. Interest income decreased $1.0 million as a result
of a decrease in average balances from $366.3 million during the year ended December 31, 2016, to $329.4 million during the year
ended December 31, 2017. Average balances of securities decreased due to certain U. S. government agency securities and municipal
securities being called and the normal monthly payments received related to the portfolio of mortgage-backed securities.
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, 2017, the Company had cash and cash equivalents of $242.3
million compared to $279.8 million at December 31, 2016. See "Net Interest Income" for additional information on the impact of this
interest activity.
Total Interest Expense
Total interest expense increased $5.8 million, or 26.2%, during the year ended December 31, 2017, when compared with the year
ended December 31, 2016, due to an increase in interest expense on deposits of $3.2 million, or 18.5%, an increase in interest expense
on the subordinated notes issued during 2016 of $2.5 million, or 159.7%, an increase in interest expense on FHLBank advances of
$302,000, or 24.9%, and an increase in interest expense on subordinated debentures issued to capital trust of $146,000, or 18.2%,
partially offset by a decrease in interest expense on short-term and repurchase agreement borrowings of $390,000, or 34.3%.
Interest Expense - Deposits
Interest on demand deposits increased $653,000 due to an increase in average rates from 0.26% during the year ended December 31,
2016, to 0.30% during the year ended December 31, 2017. Interest on demand deposits increased $157,000 due to an increase in
average balances from $1.50 billion in the year ended December 31, 2016, to $1.56 billion in the year ended December 31, 2017. The
increase in average balances of interest-bearing demand deposits was primarily a result of increased balances in money market
accounts. Market interest rates on these types of accounts have increased since December 2016.
Interest expense on time deposits increased $2.0 million as a result of an increase in average rates of interest from 0.98% during the
year ended December 31, 2016, to 1.12% during the year ended December 31, 2017. Interest expense on time deposits increased
$437,000 due to an increase in average balances of time deposits from $1.37 billion during the year ended December 31, 2016, to
$1.41 billion during the year ended December 31, 2017. The increase in average balances of time deposits was primarily a result of
organic growth of retail deposits. 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. Older certificates of
deposit that renewed or were replaced with new deposits generally had a higher rate of interest due to market interest rate increases
since December 2016.
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Interest Expense - FHLBank Advances, Short-term Borrowings and Structured Repurchase Agreements, Subordinated
Debentures Issued to Capital Trust and Subordinated Notes
Provision for Loan Losses and Allowance for Loan Losses
Interest expense on FHLBank advances increased due to higher average balances, partially offset by lower average rates of interest.
Interest expense on FHLBank advances increased $416,000 due to an increase in average balances from $68.3 million during the year
ended December 31, 2016, to $93.5 million during the year ended December 31, 2017. This increase was primarily due to the
replacement of overnight borrowings with short-term three week FHLBank advances due to the short-term advances having a more
favorable interest rate from time to time. The $31.5 million of the Company’s long-term higher fixed-rate FHLBank advances were
repaid during June 2017. Partially offsetting the increase due to higher average balances was a decrease in interest expense of
$114,000 due to a decrease in average interest rates from 1.78% in the year ended December 31, 2016, to 1.62% in the year ended
December 31, 2017. The decrease in the average rate was due to the repayment of the fixed-rate term FHLBank advances during June
2017 and the borrowing of shorter term FHLBank advances at a lower rate.
Interest expense on short-term borrowings and repurchase agreements decreased $546,000 due to a decrease in average balances from
$327.7 million during the year ended December 31, 2016, to $186.4 million during the year ended December 31, 2017, which is
primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate. The Company had a much
higher amount of overnight borrowings from the FHLBank in 2016. Partially offsetting that decrease was an increase in interest
expense on short-term borrowings and repurchase agreements of $156,000 due to average rates that increased from 0.35% in the year
ended December 31, 2016, to 0.40% in the year ended December 31, 2017. The increase was due to increases in market interest rates
and a change in the mix of funding during the period, with a lower percentage of the total made up of customer repurchase agreements,
which have a lower interest rate.
During the year ended December 31, 2017, compared to the year ended December 31, 2016, interest expense on subordinated
debentures issued to capital trusts increased $146,000 due to higher average interest rates. The average interest rate was 3.12% in
2016, compared to 3.68% in 2017. 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 effectively
increased the rates for each year. The 2017 average interest rate was higher than 3.68% until the three months ended September 30,
2017, when the interest rate cap terminated based on its contractual terms, as a result of the amortization of the cost of the interest rate
cap. There was no change in the average balance of the subordinated debentures between the 2017 and the 2016 years.
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, 2017, was $4.1 million, an increase of $2.5
million over the $1.6 million of interest expense for the year ended December 31, 2016. The increase was due to the fact that the
notes were issued during the second half of 2016 and did not incur interest expense for the entire year in 2016.
Net Interest Income
Net interest income for the year ended December 31, 2017 decreased $7.9 million, to $155.2 million, compared to $163.1 million for
the year ended December 31, 2016. Net interest margin was 3.74% for the year ended December 31, 2017, compared to 4.05% in 2016,
a decrease of 31 basis points. In both years, the Company’s net interest income and margin were significantly impacted by 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, 2017 and 2016 were increases in interest income of $5.0 million
and $16.4 million, respectively, and increases in net interest margin of 12 basis points and 41 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin decreased 2 basis points during the year ended December 31,
2017. The decrease in net interest margin is primarily due to the interest expense associated with the issuance of $75.0 million of
subordinated notes in August 2016 and an increase in the average interest rate on deposits and other borrowings.
The Company's overall interest rate spread decreased 34 basis points, or 8.6%, from 3.93% during the year ended December 31, 2016,
to 3.59% during the year ended December 31, 2017. The decrease was due to an 18 basis point decrease in the weighted average yield
on interest-earning assets and a 16 basis point increase in the weighted average rate paid on interest-bearing liabilities. In comparing
the two years, the yield on loans decreased 26 basis points while the yield on investment securities and other interest-earning assets
increased 23 basis points. The rate paid on deposits increased 8 basis points, the rate paid on subordinated debentures issued to capital
trust increased 56 basis points, the rate paid on short-term borrowings increased 5 basis points, the rate paid on subordinated notes
increased 4 basis points and the rate paid on FHLBank advances decreased 16 basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
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.
The provision for loan losses for the year ended December 31, 2017 decreased $181,000, to $9.1 million, compared with $9.3 million
for the year ended December 31, 2016. At December 31, 2017 and December 31, 2016, the allowance for loan losses was $36.5
million and $37.4 million, respectively. Total net charge-offs were $10.0 million and $10.0 million for the years ended December 31,
2017 and 2016, respectively. During the year ended December 31, 2017, $6.1 million of the $10.0 million of net charge-offs were in
the consumer auto category. Five commercial loan relationships amounted to $2.9 million of the net charge-off total for the year
ended December 31, 2017. In response to a more challenging consumer credit environment, the Company tightened its underwriting
guidelines on automobile lending beginning in the latter part of 2016. Management took this step in an effort to improve credit quality
in the portfolio and lower delinquencies and charge-offs. This action also resulted in a lower level of origination volume and, as such,
the outstanding balance of the Company's automobile loans declined approximately $137 million in the year ended December 31,
2017. We expect to see further declines in the automobile loan totals through 2018 as well. General market conditions and unique
circumstances related to individual borrowers and projects contributed to the level of provisions and charge-offs. As assets 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.
In June 2017, the loss sharing agreements for Inter Savings Bank were terminated. 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 review of financial information, collateral valuations and
customer interaction to determine if additional reserves are warranted.
The Bank’s allowance for loan losses as a percentage of total loans, excluding acquired loans that were previously covered by the
FDIC loss sharing agreements, was 1.01% and 1.04% at December 31, 2017 and December 31, 2016, respectively. Management
considers the allowance for loan losses adequate to cover losses inherent in the Bank’s loan portfolio at December 31, 2017, based on
recent reviews of the Bank’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, InterBank and Valley Bank 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. These assets were initially recorded at their estimated fair values as of their acquisition dates and are
accounted for in pools; therefore, these loan pools are analyzed rather than the individual loans. The performance of the loan pools
acquired in the five transactions has been better than original expectations as of the acquisition dates.
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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.
The provision for loan losses for the year ended December 31, 2017 decreased $181,000, to $9.1 million, compared with $9.3 million
for the year ended December 31, 2016. At December 31, 2017 and December 31, 2016, the allowance for loan losses was $36.5
million and $37.4 million, respectively. Total net charge-offs were $10.0 million and $10.0 million for the years ended December 31,
2017 and 2016, respectively. During the year ended December 31, 2017, $6.1 million of the $10.0 million of net charge-offs were in
the consumer auto category. Five commercial loan relationships amounted to $2.9 million of the net charge-off total for the year
ended December 31, 2017. In response to a more challenging consumer credit environment, the Company tightened its underwriting
guidelines on automobile lending beginning in the latter part of 2016. Management took this step in an effort to improve credit quality
in the portfolio and lower delinquencies and charge-offs. This action also resulted in a lower level of origination volume and, as such,
the outstanding balance of the Company's automobile loans declined approximately $137 million in the year ended December 31,
2017. We expect to see further declines in the automobile loan totals through 2018 as well. General market conditions and unique
circumstances related to individual borrowers and projects contributed to the level of provisions and charge-offs. As assets 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.
In June 2017, the loss sharing agreements for Inter Savings Bank were terminated. 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 review of financial information, collateral valuations and
customer interaction to determine if additional reserves are warranted.
The Bank’s allowance for loan losses as a percentage of total loans, excluding acquired loans that were previously covered by the
FDIC loss sharing agreements, was 1.01% and 1.04% at December 31, 2017 and December 31, 2016, respectively. Management
considers the allowance for loan losses adequate to cover losses inherent in the Bank’s loan portfolio at December 31, 2017, based on
recent reviews of the Bank’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, InterBank and Valley Bank 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. These assets were initially recorded at their estimated fair values as of their acquisition dates and are
accounted for in pools; therefore, these loan pools are analyzed rather than the individual loans. The performance of the loan pools
acquired in the five transactions has been better than original expectations as of the acquisition dates.
14
35
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
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.
time to time, and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate.
time to time, and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate.
Non-performing assets, excluding all FDIC-assisted acquired assets, at December 31, 2017, were $27.8 million, a decrease of $11.5
Non-performing assets, excluding all FDIC-assisted acquired assets, at December 31, 2017, were $27.8 million, a decrease of $11.5
Non-performing assets, excluding all FDIC-assisted acquired assets, at December 31, 2017, were $27.8 million, a decrease of $11.5
million from $39.3 million at December 31, 2016. Non-performing assets, excluding all FDIC-assisted acquired assets, as a
million from $39.3 million at December 31, 2016. Non-performing assets, excluding all FDIC-assisted acquired assets, as a
million from $39.3 million at December 31, 2016. Non-performing assets, excluding all FDIC-assisted acquired assets, as a
percentage of total assets were 0.63% at December 31, 2017, compared to 0.86% at December 31, 2016.
percentage of total assets were 0.63% at December 31, 2017, compared to 0.86% at December 31, 2016.
percentage of total assets were 0.63% at December 31, 2017, compared to 0.86% at December 31, 2016.
Compared to December 31, 2016, non-performing loans decreased $2.8 million to $11.3 million at December 31, 2017, and foreclosed
Compared to December 31, 2016, non-performing loans decreased $2.8 million to $11.3 million at December 31, 2017, and foreclosed
Compared to December 31, 2016, non-performing loans decreased $2.8 million to $11.3 million at December 31, 2017, and foreclosed
assets decreased $8.7 million to $16.6 million at December 31, 2017. Non-performing consumer loans comprised $3.3 million, or
assets decreased $8.7 million to $16.6 million at December 31, 2017. Non-performing consumer loans comprised $3.3 million, or
assets decreased $8.7 million to $16.6 million at December 31, 2017. Non-performing consumer loans comprised $3.3 million, or
29.1%, of the total $11.3 million of non-performing loans at December 31, 2017. Non-performing one-to four-family residential loans
29.1%, of the total $11.3 million of non-performing loans at December 31, 2017. Non-performing one-to four-family residential loans
29.1%, of the total $11.3 million of non-performing loans at December 31, 2017. Non-performing one-to four-family residential loans
comprised $2.7 million, or 24.2%, of the total non-performing loans at December 31, 2017. Non-performing commercial business
comprised $2.7 million, or 24.2%, of the total non-performing loans at December 31, 2017. Non-performing commercial business
comprised $2.7 million, or 24.2%, of the total non-performing loans at December 31, 2017. Non-performing commercial business
loans were $2.1 million, or 18.3%, of total non-performing loans at December 31, 2017. The decrease in non-performing commercial
loans were $2.1 million, or 18.3%, of total non-performing loans at December 31, 2017. The decrease in non-performing commercial
loans were $2.1 million, or 18.3%, of total non-performing loans at December 31, 2017. The decrease in non-performing commercial
business loans was primarily due to one relationship totaling $2.9 million which was transferred to foreclosed assets during 2017.
business loans was primarily due to one relationship totaling $2.9 million which was transferred to foreclosed assets during 2017.
business loans was primarily due to one relationship totaling $2.9 million which was transferred to foreclosed assets during 2017.
Non-performing other residential loans were $1.9 million, or 16.7%, of total non-performing loans at December 31, 2017. The
Non-performing other residential loans were $1.9 million, or 16.7%, of total non-performing loans at December 31, 2017. The
Non-performing other residential loans were $1.9 million, or 16.7%, of total non-performing loans at December 31, 2017. The
increase in non-performing other residential loans was primarily due to the additional of one loan initially totaling $2.4 million, which
increase in non-performing other residential loans was primarily due to the additional of one loan initially totaling $2.4 million, which
increase in non-performing other residential loans was primarily due to the additional of one loan initially totaling $2.4 million, which
was charged down upon being added to Non-performing Loans. Non-performing commercial real estate loans comprised $1.2 million,
was charged down upon being added to Non-performing Loans. Non-performing commercial real estate loans comprised $1.2 million,
was charged down upon being added to Non-performing Loans. Non-performing commercial real estate loans comprised $1.2 million,
or 10.9%, of total non-performing loans at December 31, 2017. The majority of the decrease in the commercial real estate category
or 10.9%, of total non-performing loans at December 31, 2017. The majority of the decrease in the commercial real estate category
or 10.9%, of total non-performing loans at December 31, 2017. The majority of the decrease in the commercial real estate category
was due to one relationship incurring charge-offs of $1.2 million during 2017, and two separate relationship with transfers to
was due to one relationship incurring charge-offs of $1.2 million during 2017, and two separate relationship with transfers to
was due to one relationship incurring charge-offs of $1.2 million during 2017, and two separate relationship with transfers to
foreclosed assets totaling approximately $500,000 each. Non-performing land development loans were $-0- at December 31, 2017.
foreclosed assets totaling approximately $500,000 each. Non-performing land development loans were $-0- at December 31, 2017.
foreclosed assets totaling approximately $500,000 each. Non-performing land development loans were $-0- at December 31, 2017.
The decrease in non-performing land development loans was primarily due to the payoff of two significant relationships.
The decrease in non-performing land development loans was primarily due to the payoff of two significant relationships.
The decrease in non-performing land development loans was primarily due to the payoff of two significant relationships.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2017, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2017, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2017, 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
$
$
$
— $
— $
— $
381 $
381 $
381 $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
(381) $
(381) $
(381) $
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
109
109
109
1,718
1,718
1,718
—
—
—
1,825
1,825
1,825
162
162
162
2,727
2,727
2,727
4,765
4,765
4,765
2,775
2,775
2,775
—
—
—
4,060
4,060
4,060
—
—
—
2,487
2,487
2,487
2,442
2,442
2,442
2,550
2,550
2,550
1,256
1,256
1,256
5,923
5,923
5,923
—
—
—
—
—
—
—
—
—
(36)
(36)
(36)
(77)
(77)
(77)
(394)
(394)
(394)
—
—
—
(217)
(217)
(217)
—
—
—
—
—
—
—
—
—
(840)
(840)
(840)
—
—
—
(347)
(347)
(347)
—
—
—
(329)
(329)
(329)
—
—
—
(185)
(185)
(185)
—
—
—
(242)
(242)
(242)
(161)
(161)
(161)
(1,060)
(1,060)
(1,060)
(2,883)
(2,883)
(2,883)
(1,081)
(1,081)
(1,081)
—
—
—
(11)
(11)
(11)
(125)
(125)
(125)
(5,468)
(5,468)
(5,468)
—
—
—
(37)
(37)
(37)
(488)
(488)
(488)
(1,649)
(1,649)
(1,649)
(829)
(829)
(829)
—
—
—
(437)
(437)
(437)
(1)
(1)
(1)
(601)
(601)
(601)
(246)
(246)
(246)
(2,075)
(2,075)
(2,075)
(1,725)
(1,725)
(1,725)
—
—
—
98
98
98
—
—
—
—
—
—
2,720
2,720
2,720
1,877
1,877
1,877
1,226
1,226
1,226
2,063
2,063
2,063
3,271
3,271
3,271
Total
Total
Total
$
$
$
14,081 $
14,081 $
14,081 $
19,099 $
19,099 $
19,099 $
(724) $
(724) $
(724) $
(1,516) $
(1,516) $
(1,516) $
(5,612) $
(5,612) $
(5,612) $
(5,203) $
(5,203) $
(5,203) $
(8,870) $
(8,870) $
(8,870) $
11,255
11,255
11,255
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was either transferred to foreclosed assets or
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was either transferred to foreclosed assets or
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was either transferred to foreclosed assets or
sold; therefore, the balance was reclassified from commercial real estate to commercial business in the Beginning Balance, January 1
sold; therefore, the balance was reclassified from commercial real estate to commercial business in the Beginning Balance, January 1
sold; therefore, the balance was reclassified from commercial real estate to commercial business in the Beginning Balance, January 1
presentation in the table above.
presentation in the table above.
presentation in the table above.
At December 31, 2017, the non-performing one- to four-family residential category included 28 loans, 18 of which were added during
At December 31, 2017, the non-performing one- to four-family residential category included 28 loans, 18 of which were added during
At December 31, 2017, the non-performing one- to four-family residential category included 28 loans, 18 of which were added during
2017. The largest relationship in this category, which was added during 2017, included nine loans totaling $1.4 million, or 50.6% of
2017. The largest relationship in this category, which was added during 2017, included nine loans totaling $1.4 million, or 50.6% of
2017. The largest relationship in this category, which was added during 2017, included nine loans totaling $1.4 million, or 50.6% of
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing commercial
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing commercial
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing commercial
business category included five loans. The largest relationship in this category totaled $1.5 million, or 73.2% of the total category.
business category included five loans. The largest relationship in this category totaled $1.5 million, or 73.2% of the total category.
business category included five loans. The largest relationship in this category totaled $1.5 million, or 73.2% of the total category.
This relationship, discussed in the paragraph above, was previously collateralized by commercial real estate which has been foreclosed
This relationship, discussed in the paragraph above, was previously collateralized by commercial real estate which has been foreclosed
This relationship, discussed in the paragraph above, was previously collateralized by commercial real estate which has been foreclosed
and subsequently sold. Collection efforts are currently being pursued against the guarantors of the credit relationship. One loan in
and subsequently sold. Collection efforts are currently being pursued against the guarantors of the credit relationship. One loan in
and subsequently sold. Collection efforts are currently being pursued against the guarantors of the credit relationship. One loan in
this category, totaling $2.9 million and secured by the borrower’s interest in a condo project in Branson, Mo, was transferred to
this category, totaling $2.9 million and secured by the borrower’s interest in a condo project in Branson, Mo, was transferred to
this category, totaling $2.9 million and secured by the borrower’s interest in a condo project in Branson, Mo, was transferred to
foreclosed assets during 2017. One loan totaling $970,000 was transferred from potential problem loans during 2017. This loan was
foreclosed assets during 2017. One loan totaling $970,000 was transferred from potential problem loans during 2017. This loan was
foreclosed assets during 2017. One loan totaling $970,000 was transferred from potential problem loans during 2017. This loan was
added to potential problem loans earlier in 2017 and was subsequently transferred to non-performing loans. The loan was charged
added to potential problem loans earlier in 2017 and was subsequently transferred to non-performing loans. The loan was charged
added to potential problem loans earlier in 2017 and was subsequently transferred to non-performing loans. The loan was charged
down $470,000 and the remaining balance at December 31, 2017 is $500,000. The loan is collateralized by the business assets of an
down $470,000 and the remaining balance at December 31, 2017 is $500,000. The loan is collateralized by the business assets of an
down $470,000 and the remaining balance at December 31, 2017 is $500,000. The loan is collateralized by the business assets of an
entity in the St. Louis, Mo. area. The non-performing other residential category included one loan, which was added during 2017.
entity in the St. Louis, Mo. area. The non-performing other residential category included one loan, which was added during 2017.
entity in the St. Louis, Mo. area. The non-performing other residential category included one loan, which was added during 2017.
This loan is collateralized by an apartment project in the central Missouri area and was originated in 2004. The non-performing
This loan is collateralized by an apartment project in the central Missouri area and was originated in 2004. The non-performing
This loan is collateralized by an apartment project in the central Missouri area and was originated in 2004. The non-performing
15
15
15
36
commercial real estate category included six loans, three of which were added during the year. The largest relationship in this
category, which was added during 2017, totaled $667,000, or 54.4% of the total category. This loan is collateralized by commercial
property in the St. Louis, Mo., area. One relationship in this category, which included two loans, had $358,000 of charge-offs during
2017 and the remaining balance of $465,000 was transferred to foreclosed assets. The relationship was collateralized by commercial
entertainment property and other property in Branson, Mo. One loan in this category with a balance of $498,000 was transferred to
foreclosed assets during the period. One relationship in this category, which was collateralized by a theatre property in Branson, Mo.,
incurred charge-offs of $1.2 million and received payments of $480,000 during the year, which paid off the remaining balance of that
loan. The non-performing consumer category included 255 loans, 204 of which were added during the current year, and the majority
of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company has experienced increased
levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans. The non-performing land
development category was zero at December 31, 2017. During the year, one loan, which is the same relationship as one of the loans
discussed in the commercial real estate category, and was collateralized by land in the Branson, Mo. area had charge-offs of $92,000
and received payments of $3.8 million, which paid off the remaining balance of that loan. Also during 2017, one loan in this category
received payments of $1.6 million, which paid off the remaining balance of that loan.
Foreclosed Assets. Of the total $22.0 million of other real estate owned at December 31, 2017, $2.1 million represents the fair value of
foreclosed assets previously covered by FDIC loss sharing agreements, $1.7 million represents foreclosed assets related to Valley
Bank and not previously covered by loss sharing agreements, and $1.6 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 acquired for a potential
branch location . The acquired 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 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,
2017, was as follows:
Beginning
Balance,
Proceeds
Capitalized
ORE Expense
Ending
Balance,
January 1
Additions
from Sales
Costs
Write-Downs
December 31
(In Thousands)
One- to four-family construction
$
—
$
— $
— $
— $
— $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
6,360
10,886
—
1,217
954
3,841
—
1,991
350
—
—
374
161
896
2,876
15,728
(1,297)
(2,431)
—
(1,470)
(1,071)
(2,843)
(2,876)
(15,732)
—
—
—
—
—
—
—
117
—
(1,226)
—
(9)
(21)
(200)
—
—
—
5,413
7,229
—
112
140
1,694
—
1,987
Total
$
25,249
$
20,385 $
(27,720) $
117 $
(1,456) $
16,575
At December 31, 2017, the land development category of foreclosed assets included 17 properties, the largest of which was located in
the Branson, Mo., area and had a balance of $1.2 million, or 17.2% of the total category. One property located in the northwest
Arkansas area and totaling $1.4 million was sold during 2017. Of the total dollar amount in the land development category of
foreclosed assets, 38.6% and 23.0% was located in the Branson, Mo. and the northwest Arkansas areas, respectively, including the
largest property previously mentioned. The subdivision construction category of foreclosed assets included 15 properties, the largest
of which was located in the Springfield, Mo. metropolitan area and had a balance of $1.2 million, or 22.8% of the total category. Of
the total dollar amount in the subdivision construction category of foreclosed assets, 38.2% and 22.8% is located in Branson, Mo. and
Springfield, Mo., respectively, including the largest property previously mentioned. The subdivision construction category of
foreclosed assets had 16 properties with total or partial sales during 2017, totaling $1.3 million. The largest sale was a property in
northwest Arkansas totaling $775,000. The commercial real estate category of foreclosed assets included four properties. The largest
relationship in the commercial real estate category includes commercial properties in Springfield, Mo. and the surrounding area
totaling $500,000, or 29.5% of the total category. The assets of one relationship in the commercial real estate category, which
included one retail property located in Georgia and one retail property located in Texas totaling $1.5 million, were sold during 2017.
One property in the commercial real estate category, which is a hotel located in the western United States totaling $1.1 million, was
sold during the year. The commercial business category of other real estate has a balance of zero as of December 31, 2017, due to the
sale of the one foreclosed property which was added to the category during the year totaling $2.9 million, which was collateralized by
16
commercial real estate category included six loans, three of which were added during the year. The largest relationship in this
category, which was added during 2017, totaled $667,000, or 54.4% of the total category. This loan is collateralized by commercial
property in the St. Louis, Mo., area. One relationship in this category, which included two loans, had $358,000 of charge-offs during
2017 and the remaining balance of $465,000 was transferred to foreclosed assets. The relationship was collateralized by commercial
entertainment property and other property in Branson, Mo. One loan in this category with a balance of $498,000 was transferred to
foreclosed assets during the period. One relationship in this category, which was collateralized by a theatre property in Branson, Mo.,
incurred charge-offs of $1.2 million and received payments of $480,000 during the year, which paid off the remaining balance of that
loan. The non-performing consumer category included 255 loans, 204 of which were added during the current year, and the majority
of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company has experienced increased
levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans. The non-performing land
development category was zero at December 31, 2017. During the year, one loan, which is the same relationship as one of the loans
discussed in the commercial real estate category, and was collateralized by land in the Branson, Mo. area had charge-offs of $92,000
and received payments of $3.8 million, which paid off the remaining balance of that loan. Also during 2017, one loan in this category
received payments of $1.6 million, which paid off the remaining balance of that loan.
Foreclosed Assets. Of the total $22.0 million of other real estate owned at December 31, 2017, $2.1 million represents the fair value of
foreclosed assets previously covered by FDIC loss sharing agreements, $1.7 million represents foreclosed assets related to Valley
Bank and not previously covered by loss sharing agreements, and $1.6 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 acquired for a potential
branch location . The acquired 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 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,
2017, was as follows:
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
$
—
6,360
10,886
—
1,217
954
3,841
—
1,991
— $
350
—
—
374
161
896
2,876
15,728
(In Thousands)
— $
(1,297)
(2,431)
—
(1,470)
(1,071)
(2,843)
(2,876)
(15,732)
— $
—
—
—
—
117
—
—
—
— $
—
(1,226)
—
(9)
(21)
(200)
—
—
—
5,413
7,229
—
112
140
1,694
—
1,987
Total
$
25,249
$
20,385 $
(27,720) $
117 $
(1,456) $
16,575
At December 31, 2017, the land development category of foreclosed assets included 17 properties, the largest of which was located in
the Branson, Mo., area and had a balance of $1.2 million, or 17.2% of the total category. One property located in the northwest
Arkansas area and totaling $1.4 million was sold during 2017. Of the total dollar amount in the land development category of
foreclosed assets, 38.6% and 23.0% was located in the Branson, Mo. and the northwest Arkansas areas, respectively, including the
largest property previously mentioned. The subdivision construction category of foreclosed assets included 15 properties, the largest
of which was located in the Springfield, Mo. metropolitan area and had a balance of $1.2 million, or 22.8% of the total category. Of
the total dollar amount in the subdivision construction category of foreclosed assets, 38.2% and 22.8% is located in Branson, Mo. and
Springfield, Mo., respectively, including the largest property previously mentioned. The subdivision construction category of
foreclosed assets had 16 properties with total or partial sales during 2017, totaling $1.3 million. The largest sale was a property in
northwest Arkansas totaling $775,000. The commercial real estate category of foreclosed assets included four properties. The largest
relationship in the commercial real estate category includes commercial properties in Springfield, Mo. and the surrounding area
totaling $500,000, or 29.5% of the total category. The assets of one relationship in the commercial real estate category, which
included one retail property located in Georgia and one retail property located in Texas totaling $1.5 million, were sold during 2017.
One property in the commercial real estate category, which is a hotel located in the western United States totaling $1.1 million, was
sold during the year. The commercial business category of other real estate has a balance of zero as of December 31, 2017, due to the
sale of the one foreclosed property which was added to the category during the year totaling $2.9 million, which was collateralized by
16
37
the borrower’s interest in a condominium project in Branson, Mo. The other residential category of foreclosed assets included one
the borrower’s interest in a condominium project in Branson, Mo. The other residential category of foreclosed assets included one
the borrower’s interest in a condominium project in Branson, Mo. The other residential category of foreclosed assets included one
property which was added during 2017. All five properties which were held at the beginning of the year were sold, and included in
property which was added during 2017. All five properties which were held at the beginning of the year were sold, and included in
property which was added during 2017. All five properties which were held at the beginning of the year were sold, and included in
those sales were four properties which were part of the same condominium community located in Branson, Mo. totaling $843,000.
those sales were four properties which were part of the same condominium community located in Branson, Mo. totaling $843,000.
those sales were four properties which were part of the same condominium community located in Branson, Mo. totaling $843,000.
The larger amount of additions and sales under consumer loans are due to a higher volume of repossessions of automobiles, which
The larger amount of additions and sales under consumer loans are due to a higher volume of repossessions of automobiles, which
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. The Company experienced increased levels of delinquencies and repossessions
generally are subject to a shorter repossession process. The Company experienced increased levels of delinquencies and repossessions
generally are subject to a shorter repossession process. The Company experienced increased levels of delinquencies and repossessions
in indirect used automobile loans throughout 2016 and 2017.
in indirect used automobile loans throughout 2016 and 2017.
in indirect used automobile loans throughout 2016 and 2017.
Amortization of income related to business acquisitions: Because of the termination of FDIC loss sharing agreements in previous
periods, the net amortization expense related to business acquisitions was $486,000 for the year ended December 31, 2017, compared
to $6.4 million for the year ended December 31, 2016. The amortization expense for the year ended December 31, 2017, consisted of
the following items: $504,000 of amortization expense related to the changes in cash flows expected to be collected from the FDIC-
covered loan portfolios acquired from InterBank and $140,000 of amortization of the clawback liability. Partially offsetting the
expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
Potential Problem Loans. Potential problem loans increased $975,000 during the year ended December 31, 2017, from $7.0 million at
Potential Problem Loans. Potential problem loans increased $975,000 during the year ended December 31, 2017, from $7.0 million at
Potential Problem Loans. Potential problem loans increased $975,000 during the year ended December 31, 2017, from $7.0 million at
December 31, 2016 to $7.9 million at December 31, 2017. This increase was due to the addition of $9.7 million of loans to potential
December 31, 2016 to $7.9 million at December 31, 2017. This increase was due to the addition of $9.7 million of loans to potential
December 31, 2016 to $7.9 million at December 31, 2017. This increase was due to the addition of $9.7 million of loans to potential
problem loans, partially offset by $5.9 million in loans transferred to the non-performing category, $1.0 million in loans removed from
problem loans, partially offset by $5.9 million in loans transferred to the non-performing category, $1.0 million in loans removed from
problem loans, partially offset by $5.9 million in loans transferred to the non-performing category, $1.0 million in loans removed from
potential problem loans due to improvements in the credits, $72,000 in charge-offs, $89,000 in loans transferred to foreclosed assets,
potential problem loans due to improvements in the credits, $72,000 in charge-offs, $89,000 in loans transferred to foreclosed assets,
potential problem loans due to improvements in the credits, $72,000 in charge-offs, $89,000 in loans transferred to foreclosed assets,
and $1.7 million in payments on potential problem loans. Potential problem loans are loans which management has identified through
and $1.7 million in payments on potential problem loans. Potential problem loans are loans which management has identified through
and $1.7 million in payments on 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
routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in complying with
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
current repayment terms. These loans are not reflected in non-performing assets, but are considered in determining the adequacy of the
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, 2017, was as follows:
allowance for loan losses. Activity in the potential problem loans category during the year ended December 31, 2017, was as follows:
allowance for loan losses. Activity in the potential problem loans category during the year ended December 31, 2017, 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 Potential
from Potential
from Potential
Non-
Non-
Non-
Foreclosed
Foreclosed
Foreclosed
Ending
Ending
Ending
Balance,
Balance,
Balance,
January 1
January 1
January 1
Additions
Additions
Additions
Problem
Problem
Problem
Performing
Performing
Performing
Assets
Assets
Assets
Charge-Offs
Charge-Offs
Charge-Offs
Payments
Payments
Payments
December 31
December 31
December 31
(In Thousands)
(In Thousands)
(In Thousands)
Late charges and fees on loans: Late charges and fees on loans increased $484,000 compared to the prior year. The increase was
primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships during 2017.
Net gains on loan sales: Net gains on loan sales decreased $791,000 compared to the prior year. The decrease was due to a decrease
in originations of fixed-rate loans in 2017 compared to 2016, which resulted in fewer loan sales during 2017. Fixed rate single-family
loans originated are generally subsequently sold in the secondary market.
Other income: Other income decreased $825,000 compared to the prior year. During 2016, the Company recognized gains of
$367,000 on the sale of the two branches in Southwest Missouri. In addition, a gain of $238,000 was recognized on sales of fixed
assets unrelated to the branch sales during 2016. There were no similar transactions during 2017. There were net losses on the
disposal of certain fixed assets, including ATMs, during the year ended December 31, 2017 of approximately $114,000, with no
significant losses on the disposal of fixed assets in the comparable prior year.
Net realized gains on sales of available-for-sale securities: During 2016, the Company sold an investment held by Bancorp for a gain
of $2.7 million and sold other investment securities for a net gain of $144,000. There were no gains on sales of investments in the
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
—
—
—
4,135
4,135
4,135
—
—
—
439
439
439
—
—
—
2,062
2,062
2,062
204
204
204
122
122
122
—
—
—
139
139
139
—
—
—
1,102
1,102
1,102
—
—
—
6,569
6,569
6,569
1,387
1,387
1,387
561
561
561
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,029)
(1,029)
(1,029)
—
—
—
(10)
(10)
(10)
—
—
—
(3,980)
(3,980)
(3,980)
—
—
—
(131)
(131)
(131)
—
—
—
(803)
(803)
(803)
(970)
(970)
(970)
(28)
(28)
(28)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(290)
(290)
(290)
—
—
—
(89)
(89)
(89)
(72)
(72)
(72)
(127)
(127)
(127)
1,122
1,122
1,122
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,040)
(1,040)
(1,040)
5,759
5,759
5,759
(118)
(118)
(118)
(96)
(96)
(96)
503
503
503
549
549
549
—
—
—
—
—
—
4
4
4
—
—
—
current year.
Non-Interest Expense
Total
Total
Total
$
$
$
6,962 $
6,962 $
6,962 $
9,758 $
9,758 $
9,758 $
(1,039) $
(1,039) $
(1,039) $
(5,912) $
(5,912) $
(5,912) $
(89) $
(89) $
(89) $
(72) $
(72) $
(72) $
(1,671) $
(1,671) $
(1,671) $
7,937
7,937
7,937
At December 31, 2017, the commercial real estate category of potential problem loans included three loans, all of which were part of
At December 31, 2017, the commercial real estate category of potential problem loans included three loans, all of which were part of
At December 31, 2017, the commercial real estate category of potential problem loans included three loans, all of which were part of
the same customer relationship. This relationship, totaling $5.8 million, or 100.0% of the total category, is collateralized by theatre
the same customer relationship. This relationship, totaling $5.8 million, or 100.0% of the total category, is collateralized by theatre
the same customer relationship. This relationship, totaling $5.8 million, or 100.0% of the total category, is collateralized by theatre
and retail property in Branson, Mo. This is a long-term customer of the Bank and these loans were all originated prior to 2008. The
and retail property in Branson, Mo. This is a long-term customer of the Bank and these loans were all originated prior to 2008. The
and retail property in Branson, Mo. This is a long-term customer of the Bank and these loans were all originated prior to 2008. The
borrower is experiencing cash flow issues due to vacancies in some of the properties and the loans were added to potential problem
borrower is experiencing cash flow issues due to vacancies in some of the properties and the loans were added to potential problem
borrower is experiencing cash flow issues due to vacancies in some of the properties and the loans were added to potential problem
loans during 2017. $963,000 of the payments in the category related to one relationship, the remainder of which was moved to non-
loans during 2017. $963,000 of the payments in the category related to one relationship, the remainder of which was moved to non-
loans during 2017. $963,000 of the payments in the category related to one relationship, the remainder of which was moved to non-
performing loans during 2017. The one- to four-family residential category of potential problem loans included 16 loans, 10 of which
performing loans during 2017. The one- to four-family residential category of potential problem loans included 16 loans, 10 of which
performing loans during 2017. The one- to four-family residential category of potential problem loans included 16 loans, 10 of which
were added during 2017. The commercial business category of potential problem loans included five loans, one of which was added
were added during 2017. The commercial business category of potential problem loans included five loans, one of which was added
were added during 2017. The commercial business category of potential problem loans included five loans, one of which was added
during 2017. One loan in this category totaling $970,000 was added to potential problem loans during 2017 and then subsequently
during 2017. One loan in this category totaling $970,000 was added to potential problem loans during 2017 and then subsequently
during 2017. One loan in this category totaling $970,000 was added to potential problem loans during 2017 and then subsequently
transferred to non-performing loans during the year, and is discussed above in non-performing loans. The consumer category of
transferred to non-performing loans during the year, and is discussed above in non-performing loans. The consumer category of
transferred to non-performing loans during the year, and is discussed above in non-performing loans. The consumer category of
potential problem loans included 43 loans, 36 of which were added during 2017. The land development category of potential
potential problem loans included 43 loans, 36 of which were added during 2017. The land development category of potential
potential problem loans included 43 loans, 36 of which were added during 2017. The land development category of potential
problem loans decreased from December 31, 2016 primarily due to the transfer of one loan totaling $3.8 million to the non-performing
problem loans decreased from December 31, 2016 primarily due to the transfer of one loan totaling $3.8 million to the non-performing
problem loans decreased from December 31, 2016 primarily due to the transfer of one loan totaling $3.8 million to the non-performing
loans category, which is discussed above in non-performing loans.
loans category, which is discussed above in non-performing loans.
loans category, which is discussed above in non-performing loans.
Non-Interest Income
Non-Interest Income
Non-Interest Income
Non-interest income for the year ended December 31, 2017 was $38.5 million compared with $28.5 million for the year ended
Non-interest income for the year ended December 31, 2017 was $38.5 million compared with $28.5 million for the year ended
Non-interest income for the year ended December 31, 2017 was $38.5 million compared with $28.5 million for the year ended
December 31, 2016. The increase of $10.0 million, or 35.1%, was primarily the result of the following items:
December 31, 2016. The increase of $10.0 million, or 35.1%, was primarily the result of the following items:
December 31, 2016. The increase of $10.0 million, or 35.1%, was primarily the result of the following items:
Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As previously disclosed in the Company’s Current
Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As previously disclosed in the Company’s Current
Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As previously disclosed in the Company’s Current
Report on Form 8-K filed on June 9, 2017, the Company’s loss sharing agreement with the FDIC related to Inter Savings Bank was
Report on Form 8-K filed on June 9, 2017, the Company’s loss sharing agreement with the FDIC related to Inter Savings Bank was
Report on Form 8-K filed on June 9, 2017, the Company’s loss sharing agreement with the FDIC related to Inter Savings Bank was
terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated
terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated
terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated
agreement. The Company recognized a one-time gross gain in 2017 of $7.7 million related to the termination.
agreement. The Company recognized a one-time gross gain in 2017 of $7.7 million related to the termination.
agreement. The Company recognized a one-time gross gain in 2017 of $7.7 million related to the termination.
17
17
17
38
Total non-interest expense decreased $6.1 million, or 5.1%, from $120.4 million in the year ended December 31, 2016, to $114.3
million in the year ended December 31, 2017. The Company’s efficiency ratio for the year ended December 31, 2017 was 58.99%, a
decrease from 62.86% in 2016. The improvement in the ratio for 2017 was primarily due to the decrease in non-interest expense and
the increase in non-interest income (significantly impacted by the gain on the termination of the loss sharing agreements for the Inter
Savings Bank FDIC-assisted transaction), partially offset by the decrease in net interest income. The Company’s ratio of non-interest
expense to average assets decreased from 2.76% for the year ended December 31, 2016, to 2.56% for the year ended December 31,
2017. The decrease in the current year ratio was due to the decrease in non-interest expense and the increase in average assets in 2017
compared to 2016. Average assets for the year ended December 31, 2017, increased $89.4 million, or 2.0%, from the year ended
December 31, 2016, primarily due to organic loan growth, partially offset by decreases in investment securities.
The following were key items related to the decrease in non-interest expense for the year ended December 31, 2017 as compared to
the year ended December 31, 2016:
Fifth Third Bank branch acquisition expenses: During 2016, the Company incurred approximately $1.4 million of one-time expenses
related to the acquisition of certain branches from Fifth Third Bank. Those expenses included approximately $124,000 of
compensation expense, approximately $385,000 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 $79,000 of travel, meals and other expenses related to the transaction.
Salaries and employee benefits: Salaries and employee benefits decreased $343,000 from the prior year. In 2016, the Company
incurred one-time acquisition related net salary and retention bonus and other compensation expenses paid as part of the Fifth Third
branch transaction totaling $124,000. Subsequent to the transaction, some employees related to those operations left the Company and
many were not replaced. Compensation expense also decreased due to a reduction in incentive compensation for loan originators and
staff due to fewer residential loan originations in 2017 than in 2016. The Company also recently reorganized some staff functions in
certain areas to operate more efficiently. In addition, there are budgeted but unfilled positions in various areas of the Company that
have resulted in lower compensation costs in these areas. These decreases were partially offset by the increase of $1.1 million related
to the special employee bonuses paid to all employees who were employed by the Company on December 31, 2017. These bonuses
were in response to the new federal tax reform legislation.
Net occupancy expense: Net occupancy expense decreased $1.5 million in the year ended December 31, 2017 compared to 2016. The
decrease was primarily due to furniture, fixtures and equipment, and computer equipment which became fully depreciated during the
past year resulting in less depreciation expense during the current year. During 2016, the Company had one-time expenses as part of
the acquisition of the Fifth Third banking centers of $279,000 and increased computer license and support costs of $247,000 with no
similar expenses in the current year.
18
Amortization of income related to business acquisitions: Because of the termination of FDIC loss sharing agreements in previous
periods, the net amortization expense related to business acquisitions was $486,000 for the year ended December 31, 2017, compared
to $6.4 million for the year ended December 31, 2016. The amortization expense for the year ended December 31, 2017, consisted of
the following items: $504,000 of amortization expense related to the changes in cash flows expected to be collected from the FDIC-
covered loan portfolios acquired from InterBank and $140,000 of amortization of the clawback liability. Partially offsetting the
expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
Late charges and fees on loans: Late charges and fees on loans increased $484,000 compared to the prior year. The increase was
primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships during 2017.
Net gains on loan sales: Net gains on loan sales decreased $791,000 compared to the prior year. The decrease was due to a decrease
in originations of fixed-rate loans in 2017 compared to 2016, which resulted in fewer loan sales during 2017. Fixed rate single-family
loans originated are generally subsequently sold in the secondary market.
Other income: Other income decreased $825,000 compared to the prior year. During 2016, the Company recognized gains of
$367,000 on the sale of the two branches in Southwest Missouri. In addition, a gain of $238,000 was recognized on sales of fixed
assets unrelated to the branch sales during 2016. There were no similar transactions during 2017. There were net losses on the
disposal of certain fixed assets, including ATMs, during the year ended December 31, 2017 of approximately $114,000, with no
significant losses on the disposal of fixed assets in the comparable prior year.
Net realized gains on sales of available-for-sale securities: During 2016, the Company sold an investment held by Bancorp for a gain
of $2.7 million and sold other investment securities for a net gain of $144,000. There were no gains on sales of investments in the
current year.
Non-Interest Expense
Total non-interest expense decreased $6.1 million, or 5.1%, from $120.4 million in the year ended December 31, 2016, to $114.3
million in the year ended December 31, 2017. The Company’s efficiency ratio for the year ended December 31, 2017 was 58.99%, a
decrease from 62.86% in 2016. The improvement in the ratio for 2017 was primarily due to the decrease in non-interest expense and
the increase in non-interest income (significantly impacted by the gain on the termination of the loss sharing agreements for the Inter
Savings Bank FDIC-assisted transaction), partially offset by the decrease in net interest income. The Company’s ratio of non-interest
expense to average assets decreased from 2.76% for the year ended December 31, 2016, to 2.56% for the year ended December 31,
2017. The decrease in the current year ratio was due to the decrease in non-interest expense and the increase in average assets in 2017
compared to 2016. Average assets for the year ended December 31, 2017, increased $89.4 million, or 2.0%, from the year ended
December 31, 2016, primarily due to organic loan growth, partially offset by decreases in investment securities.
The following were key items related to the decrease in non-interest expense for the year ended December 31, 2017 as compared to
the year ended December 31, 2016:
Fifth Third Bank branch acquisition expenses: During 2016, the Company incurred approximately $1.4 million of one-time expenses
related to the acquisition of certain branches from Fifth Third Bank. Those expenses included approximately $124,000 of
compensation expense, approximately $385,000 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 $79,000 of travel, meals and other expenses related to the transaction.
Salaries and employee benefits: Salaries and employee benefits decreased $343,000 from the prior year. In 2016, the Company
incurred one-time acquisition related net salary and retention bonus and other compensation expenses paid as part of the Fifth Third
branch transaction totaling $124,000. Subsequent to the transaction, some employees related to those operations left the Company and
many were not replaced. Compensation expense also decreased due to a reduction in incentive compensation for loan originators and
staff due to fewer residential loan originations in 2017 than in 2016. The Company also recently reorganized some staff functions in
certain areas to operate more efficiently. In addition, there are budgeted but unfilled positions in various areas of the Company that
have resulted in lower compensation costs in these areas. These decreases were partially offset by the increase of $1.1 million related
to the special employee bonuses paid to all employees who were employed by the Company on December 31, 2017. These bonuses
were in response to the new federal tax reform legislation.
Net occupancy expense: Net occupancy expense decreased $1.5 million in the year ended December 31, 2017 compared to 2016. The
decrease was primarily due to furniture, fixtures and equipment, and computer equipment which became fully depreciated during the
past year resulting in less depreciation expense during the current year. During 2016, the Company had one-time expenses as part of
the acquisition of the Fifth Third banking centers of $279,000 and increased computer license and support costs of $247,000 with no
similar expenses in the current year.
18
39
Partnership tax credit: Partnership tax credit expense decreased $751,000 in the year ended December 31, 2017 compared to 2016.
The decrease was primarily due to the end of the amortization period for some of the Company’s new market tax credits and the
investment in those tax credits has been written off.
Insurance expense: Insurance expense decreased $523,000 in the year ended December 31, 2017 compared to the prior year primarily
due to a reduction in FDIC insurance premiums resulting from a change in the FDIC insurance assessment rates, which went into
effect during the fourth quarter of 2016.
Postage: Postage decreased $330,000 from the prior year. During 2016, the Company incurred significant postage costs due to branch
acquisitions and sales and the mailing of chip-enabled debit cards.
Legal, audit and other professional fees: Legal, audit and other professional fees decreased $329,000 from the prior year due to
additional expenses in 2016 related to the Fifth Third transaction, as noted in the Fifth Third Bank branch acquisition expenses above.
Other operating expenses: Other operating expenses decreased $1.5 million in the year ended December 31, 2017 compared to the
prior year. The decrease in other operating expenses was primarily due to higher levels of debit card and check fraud losses in the
prior year. In 2016, the Company experienced debit card and check fraud losses totaling $1.9 million, a significant portion of which
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. In the 2017 period, the Company experienced debit card and check
fraud losses totaling $1.0 million. Additionally, $436,000 of the decrease in operating expenses is the charge in 2016 to replace Fifth
Third customer checks as discussed above.
Provision for Income Taxes
For the years ended December 31, 2017 and 2016, the Company's effective tax rate was 26.7% and 26.7%, respectively. These
effective rates were 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. 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 pre-tax income. The Company’s effective tax rate was higher than its typical effective
tax rate in the 2016 and 2017 years due to increased net income resulting from the gain on termination of the loss sharing agreements
for the Inter Savings Bank FDIC-assisted transaction (2017) and gains on the sales of investments (2016).
On December 22, 2017, the H.R.1, originally known as the “Tax Cuts and Jobs Act” (the “Act”) was signed into law. Among other
things, the Act permanently lowers the corporate federal income tax rate to 21% from the prior maximum rate of 35%, effective for
tax years including or commencing January 1, 2018. As a result of the reduction of the corporate federal income tax rate to 21%, U.S.
generally accepted accounting principles require companies to perform a revaluation of their deferred tax assets and liabilities as of the
date of enactment, with the resulting tax effects accounted for in the reporting period of enactment (the year ended December 31,
2017). Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements, which will result in taxable or deductible amounts in future years. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are
expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
income tax expense.
Based upon current accounting guidance and the utilization and recognition of the timing differences referred to above, the Company
recorded a net decrease in income tax expense of approximately $250,000. This net decrease in income tax expense was comprised of
a $2.1 million decrease from the adjustment of net deferred tax liabilities resulting from enactment of the Act, partially offset by the
impacts of other tax planning strategies implemented. This impact on the Company’s net deferred tax liabilities, which includes,
among other things, the timing of recognition of various revenues and expenses, is based upon a review and analysis of the
Company’s net deferred tax liabilities at December 31, 2017, as well as expected adjustments to various deferred tax assets and
deferred tax liabilities in the three months and year ended December 31, 2017, including those accounted for in accumulated other
comprehensive income.
In addition, the Company currently expects its effective tax rate (combined federal and state) to decrease from approximately 26.7% in
2017 to approximately 15.5% to 17.5% in 2018, mainly as a result of the Act. The Company's effective income tax rate is expected to
continue to be less than the statutory rate due primarily to investments in low-income housing tax credit projects and tax-exempt
obligations. The Company’s effective tax rate could change in future periods based on changes in the level of investments in tax credit
projects and tax-exempt obligations, as well as changes in the level of overall pre-tax earnings.
19
40
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and
the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period.
Interest income on loans includes interest received on non-accrual loans on a cash basis. Interest income on loans includes the
amortization of net loan fees which were deferred in accordance with accounting standards. Fees included in interest income were
$2.9 million, $5.0 million and $4.4 million for 2017, 2016 and 2015, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
Dec. 31,
2017(2)
Yield/
Rate
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Average
Balance
Interest
Yield/
Rate
Average
Balance
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Interest
(Dollars In Thousands)
4.16%
$ 22,102
4.81%
$ 28,674
5.32%
$ 34,653
7.54%
$ 459,227
706,217
1,240,017
454,907
295,379
632,968
25,845
31,970
54,911
21,099
14,666
30,356
1,550
4.53
4.43
4.64
4.97
4.80
6.00
$ 538,776
535,793
1,146,983
394,051
316,526
693,550
33,681
25,052
53,516
18,059
17,389
34,176
2,017
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
21,236
50,952
15,538
19,137
33,377
2,347
5.01
4.75
4.56
5.83
5.86
5.55
Total loans receivable
3,814,560
176,654
4.63
3,659,360
178,883
4.89
3,235,787
177,240
5.48
207,803
121,604
5,195
1,212
2.50
1.00
249,484
116,812
5,741
551
2.30
0.47
330,328
152,720
6,797
314
2.06
0.21
4.56
4,143,967
183,061
4.42
4,025,656
185,175
4.60
3,718,835
184,351
4.96
103,505
212,724
$4,460,196
108,593
236,544
$4,370,793
106,326
242,238
$4,067,399
$ 1,555,375
1,414,189
2,969,564
4,698
15,897
20,595
0.30
1.12
0.69
$ 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
186,364
747
0.40
327,658
1,137
0.35
192,055
65
0.03
25,774
73,613
93,524
949
4,098
1,516
3.68
5.57
1.62
25,774
28,526
68,325
803
1,578
1,214
3.12
5.53
1.78
28,754
—
175,873
714
2.48
— —
1,707
0.97
0.89
3,348,839
27,905
0.83
3,318,055
22,119
0.67
3,058,230
15,997
0.52
629,015
26,638
4,004,492
455,704
$4,460,196
608,115
29,824
3,955,994
414,799
$4,370,793
541,714
28,772
3,628,716
438,683
$4,067,399
3.67%
$155,156
3.59%
3.74%
$163,056
3.93%
4.05%
$168,354
4.44%
4.53%
123.7%
121.3%
121.6%
* 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 $61.5 million, $72.0 million and $79.9 million for 2017,
2016 and 2015, respectively. In addition, average tax-exempt industrial revenue bonds were $28.6 million, $32.0 million and $36.1 million in 2017, 2016 and
2015, respectively. Interest income on tax-exempt assets included in this table was $3.3 million, $3.8 million and $4.4 million for 2017, 2016 and 2015,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $3.1 million, $3.7 million and $4.2 million for 2017, 2016 and
2015, respectively.
(2) The yield/rate on loans at December 31, 2017 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 2017 results of operations.
20
4.51
4.42
4.40
4.71
6.04
5.20
4.74
2.95
1.44
0.32
1.24
0.75
0.30
2.98
5.57
1.53
Interest-earning assets:
Loans receivable:
One- to four-family
residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
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
21
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and
the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period.
Interest income on loans includes interest received on non-accrual loans on a cash basis. Interest income on loans includes the
amortization of net loan fees which were deferred in accordance with accounting standards. Fees included in interest income were
$2.9 million, $5.0 million and $4.4 million for 2017, 2016 and 2015, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
Dec. 31,
2017(2)
Yield/
Rate
4.16%
4.51
4.42
4.40
4.71
6.04
5.20
4.74
2.95
1.44
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 459,227
706,217
1,240,017
454,907
295,379
632,968
25,845
$ 22,102
31,970
54,911
21,099
14,666
30,356
1,550
4.81%
4.53
4.43
4.64
4.97
4.80
6.00
$ 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
3,814,560
176,654
4.63
3,659,360
178,883
4.89
3,235,787
177,240
5.48
207,803
121,604
5,195
1,212
2.50
1.00
249,484
116,812
5,741
551
2.30
0.47
330,328
152,720
6,797
314
2.06
0.21
4.56
4,143,967
183,061
4.42
4,025,656
185,175
4.60
3,718,835
184,351
4.96
103,505
212,724
$4,460,196
108,593
236,544
$4,370,793
106,326
242,238
$4,067,399
0.32
1.24
0.75
0.30
2.98
5.57
1.53
$ 1,555,375
1,414,189
2,969,564
4,698
15,897
20,595
0.30
1.12
0.69
$ 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
186,364
747
0.40
327,658
1,137
0.35
192,055
65
0.03
25,774
73,613
93,524
949
4,098
1,516
3.68
5.57
1.62
25,774
28,526
68,325
803
1,578
1,214
3.12
5.53
1.78
28,754
—
175,873
2.48
714
— —
0.97
1,707
0.89
3,348,839
27,905
0.83
3,318,055
22,119
0.67
3,058,230
15,997
0.52
629,015
26,638
4,004,492
455,704
$4,460,196
608,115
29,824
3,955,994
414,799
$4,370,793
541,714
28,772
3,628,716
438,683
$4,067,399
3.67%
$155,156
3.59%
3.74%
$163,056
3.93%
4.05%
$168,354
4.44%
4.53%
123.7%
121.3%
121.6%
Interest-earning assets:
Loans receivable:
One- to four-family
residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
Total loans receivable
Investment securities (1)
Other interest-earning assets
Total interest-earning
assets
Non-interest-earning assets:
Cash and cash equivalents
Other non-earning assets
Total assets
Interest-bearing liabilities:
Interest-bearing demand and
savings
Time deposits
Total deposits
Short-term borrowings and
repurchase agreements
Subordinated debentures
issued to capital trust
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 $61.5 million, $72.0 million and $79.9 million for 2017,
2016 and 2015, respectively. In addition, average tax-exempt industrial revenue bonds were $28.6 million, $32.0 million and $36.1 million in 2017, 2016 and
2015, respectively. Interest income on tax-exempt assets included in this table was $3.3 million, $3.8 million and $4.4 million for 2017, 2016 and 2015,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $3.1 million, $3.7 million and $4.2 million for 2017, 2016 and
2015, respectively.
(2) The yield/rate on loans at December 31, 2017 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See
20
“Net Interest Income” for a discussion of the effect on 2017 results of operations.
41
21
Rate/Volume Analysis
Interest Income - Loans
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-
earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii)
changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated
on a tax equivalent basis.
Year Ended
December 31, 2017 vs.
December 31, 2016
Year Ended
December 31, 2016 vs.
December 31, 2015
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
repurchase agreements
$
$
(9,638)
468
638
(8,532)
$
7,409
(1,014)
23
6,418
$
(2,229)
(546)
661
(2,114)
$
(20,188)
740
326
(19,122)
$
21,831
(1,796)
(89)
19,946
653
1,961
2,614
156
157
437
594
(546)
—
2,304
416
2,768
3,650
$
810
2,398
3,208
(390)
146
2,520
302
5,786
(7,900)
832
1,825
2,657
996
168
—
919
4,740
(23,862)
$
$
198
1,021
1,219
76
(79)
1,578
(1,412)
1,382
18,564
$
Subordinated debentures issued
to capital trust
Subordinated notes
FHLBank advances
Total interest-bearing liabilities
Net interest income
$
146
216
(114)
3,018
(11,550)
$
1,643
(1,056)
237
824
1,030
2,846
3,876
1,072
89
1,578
(493)
6,122
(5,298)
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
$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.
22
42
23
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 year ended
December 31, 2016 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 related loss sharing agreements with the FDIC, which were recorded as indemnification assets
prior to the termination of the loss sharing agreements in 2017. Therefore, the expected indemnification asset also was reduced in
2016, resulting in adjustments that were to be amortized on a comparable basis until the loss sharing agreements were terminated or
the remaining expected life of the loan pools, whichever was 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.
Apart from the yield accretion from the acquired loan pools, 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."
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.
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 year ended
December 31, 2016 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 related loss sharing agreements with the FDIC, which were recorded as indemnification assets
prior to the termination of the loss sharing agreements in 2017. Therefore, the expected indemnification asset also was reduced in
2016, resulting in adjustments that were to be amortized on a comparable basis until the loss sharing agreements were terminated or
the remaining expected life of the loan pools, whichever was 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.
Apart from the yield accretion from the acquired loan pools, 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."
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.
23
43
Total Interest Expense
Net Interest Income
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 subordinated notes issued in August 2016 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.
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.
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.
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.
24
44
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 were 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 subordinated notes issued in August 2016 paid interest at an average rate of 553 basis
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
points.
Report.
Provision for Loan Losses and Allowance for Loan Losses
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 loss sharing agreements between
the FDIC and Great Southern Bank, which afforded Great Southern Bank at least 80% protection from losses in the acquired portfolio
of loans. The FDIC loss sharing agreements were subject to limitations on the types of losses covered and the length of time losses
were covered and was 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. In April 2016, the loss sharing
agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated and in June 2017 the loss sharing agreements for
InterBank 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 considered 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 then-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.
25
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 were 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 subordinated notes issued in August 2016 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
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 loss sharing agreements between
the FDIC and Great Southern Bank, which afforded Great Southern Bank at least 80% protection from losses in the acquired portfolio
of loans. The FDIC loss sharing agreements were subject to limitations on the types of losses covered and the length of time losses
were covered and was 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. In April 2016, the loss sharing
agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated and in June 2017 the loss sharing agreements for
InterBank 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 considered 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 then-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.
25
45
Non-performing Assets
Non-performing Assets
Former TeamBank, Vantus Bank, Sun Security Bank and InterBank non-performing assets, including foreclosed assets and potential
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
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 were subject to loss sharing agreements with the FDIC, which covered at least 80% of principal losses that could
assets below as they were subject to loss sharing agreements with the FDIC, which covered at least 80% of principal losses that could
be incurred in these portfolios for the applicable terms under the agreements. In addition, these assets were initially recorded at their
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
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
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
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
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.
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
As previously discussed, the remaining loss sharing agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated
in April 2016 and the loss sharing agreements for InterBank were terminated in June 2017.
in April 2016 and the loss sharing agreements for InterBank were terminated in June 2017.
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
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.
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,
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,
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
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.
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
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
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
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
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
million during 2016. Another relationship totaling $982,000 was transferred to foreclosed assets. In addition, $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
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
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-
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.
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:
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
(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
—
—
139
139
—
—
1,357
1,357
—
—
13,488
13,488
288
288
1,297
1,297
143
143
1,635
1,635
—
—
1,834
1,834
178
178
6,949
6,949
3,448
3,448
4,842
4,842
—
—
—
—
—
—
—
—
—
—
—
—
(84)
(84)
(103)
(103)
—
—
—
—
—
—
(259)
(259)
—
—
—
—
(78)
(78)
(114)
(114)
—
—
—
—
—
—
(412)
(412)
—
—
—
—
(30)
(30)
—
—
(197)
(197)
(16)
(16)
(34)
(34)
109
109
(26)
(26)
1,718
1,718
—
—
—
—
(433)
(433)
1,962
1,962
—
—
162
162
(7,249)
(7,249)
(3,455)
(3,455)
(5,329)
(5,329)
4,404
4,404
—
—
(666)
(666)
(185)
(185)
(385)
(385)
3,088
3,088
(990)
(990)
(1,472)
(1,472)
2,638
2,638
Total
Total
$
$
16,569 $
16,569 $
19,029 $
19,029 $
(343) $
(343) $
(295) $
(295) $
(8,327) $
(8,327) $
(4,873) $
(4,873) $
(7,679) $
(7,679) $
14,081
14,081
26
26
46
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
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.
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,
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.,
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
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
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
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
$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.
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
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
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
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
foreclosed assets during the year ended December 31, 2016, was as follows:
Beginning
Balance,
Proceeds
Capitalized
ORE Expense
Ending
Balance,
January 1
Additions
from Sales
Costs
Write-Downs
December 31
(In Thousands)
One- to four-family construction
$
—
$
— $
— $
— $
— $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
7,016
12,133
—
1,375
2,150
3,608
—
1,109
—
—
—
477
—
7,094
—
(362)
(1,247)
—
(435)
(1,252)
(6,170)
—
13,332
(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
27
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
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.
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,
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.,
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
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
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
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
$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.
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
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
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
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
foreclosed assets during the year ended December 31, 2016, was as follows:
Beginning
Balance,
January 1
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
$
—
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
27
47
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:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Potential
Non-
Foreclosed
Ending
Balance,
January 1
Additions
Problem
Performing
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
— $
— $
— $
— $
— $
— $
— $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
288
4,130
—
844
1,956
5,286
181
134
—
5
—
196
178
7,626
284
221
(141)
—
—
(410)
—
(1,802)
(153)
(126)
(143)
—
—
(101)
(178)
(5,544)
—
(75)
—
—
—
(65)
—
—
—
—
—
—
—
(2)
—
(2,142)
(68)
—
(4)
—
—
(23)
(1,956)
(1,362)
(40)
(32)
—
—
4,135
—
439
—
2,062
204
122
Total
$
12,819 $
8,510 $
(2,632) $
(6,041) $
(65) $
(2,212) $
(3,417) $
6,962
December 31, 2016 as compared to the year ended December 31, 2015:
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
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
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
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
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
was referenced above in the land development category.
28
48
29
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
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
$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
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
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 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
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
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
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.
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,
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 ratio for the year ended December 31, 2016 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
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.
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
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
$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
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
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 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
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
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
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.
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,
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 ratio for the year ended December 31, 2016 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.
29
49
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 though the Company’s consumer loan
portfolio decreased in 2017.
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.
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.
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, 2017, the Company had commitments of approximately $184.8 million to fund loan originations, $1.05 billion of
unused lines of credit and unadvanced loans, and $20.0 million of outstanding letters of credit.
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2017. Additional information regarding these contractual obligations is discussed further in Notes 8, 9, 10, 11, 12, 13, 16 and 19 of the
accompanying audited financial statements.
Deposits without a stated maturity
Time and brokered certificates of deposit
Federal Home Loan Bank advances
Short-term borrowings
Subordinated debentures
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
$ 2,227,300
1,013,814
127,500
97,135
—
—
877
3,381
(In Thousands)
$
$
353,857
—
—
—
—
—
—
1,795
2,173
—
—
—
25,774
73,688
473
—
$ 2,227,300
1,369,844
127,500
97,135
25,774
73,688
3,145
3,381
$3,470,007
$355,652
$102,108
$3,927,767
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, 2017 and 2016, the Company had these available secured lines and on-balance sheet liquidity:
December 31, 2017
December 31, 2016
Federal Home Loan Bank line
Federal Reserve Bank line
Interest-Bearing and Non-Interest-Bearing
Deposits
Unpledged Securities
$570.5 million
528.9 million
242.3 million
46.4 million
$551.0 million
602.0 million
279.8 million
50.7 million
Statements of Cash Flows. During the years ended December 31, 2017, 2016 and 2015, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during the year ended December 31,
2017 and negative cash flows from investing activities during the years ended December 31, 2016 and 2015. The Company
experienced negative cash flows from financing activities during the year ended December 31, 2017 and positive cash flows from
financing activities during the years ended December 31, 2016 and 2015.
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 or losses on the termination of loss sharing agreements 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 $62.8
million, $80.6 million and $71.4 million during the years ended December 31, 2017, 2016 and 2015, respectively.
During the year ended December 31, 2017, investing activities provided cash of $81.4 million, primarily due to the cash received from
the FDIC loss sharing termination reimbursement, proceeds from the sale of other real estate owned and the net repayment of
investment securities. During the years ended December 31, 2016 and 2015, investing activities used cash of $198.7 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.
30
50
31
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2017. Additional information regarding these contractual obligations is discussed further in Notes 8, 9, 10, 11, 12, 13, 16 and 19 of the
accompanying audited financial statements.
Deposits without a stated maturity
Time and brokered certificates of deposit
Federal Home Loan Bank advances
Short-term borrowings
Subordinated debentures
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
$ 2,227,300
1,013,814
127,500
97,135
—
—
877
3,381
(In Thousands)
$
—
353,857
—
—
—
—
1,795
—
$
—
2,173
—
—
25,774
73,688
473
—
$ 2,227,300
1,369,844
127,500
97,135
25,774
73,688
3,145
3,381
$ 3,470,007
$ 355,652
$ 102,108
$ 3,927,767
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, 2017 and 2016, 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, 2017
$570.5 million
528.9 million
December 31, 2016
$551.0 million
602.0 million
242.3 million
46.4 million
279.8 million
50.7 million
Statements of Cash Flows. During the years ended December 31, 2017, 2016 and 2015, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during the year ended December 31,
2017 and negative cash flows from investing activities during the years ended December 31, 2016 and 2015. The Company
experienced negative cash flows from financing activities during the year ended December 31, 2017 and positive cash flows from
financing activities during the years ended December 31, 2016 and 2015.
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 or losses on the termination of loss sharing agreements 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 $62.8
million, $80.6 million and $71.4 million during the years ended December 31, 2017, 2016 and 2015, respectively.
During the year ended December 31, 2017, investing activities provided cash of $81.4 million, primarily due to the cash received from
the FDIC loss sharing termination reimbursement, proceeds from the sale of other real estate owned and the net repayment of
investment securities. During the years ended December 31, 2016 and 2015, investing activities used cash of $198.7 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.
31
51
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, dividend payments to
stockholders, issuance of subordinated notes (2016) and redemption of preferred stock (2015). Financing activities used cash flows of
$181.7 million during the year ended December 31, 2017, primarily due to reduction of customer certificate of deposit balances, net
increases or decreases in various borrowings and dividend payments to stockholders. 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.
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, 2017, total stockholders’ equity and common stockholders’ equity were each $471.7 million, or 10.7% of total
assets, equivalent to a book value of $33.48 per common share. As of December 31, 2016, total stockholders’ equity and common
stockholders’ equity were each $429.8 million, or 9.4% of total assets, equivalent to a book value of $30.77 per common share. At
December 31, 2017, the Company’s tangible common equity to tangible assets ratio was 10.5% as compared to 9.2% at December 31,
2016.
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, 2017,
the Bank's common equity Tier 1 capital ratio was 12.3%, its Tier 1 capital ratio was 12.3%, its total capital ratio was 13.2% and its
Tier 1 leverage ratio was 11.7%. As a result, as of December 31, 2017, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. 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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2017, the Company's common equity Tier 1 capital ratio was 10.9%, its Tier 1 capital ratio was 11.4%, its total capital
ratio was 14.1% and its Tier 1 leverage ratio was 10.9%. 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, 2017, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2016, 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 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. This 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 increased by an additional 0.625% as of
January 1, 2017, and increases 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
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, 2017, the Company declared common stock cash dividends of $0.94 per share
(25.8% of net income per common share) and paid common stock cash dividends of $0.92 per share. 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. The Board of Directors meets regularly to consider the level and the
timing of dividend payments. The $0.24 per share dividend declared but unpaid as of December 31, 2017, was paid to stockholders in
January 2018. 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, 2017 and 2016, the Company did not repurchase any shares of its common stock. During the years ended
December 31, 2017 and 2016, the Company issued 119,147 shares of stock at an average price of $27.35 per share and 80,454 shares
of stock at an average price of $26.47 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.
32
52
33
The SBLF Preferred Stock qualified as Tier 1 capital. The holders of SBLF Preferred Stock were entitled to receive noncumulative
dividends, payable quarterly, on each January 1, April 1, July 1 and October 1. The dividend rate, as a percentage of the liquidation
amount, could fluctuate between one percent (1%) and five percent (5%) per annum on a quarterly basis during the first 10 quarters
during which the SBLF Preferred Stock was outstanding, based upon changes in the level of “Qualified Small Business Lending” or
“QSBL” (as defined in the SBLF Purchase Agreement) by the Bank over the adjusted baseline level calculated under the terms of the
SBLF Preferred Stock $(249.7 million). Based upon the increase in the Bank’s level of QSBL over the adjusted baseline level, the
dividend rate had been 1.0%. For the tenth calendar quarter through four and one-half years after issuance, the dividend rate was fixed
at 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, 2017, the Company declared common stock cash dividends of $0.94 per share
(25.8% of net income per common share) and paid common stock cash dividends of $0.92 per share. 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. The Board of Directors meets regularly to consider the level and the
timing of dividend payments. The $0.24 per share dividend declared but unpaid as of December 31, 2017, was paid to stockholders in
January 2018. 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, 2017 and 2016, the Company did not repurchase any shares of its common stock. During the years ended
December 31, 2017 and 2016, the Company issued 119,147 shares of stock at an average price of $27.35 per share and 80,454 shares
of stock at an average price of $26.47 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.
33
53
Non-GAAP Financial Measures
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This document contains certain financial information determined by methods other than in accordance with accounting principles
generally accepted in the United States ("GAAP"). These non-GAAP financial measures include tangible common equity to tangible
assets ratio.
In calculating the ratio of tangible common equity to tangible assets, we subtract period-end intangible assets from common equity
and from total assets. Management believes that the presentation of these measures excluding the impact of intangible assets provides
useful supplemental information that is helpful in understanding our financial condition and results of operations, as they provide a
method to assess management's success in utilizing our tangible capital as well as our capital strength. Management also believes that
providing measures that exclude balances of intangible assets, which are subjective components of valuation, facilitates the
comparison of our performance with the performance of our peers. In addition, management believes that these are standard financial
measures used in the banking industry to evaluate performance.
These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures.
Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to other
similarly titled measures as calculated by other companies.
Non-GAAP Reconciliation: Ratio of Tangible Common Equity to Tangible Assets
Common equity at period end
Less: Intangible assets at period end
Tangible common equity at period end (a)
Total assets at period end
Less: Intangible assets at period end
Tangible assets at period end (b)
Tangible common equity to tangible
assets (a) / (b)
December 31,
2017
December 31,
2016
December 31,
2015
(Dollars in thousands)
December 31,
2014
December 31,
2013
$
$
$
$
471,662
10,850
460,812
4,414,521
10,850
4,403,671
$
$
429,806
12,500
417,306
$ 4,550,663
12,500
$ 4,538,163
$
$
398,227
5,758
392,469
$ 4,104,189
5,758
$ 4,098,431
$
$
361,802
7,508
354,294
$ 3,951,334
7,508
$ 3,943,826
$
$
322,755
4,583
318,172
$ 3,560,250
4,583
$ 3,555,667
10.46%
9.20%
9.58%
8.98%
8.95%
34
54
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, 2017, 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 increase of
0.25% on December 16, 2015, the Federal Reserve Board had last changed interest rates on December 16, 2008. This was the first rate
increase since September 29, 2006. The FRB has now also implemented rate increases of 0.25% on December 14, 2016, March 15,
2017, June 14, 2017 and December 13, 2017. A substantial portion of Great Southern's loan portfolio ($1.31 billion at December 31,
2017) is tied to the one-month or three-month LIBOR index and will adjust at least once within 90 days after December 31, 2017. Of
these loans, $934 million as of December 31, 2017 had interest rate floors. Great Southern also has a significant portfolio of loans
($318 million at December 31, 2017) which are tied to a "prime rate" of interest and will adjust immediately with changes to the
"prime rate" of interest.
Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
35
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, 2017, 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 increase of
0.25% on December 16, 2015, the Federal Reserve Board had last changed interest rates on December 16, 2008. This was the first rate
increase since September 29, 2006. The FRB has now also implemented rate increases of 0.25% on December 14, 2016, March 15,
2017, June 14, 2017 and December 13, 2017. A substantial portion of Great Southern's loan portfolio ($1.31 billion at December 31,
2017) is tied to the one-month or three-month LIBOR index and will adjust at least once within 90 days after December 31, 2017. Of
these loans, $934 million as of December 31, 2017 had interest rate floors. Great Southern also has a significant portfolio of loans
($318 million at December 31, 2017) which are tied to a "prime rate" of interest and will adjust immediately with changes to the
"prime rate" of interest.
Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
35
55
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 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 interest rate
cap related to the $25.0 million trust preferred security terminated per its contractual terms in the third quarter of 2017.
The Company’s interest rate derivatives and hedging activities are discussed further in Note 17 of the accompanying audited financial
statements.
36
56
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2017. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
December 31,
2018
2019
2020
2021
2022
Thereafter
Total
(Dollars In Thousands)
Available-for-sale debt securities(1)
6,003
$
14,201
$
17,910
$
6,186
$
1,719
$
133,160
4.84%
5.04%
4.79%
5.41%
430,055
$ 362,139
$ 235,854
$ 371,304
$ 246,470
2,110,082
2,114,901
248,559
$ 215,898
$ 339,025
$ 327,824
$ 266,806
1,690,238
1,694,334
4.54%
4.32%
4.47%
4.88%
5.26%
6.18%
Total financial assets
$
811,400
$ 592,238
$ 592,789
$ 705,314
$ 514,995
$
900,728
4,117,464
$ 1, 013,814
$ 220,813
$
58,811
$ 48,365
$ 25,868
$
$
1,369,844
1,379,100
1.43%
1.79%
1.95%
1.79%
— $
1,565,711
1,565,711
December 31,
2017
Fair Value
$
$
$
$
$
$
$
$
$
$
$
$
$
126,653
179,179
131
11,182
661,589
127,840
97,135
76,500
25,774
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
— $
—
— $
126,653
—
2.31%
— $
—
464,260
3.93%
292,126
5.63%
11,182
2.78%
1.44%
179,179
2.96%
130
6.14%
4.36%
5.17%
11,182
2.78%
2,173
1.79%
— $
661,589
— $
127,500
—
—
—
—
— $
1.25%
0.32%
—
1.53%
97,135
0.30%
75,000
5.56%
25,774
2.98%
— $
75,000
— $
25,774
5.56 %
2.98%
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
126,653
1.44%
4.78 %
130
6.14 %
4.64 %
4.14 %
—
—
$ 1,565,711
1.13%
0.32%
661,589
—
127,500
1.53 %
97,135
0.30 %
—
—
—
—
—
—
—
—
4.43%
4.82%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Maturities
Financial Assets:
Interest bearing deposits
Weighted average rate
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
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
_______________
Total financial liabilities
$ 3,465,749
$ 220,813
$
58,811
$ 48,365
$ 25,868
$
102,947
3,922,553
(1)
Available-for-sale debt securities include approximately $122.5 million of mortgage-backed securities which pay interest and principal monthly to the
Company. Of this total, $105.6 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
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2017. 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.
$
$
$
$
$
$
$
$
$
$
$
126,653
179,179
131
2,114,901
1,694,334
11,182
1,379,100
1,565,711
661,589
127,840
97,135
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,
2018
2019
2020
2021
2022
(Dollars In Thousands)
Thereafter
December 31,
2017
Fair Value
Total
$
126,653
$
$
$
$
$
1.44%
6,003
4.78%
130
6.14%
430,055
—
—
14,201
$
—
—
17,910
—
—
$ 6,186
—
—
$ 1,719
$
4.84 %
—
—
$ 362,139
5.04 %
—
—
$ 235,854
4.79 %
—
—
$ 371,304
5.41 %
—
—
$ 246,470
$
4.64%
4.43 %
4.54 %
4.32 %
4.47 %
—
—
133,160
2.31 %
—
—
464,260
3.93 %
$
$
$
126,653
1.44 %
179,179
2.96 %
130
6.14 %
$
2,110,082
4.36 %
248,559
$ 215,898
$ 339,025
$ 327,824
$ 266,806
$
292,126
$
1,690,238
4.14%
—
—
4.82 %
—
—
4.88 %
—
—
5.26 %
—
—
6.18 %
—
—
$
5.63 %
11,182
$
2.78 %
5.17 %
11,182
2.78 %
Total financial assets
$
811,400
$ 592,238
$ 592,789
$ 705,314
$ 514,995
$
900,728
$
4,117,464
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, 013,814
$ 220,813
$
58,811
$ 48,365
$ 25,868
$
1.13%
$ 1,565,711
$
$
$
0.32%
661,589
—
127,500
1.53%
97,135
0.30%
—
—
—
—
1.43 %
—
—
—
—
—
—
—
—
—
—
—
—
1.79 %
—
—
—
—
—
—
—
—
—
—
—
—
1.95 %
—
—
—
—
—
—
—
—
—
—
—
—
1.79 %
—
—
—
—
—
—
—
—
—
—
—
—
$
$
2,173
1.79 %
—
—
—
—
—
—
—
—
75,000
$
$
$
$
$
1,369,844
1.25 %
$
1,565,711
0.32 %
661,589
—
127,500
1.53 %
97,135
0.30 %
75,000
$
76,500
5.56%
5.56 %
25,774
$
25,774
$
25,774
2.98 %
2.98 %
Total financial liabilities
$ 3,465,749
$ 220,813
$
58,811
$ 48,365
$ 25,868
$
102,947
$
3,922,553
_______________
(1)
Available-for-sale debt securities include approximately $122.5 million of mortgage-backed securities which pay interest and principal monthly to the
Company. Of this total, $105.6 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
57
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
Fair Value
$
$
$
126,653
179,179
131
December 31,
2018
2019
2020
2021
(Dollars In Thousands)
2022
Thereafter
Total
$
$
$
126,653
1.44 %
34,019
$
2.72 %
130
6.14 %
23,862
3.71
$
%
17,910
5.04
$
%
14,813
2.94
$
%
30,233
2.23
%
$
$
1,904,666
$
$
4.41 %
248,559
4.14 %
11,182
2.78 %
$
$
83,431
3.71
215,898
4.82
$
%
$
%
$
%
$
38,010
4.27
339,025
4.
% 88
41,607
4.08
327,824
5.26
$
%
$
%
27,343
3.83
266,806
6.18
$
%
$
%
$
$
126,653
1.44 %
179,179
58,342
2.58
%
$
15,025
3.74
292,126
5.63
%
%
2.96 %
130
6.14 %
4.36 %
5.17 %
$
2,110,082
$
2,114,901
$
1,690,238
$
1,694,334
$
11,182
$
11,182
2.78 %
$
2,325,209
$
323,191
$
394,945
$
384,244
$
324,382
$
365,493
$
4,117,464
$ 1,013,814
$ 1,565,711
1.13 %
0.32 %
$ 220,813 $
1.43 %
58,811 $
1.79 %
48,365 $
1.95 %
25,868
$
1.79 %
2,173
1.79 %
$ 1,369,844
$ 1,565,711
1.25 %
0.32 %
$ 1,379,100
$ 1,565,711
$
661,589
$
661,589
$
661,589
$
127,500
1.53 %
$
97,135
0.30 %
$
25,774
2.98 %
$
127,500
$
127,840
1.53 %
$
97,135
$
97,135
$
$
75,000
5.57 %
$
0.30 %
75,000
5.57 %
25,774
2.98 %
$
$
76,500
25,774
Total financial liabilities
$ 2,829,934
$ 220,813 $
58,811
$
48,365 $
25,868
$
738,762
$ 3,922,553
Periodic repricing GAP
$
(504,725 )
$ 102,378
$ 336,134
$ 335,879
$ 298,514
$
(373,269 ) $
194,911
Cumulative repricing GAP
$
(504,725 )
( $
402,347
$ )
(66,213
$ )
269,666
$
568,180
$
194,911
_______________
(1) Available-for-sale debt securities include approximately $122.5 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $105.6 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.
58
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2017 and 2016
59
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. (the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,
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) (“PCAOB”), the Company’s internal control over financial reporting as of
December 31, 2017, based on Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 6, 2018,
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
BKD, LLP
We have served as the Company’s auditor since 1975.
Springfield, Missouri
March 6, 2018
60
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2017 and 2016
(In Thousands, Except Per Share Data)
Loans receivable, net of allowance for loan losses of $36,492 and $37,400 at
December 31, 2017 and 2016, respectively
3,726,302
3,759,966
2017
2016
$
115,600
$
120,203
126,653
242,253
159,566
279,769
179,179
213,872
130
8,203
—
12,338
47,122
22,002
10,850
11,182
16,942
247
16,445
13,145
11,875
45,649
32,658
12,500
13,034
10,907
138,018
140,596
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
FDIC indemnification asset
Interest receivable
Prepaid expenses and other assets
Other real estate owned and repossessions, net
Premises and equipment, net
Goodwill and other intangible assets
Federal Home Loan Bank stock
Current and deferred income taxes
See Notes to Consolidated Financial Statements
Total assets
$
4,414,521
$
4,550,663
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2017 and 2016
(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
2017
2016
$
115,600
$
120,203
126,653
242,253
159,566
279,769
179,179
213,872
130
8,203
247
16,445
Loans receivable, net of allowance for loan losses of $36,492 and $37,400 at
December 31, 2017 and 2016, respectively
3,726,302
3,759,966
FDIC indemnification asset
Interest receivable
Prepaid expenses and other assets
Other real estate owned and repossessions, net
Premises and equipment, net
Goodwill and other intangible assets
Federal Home Loan Bank stock
Current and deferred income taxes
—
12,338
47,122
22,002
13,145
11,875
45,649
32,658
138,018
140,596
10,850
11,182
16,942
12,500
13,034
10,907
Total assets
$
4,414,521
$
4,550,663
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
61
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2017 and 2016
(In Thousands, Except Per Share Data)
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2017, 2016 and 2015
(In Thousands, Except Per Share Data)
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
$
2017
2016
3,597,144
127,500
80,531
16,604
25,774
73,688
2,904
5,319
13,395
$
3,677,230
31,452
113,700
172,323
25,774
73,537
2,723
4,643
19,475
Total liabilities
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2017 and 2016 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2017 – 14,087,533 shares, 2016 –
13,968,386 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes of $708
and $887 at December 31, 2017 and 2016, respectively
Total stockholders’ equity
3,942,859
4,120,857
Net Interest Income After Provision for Loan Losses
—
—
141
28,203
442,077
1,241
471,662
—
—
140
25,942
402,166
1,558
429,806
Total liabilities and stockholders’ equity
$
4,414,521
$
4,550,663
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
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 (loss) on termination of loss sharing agreements
Amortization of income/expense related to business
acquisitions
Other income
Noninterest Expense
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Advertising
Telephone
Office supplies and printing
Legal, audit and other professional fees
Expense on other real estate and repossessions
Partnership tax credit investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
2017
2016
2015
$
176,654
$
178,883
$
6,407
183,061
20,595
1,516
747
949
4,098
27,905
155,156
9,100
146,056
1,041
21,628
3,150
2,231
—
28
7,705
(486)
3,230
38,527
60,034
24,613
3,461
2,959
2,311
1,446
3,188
2,862
3,929
930
1,650
6,878
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
(584)
(6,351)
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
177,240
7,111
184,351
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
114,261
120,427
114,350
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
2
See Notes to Consolidated Financial Statements
3
62
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2017, 2016 and 2015
(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 (loss) on termination of loss sharing agreements
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 and repossessions
Partnership tax credit investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
2017
2016
2015
$
$
176,654
6,407
183,061
$
178,883
6,292
185,175
177,240
7,111
184,351
20,595
1,516
747
949
4,098
27,905
155,156
9,100
146,056
1,041
21,628
3,150
—
2,231
28
7,705
(486)
3,230
38,527
60,034
24,613
3,461
2,959
2,311
1,446
3,188
2,862
3,929
930
1,650
6,878
114,261
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
(584)
(6,351)
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
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
3
63
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2017, 2016 and 2015
(In Thousands, Except Per Share Data)
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2017, 2016 and 2015
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
(In Thousands)
Income Before Income Taxes
$
70,322
$
61,858
$
62,066
Net Income
Net Income
$
$
51,564
51,564
$
$
45,342
45,342
$
$
46,502
46,502
2017
2016
2015
2017
2017
2016
2016
2015
2015
Provision for Income Taxes
Net Income
Preferred Stock Dividends
Net Income Available to Common Shareholders
Earnings Per Common Share
Basic
Diluted
18,758
51,564
—
51,564
3.67
3.64
$
$
$
16,516
45,342
—
45,342
3.26
3.21
$
$
$
15,564
46,502
554
45,948
3.33
3.28
$
$
$
Unrealized depreciation on available-for-sale securities,
Unrealized depreciation on available-for-sale securities,
net of taxes (credit) of $(272), $(1,346) and $(528) for
net of taxes (credit) of $(272), $(1,346) and $(528) for
2017, 2016 and 2015, respectively
2017, 2016 and 2015, respectively
Less: reclassification adjustment for gains included in
Less: reclassification adjustment for gains included in
net income, net of taxes of $0, $(1,043) and $(1) for
net income, net of taxes of $0, $(1,043) and $(1) for
2017, 2016 and 2015, respectively
2017, 2016 and 2015, respectively
Change in fair value of cash flow hedge, net of taxes
Change in fair value of cash flow hedge, net of taxes
(credit) of $93, $50 and $(34) for 2017, 2016 and
(credit) of $93, $50 and $(34) for 2017, 2016 and
2015, respectively
2015, respectively
Other comprehensive loss
Other comprehensive loss
(478)
(478)
(2,363)
(2,363)
(1,321)
(1,321)
—
—
(1,830)
(1,830)
(1)
(1)
161
161
(317)
(317)
87
87
(50)
(50)
(4,106)
(4,106)
(1,372)
(1,372)
Comprehensive Income
Comprehensive Income
$
$
51,247
51,247
$
$
41,236
41,236
$
$
45,130
45,130
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
4
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
5
5
64
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2017, 2016 and 2015
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
(In Thousands)
Net Income
Net Income
$
$
51,564
51,564
$
$
45,342
45,342
$
$
46,502
46,502
2017
2017
2016
2016
2015
2015
Unrealized depreciation on available-for-sale securities,
Unrealized depreciation on available-for-sale securities,
net of taxes (credit) of $(272), $(1,346) and $(528) for
net of taxes (credit) of $(272), $(1,346) and $(528) for
2017, 2016 and 2015, respectively
2017, 2016 and 2015, respectively
Less: reclassification adjustment for gains included in
Less: reclassification adjustment for gains included in
net income, net of taxes of $0, $(1,043) and $(1) for
net income, net of taxes of $0, $(1,043) and $(1) for
2017, 2016 and 2015, respectively
2017, 2016 and 2015, respectively
Change in fair value of cash flow hedge, net of taxes
Change in fair value of cash flow hedge, net of taxes
(credit) of $93, $50 and $(34) for 2017, 2016 and
(credit) of $93, $50 and $(34) for 2017, 2016 and
2015, respectively
2015, respectively
Other comprehensive loss
Other comprehensive loss
(478)
(478)
(2,363)
(2,363)
(1,321)
(1,321)
—
—
(1,830)
(1,830)
(1)
(1)
161
161
(317)
(317)
87
87
(50)
(50)
(4,106)
(4,106)
(1,372)
(1,372)
Comprehensive Income
Comprehensive Income
$
$
51,247
51,247
$
$
41,236
41,236
$
$
45,130
45,130
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
5
5
65
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2017, 2016 and 2015
(In Thousands, Except Per Share Data)
Balance, January 1, 2015
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
Balance, December 31, 2016
Net income
Stock issued under Stock Option Plan
Common dividends declared, $.94 per share
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Balance, December 31, 2017
SBLF
Preferred
Stock
Common
Stock
$
$
57,943
—
—
—
—
—
—
(57,943)
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
138
—
—
—
—
—
1
—
139
—
—
—
—
1
140
—
—
—
—
1
141
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
22,345
$
$
7,036
$
— $
2,026
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,371
1,571
25,942
2,261
332,283
46,502
—
(11,896)
(553)
1,717
—
—
368,053
45,342
(12,250)
—
—
1,021
402,166
51,564
(13,202)
—
—
1,549
(1,372)
5,664
(4,106)
1,558
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(317)
1,718
(1,718)
—
—
—
—
—
—
—
—
—
—
—
—
—
1,022
(1,022)
1,550
(1,550)
419,745
46,502
3,744
(11,896)
(553)
(1,372)
—
(57,943)
398,227
45,342
2,593
(12,250)
(4,106)
—
429,806
51,564
3,811
(13,202)
(317)
—
$
28,203
$
442,077
$
1,241
$
— $
471,662
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
66
6
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
22,345
—
2,026
—
—
—
—
—
24,371
—
1,571
—
—
—
25,942
—
2,261
—
—
—
$
$
332,283
46,502
—
(11,896)
(553)
—
1,717
—
368,053
45,342
—
(12,250)
—
1,021
402,166
51,564
—
(13,202)
—
1,549
7,036
—
—
—
—
(1,372)
—
—
5,664
—
—
—
(4,106)
—
1,558
—
—
—
(317)
—
$
— $
—
1,718
—
—
—
(1,718)
—
—
—
1,022
—
—
(1,022)
—
—
1,550
—
—
(1,550)
419,745
46,502
3,744
(11,896)
(553)
(1,372)
—
(57,943)
398,227
45,342
2,593
(12,250)
(4,106)
—
429,806
51,564
3,811
(13,202)
(317)
—
$
28,203
$
442,077
$
1,241
$
— $
471,662
67
6
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
2017
2016
2015
2017
2016
2015
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
and respossessions
Gain on sale of business units
(Gain) loss realized on termination of loss sharing
agreements
(Accretion) 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
$
51,564
138,659
(126,215)
$
45,342
156,835
(156,036)
$
46,502
158,730
(155,680)
9,120
2,731
564
9,100
(3,150)
—
—
—
297
(449)
—
(7,705)
(1,947)
(28)
9,423
(463)
(5,227)
1,821
(15,278)
62,817
9,816
3,656
483
9,281
(3,941)
(2,873)
—
—
(249)
489
(368)
584
4,423
(66)
(3,621)
(535)
12,655
(2,720)
7,484
80,639
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
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 other real estate and repossessions
Capitalized costs on other real estate owned
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
Redemption of Federal Home Loan Bank stock
$
136,596
(133,018)
$
(145,101)
(145,600)
$
(190,154)
(117,634)
—
—
—
16,246
(7,404)
565
33,640
(117)
—
117
—
36,754
(3,852)
1,852
368
44,363
247
(17,821)
(10,878)
1,178
28,362
(146)
—
106
55,000
60,827
(71,904)
2,269
—
—
—
2,599
(16,697)
1,883
23,497
(20)
351
97
56,169
63,463
(21,339)
1,590
Net cash provided by (used in) investing activities
81,379
(198,730)
(196,195)
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
7
See Notes to Consolidated Financial Statements
8
68
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
Proceeds from sale of student loans
Cash received from purchase of additional business units
Cash received from FDIC loss sharing reimbursements
Cash paid for sale of business units
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of other real estate and repossessions
Capitalized costs on other real estate owned
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
Redemption of Federal Home Loan Bank stock
2017
2016
2015
$
136,596
(133,018)
$
—
—
16,246
—
(7,404)
565
33,640
(117)
—
117
—
36,754
(3,852)
1,852
(145,101)
(145,600)
368
44,363
247
(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
Net cash provided by (used in) investing activities
81,379
(198,730)
(196,195)
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
8
69
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 2016 and 2015
(In Thousands)
Financing Activities
Net increase (decrease) in certificates of deposit
Net increase 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
Advances from (to) borrowers for taxes and insurance
Redemption of trust preferred securities
Redemption of preferred stock
Dividends paid
Stock options exercised
2017
2016
2015
$
(114,714)
34,796
1,420,500
(1,324,435)
(188,888)
—
676
—
—
(12,894)
3,247
$
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
Net cash provided by (used in) financing activities
(181,712)
198,677
105,302
Increase (Decrease) in Cash and Cash Equivalents
(37,516)
80,586
(19,464)
Cash and Cash Equivalents, Beginning of Year
279,769
199,183
218,647
Use of Estimates
Cash and Cash Equivalents, End of Year
$
242,253
$
279,769
$
199,183
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, Tulsa, Oklahoma and Chicago, Illinois. 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.
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 (prior to December 31, 2017) 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 was 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.
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
9
10
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, Tulsa, Oklahoma and Chicago, Illinois. 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 (prior to December 31, 2017) 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 was 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.
71
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 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 2017 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 based on cash flow projections.
For equity securities, if any, when the Company has decided to sell an impaired available-for-sale
security and the Company does not expect the fair value of the security to fully recover before the
expected time of sale, the security is deemed OTTI in the period in which the decision to sell is made.
The Company recognizes an impairment loss when the impairment is deemed other-than-temporary
even if a decision to sell has not been made.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost
or fair value in the aggregate. Write-downs to fair value are recognized as a charge to earnings at the
time the decline in value occurs. Nonbinding forward commitments to sell individual mortgage loans
are generally obtained to reduce market risk on mortgage loans in the process of origination and
mortgage loans held for sale. Gains and losses resulting from sales of mortgage loans are recognized
when the respective loans are sold to investors. Fees received from borrowers to guarantee the funding
of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage
loans are recognized as income or expense when the loans are sold or when it becomes evident that the
commitment will not be used.
Loans Originated by the Company
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at their outstanding principal balances adjusted for any charge-offs, the allowance
for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans. Interest income is reported on the interest method and includes amortization of net
deferred loan fees and costs over the loan term. Past due status is based on the contractual terms of a
loan. Generally, loans are placed on nonaccrual status at 90 days past due and interest is considered a
loss, unless the loan is well secured and in the process of collection. Payments received on nonaccrual
loans are applied to principal until the loans are returned to accrual status. Loans are returned to
accrual status when all payments contractually due are brought current, payment performance is
sustained for a period of time, generally six months, and future payments are reasonably assured. With
the exception of consumer loans, charge-offs on loans are recorded when available information
indicates a loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are
charged-off at specified delinquency dates consistent with regulatory guidelines.
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
72
11
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 based on cash flow projections.
For equity securities, if any, when the Company has decided to sell an impaired available-for-sale
security and the Company does not expect the fair value of the security to fully recover before the
expected time of sale, the security is deemed OTTI in the period in which the decision to sell is made.
The Company recognizes an impairment loss when the impairment is deemed other-than-temporary
even if a decision to sell has not been made.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost
or fair value in the aggregate. Write-downs to fair value are recognized as a charge to earnings at the
time the decline in value occurs. Nonbinding forward commitments to sell individual mortgage loans
are generally obtained to reduce market risk on mortgage loans in the process of origination and
mortgage loans held for sale. Gains and losses resulting from sales of mortgage loans are recognized
when the respective loans are sold to investors. Fees received from borrowers to guarantee the funding
of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage
loans are recognized as income or expense when the loans are sold or when it becomes evident that the
commitment will not be used.
Loans Originated by the Company
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at their outstanding principal balances adjusted for any charge-offs, the allowance
for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans. Interest income is reported on the interest method and includes amortization of net
deferred loan fees and costs over the loan term. Past due status is based on the contractual terms of a
loan. Generally, loans are placed on nonaccrual status at 90 days past due and interest is considered a
loss, unless the loan is well secured and in the process of collection. Payments received on nonaccrual
loans are applied to principal until the loans are returned to accrual status. Loans are returned to
accrual status when all payments contractually due are brought current, payment performance is
sustained for a period of time, generally six months, and future payments are reasonably assured. With
the exception of consumer loans, charge-offs on loans are recorded when available information
indicates a loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are
charged-off at specified delinquency dates consistent with regulatory guidelines.
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
73
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 loans classified as impaired, an allowance is established when the
discounted cash flows (or collateral value or observable market price) of the impaired loan is lower
than the carrying value of that loan. The general component covers non-classified loans and is based
on historical charge-off experience and expected loss given default derived from the Company’s
internal risk rating process. Other adjustments may be made to the allowance for certain loan segments
after an assessment of internal or external influences on credit quality that are not fully reflected in the
historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that not all
of the principal and interest due under the loan agreement will be collected in accordance with
contractual terms. For non-homogeneous loans, such as commercial loans, management determines
which loans are reviewed for impairment based on information obtained by account officers, weekly
past due meetings, various analyses including annual reviews of large loan relationships, calculations
of loan debt coverage ratios as financial information is obtained and periodic reviews of all loans over
$1.0 million. Loans that experience insignificant payment delays and payment shortfalls generally are
not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment
record and the amount of any collateral shortfall in relation to the principal and interest owed.
Large groups of smaller balance homogenous loans, such as consumer and residential loans, are
collectively evaluated for impairment. In accordance with regulatory guidelines, impairment in the
consumer and mortgage loan portfolio is primarily identified based on past-due status. Consumer and
mortgage loans which are over 90 days past due or specifically identified as troubled debt
restructurings will generally be individually evaluated for impairment.
Impairment is measured on a loan-by-loan basis for both homogeneous and non-homogeneous loans by
either the present value of expected future cash flows or the fair value of the collateral if the loan is
collateral dependent. Payments made on impaired loans are treated in accordance with the accrual
status of the loan. If loans are performing in accordance with their contractual terms but the ultimate
collectability of principal and interest is questionable, payments are applied to principal only.
Loans Acquired in Business Combinations
Loans acquired in business combinations under ASC Topic 805, Business Combinations, require the
use of the purchase method of accounting. Therefore, such loans are initially recorded at fair value in
accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurements
and Disclosures. No allowance for loan losses related to the acquired loans is recorded on the
acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit
risk. The fair value estimates associated with the loans include estimates related to expected
prepayments and the amount and timing of undiscounted expected principal, interest and other cash
flows.
For loans not acquired in conjunction with an FDIC-assisted transaction that are not considered to be
purchased credit-impaired loans, the Company evaluates those loans acquired in accordance with the
provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount on
these loans is accreted into interest income over the weighted average life of the loans using a constant
yield method. These loans are not considered to be impaired loans. The Company evaluates purchased
credit-impaired loans in accordance with the provisions of ASC Topic 310-30, Loans and Debt
Securities Acquired with Deteriorated Credit Quality. Loans acquired in business combinations with
evidence of credit deterioration since origination and for which it is probable that all contractually
required payments will not be collected are considered to be credit impaired. Evidence of credit
quality deterioration as of the purchase dates may include information such as past-due and nonaccrual
status, borrower credit scores and recent loan to value percentages. Acquired credit-impaired loans
that are accounted for under the accounting guidance for loans acquired with deteriorated credit quality
are initially measured at fair value, which includes estimated future credit losses expected to be
incurred over the life of the loans.
The Company evaluates all of its loans acquired 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 were covered under loss sharing agreements with
the FDIC. These agreements committed 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 expected 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 was measured separately from the
loan assets and foreclosed assets because the loss sharing agreements were not contractually embedded
in them or transferrable with them in the event of disposal. The balance of the FDIC Indemnification
Asset increased and decreased as the expected and actual cash flows from the covered assets
fluctuated, as loans were paid off or impaired and as loans and foreclosed assets were sold. There were
no contractual interest rates on the 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 the receivable was to be collected over the terms of the loss sharing agreements.
This discount was accreted to income up until the termination of the loss sharing agreements. During
2016 and 2017, the Company and the FDIC mutually agreed to terminate all of these loss sharing
74
13
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
these loans is accreted into interest income over the weighted average life of the loans using a constant
yield method. These loans are not considered to be impaired loans. The Company evaluates purchased
credit-impaired loans in accordance with the provisions of ASC Topic 310-30, Loans and Debt
Securities Acquired with Deteriorated Credit Quality. Loans acquired in business combinations with
evidence of credit deterioration since origination and for which it is probable that all contractually
required payments will not be collected are considered to be credit impaired. Evidence of credit
quality deterioration as of the purchase dates may include information such as past-due and nonaccrual
status, borrower credit scores and recent loan to value percentages. Acquired credit-impaired loans
that are accounted for under the accounting guidance for loans acquired with deteriorated credit quality
are initially measured at fair value, which includes estimated future credit losses expected to be
incurred over the life of the loans.
The Company evaluates all of its loans acquired 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 were covered under loss sharing agreements with
the FDIC. These agreements committed 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 expected 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 was measured separately from the
loan assets and foreclosed assets because the loss sharing agreements were not contractually embedded
in them or transferrable with them in the event of disposal. The balance of the FDIC Indemnification
Asset increased and decreased as the expected and actual cash flows from the covered assets
fluctuated, as loans were paid off or impaired and as loans and foreclosed assets were sold. There were
no contractual interest rates on the 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 the receivable was to be collected over the terms of the loss sharing agreements.
This discount was accreted to income up until the termination of the loss sharing agreements. During
2016 and 2017, the Company and the FDIC mutually agreed to terminate all of these loss sharing
75
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
agreements prior to their contractual termination dates. These acquisitions and agreements are more
fully discussed in Note 4.
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.
Other Real Estate Owned and Repossessions
A summary of goodwill and intangible assets is as follows:
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair
value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management and the assets are carried at the
lower of carrying amount or fair value less estimated cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expense on foreclosed assets.
Other real estate owned also includes bank premises formerly, but no longer, used for banking, as well
as property originally acquired for future expansion but no longer intended to be used for that purpose.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to
expense using the straight-line and accelerated methods over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized using the straight-line and accelerated methods
over the terms of the respective leases or the estimated useful lives of the improvements, whichever is
shorter.
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 believed that the market value of some of these properties had declined further. No asset
impairment was recognized during the year ended December 31, 2017.
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.
Goodwill – Branch acquisitions
Deposit intangibles
Sun Security Bank
InterBank
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2017
2016
(In Thousands)
$
5,396
$
263
181
397
1,400
3,213
5,454
5,396
613
327
519
1,800
3,845
7,104
$
10,850
$
12,500
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
The Company is incorporated in the State of Maryland. 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.
76
15
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Intangible assets are being amortized on the straight-line basis generally over a period of seven years.
Such assets are periodically evaluated as to the recoverability of their carrying value.
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Deposit intangibles
Sun Security Bank
InterBank
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2017
2016
(In Thousands)
$
5,396
$
263
181
397
1,400
3,213
5,454
5,396
613
327
519
1,800
3,845
7,104
$
10,850
$
12,500
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
The Company is incorporated in the State of Maryland. 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.
77
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Earnings Per Common Share
Cash Equivalents
Basic earnings per common share are computed based on the weighted average number of common
shares outstanding during each year. Diluted earnings per common share are computed using the
weighted average common shares and all potential dilutive common shares outstanding during the
period.
Earnings per common share (EPS) were computed as follows:
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
2015
2016
2017
(In Thousands, Except Per Share Data)
51,564
51,564
$
$
45,342
45,342
$
$
46,502
45,948
14,032
13,912
13,818
148
14,180
229
14,141
3.67
3.64
$
$
3.26
3.21
$
$
182
14,000
3.33
3.28
$
$
$
$
Options outstanding at December 31, 2017, 2016 and 2015, to purchase 253,711, 108,450 and 117,600
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, 2017, 2016 and 2015,
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, 2017, 2016 and 2015, share-based compensation expense
totaling $564,000, $483,000 and $382,000, respectively, was included in salaries and employee
benefits expense in the consolidated statements of income.
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents. At December 31, 2017 and 2016, cash equivalents consisted of interest-bearing deposits in
other financial institutions. At December 31, 2017, nearly all of the interest-bearing deposits were
uninsured with nearly all of these balances held at the Federal Home Loan Bank or the Federal Reserve
Bank.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (FASB
ASC 740, Income Taxes). The income tax accounting guidance results in two components of income
tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded
for the current period by applying the provisions of the enacted tax law to the taxable income or excess
of deductions over revenues. The Company determines deferred income taxes using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax
effects of the differences between the book and tax bases of assets and liabilities, and enacted changes
in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits,
that the tax position will be realized or sustained upon examination. The term “more likely than not”
means a likelihood of more than 50 percent; the terms examined and upon examination also include
resolution of the related appeals or litigation processes, if any. A tax position that meets the more-
likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax
benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing
authority that has full knowledge of all relevant information. The determination of whether or not a tax
position has met the more-likely-than-not recognition threshold considers the facts, circumstances and
information available at the reporting date and is 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,
2017 and 2016, no valuation allowance was established.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiaries.
Derivatives and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and
hedging activities with the intent to provide users of financial statements with an enhanced
understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts
for derivative instruments and related hedged items and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and cash flows. Further,
qualitative disclosures are required that explain the Company’s objectives and strategies for using
derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative instruments. For
detailed disclosures on derivatives and hedging activities, see Note 17.
78
17
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents. At December 31, 2017 and 2016, cash equivalents consisted of interest-bearing deposits in
other financial institutions. At December 31, 2017, nearly all of the interest-bearing deposits were
uninsured with nearly all of these balances held at the Federal Home Loan Bank or the Federal Reserve
Bank.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (FASB
ASC 740, Income Taxes). The income tax accounting guidance results in two components of income
tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded
for the current period by applying the provisions of the enacted tax law to the taxable income or excess
of deductions over revenues. The Company determines deferred income taxes using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax
effects of the differences between the book and tax bases of assets and liabilities, and enacted changes
in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits,
that the tax position will be realized or sustained upon examination. The term “more likely than not”
means a likelihood of more than 50 percent; the terms examined and upon examination also include
resolution of the related appeals or litigation processes, if any. A tax position that meets the more-
likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax
benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing
authority that has full knowledge of all relevant information. The determination of whether or not a tax
position has met the more-likely-than-not recognition threshold considers the facts, circumstances and
information available at the reporting date and is 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,
2017 and 2016, no valuation allowance was established.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiaries.
Derivatives and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and
hedging activities with the intent to provide users of financial statements with an enhanced
understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts
for derivative instruments and related hedged items and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and cash flows. Further,
qualitative disclosures are required that explain the Company’s objectives and strategies for using
derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative instruments. For
detailed disclosures on derivatives and hedging activities, see Note 17.
79
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017 and 2016, respectively, was $59.1 million and $53.8 million.
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. These Updates were effective beginning
January 1, 2018. Our revenue is comprised of net interest income on financial assets and financial
liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We
have completed our evaluation of the impact of ASU 2014-09 on components of our non-interest income
and have determined that certain components contain revenue streams which are included in the scope of
these updates, such as deposit-related fees, service charges, debit card interchange fees and other charges
and fees, and revenue from the sale of other real estate owned; however the adoption of these updates did
not materially impact the Company’s consolidated statements of income. We adopted the guidance using
the modified retrospective adoption method, and no cumulative effect adjustment to opening retained
earnings was required as a result of the adoption. The guidance in these Updates may result in new
disclosure requirements, which will be included in the Company’s March 31, 2018 Quarterly Report on
Form 10-Q.
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 was effective for the Company on January 1, 2018 and did
not have a material impact on the Company’s consolidated statements of financial condition or our
consolidated statements of income. The Company does not currently hold any equity investments.
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
19
80
adoption. Based on the Company’s leases outstanding at December 31, 2017, which total less than 20
leased properties, 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 was effective for the Company beginning January 1, 2017, and did not have a material effect on
the Company’s income taxes or the Company’s consolidated financial statements.
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. Early adoption
will be permitted beginning after December 15, 2018. An entity will apply the amendments in this update
on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is effective. The Company has formed a
cross functional committee to oversee the system, data, reporting and other considerations for the
purposes of meeting the requirements of this standard. We have assessed our data and system needs and
are in the process of uploading the necessary historical loan data to the software that will be used in
meeting certain requirements of this standard. The Company is evaluating the impact of adopting the new
guidance, including the implementation of new data systems to capture the information needed to comply
with the new standard. 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. These items include: cash payments for debt prepayment or debt extinguishment costs;
cash outflows for the settlement of zero-coupon debt instruments or other debt instruments with coupon
interest rates that are insignificant; contingent consideration payments made after a business combination;
proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life
insurance policies, including bank-owned life insurance policies; and beneficial interests acquired in
securitization transactions. The amendments in the Update are to be applied retrospectively. The Update
was effective for the Company on January 1, 2018 and did not result in a material impact on the
Company’s consolidated financial statements, including the statement of cash flows.
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
adoption. Based on the Company’s leases outstanding at December 31, 2017, which total less than 20
leased properties, 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 was effective for the Company beginning January 1, 2017, and did not have a material effect on
the Company’s income taxes or the Company’s consolidated financial statements.
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. Early adoption
will be permitted beginning after December 15, 2018. An entity will apply the amendments in this update
on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is effective. The Company has formed a
cross functional committee to oversee the system, data, reporting and other considerations for the
purposes of meeting the requirements of this standard. We have assessed our data and system needs and
are in the process of uploading the necessary historical loan data to the software that will be used in
meeting certain requirements of this standard. The Company is evaluating the impact of adopting the new
guidance, including the implementation of new data systems to capture the information needed to comply
with the new standard. 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. These items include: cash payments for debt prepayment or debt extinguishment costs;
cash outflows for the settlement of zero-coupon debt instruments or other debt instruments with coupon
interest rates that are insignificant; contingent consideration payments made after a business combination;
proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life
insurance policies, including bank-owned life insurance policies; and beneficial interests acquired in
securitization transactions. The amendments in the Update are to be applied retrospectively. The Update
was effective for the Company on January 1, 2018 and did not result in a material impact on the
Company’s consolidated financial statements, including the statement of cash flows.
81
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 was effective for the Company on
January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
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 were effective for the Company on January 1, 2018. The
adoption of this new guidance must be applied on a prospective basis and did not have a material impact
on the Company’s consolidated financial statements.
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
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, including consideration of early adoption, on the
consolidated financial statements, but it is not expected to have a material impact.
In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt
Securities. The amendment shortens the amortization period for the premium on certain purchased
callable debt securities to the earliest call date, rather than the contractual life of the security, which is
typically used under current GAAP. The new guidance does not change the accounting for purchased
callable debt securities held at a discount; the discount continues to be amortized to maturity. The
amendments in this Update were to become effective for the Company for interim and annual reporting
periods beginning after December 15, 2018; however, early adoption is permitted, and the Company
elected to early adopt the ASU effective January 1, 2017. The adoption of the ASU did not have a
material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation --Stock Compensation (Topic 718): Scope
of Modification Accounting. The amendment provides guidance on determining which changes to the
terms and conditions of share-based payment awards require an entity to apply modification accounting
under Topic 7l8. The amendments clarify that modification accounting only applies to an entity if the fair
value, vesting conditions, or classification of the award changes as a result of changes in the terms or
conditions of a share-based payment award. The ASU should be applied prospectively to awards modified
on or after the adoption date. The guidance was effective for the Company on January 1, 2018. The
adoption of the ASU did not impact the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to improve the
financial reporting of hedging relationships by better aligning an entity's risk management activity with
the economic objectives in undertaking those activities. In addition, the amendments in this update
simplify the application of hedge accounting for preparers of financial statements, as well as improve the
understandability of an entity's risk management activities being conveyed to financial statement users.
The new guidance becomes effective for periods beginning after December 15, 2018. Early adoption is
permitted. The Company is currently evaluating the new guidance and timing of adoption to determine the
impact this standard may have on its financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (Topic 220). The amendment allows an entity to elect to
reclassify the stranded tax effects resulting from the change in income tax rate from H.R.1, originally
known as the “Tax Cuts and Jobs Act,” from accumulated other comprehensive income to retained
earnings. The amendments in this update are effective for periods beginning after December 15, 2018.
Early adoption is permitted. The Company is still reviewing the amendments in the Update; however
we anticipate that we could early adopt ASU 2018-02 in the first quarter of 2018. Our stranded tax
amount which will be reclassified from other comprehensive income to retained earnings at the time of
adoption is estimated to be approximately $273,000.
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
Mortgage-backed securities
States and political subdivisions
Amortized
Cost
123,300
53,930
177,230
Amortized
Cost
146,491
64,682
211,173
$
$
$
$
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
$
$
$
$
871
2,716
3,587
1,045
3,163
4,208
$
$
$
$
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
1,638
—
1,638
1,501
8
1,509
Fair
Value
122,533
56,646
179,179
Fair
Value
146,035
67,837
213,872
$
$
$
$
At December 31, 2017, the Company’s mortgage-backed securities portfolio consisted of FHLMC
securities totaling $47.3 million, FNMA securities totaling $43.6 million and GNMA securities totaling
$31.6 million. At December 31, 2017, $105.6 million of the Company’s mortgage-backed securities
had variable rates of interest and $16.9 million had fixed rates of interest.
82
21
22
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to improve the
financial reporting of hedging relationships by better aligning an entity's risk management activity with
the economic objectives in undertaking those activities. In addition, the amendments in this update
simplify the application of hedge accounting for preparers of financial statements, as well as improve the
understandability of an entity's risk management activities being conveyed to financial statement users.
The new guidance becomes effective for periods beginning after December 15, 2018. Early adoption is
permitted. The Company is currently evaluating the new guidance and timing of adoption to determine the
impact this standard may have on its financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (Topic 220). The amendment allows an entity to elect to
reclassify the stranded tax effects resulting from the change in income tax rate from H.R.1, originally
known as the “Tax Cuts and Jobs Act,” from accumulated other comprehensive income to retained
earnings. The amendments in this update are effective for periods beginning after December 15, 2018.
Early adoption is permitted. The Company is still reviewing the amendments in the Update; however
we anticipate that we could early adopt ASU 2018-02 in the first quarter of 2018. Our stranded tax
amount which will be reclassified from other comprehensive income to retained earnings at the time of
adoption is estimated to be approximately $273,000.
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
Mortgage-backed securities
States and political subdivisions
Amortized
Cost
123,300
53,930
177,230
Amortized
Cost
146,491
64,682
211,173
$
$
$
$
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
871
2,716
3,587
$
$
1,638
—
1,638
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
1,045
3,163
$
4,208
$
1,501
8
1,509
$
$
$
$
Fair
Value
122,533
56,646
179,179
Fair
Value
146,035
67,837
213,872
$
$
$
$
At December 31, 2017, the Company’s mortgage-backed securities portfolio consisted of FHLMC
securities totaling $47.3 million, FNMA securities totaling $43.6 million and GNMA securities totaling
$31.6 million. At December 31, 2017, $105.6 million of the Company’s mortgage-backed securities
had variable rates of interest and $16.9 million had fixed rates of interest.
83
22
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2017, 2016 and 2015
The amortized cost and fair value of available-for-sale securities at December 31, 2017, 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.
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)
$
813
6,404
46,713
123,300
$
893
6,641
49,112
122,533
$
177,230
$
179,179
The amortized cost and fair values of securities classified as held to maturity were as follows:
Amortized
Cost
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
130
$
1
$
—
$
131
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
247
$
11
$
—
$
258
The held-to-maturity securities at December 31, 2017, 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)
One year or less
$
130
$
131
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,
2017 and 2016:
2017 and 2016:
Public deposits
Public deposits
Collateralized borrowing
Collateralized borrowing
accounts
accounts
Other
Other
2017
2017
2016
2016
Amortized
Amortized
Cost
Cost
Fair
Fair
Value
Value
Amortized
Amortized
Cost
Cost
Fair
Fair
Value
Value
(In Thousands)
(In Thousands)
$
$
10,958
10,958
$
$
11,490
11,490
$
$
57,841
57,841
$
$
59,082
59,082
120,622
120,622
1,579
1,579
119,776
119,776
1,601
1,601
98,787
98,787
6,599
6,599
97,498
97,498
6,813
6,813
$
$
133,159
133,159
$
$
132,867
132,867
$
$
163,227
163,227
$
$
163,393
163,393
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, 2017 and 2016, was
their historical cost. Total fair value of these investments at December 31, 2017 and 2016, was
approximately $89.7 million and $104.5 million, respectively, which is approximately 50.0% and
approximately $89.7 million and $104.5 million, respectively, which is approximately 50.0% and
48.8% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.
48.8% 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 declines
rating information and information obtained from regulatory filings, management believes the declines
in fair value for these debt securities are temporary.
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 unrealized
investment category and length of time that individual securities have been in a continuous unrealized
loss position at December 31, 2017 and 2016:
loss position at December 31, 2017 and 2016:
Description of Securities
Description of Securities
States and political
States and political
subdivisions
subdivisions
Less than 12 Months
Less than 12 Months
12 Months or More
12 Months or More
Total
Total
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
2017
2017
(In Thousands)
(In Thousands)
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
33,862
33,862
(384)
(384)
$
$
55,845
55,845
$
$
(1,254)
(1,254)
$
$
89,707
89,707
$
$
(1,638)
(1,638)
Mortgage-backed securities
Mortgage-backed securities
$
$
33,862
33,862
(384)
(384)
$
$
55,845
55,845
$
$
(1,254)
(1,254)
$
$
89,707
89,707
$
$
(1,638)
(1,638)
84
23
24
24
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2017, 2016 and 2015
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,
2017 and 2016:
2017 and 2016:
Public deposits
Public deposits
Collateralized borrowing
Collateralized borrowing
accounts
accounts
Other
Other
2017
2017
2016
2016
Amortized
Amortized
Cost
Cost
Fair
Fair
Value
Value
Amortized
Amortized
Cost
Cost
Fair
Fair
Value
Value
(In Thousands)
(In Thousands)
$
$
10,958
10,958
$
$
11,490
11,490
$
$
57,841
57,841
$
$
59,082
59,082
120,622
120,622
1,579
1,579
119,776
119,776
1,601
1,601
98,787
98,787
6,599
6,599
97,498
97,498
6,813
6,813
$
$
133,159
133,159
$
$
132,867
132,867
$
$
163,227
163,227
$
$
163,393
163,393
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, 2017 and 2016, was
their historical cost. Total fair value of these investments at December 31, 2017 and 2016, was
approximately $89.7 million and $104.5 million, respectively, which is approximately 50.0% and
approximately $89.7 million and $104.5 million, respectively, which is approximately 50.0% and
48.8% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.
48.8% 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 declines
rating information and information obtained from regulatory filings, management believes the declines
in fair value for these debt securities are temporary.
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 unrealized
investment category and length of time that individual securities have been in a continuous unrealized
loss position at December 31, 2017 and 2016:
loss position at December 31, 2017 and 2016:
Less than 12 Months
Less than 12 Months
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
2017
2017
12 Months or More
12 Months or More
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
(384)
(384)
$
$
(In Thousands)
(In Thousands)
55,845
55,845
$
$
(1,254)
(1,254)
Total
Total
Fair
Fair
Value
Value
Unrealized
Unrealized
Losses
Losses
$
$
89,707
89,707
$
$
(1,638)
(1,638)
Description of Securities
Description of Securities
Mortgage-backed securities
Mortgage-backed securities
States and political
States and political
subdivisions
subdivisions
$
$
33,862
33,862
—
—
$
$
33,862
33,862
$
$
$
$
—
—
—
—
—
—
—
—
—
—
(384)
(384)
$
$
55,845
55,845
$
$
(1,254)
(1,254)
$
$
89,707
89,707
$
$
(1,638)
(1,638)
85
24
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 3:
Loans and Allowance for Loan Losses
Classes of loans at December 31, 2017 and 2016, included:
One- to four-family residential construction
$
$
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family residential
Subdivision construction
Land development
Commercial construction
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
2017
2016
(In Thousands)
20,793
18,062
43,971
1,068,352
190,515
119,468
1,235,329
745,645
353,351
21,859
357,142
63,368
115,439
—
155,224
54,445
4,562,963
(793,669)
(36,492)
(6,500)
1,186,906
21,737
17,186
50,624
780,614
200,340
136,924
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)
$
3,726,302
$
3,759,966
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, 2017, 2016 and 2015
December 31, 2017, 2016 and 2015
December 31, 2017, 2016 and 2015
Description of Securities
Description of Securities
Description of Securities
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities
States and political
States and political
States and political
subdivisions
subdivisions
subdivisions
Less than 12 Months
Less than 12 Months
Less than 12 Months
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
Losses
Value
2016
2016
2016
12 Months or More
12 Months or More
12 Months or More
Fair
Fair
Fair
Value
Value
Value
Unrealized
Unrealized
Unrealized
Losses
Losses
Losses
(In Thousands)
(In Thousands)
(In Thousands)
Total
Total
Total
Fair
Fair
Fair
Value
Value
Value
Unrealized
Unrealized
Unrealized
Losses
Losses
Losses
$
$
$
102,296
102,296
102,296
$
$
$
(1,501)
(1,501)
(1,501)
$
$
$
—
—
—
$
$
$
—
—
—
$ 102,296
$ 102,296
$ 102,296
$
$
$
(1,501)
(1,501)
(1,501)
2,164
2,164
2,164
(8)
(8)
(8)
—
—
—
—
—
—
2,164
2,164
2,164
(8)
(8)
(8)
$
$
$
104,460
104,460
104,460
$
$
$
(1,509)
(1,509)
(1,509)
$
$
$
—
—
—
$
$
$
—
—
—
$ 104,460
$ 104,460
$ 104,460
$
$
$
(1,509)
(1,509)
(1,509)
Other-than-Temporary Impairment
Other-than-Temporary Impairment
Other-than-Temporary Impairment
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 financial
impairment model. For securities where the security is not a beneficial interest in securitized financial
impairment model. For securities where the security is not a beneficial interest in securitized financial
assets, the Company uses the debt and equity securities impairment model. The Company does not
assets, the Company uses the debt and equity securities impairment model. The Company does not
assets, the Company uses the debt and equity securities impairment model. The Company does not
currently have securities within the scope of this guidance for beneficial interests in securitized
currently have securities within the scope of this guidance for beneficial interests in securitized
currently have securities within the scope of this guidance for beneficial interests in securitized
financial assets.
financial assets.
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 values
criteria are met, the Company performs additional review and evaluation using observable market values
criteria are met, the Company performs additional review and evaluation using observable market values
or various inputs in economic models to determine if an unrealized loss is other than temporary. The
or various inputs in economic models to determine if an unrealized loss is other than temporary. The
or various inputs in economic models to determine if an unrealized loss is other than temporary. The
Company uses quoted market prices for marketable equity securities and uses broker pricing quotes
Company uses quoted market prices for marketable equity securities and uses broker pricing quotes
Company uses quoted market prices for marketable equity securities and uses broker pricing quotes
based on observable inputs for equity investments that are not traded on a stock exchange. For
based on observable inputs for equity investments that are not traded on a stock exchange. For
based on observable inputs for equity investments that are not traded on a stock exchange. For
nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than
nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than
nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than
temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and
temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and
temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and
multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace
multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace
multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace
(severity) in order to determine the projected collateral loss. The Company also evaluates any current
(severity) in order to determine the projected collateral loss. The Company also evaluates any current
(severity) in order to determine the projected collateral loss. The Company also evaluates any current
credit enhancement underlying these securities to determine the impact on cash flows. If the Company
credit enhancement underlying these securities to determine the impact on cash flows. If the Company
credit enhancement underlying these securities to determine the impact on cash flows. If the Company
determines that a given security position will be subject to a write-down or loss, the Company records
determines that a given security position will be subject to a write-down or loss, the Company records
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.
the expected credit loss as a charge to earnings.
the expected credit loss as a charge to earnings.
During 2017, 2016 and 2015, no securities were determined to have impairment that had become other
During 2017, 2016 and 2015, no securities were determined to have impairment that had become other
During 2017, 2016 and 2015, no securities were determined to have impairment that had become other
than temporary.
than temporary.
than temporary.
Credit Losses Recognized on Investments
Credit Losses Recognized on Investments
Credit Losses Recognized on Investments
During 2017, 2016 and 2015, there were no debt securities that have experienced fair value
During 2017, 2016 and 2015, there were no debt securities that have experienced fair value
During 2017, 2016 and 2015, 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-
deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-
deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-
than-temporarily impaired.
than-temporarily impaired.
than-temporarily impaired.
86
25
25
25
26
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 3:
Loans and Allowance for Loan Losses
Classes of loans at December 31, 2017 and 2016, 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
2017
2016
(In Thousands)
$
$
20,793
18,062
43,971
1,068,352
190,515
119,468
1,235,329
745,645
353,351
21,859
357,142
63,368
115,439
—
155,224
54,445
4,562,963
(793,669)
(36,492)
(6,500)
3,726,302
$
$
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
87
26
Due
Days
Past Due
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Total Loans
> 90 Days
Past Due and
Receivable Still Accruing
Total
Loans
Current
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Classes of loans by aging were as follows:
December 31, 2017
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2016
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Current
Receivable Still Accruing
(In Thousands)
Total
Loans
Total Loans
> 90 Days Past
Due and
residential construction
$
— $
— $
— $
— $
$
$
One- to four-family
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
—
413
—
1,760
309
1,969
4,632
1,741
—
8,252
1,103
136
4,476
1,356
851
26,998
—
584
—
388
278
1,988
—
24
—
2,451
278
158
1,125
3,273
197,067
200,340
109
1,718
—
404
4,404
162
3,088
—
1,989
649
433
109
2,715
—
991
8,361
4,794
4,853
—
12,692
2,030
727
21,737
17,077
47,909
780,614
21,737
17,186
50,624
780,614
135,933
1,178,545
136,924
1,186,906
658,584
343,775
25,065
481,541
67,971
108,026
663,378
348,628
25,065
494,233
70,001
108,753
1,201
8,226
13,903
120,453
134,356
301
552
1,401
3,309
69,260
72,569
173
8,075
2,854
26,562
3,878
61,635
72,356
76,234
4,325,913
4,387,548
—
—
—
—
—
—
—
—
—
—
—
—
—
222
—
523
523
—
6,683
1,926
12,481
21,090
262,069
283,159
Total
$
20,315
$
6,149
$ 14,081
$ 40,545
$ 4,063,844
$ 4,104,389
$
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 loans no longer
covered by FDIC loss
sharing agreements,
net of discounts
Acquired non-covered loans,
net of discounts
Less acquired loans no longer
covered by FDIC loss
sharing agreements and
acquired non-covered loans,
net of discounts
(In Thousands)
$
— $
—
37
—
— $
98
—
—
250
98
91
—
$
20,543
17,964
43,880
1,068,352
$
20,793 $
18,062
43,971
1,068,352
71
904
2,902
187,613
190,515
190
993
353
1,282
—
1,230
64
—
1,816
1,226
1,877
2,063
—
2,284
557
430
2,953
10,565
2,770
5,968
—
8,710
1,085
488
116,515
1,224,764
742,875
347,383
21,859
348,432
62,283
114,951
119,468
1,235,329
745,645
353,351
21,859
357,142
63,368
115,439
$
250
—
54
—
1,927
947
8,346
540
2,623
—
5,196
464
58
4,015
1,774
7,847
13,636
141,588
155,224
434
24,854
177
6,171
2,828
21,930
3,439
52,955
51,006
4,510,008
54,445
4,562,963
4,449
1,951
10,675
17,075
192,594
209,669
Total
$
20,405
$
4,220
$ 11,255
$ 35,880
$ 4,317,414
$ 4,353,294
$
—
—
—
—
—
58
—
—
—
—
12
—
26
116
156
368
272
96
88
27
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2016
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)
$
— $
—
413
—
— $
—
584
—
— $
— $
109
1,718
—
109
2,715
—
$
21,737
17,077
47,909
780,614
$
21,737
17,186
50,624
780,614
388
1,125
3,273
197,067
200,340
278
1,988
—
24
—
2,451
278
158
404
4,404
162
3,088
—
1,989
649
433
991
8,361
4,794
4,853
—
12,692
2,030
727
135,933
1,178,545
658,584
343,775
25,065
481,541
67,971
108,026
136,924
1,186,906
663,378
348,628
25,065
494,233
70,001
108,753
1,201
8,226
13,903
120,453
134,356
301
552
1,401
3,309
69,260
72,569
173
8,075
2,854
26,562
3,878
61,635
72,356
4,325,913
76,234
4,387,548
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
1,760
309
1,969
4,632
1,741
—
8,252
1,103
136
4,476
1,356
851
26,998
6,683
1,926
12,481
21,090
262,069
283,159
Total
$
20,315
$
6,149
$ 14,081
$ 40,545
$ 4,063,844
$ 4,104,389
$
89
—
—
—
—
—
—
—
—
—
—
—
—
—
222
—
523
523
—
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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,
2017
2016
(In Thousands)
$
—
98
—
—
904
1,758
1,226
1,877
2,063
—
2,272
557
404
—
109
1,718
—
1,125
404
2,727
162
4,765
—
1,989
649
433
Total
$
11,159
$
14,081
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The following tables present the activity in the allowance for loan losses by portfolio segment for the years
ended December 31, 2017, 2016 and 2015, 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
of the years ended December 31, 2017, 2016, and 2015, respectively:
One- to Four-
Family
Residential
December 31, 2017
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
Business
Consumer
Total
(In Thousands)
Balance, January 1, 2017
$
2,322
$
5,486
$
15,938
$
2,284
$
3,015
$
8,355
$
37,400
(158)
(165)
109
(2,356)
(488)
197
4,234
(1,656)
123
(643)
(420)
546
1,475
(1,489)
580
6,548
(11,859)
4,514
9,100
(16,077)
6,069
December 31, 2017
2,108
$
2,839
$
18,639
$
1,767
3,581
$
7,558
$
36,492
513
1,564
— $
599
2,813
17,843
$
$
$
$
$
2,140
1,369
699
3,951
6,802
32,081
$
$
$
31
26
197
72
57
460
6,950
$
2,907
$
8,315
$
3,018
4,129
$
25,334
341,888
$ 742,738
$ 1,227,014
$ 1,112,308
372,192
531,820
$4,327,960
120,295
$
14,877
$
39,210
$
3,806
5,275
26,206
$ 209,669
$
$
$
—
1,690
77
15
$
$
$
$
$
$
$
December 31, 2016
$
$
$
$
$
$
One- to Four-
Family
Residential
Allowance for Loan Losses
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
$
$
$
$
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
Business
Consumer
Total
(In Thousands)
Balance, January 1, 2016
$
4,900
$
3,190
$
14,738
$
3,019
$
4,203
$
8,099
$
38,149
(2,407)
(229)
58
2,260
(16)
52
5,632
(5,653)
1,221
(827)
(31)
123
(926)
(589)
327
5,549
(8,751)
3,458
9,281
(15,269)
5,239
Allowance for Loan Losses
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
90
29
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The following tables present the activity in the allowance for loan losses by portfolio segment for the years
ended December 31, 2017, 2016 and 2015, 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
of the years ended December 31, 2017, 2016, and 2015, respectively:
December 31, 2017
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
(In Thousands)
Business
Consumer
Total
$
2,322
$
5,486
$
15,938
$
2,284
$
3,015
$
8,355
$
37,400
(158)
(165)
109
(2,356)
(488)
197
4,234
(1,656)
123
(643)
(420)
546
1,475
(1,489)
580
6,548
(11,859)
4,514
9,100
(16,077)
6,069
$
$
$
$
$
$
$
2,108
$
2,839
$
18,639
$
1,767
513
1,564
31
$
$
$
— $
599
2,813
26
$
$
17,843
197
$
$
$
6,950
$
2,907
$
8,315
$
—
1,690
77
15
341,888
$ 742,738
$ 1,227,014
$ 1,112,308
120,295
$
14,877
$
39,210
$
3,806
$
$
$
$
$
$
$
3,581
$
7,558
$
36,492
2,140
1,369
72
3,018
372,192
5,275
$
$
$
$
$
$
699
6,802
57
$
$
$
3,951
32,081
460
4,129
$
25,334
531,820
$4,327,960
26,206
$ 209,669
Allowance for Loan Losses
Balance, January 1, 2017
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2017
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
91
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2016
One- to Four-
Family
Residential
and
Construction
Other
Commercial Commercial Commercial
Residential Real Estate Construction
Business
Consumer
Total
(In Thousands)
Allowance for Loan Losses
Balance, January 1, 2016
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2016
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
4,900
$
3,190
$
14,738
$
3,019
$
4,203
$
8,099
$
38,149
(2,407)
(229)
58
2,260
(16)
52
5,632
(5,653)
1,221
(827)
(31)
123
(926)
(589)
327
5,549
(8,751)
3,458
9,281
(15,269)
5,239
$
$
$
$
$
$
$
2,322
$
5,486
$
15,938
$
2,284
570
1,628
124
$
$
$
— $
2,209
5,396
90
$
$
13,507
222
6,015
$
3,812
$
10,507
370,172
$ 659,566
$ 1,176,399
155,378
$
29,600
$
54,208
$
$
$
$
$
$
1,291
953
40
6,023
825,215
2,191
$
$
$
$
$
$
$
3,015
$
8,355
$
37,400
1,295
1,681
39
4,539
369,154
6,429
$
$
$
$
$
$
997
7,248
110
$
$
$
6,362
30,413
625
3,385
$
34,281
669,602
$4,070,108
35,353
$ 283,159
92
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
One- to Four-
Family
Residential
December 31, 2015
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction
Business
Consumer
Total
(In Thousands)
Balance, January 1, 2015
$
3,455
$
2,941
$
19,773
$
3,562
$
3,679
$
5,025
$
38,435
1,428
(80)
97
193
(2)
58
(2,753)
(2,584)
302
(619)
(329)
405
1,450
(1,202)
276
5,820
(5,315)
2,569
5,519
(9,512)
3,707
December 31, 2015
4,900
$
3,190
$
14,738
$
3,019
4,203
$
8,099
$
38,149
731
3,464
— $
2,556
3,122
11,888
1,391
1,570
1,115
2,862
300
6,093
7,647
30,553
$
$
$
$
$
705
68
294
58
226
152
1,503
6,129
$
9,533
$
34,629
7,555
2,365
1,950
$
62,161
316,052
$ 410,016
$ 1,008,845
651,679
392,577
596,740
$3,375,909
194,697
$
35,945
$
73,148
4,981
10,500
43,574
$ 362,845
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Allowance for Loan Losses
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
$
$
$
$
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other
tables in Note 3 as follows:
• The one- to four-family residential and construction segment includes the one- to four-
family residential construction, subdivision construction, owner occupied one- to four-
family residential and non-owner occupied one- to four-family residential classes.
• The other residential segment corresponds to the other residential class.
• The commercial real estate segment includes the commercial real estate and industrial
• The commercial construction segment includes the land development and commercial
• The commercial business segment corresponds to the commercial business class.
• The consumer segment includes the consumer auto, consumer other and home equity lines
revenue bonds classes.
construction classes.
of credit classes.
$
$
$
32
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2017, 2016 and 2015
December 31, 2015
December 31, 2015
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, 2015
Balance, January 1, 2015
Provision (benefit)
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Losses charged off
Recoveries
charged to expense
$
$
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)
(329)
405
(619)
(329)
405
1,450
1,450
(1,202)
(1,202)
276
276
5,820
(5,315)
2,569
5,820
(5,315)
2,569
5,519
(9,512)
3,707
5,519
(9,512)
3,707
Balance,
Balance,
December 31, 2015
December 31, 2015
$
$
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
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
$
$
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
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 commercial real estate segment includes the commercial real estate and industrial
• The other residential segment corresponds to the other residential class.
• The commercial real estate segment includes the commercial real estate and industrial
revenue bonds classes.
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 consumer segment includes the consumer auto, consumer other and home equity lines
• The commercial business segment corresponds to the commercial business class.
• The consumer segment includes the consumer auto, consumer other and home equity lines
of credit classes.
of credit classes.
93
32
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The weighted average interest rate on loans receivable at December 31, 2017 and 2016, was 4.74% and
4.58%, 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 $254.0 million and $266.2
million at December 31, 2017 and 2016, respectively. In addition, available lines of credit on these loans
were $37.8 million and $60.5 million at December 31, 2017 and 2016, 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, 2017, 2016 and 2015:
December 31, 2017
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2017
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
— $
— $
349
15
—
3,405
3,196
8,315
2,907
3,018
—
2,713
825
591
367
18
—
3,723
3,465
8,490
2,907
4,222
—
2,898
917
648
—
114
—
—
331
68
599
—
2,140
—
484
124
91
$
$
193
584
1,793
—
3,405
2,419
9,075
3,553
5,384
—
2,383
906
498
—
22
24
—
166
165
567
147
173
—
222
69
33
Total
$
25,334
$
27,655
$
3,951
$
30,193
$
1,588
94
33
December 31, 2016
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2016
Average
Investment
in Impaired
Interest
Income
Loans
Recognized
One- to four-family residential construction
$
— $
— $
$
— $
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
Non-owner occupied one- to four-family
residential
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
Non-owner occupied one- to four-family
residential
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
818
6,023
—
3,290
1,907
10,507
3,812
4,539
—
2,097
812
476
1,061
7,555
—
3,166
1,902
34,629
9,533
2,365
—
791
802
357
829
6,120
—
3,555
2,177
12,121
3,812
4,652
—
2,178
887
492
1,061
7,644
—
3,427
2,138
37,259
9,533
2,539
—
829
885
374
—
131
1,291
—
374
2,209
65
—
1,295
—
629
244
124
—
214
1,391
—
389
128
2,556
—
1,115
—
119
120
61
Total
$
34,281
$
36,823
$
6,362
$
50,012
$
2,315
December 31, 2015
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2015
Average
Investment
in Impaired
Interest
Income
Loans
Recognized
One- to four-family residential construction
$
— $
— $
$
$
948
8,020
—
3,267
1,886
23,928
6,813
2,542
—
1,307
884
417
633
3,533
7,432
—
3,587
1,769
28,610
9,670
2,268
—
576
672
403
—
46
304
—
182
113
984
258
185
—
141
70
32
35
109
287
—
179
100
1,594
378
138
—
59
74
27
34
Total
$
62,161
$
65,689
$
6,093
$
59,153
$
2,980
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2016
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2016
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
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
December 31, 2015
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
— $
— $
1,061
7,555
—
3,166
1,902
34,629
9,533
2,365
—
791
802
357
1,061
7,644
—
3,427
2,138
37,259
9,533
2,539
—
829
885
374
—
214
1,391
—
389
128
2,556
—
1,115
—
119
120
61
Year Ended
December 31, 2015
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
$
$
633
3,533
7,432
—
3,587
1,769
28,610
9,670
2,268
—
576
672
403
35
109
287
—
179
100
1,594
378
138
—
59
74
27
Total
$
62,161
$
65,689
$
6,093
$
59,153
$
2,980
34
95
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
At December 31, 2017, $12.7 million of impaired loans had specific valuation allowances totaling $4.0
million. 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. For impaired loans which were nonaccruing, interest of approximately
$1.2 million, $1.5 million and $1.0 million would have been recognized on an accrual basis during the
years ended December 31, 2017, 2016 and 2015, 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.
modification:
The following table presents newly restructured loans during 2017, 2016 and 2015 by type of
Interest Only
Term
Combination
Modification
Mortgage loans on real estate:
Commercial
Commercial business
Consumer
$
$
—
—
—
—
2017
(In Thousands)
5,759
274
—
6,033
— $
16
245
261
$
2016
$
$
$
Total
5,759
290
245
6,294
Total
60
2,946
429
38
59
3,532
Total
$
$
$
$
—
—
—
—
—
—
164
—
—
—
164
—
164
—
—
164
Interest Only
Term
Combination
Modification
(In Thousands)
Mortgage loans on real estate:
Residential one-to-four family
$
Commercial
Construction and land development
Commercial business
Consumer
60
2,946
429
—
— $
—
—
59
Great Southern Bancorp, Inc.
—
38
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
3,435
97
$
$
$
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(In Thousands)
2015
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Commercial business
Mortgage loans on real estate:
Consumer
Residential one-to-four family
Commercial
Commercial business
Consumer
Interest Only
Term
Combination
Modification
$
$
$
$
—
—
—
—
—
—
—
—
—
—
$
$
$
$
(In Thousands)
$
$
$
407
115
1,095
97
407
115
1,714
1,095
97
$
$
$
$
571
115
1,095
35
97
571
115
1,878
1,095
97
1,878
At December 31, 2017, the Company had $15.0 million of loans that were modified in troubled debt
restructurings and impaired, as follows: $266,000 of construction and land development loans, $6.2
1,714
$
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
At December 31, 2017, the Company had $15.0 million of loans that were modified in troubled debt
estate loans, $867,000 million of commercial business loans and $617,000 of consumer loans. Of the
restructurings and impaired, as follows: $266,000 of construction and land development loans, $6.2
total troubled debt restructurings at December 31, 2017, $12.3 million were accruing interest and $8.8
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
million were classified as substandard using the Company’s internal grading system which is described
estate loans, $867,000 million of commercial business loans and $617,000 of consumer loans. Of the
below. The Company had no troubled debt restructurings which were modified in the previous 12
total troubled debt restructurings at December 31, 2017, $12.3 million were accruing interest and $8.8
months and subsequently defaulted during the year ended December 31, 2017. When loans modified as
million were classified as substandard using the Company’s internal grading system which is described
troubled debt restructuring have subsequent payment defaults, the defaults are factored into the
below. The Company had no troubled debt restructurings which were modified in the previous 12
determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts
months and subsequently defaulted during the year ended December 31, 2017. When loans modified as
considered uncollectible. At December 31, 2016, the Company had $21.1 million of loans that were
troubled debt restructuring have subsequent payment defaults, the defaults are factored into the
modified in troubled debt restructurings and impaired, as follows: $5.0 million of construction and land
determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts
development loans, $7.4 million of single family and multi-family residential mortgage loans, $7.1
considered uncollectible. At December 31, 2016, the Company had $21.1 million of loans that were
million of commercial real estate loans, $1.3 million of commercial business loans and $296,000 of
modified in troubled debt restructurings and impaired, as follows: $5.0 million of construction and land
consumer loans. Of the total troubled debt restructurings at December 31, 2016, $18.6 million were
development loans, $7.4 million of single family and multi-family residential mortgage loans, $7.1
accruing interest and $7.9 million were classified as substandard using the Company’s internal grading
million of commercial real estate loans, $1.3 million of commercial business loans and $296,000 of
system. At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
consumer loans. Of the total troubled debt restructurings at December 31, 2016, $18.6 million were
debt restructurings and impaired, as follows: $7.9 million of construction and land development loans,
accruing interest and $7.9 million were classified as substandard using the Company’s internal grading
$13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial
system. At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the
debt restructurings and impaired, as follows: $7.9 million of construction and land development loans,
total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2
$13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial
million were classified as substandard using the Company’s internal grading system.
real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the
During the year ended December 31, 2017, borrowers with loans designated as troubled debt
total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2
restructurings totaling $998,000 met the criteria for placement back on accrual status. This criteria is
million were classified as substandard using the Company’s internal grading system.
generally a minimum of six months of consistent and timely payment performance under original or
During the year ended December 31, 2017, borrowers with loans designated as troubled debt
modified terms. The $998,000 was made up of $629,000 of residential mortgage loans, $285,000 of
restructurings totaling $998,000 met the criteria for placement back on accrual status. This criteria is
commercial real estate loans and $84,000 of consumer loans.
generally a minimum of six months of consistent and timely payment performance under original or
The Company reviews the credit quality of its loan portfolio using an internal grading system that
modified terms. The $998,000 was made up of $629,000 of residential mortgage loans, $285,000 of
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans
commercial real estate loans and $84,000 of consumer loans.
classified as watch are being monitored because of indications of potential weaknesses or deficiencies
The Company reviews the credit quality of its loan portfolio using an internal grading system that
that may require future classification as special mention or substandard. Special mention loans possess
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans
potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree
classified as watch are being monitored because of indications of potential weaknesses or deficiencies
of risk that warrants substandard classification. Substandard loans are characterized by the distinct
that may require future classification as special mention or substandard. Special mention loans possess
possibility that the Bank will sustain some loss if certain deficiencies are not corrected. Doubtful loans
potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree
are those having all the weaknesses inherent to those classified Substandard with the added
of risk that warrants substandard classification. Substandard loans are characterized by the distinct
characteristics that the weaknesses make collection or liquidation in full, on the basis of currently
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
36
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
At December 31, 2017, $12.7 million of impaired loans had specific valuation allowances totaling $4.0
million. 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. For impaired loans which were nonaccruing, interest of approximately
$1.2 million, $1.5 million and $1.0 million would have been recognized on an accrual basis during the
years ended December 31, 2017, 2016 and 2015, 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 2017, 2016 and 2015 by type of
modification:
Mortgage loans on real estate:
Commercial
Commercial business
Consumer
2017
Interest Only
Term
Combination
(In Thousands)
$
$
—
—
—
—
$
$
5,759
274
—
6,033
— $
16
245
261
$
2016
Interest Only
Term
Combination
(In Thousands)
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Construction and land development
Commercial business
Consumer
$
$
$
60
2,946
429
—
—
3,435
$
—
—
—
—
—
—
— $
—
—
38
59
97
$
2015
Interest Only
Term
Combination
96
$
$
$
$
Total
Modification
5,759
290
245
6,294
Total
Modification
60
2,946
429
38
59
3,532
Total
Modification
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
At December 31, 2017, $12.7 million of impaired loans had specific valuation allowances totaling $4.0
million. 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. For impaired loans which were nonaccruing, interest of approximately
$1.2 million, $1.5 million and $1.0 million would have been recognized on an accrual basis during the
years ended December 31, 2017, 2016 and 2015, 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.
modification:
The following table presents newly restructured loans during 2017, 2016 and 2015 by type of
Interest Only
Term
Combination
Modification
Mortgage loans on real estate:
Commercial
Commercial business
Consumer
—
—
—
—
Interest Only
Term
Combination
Modification
2017
(In Thousands)
5,759
274
—
6,033
— $
16
245
261
$
2016
(In Thousands)
$
$
$
Mortgage loans on real estate:
Residential one-to-four family
Commercial
$
$
$
Construction and land development
Commercial business
Consumer
60
2,946
429
—
—
— $
—
—
38
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
2015
(In Thousands)
December 31, 2017, 2016 and 2015
3,435
97
$
$
$
—
—
—
—
—
—
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Commercial business
Mortgage loans on real estate:
Consumer
Residential one-to-four family
Commercial
Commercial business
Consumer
Interest Only
Term
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
Combination
164
$
(In Thousands)
—
—
—
164
—
164
—
—
407
115
1,095
97
407
115
1,714
1,095
97
$
$
Total
5,759
290
245
6,294
Total
60
2,946
429
38
59
3,532
$
$
$
$
Total
Modification
571
$
115
1,095
35
97
571
115
1,878
1,095
97
$
$
1,878
$
$
$
$
164
1,714
At December 31, 2017, the Company had $15.0 million of loans that were modified in troubled debt
—
restructurings and impaired, as follows: $266,000 of construction and land development loans, $6.2
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
At December 31, 2017, the Company had $15.0 million of loans that were modified in troubled debt
estate loans, $867,000 million of commercial business loans and $617,000 of consumer loans. Of the
restructurings and impaired, as follows: $266,000 of construction and land development loans, $6.2
total troubled debt restructurings at December 31, 2017, $12.3 million were accruing interest and $8.8
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
million were classified as substandard using the Company’s internal grading system which is described
estate loans, $867,000 million of commercial business loans and $617,000 of consumer loans. Of the
below. The Company had no troubled debt restructurings which were modified in the previous 12
total troubled debt restructurings at December 31, 2017, $12.3 million were accruing interest and $8.8
months and subsequently defaulted during the year ended December 31, 2017. When loans modified as
million were classified as substandard using the Company’s internal grading system which is described
troubled debt restructuring have subsequent payment defaults, the defaults are factored into the
below. The Company had no troubled debt restructurings which were modified in the previous 12
determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts
months and subsequently defaulted during the year ended December 31, 2017. When loans modified as
considered uncollectible. At December 31, 2016, the Company had $21.1 million of loans that were
troubled debt restructuring have subsequent payment defaults, the defaults are factored into the
modified in troubled debt restructurings and impaired, as follows: $5.0 million of construction and land
determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts
development loans, $7.4 million of single family and multi-family residential mortgage loans, $7.1
considered uncollectible. At December 31, 2016, the Company had $21.1 million of loans that were
million of commercial real estate loans, $1.3 million of commercial business loans and $296,000 of
modified in troubled debt restructurings and impaired, as follows: $5.0 million of construction and land
consumer loans. Of the total troubled debt restructurings at December 31, 2016, $18.6 million were
development loans, $7.4 million of single family and multi-family residential mortgage loans, $7.1
accruing interest and $7.9 million were classified as substandard using the Company’s internal grading
million of commercial real estate loans, $1.3 million of commercial business loans and $296,000 of
system. At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
consumer loans. Of the total troubled debt restructurings at December 31, 2016, $18.6 million were
debt restructurings and impaired, as follows: $7.9 million of construction and land development loans,
accruing interest and $7.9 million were classified as substandard using the Company’s internal grading
$13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial
system. At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the
debt restructurings and impaired, as follows: $7.9 million of construction and land development loans,
total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2
$13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial
million were classified as substandard using the Company’s internal grading system.
real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the
During the year ended December 31, 2017, borrowers with loans designated as troubled debt
total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2
restructurings totaling $998,000 met the criteria for placement back on accrual status. This criteria is
million were classified as substandard using the Company’s internal grading system.
generally a minimum of six months of consistent and timely payment performance under original or
During the year ended December 31, 2017, borrowers with loans designated as troubled debt
modified terms. The $998,000 was made up of $629,000 of residential mortgage loans, $285,000 of
restructurings totaling $998,000 met the criteria for placement back on accrual status. This criteria is
commercial real estate loans and $84,000 of consumer loans.
generally a minimum of six months of consistent and timely payment performance under original or
The Company reviews the credit quality of its loan portfolio using an internal grading system that
modified terms. The $998,000 was made up of $629,000 of residential mortgage loans, $285,000 of
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans
commercial real estate loans and $84,000 of consumer loans.
classified as watch are being monitored because of indications of potential weaknesses or deficiencies
The Company reviews the credit quality of its loan portfolio using an internal grading system that
that may require future classification as special mention or substandard. Special mention loans possess
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans
potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree
classified as watch are being monitored because of indications of potential weaknesses or deficiencies
of risk that warrants substandard classification. Substandard loans are characterized by the distinct
that may require future classification as special mention or substandard. Special mention loans possess
possibility that the Bank will sustain some loss if certain deficiencies are not corrected. Doubtful loans
potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree
are those having all the weaknesses inherent to those classified Substandard with the added
of risk that warrants substandard classification. Substandard loans are characterized by the distinct
characteristics that the weaknesses make collection or liquidation in full, on the basis of currently
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
97
36
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(In Thousands)
Mortgage loans on real estate:
Residential one-to-four family
Commercial
Commercial business
Consumer
$
$
—
—
—
—
—
$
$
$
407
115
1,095
97
1,714
$
164
—
—
—
164
$
$
571
115
1,095
97
1,878
At December 31, 2017, the Company had $15.0 million of loans that were modified in troubled debt
restructurings and impaired, as follows: $266,000 of construction and land development loans, $6.2
million of single family and multi-family residential mortgage loans, $7.1 million of commercial real
estate loans, $867,000 million of commercial business loans and $617,000 of consumer loans. Of the
total troubled debt restructurings at December 31, 2017, $12.3 million were accruing interest and $8.8
million were classified as substandard using the Company’s internal grading system which is described
below. The Company had no troubled debt restructurings which were modified in the previous 12
months and subsequently defaulted during the year ended December 31, 2017. When loans modified as
troubled debt restructuring have subsequent payment defaults, the defaults are factored into the
determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts
considered uncollectible. At December 31, 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 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 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. At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled
debt restructurings and impaired, as follows: $7.9 million of construction and land development loans,
$13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial
real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the
total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2
million were classified as substandard using the Company’s internal grading system.
During the year ended December 31, 2017, borrowers with loans designated as troubled debt
restructurings totaling $998,000 met the criteria for placement back on accrual status. This criteria is
generally a minimum of six months of consistent and timely payment performance under original or
modified terms. The $998,000 was made up of $629,000 of residential mortgage loans, $285,000 of
commercial real estate loans and $84,000 of consumer loans.
The Company reviews the credit quality of its loan portfolio using an internal grading system that
Great Southern Bancorp, Inc.
classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans
classified as watch are being monitored because of indications of potential weaknesses or deficiencies
Notes to Consolidated Financial Statements
that may require future classification as special mention or substandard. Special mention loans possess
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree
of risk that warrants substandard classification. Substandard loans are characterized by the distinct
Notes to Consolidated Financial Statements
existing facts, conditions and values, highly questionable and improbable. Loans not meeting any of the
possibility that the Bank will sustain some loss if certain deficiencies are not corrected. Doubtful loans
December 31, 2017, 2016 and 2015
criteria previously described are considered satisfactory. The FDIC-assisted acquired loans are evaluated
are those having all the weaknesses inherent to those classified Substandard with the added
using this internal grading system. These loans are accounted for in pools. Minimal adverse
characteristics that the weaknesses make collection or liquidation in full, on the basis of currently
classification in these acquired loan pools was identified as of December 31, 2017 and 2016,
existing facts, conditions and values, highly questionable and improbable. Loans not meeting any of the
36
respectively. See Note 4 for further discussion of the acquired loan pools and termination of the loss
criteria previously described are considered satisfactory. The FDIC-assisted acquired loans are evaluated
sharing agreements.
using this internal grading system. These loans are accounted for in pools. Minimal adverse
classification in these acquired loan pools was identified as of December 31, 2017 and 2016,
The Company evaluates the loan risk internal grading system definitions and allowance for loan loss
respectively. See Note 4 for further discussion of the acquired loan pools and termination of the loss
methodology on an ongoing basis. The general component of the allowance for loan losses is affected by
sharing agreements.
several factors, including, but not limited to, average historical losses, average life of the loans, the
current composition of the loan portfolio, current and expected economic conditions, collateral values
The Company evaluates the loan risk internal grading system definitions and allowance for loan loss
and internal risk ratings. Management considers all these factors in determining the adequacy of the
methodology on an ongoing basis. The general component of the allowance for loan losses is affected by
Company’s allowance for loan losses. No significant changes were made to the loan risk grading system
several factors, including, but not limited to, average historical losses, average life of the loans, the
definitions and allowance for loan loss methodology during the past year.
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 the
The loan grading system is presented by loan class below:
Company’s allowance for loan losses. No significant changes were made to the loan risk grading system
definitions and allowance for loan loss methodology during the past year.
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2017
Special
Mention Substandard Doubtful
Total
$
Satisfactory
$
20,275
15,602
39,171
1,068,352
20,275
15,602
188,706
39,171
1,068,352
117,103
1,218,431
188,706
742,237
344,479
117,103
21,859
1,218,431
354,588
742,237
62,682
344,479
114,860
21,859
354,588
62,682
155,212
114,860
$
(In Thousands)
(In Thousands)
December 31, 2017
Special
20,793
— $
$
Total
Mention Substandard Doubtful
18,062
—
43,971
—
— 1,068,352
— $
20,793
18,062
—
190,515
—
—
43,971
— 1,068,352
119,468
—
— 1,235,329
190,515
—
745,645
—
353,351
500
119,468
—
21,859
—
— 1,235,329
357,142
—
745,645
—
63,368
—
353,351
500
115,439
—
21,859
—
357,142
—
63,368
—
155,224
—
115,439
—
— $
98
—
—
— $
98
1,809
—
—
1,976
6,989
1,809
1,876
2,066
1,976
—
6,989
2,554
1,876
686
2,066
579
—
2,554
686
12
579
— $
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
Watch
518
2,362
4,800
—
518
2,362
—
4,800
—
389
9,909
—
1,532
6,306
389
—
9,909
—
1,532
—
6,306
—
—
—
—
—
—
One- to four-family residential
construction
construction
Subdivision construction
Land development
One- to four-family residential
Commercial construction
Owner occupied one- to-four-
Subdivision construction
family residential
Land development
Non-owner occupied one- to-
Commercial construction
four-family residential
Owner occupied one- to-four-
Commercial real estate
family residential
Other residential
Non-owner occupied one- to-
Commercial business
four-family residential
Industrial revenue bonds
Commercial real estate
Consumer auto
Other residential
Consumer other
Commercial business
Home equity lines of credit
Industrial revenue bonds
Acquired loans no longer covered
Consumer auto
by FDIC loss sharing
Consumer other
agreements, net of discounts
Home equity lines of credit
Acquired non-covered loans,
Acquired loans no longer covered
net of discounts
by FDIC loss sharing
agreements, net of discounts
Acquired non-covered loans,
Total
54,445
—
—
—
155,212
$ 4,518,002
—
25,816
$
$
—
— $
12
18,645
net of discounts
54,445
—
—
—
Total
$ 4,518,002
$
25,816
$
— $
18,645
98
—
—
500
—
54,445
155,224
$ 4,562,963
54,445
500
$ 4,562,963
$
$
37
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Satisfactory
Watch
Mention Substandard Doubtful
Total
December 31, 2016
Special
(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
20,771
14,059
39,925
780,614
198,835
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
—
— 1,186,906
21,737
17,186
50,624
780,614
200,340
136,924
663,378
348,628
25,065
494,233
70,001
108,753
134,356
72,569
76,234
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 4,329,945
$
36,542
$
— $
21,061
$
— $ 4,387,548
Certain of the Bank’s real estate loans are pledged as collateral for borrowings as set forth in Notes 9 and
Total
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, 2017 and 2016, loans outstanding to these directors and
executive officers are summarized as follows:
38
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Satisfactory
Watch
December 31, 2016
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
$
20,771
14,059
39,925
780,614
198,835
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
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, 2017 and 2016, 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, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Balance, beginning of year
New loans
Payments
Balance, end of year
2017
2016
(In Thousands)
$
$
24,793
19,734
(4,486)
40,041
$
$
14,287
14,299
(3,793)
24,793
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. 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. 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 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 were covered by a loss
sharing agreement between the FDIC and Great Southern Bank. 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.
39
100
See “Loss Sharing Agreements” below. Based upon the acquisition date fair values of the net assets
acquired, no goodwill was recorded.
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 were 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 $60,000 of consumer loans)
and foreclosed assets purchased subject to certain limitations. 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
but was terminated early, effective June 9, 2017, 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 premium was recorded in conjunction with the fair value
of the acquired loans and the amount amortized to yield during 2017, 2016 and 2015 was $269,000,
$359,000 and $459,000, 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.
Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. A
premium was recorded in conjunction with the fair value of the acquired loans and the amount
amortized to yield during 2017, 2016 and 2015 was $217,000, $491,000 and $794,000, 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
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
See “Loss Sharing Agreements” below. Based upon the acquisition date fair values of the net assets
acquired, no goodwill was recorded.
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 were 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 $60,000 of consumer loans)
and foreclosed assets purchased subject to certain limitations. 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
but was terminated early, effective June 9, 2017, 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 premium was recorded in conjunction with the fair value
of the acquired loans and the amount amortized to yield during 2017, 2016 and 2015 was $269,000,
$359,000 and $459,000, 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.
Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. A
premium was recorded in conjunction with the fair value of the acquired loans and the amount
amortized to yield during 2017, 2016 and 2015 was $217,000, $491,000 and $794,000, 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
101
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 continued
until their termination discussed below. 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.
On June 9, 2017, Great Southern Bank executed an agreement with the FDIC to terminate the loss
sharing agreements for InterBank, effective immediately. Pursuant to the termination agreement, the
FDIC paid $15.0 million to the Bank to settle all outstanding items related to the terminated loss
sharing agreements. The Company recorded a pre-tax gain on the termination of $7.7 million. As a
result of entering into the termination agreement, assets that were covered by the terminated loss
sharing arrangements, including covered loans in the amount of $138.8 million and covered other real
estate owned in the amount of $2.9 million as of March 31, 2017, were reclassified as non-covered
assets effective June 9, 2017. All rights and obligations of the Bank and the FDIC under the terminated
loss sharing agreements, including the settlement of all existing loss sharing and expense
reimbursement claims, have been resolved and terminated.
The termination of the loss sharing agreements for the TeamBank, Vantus Bank, Sun Security Bank
and InterBank transactions have no impact on the yields for the loans that were previously covered
under 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, 2017, 2016 and 2015, improvements 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, until they were
terminated or expired. This resulted in corresponding adjustments during the years ended December
31, 2017, 2016 and 2015, to the indemnification assets (which have now been reduced to $-0- due to
the termination of the loss sharing agreements). The amounts of these adjustments were as follows:
Year Ended December 31,
2017
2016
2015
(In Thousands)
cash flow expectations
$
1,333
$
10,598
$
13,720
Increase in accretable yield due to increased
Decrease in FDIC indemnification asset
as a result of accretable yield increase
—
(2,744)
(5,056)
102
41
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017, 2016 and 2015, improvements 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, until they were
terminated or expired. This resulted in corresponding adjustments during the years ended December
31, 2017, 2016 and 2015, to the indemnification assets (which have now been reduced to $-0- due to
the termination of the loss sharing agreements). The amounts of these adjustments were as follows:
Year Ended December 31,
2017
2016
2015
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
1,333
$
10,598
$
13,720
Decrease in FDIC indemnification asset
as a result of accretable yield increase
—
(2,744)
(5,056)
103
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The adjustments, along with those made in previous years, impacted the Company’s Consolidated
Statements of Income as follows:
clawback provision, if any, was to occur shortly after the termination of the loss sharing agreement,
which in the case of InterBank was to be 10 years from the acquisition date.
Interest income
Noninterest income
Net impact to pre-tax income
Year Ended December 31,
2017
2016
2015
5,014
(634)
(In Thousands)
$
16,393
(7,033)
4,380
$
9,360
$
$
$
$
28,531
(19,534)
8,997
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 credit loss expectations. This resulted in increased income that has been
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 (when such agreements were 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 was shorter. Additional estimated cash flows totaling
approximately $1.3 million were recorded in the year ended December 31, 2017 related to these loan
pools, with no corresponding reduction in expected reimbursement from the FDIC as the remaining
loss sharing agreements were terminated in 2017.
Because these adjustments will be recognized generally over the remaining lives of the loan pools, they
will impact future periods as well. The remaining accretable yield adjustment that will affect interest
income is $2.6 million. As there is no longer, nor will there be in the future, indemnification asset
amortization related to TeamBank, Vantus Bank, Sun Security Bank or InterBank due to the
termination or expiration of the related loss sharing agreements for those transactions, there is no
remaining indemnification asset or related adjustments that will affect non-interest income (expense).
Of the remaining adjustments affecting interest income, we expect to recognize $1.7 million of interest
income during 2018. 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 was measured separately from the loan portfolio because it was not contractually
embedded in the loans and was not transferable with the loans should the Bank have chosen to dispose
of them. Fair value was estimated using projected cash flows available for loss sharing based on the
credit adjustments estimated for each loan pool (as discussed above) and the loss sharing percentages
outlined in the 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 was also separately measured from the related foreclosed real estate.
The loss sharing agreement on the InterBank transaction included a clawback provision whereby if
credit loss performance was better than certain pre-established thresholds, then a portion of the
monetary benefit was to be shared with the FDIC. The pre-established threshold for credit losses was
$115.7 million for this transaction. The monetary benefit required to be paid to the FDIC under the
104
43
At December 31, 2016 and 2015, 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 and $6.6 million was recorded as of December 31, 2016 and 2015,
respectively. This clawback liability was included in the calculation of the final settlement payment
related to the termination of the InterBank loss sharing agreements.
TeamBank Loans and Foreclosed Assets. The following tables present the balances of the acquired
loans and foreclosed assets related to the TeamBank transaction at December 31, 2017 and 2016.
Through December 31, 2017, gross loan balances (due from the borrower) were reduced approximately
$422.5 million since the transaction date because of $289.7 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.
Expected loss remaining
$
131
$
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
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
$
159
$
December 31, 2017
Loans
(In Thousands)
Foreclosed
Assets
$
13,668
$
(589)
(12,948)
(846)
(17,833)
December 31, 2016
Loans
(In Thousands)
Foreclosed
Assets
$
18,838
$
35
—
(35)
—
14
—
(14)
—
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
clawback provision, if any, was to occur shortly after the termination of the loss sharing agreement,
which in the case of InterBank was to be 10 years from the acquisition date.
At December 31, 2016 and 2015, 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 and $6.6 million was recorded as of December 31, 2016 and 2015,
respectively. This clawback liability was included in the calculation of the final settlement payment
related to the termination of the InterBank loss sharing agreements.
TeamBank Loans and Foreclosed Assets. The following tables present the balances of the acquired
loans and foreclosed assets related to the TeamBank transaction at December 31, 2017 and 2016.
Through December 31, 2017, gross loan balances (due from the borrower) were reduced approximately
$422.5 million since the transaction date because of $289.7 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.
December 31, 2017
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
$
13,668
$
(589)
(12,948)
Expected loss remaining
$
131
$
35
—
(35)
—
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)
—
44
105
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Vantus Bank Loans and Foreclosed Assets. The following tables present the balances of the acquired
loans and foreclosed assets related to the Vantus Bank transaction at December 31, 2017 and 2016.
Through December 31, 2017, gross loan balances (due from the borrower) were reduced approximately
$312.6 million since the transaction date because of $266.9 million of repayments by the borrower,
$16.7 million of transfers to foreclosed assets and $29.0 million of charge-downs to customer loan
balances. Based upon the collectability analyses performed at the time of the acquisition, we expected
certain levels of foreclosures and charge-offs and actual results have been better than our
expectations. As a result, cash flows expected to be received from the acquired loan pools have
increased, resulting in adjustments that were made to the related accretable yield as described above.
December 31, 2017
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
$
18,965
$
(131)
(18,605)
Expected loss remaining
$
229
$
15
—
(15)
—
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
$
23,712
$
(239)
(23,232)
Expected loss remaining
$
241
$
106
15
—
(15)
—
45
Sun Security Bank Loans and Foreclosed Assets. The following tables present the balances of the
acquired loans and foreclosed assets related to the Sun Security Bank transaction at December 31, 2017
and 2016. Through December 31, 2017, gross loan balances (due from the borrower) were reduced
approximately $207.7 million since the transaction date because of $148.4 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.
Expected loss remaining
$
945
$
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
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
$
994
$
December 31, 2017
Loans
(In Thousands)
Foreclosed
Assets
$
26,787
$
306
(494)
(25,348)
(1,086)
(31,499)
December 31, 2016
Loans
(In Thousands)
Foreclosed
Assets
$
33,579
$
365
—
(299)
7
(286)
—
79
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Sun Security Bank Loans and Foreclosed Assets. The following tables present the balances of the
acquired loans and foreclosed assets related to the Sun Security Bank transaction at December 31, 2017
and 2016. Through December 31, 2017, gross loan balances (due from the borrower) were reduced
approximately $207.7 million since the transaction date because of $148.4 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.
Expected loss remaining
$
945
$
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
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
$
994
$
107
December 31, 2017
Loans
Foreclosed
Assets
(In Thousands)
$
26,787
$
306
(494)
(25,348)
(1,086)
(31,499)
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
33,579
$
365
—
(299)
7
—
(286)
79
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
InterBank Loans, Foreclosed Assets and Indemnification Asset. The following tables present the
balances of the acquired loans, foreclosed assets and FDIC indemnification asset (for periods prior to
the termination of the loss sharing agreements) related to the InterBank transaction at December 31,
2017 and 2016. Through December 31, 2017, gross loan balances (due from the borrower) were
reduced approximately $280.9 million since the transaction date because of $239.4 million of
repayments by the borrower, $19.1 million of transfers to foreclosed assets and $22.4 million of
charge-offs to customer loan balances. Based upon the collectability analyses performed at the time of
the acquisition, we expected certain levels of foreclosures and charge-offs and actual results have been
better than our expectations. As a result, cash flows expected to be received from the acquired loan
pools have increased, resulting in adjustments that were made to the related accretable yield as
described above.
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
December 31, 2017
Loans
Foreclosed
Assets
(In Thousands)
$
112,399
$
2,012
274
(972)
(98,321)
—
—
(1,785)
Expected loss remaining
$
13,380
$
227
Initial basis for loss sharing determination,
net of activity since acquisition date
Noncredit premium/(discount), net of
activity since acquisition date
Reclassification from nonaccretable discount
to accretable discount due to change in
expected losses (net of accretion to date)
Original estimated fair value of assets, net of
activity since acquisition date
Expected loss remaining
Assumed loss sharing recovery percentage
Expected loss sharing value
FDIC loss share clawback
Indemnification asset to be amortized resulting from
change in expected losses
Accretable discount on FDIC indemnification asset
FDIC indemnification asset
$
13,145
$
108
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)
—
—
—
—
—
—
—
47
Valley Bank Loans and Foreclosed Assets. The following tables present the balances of the acquired
loans and foreclosed assets related to the Valley Bank transaction at December 31, 2017 and 2016.
Through December 31, 2017, gross loan balances (due from the borrower) were reduced approximately
$133.2 million since the transaction date because of $121.4 million of repayments by the borrower,
$4.0 million of transfers to foreclosed assets and $7.8 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, 2017
Loans
(In Thousands)
Foreclosed
Assets
$
59,997
$
1,673
11
(411)
228
(2,121)
(76,231)
6,159
(54,442)
5,155
$
(1,667)
6
$
December 31, 2016
Loans
(In Thousands)
Foreclosed
Assets
$
84,283
$
1,973
$
(1,952)
21
$
—
—
—
—
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Valley Bank Loans and Foreclosed Assets. The following tables present the balances of the acquired
loans and foreclosed assets related to the Valley Bank transaction at December 31, 2017 and 2016.
Through December 31, 2017, gross loan balances (due from the borrower) were reduced approximately
$133.2 million since the transaction date because of $121.4 million of repayments by the borrower,
$4.0 million of transfers to foreclosed assets and $7.8 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, 2017
Loans
Foreclosed
Assets
(In Thousands)
$
59,997
$
1,673
11
(411)
—
—
(54,442)
5,155
$
(1,667)
6
$
December 31, 2016
Loans
Foreclosed
Assets
(In Thousands)
$
84,283
$
1,973
228
(2,121)
(76,231)
6,159
$
—
—
(1,952)
21
$
109
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Changes in the accretable yield for acquired loan pools were as follows for the years ended December
31, 2017, 2016 and 2015:
Note 5: Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2017 and 2016, were as follows:
TeamBank
Vantus Bank
Sun
Security Bank
(In Thousands)
Balance, January 1, 2015
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2015
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2016
Accretion
Reclassification from nonaccretable
difference(1)
$
6,865
(3,265)
$
205
3,805
(1,834)
506
2,477
(1,563)
1,157
4,453
(2,541)
1,448
3,360
(1,877)
1,064
2,547
(1,373)
676
$
7,952
(5,487)
3,459
5,924
(3,832)
2,185
4,277
(2,251)
875
InterBank
Valley Bank
$
36,092
(28,767)
$
11,132
(10,975)
9,022
8,159
16,347
(13,964)
6,129
8,512
(7,505)
4,067
8,316
(11,933)
8,414
4,797
(5,823)
3,721
Balance, December 31, 2017
$
2,071
$
1,850
$
2,901
$
5,074
$
2,695
(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, 2017, totaling $1.1 million, $663,000,
$850,000, $3.5 million and $3.0 million, respectively; 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; and 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.
Foreclosed assets held for sale and repossessions
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 and repossessions, net
Other real estate owned not acquired through foreclosure
2017
2016
(In Thousands)
$
$
—
5,413
7,229
—
112
140
1,694
—
1,987
16,575
—
2,133
1,666
20,374
1,628
—
6,360
10,886
—
1,217
954
3,841
—
1,991
25,249
1,426
316
1,952
28,943
3,715
Other real estate owned and repossessions
$
22,002
$
32,658
At December 31, 2017, other real estate owned not acquired through foreclosure included 10
properties, nine of which were branch locations that were closed and are held for sale, and one of
which is land acquired for a potential branch location. During the year ended December 31, 2017,
seven former branch locations were sold at an aggregate gain of $250,000, which is included in the
gain on sales of other real estate owned amount in the table below.
At December 31, 2016, other real estate owned not acquired through foreclosure included 17
properties, 16 of which were branch locations that were closed and are held for sale, and one of which
is land 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 were sold during the year ended December
31, 2016, at an aggregate net gain of $858,000, which is included in the gain on sales of other real
estate owned amount in the table below.
At December 31, 2017, residential mortgage loans totaling $3.2 million were in the process of
foreclosure, $3.0 million of which were acquired loans. Of the $3.0 million of acquired loans, $2.8
million were previously covered by loss sharing agreements and $208,000 were acquired in the Valley
Bank transaction.
110
49
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 5: Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2017 and 2016, were as follows:
Foreclosed assets held for sale and repossessions
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 and repossessions, net
Other real estate owned not acquired through foreclosure
2017
2016
(In Thousands)
$
—
5,413
7,229
—
112
140
1,694
—
1,987
16,575
—
2,133
1,666
20,374
1,628
$
—
6,360
10,886
—
1,217
954
3,841
—
1,991
25,249
1,426
316
1,952
28,943
3,715
Other real estate owned and repossessions
$
22,002
$
32,658
At December 31, 2017, other real estate owned not acquired through foreclosure included 10
properties, nine of which were branch locations that were closed and are held for sale, and one of
which is land acquired for a potential branch location. During the year ended December 31, 2017,
seven former branch locations were sold at an aggregate gain of $250,000, which is included in the
gain on sales of other real estate owned amount in the table below.
At December 31, 2016, other real estate owned not acquired through foreclosure included 17
properties, 16 of which were branch locations that were closed and are held for sale, and one of which
is land 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 were sold during the year ended December
31, 2016, at an aggregate net gain of $858,000, which is included in the gain on sales of other real
estate owned amount in the table below.
At December 31, 2017, residential mortgage loans totaling $3.2 million were in the process of
foreclosure, $3.0 million of which were acquired loans. Of the $3.0 million of acquired loans, $2.8
million were previously covered by loss sharing agreements and $208,000 were acquired in the Valley
Bank transaction.
111
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Expenses applicable to other real estate owned and repossessions for the years ended December 31,
2017, 2016 and 2015, included the following:
million, $6.2 million and $6.3 million during 2017, 2016 and 2015, respectively. Investment
amortization amounted to $5.2 million, $4.4 million and $4.9 million for the years ended December 31,
Net gain on sales of real estate and
repossessions
Valuation write-downs
Operating expenses, net of rental income
2017
2016
(In Thousands)
2015
$
$
(2,212)
1,585
4,556
3,929
$
$
(68)
431
3,748
4,111
$
$
(397)
890
2,033
2,526
Note 6:
Premises and Equipment
Major classifications of premises and equipment at December 31, 2017 and 2016, stated at cost, were
as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2017
2016
(In Thousands)
$
42,312
97,464
53,841
193,617
55,599
$
42,322
96,429
57,217
195,968
55,372
$
138,018
$
140,596
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, 2017, the Company had 16
investments, with a net carrying value of $18.2 million. At December 31, 2016, the Company had 13
investments, with a net carrying value of $21.8 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 through 2023 were $40.0 million as
of December 31, 2017, assuming no tax credit recapture events occur and all projects currently under
construction are completed as planned. Amortization of the investments in partnerships is expected to
be approximately $34.9 million, assuming all projects currently under construction are completed and
funded as planned. The Company’s usage of federal affordable housing tax credits approximated $6.6
2017, 2016 and 2015, 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, 2017, the
Company had two investments, with a net carrying value of $940,000. At December 31, 2016, the
Company had two investments, with a net carrying value of $1.9 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 through 2019 were $960,000 as of
December 31, 2017. Amortization of the investments in partnerships is expected to be approximately
$730,000. The Company’s usage of federal New Market Tax Credits approximated $1.2 million, $2.3
million and $2.3 million during 2017, 2016 and 2015, respectively. Investment amortization amounted
to $930,000, $1.7 million and $1.7 million for the years ended December 31, 2017, 2016 and 2015,
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.
112
51
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
million, $6.2 million and $6.3 million during 2017, 2016 and 2015, respectively. Investment
amortization amounted to $5.2 million, $4.4 million and $4.9 million for the years ended December 31,
2017, 2016 and 2015, 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, 2017, the
Company had two investments, with a net carrying value of $940,000. At December 31, 2016, the
Company had two investments, with a net carrying value of $1.9 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 through 2019 were $960,000 as of
December 31, 2017. Amortization of the investments in partnerships is expected to be approximately
$730,000. The Company’s usage of federal New Market Tax Credits approximated $1.2 million, $2.3
million and $2.3 million during 2017, 2016 and 2015, respectively. Investment amortization amounted
to $930,000, $1.7 million and $1.7 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
Investments in Limited Partnerships for Federal Rehabilitation/Historic Tax Credits
From time to time, the Company has invested in certain limited partnerships that were formed to
provide certain federal rehabilitation/historic tax credits. The Company utilizes these credits in their
entirety in the year the project is placed in service and the impact to the Consolidated Statements of
Income has not been material.
Investments in Limited Partnerships for State Tax Credits
From time to time, the Company has invested in certain limited partnerships that were formed to
provide certain state tax credits. The Company has primarily syndicated these tax credits and the
impact to the Consolidated Statements of Income has not been material.
113
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 8: Deposits
Deposits at December 31, 2017 and 2016, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2017
2016
(In Thousands, Except
Interest Rates)
—
$
661,589
$
653,288
0.32% - 0.26%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,565,711
2,227,300
254,502
1,006,373
106,888
701
1,108
272
1,369,844
1,539,216
2,192,504
695,738
737,649
48,777
1,119
1,171
272
1,484,726
$
3,597,144
$
3,677,230
Due In
Amount
The weighted average interest rate on certificates of deposit was 1.24% and 1.01% at December 31,
2017 and 2016, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than
$100,000 was approximately $598.2 million and $634.7 million at December 31, 2017 and 2016,
respectively. The Bank utilizes brokered deposits as an additional funding source. The aggregate
amount of brokered deposits was approximately $260.0 million and $324.3 million at December 31,
2017 and 2016, respectively.
At December 31, 2017, scheduled maturities of certificates of deposit were as follows:
127,500
1.53
2018
2019
2020
2021
2022
Thereafter
Retail
Brokered
(In Thousands)
Total
$
775,404
199,252
58,811
48,365
25,868
2,173
$
238,410
21,561
—
—
—
—
$
1,013,814
220,813
58,811
48,365
25,868
2,173
$
1,109,873
$
259,971
$
1,369,844
114
53
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
A summary of interest expense on deposits for the years ended December 31, 2017, 2016 and 2015, is
as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2017
2016
(In Thousands)
2015
$
$
4,699
16,009
(113)
20,595
$
$
3,888
13,598
(99)
17,387
$
$
2,858
10,739
(86)
13,511
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2017 and 2016, consisted of the
following:
December 31, 2017
December 31, 2016
Amount
(In Thousands)
$
30,826
Weighted
Average
Interest
Rate
—%
1.53
—
—
—
—
—
Weighted
Average
Interest
Rate
3.26%
5.14
5.14
—
—
—
5.54
3.30
81
28
—
—
—
500
31,435
17
2017
2018
2019
2020
2021
2022
2023 and thereafter
$
127,500
—
—
—
—
—
—
—
Unamortized fair value adjustment
$
127,500
$
31,452
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges, liens
and encumbrances as collateral for outstanding advances. No investment securities were specifically
pledged as collateral for advances at December 31, 2017 and 2016. Loans with carrying values of
approximately $1.11 billion and $1.12 billion were pledged as collateral for outstanding advances at
December 31, 2017 and 2016, respectively. The Bank had potentially available $570.5 million
remaining on its line of credit under a borrowing arrangement with the FHLB of Des Moines at
December 31, 2017.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
A summary of interest expense on deposits for the years ended December 31, 2017, 2016 and 2015, is
as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2017
2016
(In Thousands)
2015
$
$
4,699
16,009
(113)
20,595
$
$
3,888
13,598
(99)
17,387
$
$
2,858
10,739
(86)
13,511
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2017 and 2016, consisted of the
following:
December 31, 2017
December 31, 2016
Due In
Amount
Weighted
Average
Interest
Rate
Weighted
Average
Interest
Rate
Amount
(In Thousands)
2017
2018
2019
2020
2021
2022
2023 and thereafter
Unamortized fair value adjustment
$
—
127,500
—
—
—
—
—
127,500
—
$
—%
1.53
—
—
—
—
—
1.53
30,826
81
28
—
—
—
500
31,435
17
$
127,500
$
31,452
3.26%
5.14
5.14
—
—
—
5.54
3.30
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges, liens
and encumbrances as collateral for outstanding advances. No investment securities were specifically
pledged as collateral for advances at December 31, 2017 and 2016. Loans with carrying values of
approximately $1.11 billion and $1.12 billion were pledged as collateral for outstanding advances at
December 31, 2017 and 2016, respectively. The Bank had potentially available $570.5 million
remaining on its line of credit under a borrowing arrangement with the FHLB of Des Moines at
December 31, 2017.
115
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2017 and 2016, are summarized as follows:
Notes payable – Community Development
Equity Funds
Overnight borrowings from the Federal Home Loan Bank
Securities sold under reverse repurchase agreements
2017
2016
(In Thousands)
$
$
1,604
15,000
80,531
97,135
$
$
1,323
171,000
113,700
286,023
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 0.30% and 0.50% at December 31, 2017
and 2016, respectively. Short-term borrowings averaged approximately $186.4 million and $327.7
million for the years ended December 31, 2017 and 2016, respectively. The maximum amounts
outstanding at any month end were $297.4 million and $523.1 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, 2017 and 2016:
FHLBank CD
Mortgage-backed securities – GNMA, FNMA, FHLMC
2017
Overnight and
Continuous
2016
Overnight and
Continuous
(In Thousands)
$
$
—
80,531
$ 16,202
97,498
80,531
$
113,700
Note 11: Federal Reserve Bank Borrowings
At December 31, 2017 and 2016, the Bank had $528.9 million and $602.0 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, 2017 or 2016.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 12: 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 became redeemable at the Company’s option 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
2.98% and 2.49% at December 31, 2017 and 2016, 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 outstanding common and
preferred securities of Great Southern Capital Trust III, was reduced to zero.
At December 31, 2017 and 2016, subordinated debentures issued to capital trusts are summarized as
follows:
2017
2016
(In Thousands)
Subordinated debentures
$
25,774
$
25,774
Note 13: Subordinated Notes
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
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 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
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56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 12: 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 became redeemable at the Company’s option 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
2.98% and 2.49% at December 31, 2017 and 2016, 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 outstanding common and
preferred securities of Great Southern Capital Trust III, was reduced to zero.
At December 31, 2017 and 2016, subordinated debentures issued to capital trusts are summarized as
follows:
2017
2016
(In Thousands)
Subordinated debentures
$
25,774
$
25,774
Note 13: Subordinated Notes
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
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 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
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56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
of the debt issuance costs during the years ended December 31, 2017 and 2016, totaled $151,000 and
$64,000, respectively, and is included in interest expense on subordinated notes in the consolidated
statements of income, resulting in an imputed interest rate of 5.47%.
At December 31, 2017 and, 2016, subordinated notes are summarized as follows:
Subordinated notes
Less: unamortized debt issuance costs
Note 14:
Income Taxes
2017
2016
(In Thousands)
$
$
75,000
1,312
73,688
$
$
75,000
1,463
73,537
The Company files a consolidated federal income tax return. As of December 31, 2017 and 2016,
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 $3.9 million and $6.5 million at December 31, 2017 and 2016, respectively.
During the years ended December 31, 2017, 2016 and 2015, the provision for income taxes included
these components:
2017
2016
(In Thousands)
2015
Taxes currently payable
Deferred income taxes
Adjustment of deferred tax asset or
liability for enacted changes in
tax laws
Income taxes
$
$
9,335
7,318
2,105
18,758
$
$
20,137
(3,621)
—
16,516
$
$
20,234
(4,670)
—
15,564
The tax effects of temporary differences related to deferred taxes shown on the statements of financial
condition were:
December 31,
2017
2016
(In Thousands)
$
$
13,576
Deferred tax assets
Allowance for loan losses
Tax credit carryforward
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
Book revenue in excess of tax revenue
Other
Tax at statutory rate
Nontaxable interest and
dividends
Tax credits
State taxes
Initial impact of enactment of
2017 Tax Act
Other
2017
35.0%
(1.6)
(6.1)
1.1
(0.4)
(1.3)
8,154
5,816
288
684
1,694
207
4,725
21,568
(4,483)
(356)
(706)
(775)
(435)
(12,177)
(190)
(19,122)
2016
35.0%
(2.1)
(7.3)
1.1
—
—
—
364
1,288
3,300
535
4,533
23,596
(6,425)
(1,805)
(1,651)
(728)
(980)
—
(318)
(11,907)
2015
35.0%
(2.4)
(8.1)
1.4
—
(0.8)
Net deferred tax asset (liability)
$
2,446
$
11,689
Reconciliations of the Company’s effective tax rates from continuing operations to the statutory
corporate tax rates were as follows:
26.7%
26.7%
25.1%
The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017, making several
changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate
from 35% to 21% effective January 1, 2018. U. S. GAAP requires that the impact of the provisions of
the Tax Act be accounted for in the period of enactment and the Company recognized the income tax
effects of the Tax Act in its 2017 financial statements. The Tax Act is complex and requires
57
58
118
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
Tax credit carryforward
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
Book revenue in excess of tax revenue
Other
December 31,
2017
2016
(In Thousands)
$
8,154
5,816
288
684
1,694
207
4,725
21,568
(4,483)
(356)
(706)
(775)
(435)
(12,177)
(190)
(19,122)
$
13,576
—
364
1,288
3,300
535
4,533
23,596
(6,425)
(1,805)
(1,651)
(728)
(980)
—
(318)
(11,907)
Net deferred tax asset (liability)
$
2,446
$
11,689
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
Initial impact of enactment of
2017 Tax Act
Other
2017
35.0%
(1.6)
(6.1)
1.1
(0.4)
(1.3)
2016
35.0%
(2.1)
(7.3)
1.1
—
—
2015
35.0%
(2.4)
(8.1)
1.4
—
(0.8)
26.7%
26.7%
25.1%
The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017, making several
changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate
from 35% to 21% effective January 1, 2018. U. S. GAAP requires that the impact of the provisions of
the Tax Act be accounted for in the period of enactment and the Company recognized the income tax
effects of the Tax Act in its 2017 financial statements. The Tax Act is complex and requires
119
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
significant detailed analysis. During the preparation of the Company’s 2017 income tax returns in
2018, additional adjustments related to enactment of the Tax Act may be identified. We do not
currently expect significant adjustments will be necessary, but any further adjustments identified will
be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the
U. S. Securities and Exchange Commission.
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 which have been 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 these partnerships advanced
during 2016 and 2017. 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 examination was recently
completed by the IRS with no change impacting the Company’s tax positions. The Company does not
currently expect significant adjustments to its financial statements from the partnership matter at the
Tax Court.
The Company is currently under State of Missouri income and franchise tax examinations for its 2014
through 2015 tax years. The Company does not currently expect significant adjustments to its financial
statements from this state examination. During 2017, the Company settled its appeal with the Kansas
Department of Revenue. The settlement did not result in any significant adjustments to the Company’s
financial statements.
Note 15: Disclosures About Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to measure fair value:
• 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.
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, 2017 and 2016:
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)
—
—
—
—
—
—
—
—
122,533
56,646
981
(1,030)
67,837
1,663
(1,699)
—
—
—
—
—
—
—
—
Fair Value
122,533
56,646
981
(1,030)
67,837
1,663
(1,699)
$
146,035
$
$
146,035
$
$
$
$
$
December 31, 2017
Mortgage-backed securities
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
December 31, 2016
Mortgage-backed securities
States and political subdivisions
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, 2017 and 2016, 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, 2017.
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
120
59
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Financial instruments are broken down as follows by recurring or nonrecurring measurement status.
Recurring assets are initially measured at fair value and are required to be remeasured at fair value in
the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that,
due to an event or circumstance, were required to be remeasured at fair value after initial recognition in
the financial statements at some time during the reporting period.
The Company considers transfers between the levels of the hierarchy to be recognized at the end of
related reporting periods.
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, 2017 and 2016:
Fair Value Measurements Using
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
(In Thousands)
—
—
—
—
—
—
—
—
$
$
$
$
122,533
56,646
981
(1,030)
146,035
67,837
1,663
(1,699)
—
—
—
—
—
—
—
—
Fair Value
$
$
122,533
56,646
981
(1,030)
146,035
67,837
1,663
(1,699)
December 31, 2017
Mortgage-backed securities
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
December 31, 2016
Mortgage-backed securities
States and political subdivisions
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, 2017 and 2016, 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, 2017.
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
121
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
investments. Inputs used for valuing Level 2 securities include observable data that may include dealer
quotes, benchmark yields, market spreads, live trading levels and market consensus prepayment speeds,
among other things. Additional inputs include indicative values derived from the independent pricing
service’s proprietary computerized models. There were no recurring Level 3 securities at December
31, 2017 or 2016.
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.
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, 2017 and 2016:
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)
December 31, 2017
Impaired loans
Foreclosed assets held for sale
December 31, 2016
Impaired loans
Foreclosed assets held for sale
$
$
$
$
1,590
1,758
8,280
1,604
$
$
$
$
(In Thousands)
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
1,590
1,758
8,280
1,604
Following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying statements of financial condition, as well as
the general classification of such assets pursuant to the valuation hierarchy. For assets classified
within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is
described below.
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of
mortgage loans held for sale is based on what secondary markets are currently offering for portfolios
with similar characteristics. As such, the Company classifies mortgage loans held for sale as
Nonrecurring Level 2. Write-downs to fair value typically do not occur as the Company generally
enters into commitments to sell individual mortgage loans at the time the loan is originated to reduce
market risk. The Company typically does not have commercial loans held for sale. At December 31,
2017 and 2016, the aggregate fair value of mortgage loans held for sale exceeded their
cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value.
Impaired Loans
A loan is considered to be impaired when it is probable that all of the principal and interest due may
not be collected according to its contractual terms. Generally, when a loan is considered impaired, the
amount of reserve required under FASB ASC 310, Receivables, is measured based on the fair value of
the underlying collateral. The Company makes such measurements on all material loans deemed
impaired using the fair value of the collateral for collateral dependent loans. The fair value of
collateral used by the Company is determined by obtaining an observable market price or by obtaining
an appraised value from an independent, licensed or certified appraiser, using observable market data.
This data includes information such as selling price of similar properties and capitalization rates of
similar properties sold within the market, expected future cash flows or earnings of the subject property
based on current market expectations, and other relevant factors. All appraised values are adjusted for
market-related trends based on the Company’s experience in sales and other appraisals of similar
property types as well as estimated selling costs. Each quarter management reviews all collateral
dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals are
necessary based on loan performance, collateral type and guarantor support. At times, the Company
measures the fair value of collateral dependent impaired loans using appraisals with dates prior to one
year from the date of review. These appraisals are discounted by applying current, observable market
data about similar property types such as sales contracts, estimations of value by individuals familiar
with the market, other appraisals, sales or collateral assessments based on current market activity until
updated appraisals are obtained. Depending on the length of time since an appraisal was performed
and the data provided through our reviews, these appraisals are typically discounted 10-40%. The
policy described above is the same for all types of collateral dependent impaired loans.
The Company records impaired loans as Nonrecurring Level 3. If a loan’s fair value as estimated by
the Company is less than its carrying value, the Company either records a charge-off for the portion of
the loan that exceeds the fair value or establishes a reserve within the allowance for loan losses specific
to the loan. Loans for which such charge-offs or reserves were recorded during the years ended
December 31, 2017 and 2016, 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, 2017
and 2016, subsequent to their initial transfer to foreclosed assets.
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61
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of
mortgage loans held for sale is based on what secondary markets are currently offering for portfolios
with similar characteristics. As such, the Company classifies mortgage loans held for sale as
Nonrecurring Level 2. Write-downs to fair value typically do not occur as the Company generally
enters into commitments to sell individual mortgage loans at the time the loan is originated to reduce
market risk. The Company typically does not have commercial loans held for sale. At December 31,
2017 and 2016, the aggregate fair value of mortgage loans held for sale exceeded their
cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value.
Impaired Loans
A loan is considered to be impaired when it is probable that all of the principal and interest due may
not be collected according to its contractual terms. Generally, when a loan is considered impaired, the
amount of reserve required under FASB ASC 310, Receivables, is measured based on the fair value of
the underlying collateral. The Company makes such measurements on all material loans deemed
impaired using the fair value of the collateral for collateral dependent loans. The fair value of
collateral used by the Company is determined by obtaining an observable market price or by obtaining
an appraised value from an independent, licensed or certified appraiser, using observable market data.
This data includes information such as selling price of similar properties and capitalization rates of
similar properties sold within the market, expected future cash flows or earnings of the subject property
based on current market expectations, and other relevant factors. All appraised values are adjusted for
market-related trends based on the Company’s experience in sales and other appraisals of similar
property types as well as estimated selling costs. Each quarter management reviews all collateral
dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals are
necessary based on loan performance, collateral type and guarantor support. At times, the Company
measures the fair value of collateral dependent impaired loans using appraisals with dates prior to one
year from the date of review. These appraisals are discounted by applying current, observable market
data about similar property types such as sales contracts, estimations of value by individuals familiar
with the market, other appraisals, sales or collateral assessments based on current market activity until
updated appraisals are obtained. Depending on the length of time since an appraisal was performed
and the data provided through our reviews, these appraisals are typically discounted 10-40%. The
policy described above is the same for all types of collateral dependent impaired loans.
The Company records impaired loans as Nonrecurring Level 3. If a loan’s fair value as estimated by
the Company is less than its carrying value, the Company either records a charge-off for the portion of
the loan that exceeds the fair value or establishes a reserve within the allowance for loan losses specific
to the loan. Loans for which such charge-offs or reserves were recorded during the years ended
December 31, 2017 and 2016, 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, 2017
and 2016, subsequent to their initial transfer to foreclosed assets.
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62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The following disclosure relates to financial assets for which it is not practicable for the Company to
estimate the fair value at December 31, 2017 and 2016.
FDIC Indemnification Asset
As part of certain Purchase and Assumption Agreements, the Bank and the FDIC entered into loss
sharing agreements. These agreements covered realized losses on loans and foreclosed real estate
subject to certain limitations which are more fully described in Note 4. All of these loss sharing
agreements were mutually terminated by the Company and the FDIC during 2017 and 2016.
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, 2017 and 2016, the carrying value of the FDIC indemnification asset was $-0-
million and $13.1 million, respectively.
The loss sharing assets were measured separately from the loan portfolios because they were not
contractually embedded in the loans and were not transferable with the loans should the Bank have
chosen 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 were also separately
measured from the related foreclosed real estate. Although the assets were contractual receivables from
the FDIC, they did not have effective interest rates. The Bank collected the assets over several years.
The amount ultimately collected was dependent 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 was 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 loss sharing agreements for InterBank were
terminated on June 9, 2017, and the carrying value of the related indemnification asset 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.
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
Rates currently available to the Company for debt with similar terms and remaining maturities are used
value.
Federal Home Loan Bank Advances
to estimate fair value of existing advances.
Short-Term Borrowings
The carrying amount approximates fair value.
debentures approximates their fair value.
Subordinated Notes
Subordinated Debentures Issued to Capital Trusts
The subordinated debentures have floating rates that reset quarterly. The carrying amount of these
The fair values used by the Company are obtained from independent sources and are derived from
quoted market prices of the Company’s subordinated notes and quoted market prices of other
subordinated debt instruments with similar characteristics.
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.
124
63
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 independent sources and are derived from
quoted market prices of the Company’s subordinated notes and quoted market prices of other
subordinated debt instruments with similar characteristics.
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.
125
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2017
December 31, 2016
Carrying
Amount
Fair
Value
Carrying
Hierarchy
Level
Amount
(Dollars in Thousands)
Fair
Value
Hierarchy
Level
Financial assets
Cash and cash equivalents
Held-to-maturity securities
Mortgage loans held for sale
Loans, net of allowance for loan
losses
Accrued interest receivable
Investment in FHLB stock
Financial liabilities
Deposits
FHLB advances
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
$
242,253
130
8,203
$
242,253
131
8,203
3,726,302
12,338
11,182
3,597,144
127,500
97,135
25,774
73,688
2,904
3,735,216
12,338
11,182
3,606,400
127,500
97,135
25,774
76,500
2,904
—
85
—
—
85
—
Note 16: Operating Leases
1
2
2
3
3
3
3
3
3
3
2
3
3
3
3
$
279,769
247
16,445
3,759,966
11,875
13,034
3,677,230
31,452
286,023
25,774
73,537
2,723
$
279,769
258
16,445
3,766,709
11,875
13,034
3,683,751
32,379
286,023
25,774
76,031
2,723
—
92
—
—
92
—
1
2
2
3
3
3
3
3
3
3
2
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, 2017, future minimum lease payments were as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
$
877
683
540
331
241
473
$
3,145
Rental expense was $912,000, $973,000 and $1.2 million for the years ended December 31, 2017, 2016
and 2015, respectively.
Cash Flow Hedges
126
65
Note 17: Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and
duration of its assets and liabilities. In the normal course of business, the Company may use derivative
financial instruments (primarily interest rate swaps) from time to time to assist in its interest rate risk
management. The Company has interest rate derivatives that result from a service provided to certain
qualifying loan customers that are not used to manage interest rate risk in the Company’s assets or
liabilities and are not designated in a qualifying hedging relationship. The Company manages a
matched book with respect to its derivative instruments in order to minimize its net risk exposure
resulting from such transactions. In addition, the Company has interest rate derivatives that are
designated in a qualified hedging relationship.
Nondesignated Hedges
The Company has interest rate swaps that are not designated in a qualifying hedging relationship.
Derivatives not designated as hedges are not speculative and result from a service the Company
provides to certain loan customers, which the Company began offering during 2011. The Company
executes interest rate swaps with commercial banking customers to facilitate their respective risk
management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate
swaps that the Company executes with a third party, such that the Company 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 $3.6
million at December 31, 2017. As of December 31, 2017, excluding the Valley Bank swaps, the
Company had 22 interest rate swaps totaling $92.7 million in notional amount with commercial
customers, and 22 interest rate swaps with the same notional amount with third parties related to its
program. In addition, the Company has two participation loans purchased totaling $22.0 million, in
which the lead institution has an interest rate swap with their customer and the economics of the
counterparty swap are passed along to us through the loan participation. As of December 31, 2016,
excluding the Valley Bank swaps, 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. During the years ended December 31, 2017, 2016 and 2015,
the Company recognized net gains and (losses) of $28,000, $66,000 and $(43,000), respectively, in
noninterest income related to changes in the fair value of these swaps.
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, stated that the Company would pay interest on its trust preferred debt in
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 17: Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and
duration of its assets and liabilities. In the normal course of business, the Company may use derivative
financial instruments (primarily interest rate swaps) from time to time to assist in its interest rate risk
management. The Company has interest rate derivatives that result from a service provided to certain
qualifying loan customers that are not used to manage interest rate risk in the Company’s assets or
liabilities and are not designated in a qualifying hedging relationship. The Company manages a
matched book with respect to its derivative instruments in order to minimize its net risk exposure
resulting from such transactions. In addition, the Company has interest rate derivatives that are
designated in a qualified hedging relationship.
Nondesignated Hedges
The Company has interest rate swaps that are not designated in a qualifying hedging relationship.
Derivatives not designated as hedges are not speculative and result from a service the Company
provides to certain loan customers, which the Company began offering during 2011. The Company
executes interest rate swaps with commercial banking customers to facilitate their respective risk
management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate
swaps that the Company executes with a third party, such that the Company 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 $3.6
million at December 31, 2017. As of December 31, 2017, excluding the Valley Bank swaps, the
Company had 22 interest rate swaps totaling $92.7 million in notional amount with commercial
customers, and 22 interest rate swaps with the same notional amount with third parties related to its
program. In addition, the Company has two participation loans purchased totaling $22.0 million, in
which the lead institution has an interest rate swap with their customer and the economics of the
counterparty swap are passed along to us through the loan participation. As of December 31, 2016,
excluding the Valley Bank swaps, 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. During the years ended December 31, 2017, 2016 and 2015,
the Company recognized net gains and (losses) of $28,000, $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, stated that the Company would pay interest on its trust preferred debt in
66
127
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 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 2.37%. The agreement became effective on August 1, 2013 and had a term of four years,
which terminated during 2017. 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 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, 2017, 2016 and 2015, the Company recognized
$-0- in noninterest income related to changes in the fair value of these derivatives. During the years
ended December 31, 2017, 2016 and 2015, the Company recognized $293,000, $225,000 and
$187,000, 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 early 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).
The table below presents the fair value of the Company’s derivative financial instruments as well as
their classification on the Consolidated Statements of Financial Condition:
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2017
2016
(In Thousands)
Prepaid expenses and other assets
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
40
40
1,623
1,623
$
$
$
$
$
$
—
—
981
981
$
$
$
$
$
$
1,030
1,699
Prepaid expenses and other assets
Accrued expenses and other liabilities
1,030
1,699
The following tables present the effect of derivative instruments on the statements of comprehensive
income:
Cash Flow Hedges
2017
2015
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2016
(In Thousands)
Interest rate cap, net of income taxes
$
161
$
87
$
(50)
128
67
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The table below presents the fair value of the Company’s derivative financial instruments as well as
their classification on the Consolidated Statements of Financial Condition:
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
2017
December 31,
2016
(In Thousands)
Derivatives designated as
hedging instruments
Interest rate caps
Total derivatives designated
as hedging instruments
Derivatives not designated
as hedging instruments
Asset Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Liability Derivatives
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Prepaid expenses and other assets
Prepaid expenses and other assets
Accrued expenses and other liabilities
$
$
$
$
$
$
—
—
981
981
1,030
1,030
$
$
$
$
$
$
40
40
1,623
1,623
1,699
1,699
The following tables present the effect of derivative instruments on the statements of comprehensive
income:
Cash Flow Hedges
2017
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2016
(In Thousands)
2015
Interest rate cap, net of income taxes
$
161
$
87
$
(50)
129
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Agreements with Derivative Counterparties
Letters of Credit
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, 2017, the termination value of derivatives with our derivative dealer counterparties
in a net liability position, which included accrued interest but excluded any adjustment for
nonperformance risk, related to these agreements was $336,000. The Company has minimum
collateral posting thresholds with its derivative dealer counterparties. At December 31, 2017, the
Company’s activity with its derivative dealer counterparties had met the level at which the minimum
collateral posting thresholds take effect and the Company had posted $809,000 of collateral to satisfy
the agreement. As of December 31, 2016, the termination value of derivatives with our derivative
dealer counterparties in a net liability position, which included accrued interest but excluded any
adjustment for nonperformance risk, related to these agreements was $1.6 million. At December 31,
2016, the Company’s activity with its derivative dealer counterparties met the level in which the
minimum collateral posting thresholds take effect and the Company had posted $6.0 million of
collateral to satisfy the agreement. If the Company had breached any of these provisions at December
31, 2017 and 2016, it could have been required to settle its obligations under the agreements at the
termination value.
Note 18: Commitments and Credit Risk
Commitments to Originate Loans
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a significant portion of the commitments
may expire without being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is
based on management’s credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, commercial real estate and residential real
estate.
At December 31, 2017 and 2016, the Bank had outstanding commitments to originate loans and fund
commercial construction loans aggregating approximately $164.0 million and $126.1 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 $20.8 million
and $15.9 million at December 31, 2017 and 2016, respectively.
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 $20.0 million
and $26.4 million at December 31, 2017 and 2016, respectively, with $19.1 million and $25.1 million,
respectively, of the letters of credit having terms up to five years and $885,000 and $1.3 million,
respectively, of the letters of credit having terms over five years. Of the amount having terms over five
years, $885,000 and $1.3 million at December 31, 2017 and 2016, 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,
2017 and 2016, 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, 2017, the Bank had granted unused lines of credit to borrowers aggregating
approximately $912.2 million and $133.6 million for commercial lines and open-end consumer lines,
respectively. 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.
130
69
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 $20.0 million
and $26.4 million at December 31, 2017 and 2016, respectively, with $19.1 million and $25.1 million,
respectively, of the letters of credit having terms up to five years and $885,000 and $1.3 million,
respectively, of the letters of credit having terms over five years. Of the amount having terms over five
years, $885,000 and $1.3 million at December 31, 2017 and 2016, 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,
2017 and 2016, 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, 2017, the Bank had granted unused lines of credit to borrowers aggregating
approximately $912.2 million and $133.6 million for commercial lines and open-end consumer lines,
respectively. 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.
131
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Credit Risk
Note 21: Stock Compensation Plans
The Company established the 2003 Stock Option and Incentive Plan (the “2003 Plan”) for employees
and directors of the Company and its subsidiaries. Under the plan, stock options or other awards could
be granted with respect to 598,224 shares of common stock. On May 15, 2013, the Company’s
stockholders approved the Great Southern Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”).
Upon the stockholders’ approval of the 2013 Plan, the Company’s 2003 Plan was frozen. As a result,
no new stock options or other awards may be granted under the 2003 Plan; however, existing
outstanding awards under the 2003 Plan were not affected. At December 31, 2017, 126,042 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, 2017, 556,757 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 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 $674.0 million and $677.3 million at December 31,
2017 and 2016, respectively, are secured primarily by apartments, condominiums, residential and
commercial land developments, industrial revenue bonds and other types of commercial properties in
the St. Louis, Missouri, area.
Note 19: Additional Cash Flow Information
Noncash Investing and Financing Activities
Real estate acquired in settlement of
loans
Sale and financing of foreclosed assets
Conversion of premises and equipment
to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
2017
2016
(In Thousands)
2015
$23,780
603
—
3,381
27,724
17,563
$26,076
3,334
6,985
3,073
20,476
9,554
$12,185
3,316
—
3,055
15,984
13,096
Note 20: Employee Benefits
The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB
Plan), a multiemployer defined benefit pension plan covering all employees who have met minimum
service requirements. Effective July 1, 2006, this plan was closed to new participants. Employees
already in the plan continue to accrue benefits. The Pentegra DB Plan’s Employer Identification
Number is 13-5645888 and the Plan Number is 333. The Company’s policy is to fund pension cost
accrued. Employer contributions charged to expense for this plan for the years ended December 31,
2017, 2016 and 2015, were approximately $1.1 million, $725,000 and $742,000, 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, 2017 and 2016, was 98.2% and 98.5%,
respectively. The funded status was calculated by taking the market value of plan assets, which
reflected contributions received through June 30, 2017 and 2016, 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, 2017, 2016 and 2015, were approximately $1.3 million, $1.2 million and
$951,000, respectively.
132
71
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 21: Stock Compensation Plans
The Company established the 2003 Stock Option and Incentive Plan (the “2003 Plan”) for employees
and directors of the Company and its subsidiaries. Under the plan, stock options or other awards could
be granted with respect to 598,224 shares of common stock. On May 15, 2013, the Company’s
stockholders approved the Great Southern Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”).
Upon the stockholders’ approval of the 2013 Plan, the Company’s 2003 Plan was frozen. As a result,
no new stock options or other awards may be granted under the 2003 Plan; however, existing
outstanding awards under the 2003 Plan were not affected. At December 31, 2017, 126,042 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, 2017, 556,757 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.
133
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2015
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)
Balance, December 31, 2016
Granted from 2013 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
446,800
(129,350)
—
—
14,000
331,450
(131,000)
—
—
19,025
219,475
(157,800)
—
—
15,837
661,098
129,350
(134,263)
(8,453)
(14,000)
633,732
131,000
(81,812)
(2,692)
(19,025)
661,203
157,800
(119,692)
(675)
(15,837)
$
26.560
49.199
25.403
24.941
33.389
31.297
41.228
26.472
22.654
39.123
33.672
52.118
27.352
24.690
41.916
Balance, December 31, 2017
77,512
682,799
$
38.860
The Company’s stock option grants contain terms that provide for a graded vesting schedule whereby
portions of the options vest in increments over the requisite service period. These options typically vest
one-fourth at the end of years two, three, four and five from the grant date. As provided for under
FASB ASC 718, the Company has elected to recognize compensation expense for options with graded
vesting schedules on a straight-line basis over the requisite service period for the entire option grant. In
addition, ASC 718 requires companies to recognize compensation expense based on the estimated
number of stock options for which service is expected to be rendered. The Company’s historical
forfeitures of its share-based awards have not been material.
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, 2017, 2016 and 2015:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2017
$0.95
2.03%
5 years
23.49%
$10.04
2016
$0.88
1.27%
5 years
22.08%
$6.59
134
2015
$0.88
1.66%
5 years
24.42%
$9.59
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017:
Options outstanding, January 1, 2017
Granted
Exercised
Forfeited
Options outstanding, December 31, 2017
Options exercisable, December 31, 2017
Weighted
Average
Exercise
Price
$33.672
52.118
27.352
41.212
38.860
27.884
Options
661,203
157,800
(119,692)
(16,512)
682,799
240,862
Weighted
Average
Remaining
Contractual
Term
7.23 years
7.38 years
5.20 years
For the years ended December 31, 2017, 2016 and 2015, options granted were 157,800, 131,000, and
129,350, 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, 2017, 2016 and 2015, was $3.0 million, $1.4 million and $2.3 million, respectively.
Cash received from the exercise of options for the years ended December 31, 2017, 2016 and 2015,
was $3.3 million, $2.1 million and $3.4 million, respectively. The actual tax benefit realized for the tax
deductions from option exercises totaled $2.7 million, $1.3 million and $2.1 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
The following table presents the activity related to nonvested options under all plans for the year ended
December 31, 2017.
Nonvested options, January 1, 2017
Granted
Vested this period
Nonvested options forfeited
Nonvested options, December 31, 2017
At December 31, 2017, there was $3.3 million of total unrecognized compensation cost related to
nonvested options granted under the Company’s plans. This compensation cost is expected to be
recognized through 2022, with the majority of this expense recognized in 2018 and 2019.
Weighted
Average
Exercise
Price
$39.253
52.118
35.056
41.242
44.842
Options
413,283
157,800
(112,659)
(16,487)
441,937
Weighted
Average
Grant Date
Fair Value
$6.631
10.041
6.022
7.229
7.981
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017:
Options outstanding, January 1, 2017
Granted
Exercised
Forfeited
Options outstanding, December 31, 2017
Options exercisable, December 31, 2017
Weighted
Average
Exercise
Price
$33.672
52.118
27.352
41.212
38.860
27.884
Options
661,203
157,800
(119,692)
(16,512)
682,799
240,862
Weighted
Average
Remaining
Contractual
Term
7.23 years
7.38 years
5.20 years
For the years ended December 31, 2017, 2016 and 2015, options granted were 157,800, 131,000, and
129,350, 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, 2017, 2016 and 2015, was $3.0 million, $1.4 million and $2.3 million, respectively.
Cash received from the exercise of options for the years ended December 31, 2017, 2016 and 2015,
was $3.3 million, $2.1 million and $3.4 million, respectively. The actual tax benefit realized for the tax
deductions from option exercises totaled $2.7 million, $1.3 million and $2.1 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
The following table presents the activity related to nonvested options under all plans for the year ended
December 31, 2017.
Nonvested options, January 1, 2017
Granted
Vested this period
Nonvested options forfeited
Nonvested options, December 31, 2017
Weighted
Average
Exercise
Price
$39.253
52.118
35.056
41.242
44.842
Weighted
Average
Grant Date
Fair Value
$ 6.631
10.041
6.022
7.229
7.981
Options
413,283
157,800
(112,659)
(16,487)
441,937
At December 31, 2017, there was $3.3 million of total unrecognized compensation cost related to
nonvested options granted under the Company’s plans. This compensation cost is expected to be
recognized through 2022, with the majority of this expense recognized in 2018 and 2019.
135
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The following table further summarizes information about stock options outstanding at December 31,
2017:
Range of
Exercise Prices
$8.360 to $19.530
$21.320 to $24.820
$26.640 to $29.640
$32.590 to $38.610
$41.300 to $47.800
$50.710 to $52.200
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
Number
Outstanding
48,152
77,890
73,833
109,313
121,200
252,411
3.56 years
4.09 years
5.95 years
6.86 years
8.80 years
9.07 years
Weighted
Average
Exercise
Price
$17.884
23.760
29.491
33.029
41.370
51.582
Options Exercisable
Number
Exercisable
48,152
77,740
50,374
41,902
325
22,369
Weighted
Average
Exercise
Price
$17.884
23.760
29.493
32.751
47.800
50.710
682,799
7.38 years
38.860
240,862
27.884
Note 22: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the
allowance for loan losses are reflected in Note 3. Estimates used in valuing acquired loans, loss
sharing agreements and FDIC indemnification assets and in continuing to monitor related cash flows of
acquired loans are discussed in Note 4. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnotes on loans, deposits and on commitments and credit risk.
Other significant estimates not discussed in those footnotes include valuations of foreclosed assets held
for sale. The carrying value of foreclosed assets reflects management’s best estimate of the amount to
be realized from the sales of the assets. While the estimate is generally based on a valuation by an
independent appraiser or recent sales of similar properties, the amount that the Company realizes from
the sales of the assets could differ materially in the near term from the carrying value reflected in these
financial statements.
Note 23: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’
equity, are as follows:
Net unrealized gain on available-for-sale securities
Net unrealized loss on derivatives used for cash flow hedges
Tax effect
Net-of-tax amount
136
2017
2016
(In Thousands)
1,949
$
2,699
—
1,949
(708)
1,241
$
(254)
2,445
(887)
1,558
75
$
$
Amounts reclassified from AOCI and the affected line items in the statements of income during the
years ended December 31, 2017, 2016 and 2015, were as follows:
Amounts Reclassified
from AOCI
2017
2016
2015
(In Thousands)
Affected Line Item in the
Statements of Income
Unrealized gains on available-for-
sale securities
— $
2,873
$
before tax)
Net realized gains on available-for-sale
securities (total reclassified amount
Income taxes
—
(1,043)
(1) Tax (expense) benefit
$
$
2
1
Total reclassifications out of
AOCI
— $
1,830
$
Note 24: Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct and material effect on the Company’s financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets,
liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting
practices, and regulatory capital standards. The Company’s and the Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require
the Bank to maintain minimum amounts and ratios (set forth in the table below as of December 31,
2017) 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, 2017, that the Bank met
all capital adequacy requirements to which it was then subject.
As of December 31, 2017, 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, 2017, 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.
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, 2017 and 2016, the Company and the
Bank exceeded their minimum capital requirements then in effect. The entities may not pay dividends
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Amounts reclassified from AOCI and the affected line items in the statements of income during the
years ended December 31, 2017, 2016 and 2015, were as follows:
Amounts Reclassified
from AOCI
2017
2016
(In Thousands)
2015
Affected Line Item in the
Statements of Income
Unrealized gains on available-for-
sale securities
Income taxes
Total reclassifications out of
AOCI
$
$
Note 24: Regulatory Matters
— $
2,873
$
2
Net realized gains on available-for-sale
securities (total reclassified amount
before tax)
—
(1,043)
(1) Tax (expense) benefit
— $
1,830
$
1
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can result in certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct and material effect on the Company’s financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets,
liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting
practices, and regulatory capital standards. The Company’s and the Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require
the Bank to maintain minimum amounts and ratios (set forth in the table below as of December 31,
2017) 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, 2017, that the Bank met
all capital adequacy requirements to which it was then subject.
As of December 31, 2017, 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, 2017, 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.
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, 2017 and 2016, the Company and the
Bank exceeded their minimum capital requirements then in effect. The entities may not pay dividends
76
137
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
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 net unrealized gain or loss on available-for-sale securities is not included in
computing regulatory capital.
The Company’s and the Bank’s actual capital amounts and ratios are presented in the following table.
No amount was deducted from capital for interest-rate risk.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
(Dollars In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2017
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$597,177
$558,668
14.1%
13.2%
≥ $339,649
≥ $339,575
≥ 8.0%
≥ 8.0%
N/A
≥ $424,468
N/A
≥ 10.0%
plaintiff.
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$485,685
$522,176
11.4%
12.3%
≥ $254,737
≥ $254,681
≥ 6.0%
≥ 6.0%
N/A
≥ $339,575
N/A
≥ 8.0%
Note 26: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2017, 2016 and 2015:
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2016
Total capital
$485,685
$522,176
10.9%
11.7%
≥ $177,881
≥ $177,844
≥ 4.0%
≥ 4.0%
N/A
≥ $222,305
N/A
≥ 5.0%
$460,661
$522,152
10.9%
12.3%
≥ $191,053
≥ $191,011
≥ 4.5%
≥ 4.5%
N/A
≥ $275,904
N/A
≥ 6.5%
Great Southern Bancorp, Inc.
Great Southern Bank
$556,106
$520,989
13.6%
12.7%
≥ $327,610
≥ $327,505
≥ 8.0%
≥ 8.0%
N/A
≥ $409,382
N/A
≥ 10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$443,706
$483,589
10.8%
11.8%
≥ $245,707
≥ $245,629
≥ 6.0%
≥ 6.0%
N/A
≥ $327,505
N/A
≥ 8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$443,706
$483,589
9.9%
10.8%
≥ $178,693
≥ $178,643
≥ 4.0%
≥ 4.0%
N/A
≥ $223,304
N/A
≥ 5.0%
$418,687
$483,569
10.2%
11.8%
≥ $184,280
≥ $184,222
≥ 4.5%
≥ 4.5%
N/A
≥ $266,098
N/A
≥ 6.5%
138
77
Note 25: Litigation Matters
In the normal course of business, the Company and its subsidiaries are subject to pending and
threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome
of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened
litigation with counsel, management believes at this time that, except as noted below, the outcome of
such litigation will not have a material adverse effect on the Company’s business, financial condition
or results of operations.
On November 22, 2010, a suit was filed against the Bank in the Circuit Court of Greene County,
Missouri by a customer alleging that the fees associated with the Bank’s automated overdraft program
in connection with its debit cards and ATM cards constitute unlawful interest in violation of Missouri’s
usury laws. The Court certified a class of Bank customers who paid overdraft fees on their checking
accounts pursuant to the Bank’s automated overdraft program. On October 5, 2017, relying on a
Missouri Court of Appeals decision addressing similar claims, the Court granted the Bank's motion for
summary judgment and entered judgment in the Bank's favor on all of plaintiff's claims. The time for
plaintiff to seek appellate review expired on November 14, 2017, with no further action taken by
2017
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$
45,413
$
44,744
$
46,368
$
46,536
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
shareholders
Net income available to common
Earnings per common share – diluted
6,712
2,250
—
7,698
28,573
4,058
11,518
11,518
0.81
6,843
1,950
—
15,800
28,371
7,204
16,176
16,176
1.14
7,087
2,950
—
7,655
28,034
4,289
11,663
11,663
0.82
7,263
1,950
—
7,374
29,283
3,207
12,207
12,207
0.86
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 25: Litigation Matters
In the normal course of business, the Company and its subsidiaries are subject to pending and
threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome
of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened
litigation with counsel, management believes at this time that, except as noted below, the outcome of
such litigation will not have a material adverse effect on the Company’s business, financial condition
or results of operations.
On November 22, 2010, a suit was filed against the Bank in the Circuit Court of Greene County,
Missouri by a customer alleging that the fees associated with the Bank’s automated overdraft program
in connection with its debit cards and ATM cards constitute unlawful interest in violation of Missouri’s
usury laws. The Court certified a class of Bank customers who paid overdraft fees on their checking
accounts pursuant to the Bank’s automated overdraft program. On October 5, 2017, relying on a
Missouri Court of Appeals decision addressing similar claims, the Court granted the Bank's motion for
summary judgment and entered judgment in the Bank's favor on all of plaintiff's claims. The time for
plaintiff to seek appellate review expired on November 14, 2017, with no further action taken by
plaintiff.
Note 26: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2017, 2016 and 2015:
2017
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
45,413
6,712
2,250
—
7,698
28,573
4,058
11,518
11,518
0.81
$
44,744
6,843
1,950
—
15,800
28,371
7,204
16,176
16,176
1.14
$
46,368
7,087
2,950
—
7,655
28,034
4,289
11,663
11,663
0.82
$
46,536
7,263
1,950
—
7,374
29,283
3,207
12,207
12,207
0.86
139
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
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
$
$
2016
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
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
2015
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
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
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2017 and 2016, and statements of
income, comprehensive income and cash flows for the years ended December 31, 2017, 2016 and
2015, for the parent company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Investment in subsidiary bank
Deferred and accrued income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2017
2016
(In Thousands)
$
$
$
$
$
$
41,977
533,153
133
903
576,166
5,042
25,774
73,688
141
28,203
442,077
1,241
37,716
494,947
89
1,214
533,966
4,849
25,774
73,537
140
25,942
402,166
1,558
$
576,166
$
533,966
140
79
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2017 and 2016, and statements of
income, comprehensive income and cash flows for the years ended December 31, 2017, 2016 and
2015, for the parent company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Investment in subsidiary bank
Deferred and accrued income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2017
2016
(In Thousands)
$
$
$
$
$
$
41,977
533,153
133
903
576,166
5,042
25,774
73,688
141
28,203
442,077
1,241
37,716
494,947
89
1,214
533,966
4,849
25,774
73,537
140
25,942
402,166
1,558
$
576,166
$
533,966
141
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
2017
2016
(In Thousands)
2015
$
17,500
48
$
12,000
—
$
27,000
5
—
—
17,548
1,330
5,047
6,377
2,735
2
14,737
1,322
2,381
3,703
11,171
(1,709)
11,034
(241)
1,416
(7)
28,414
1,139
714
1,853
26,561
(91)
12,880
11,275
26,652
38,684
34,067
19,850
Financing Activities
$
51,564
$
45,342
$
46,502
142
81
2017
2016
(In Thousands)
2015
$
51,564
$
45,342
$
46,502
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
Net realized gains on sales of non-marketable
Net realized gains on sales of available-for-sale
securities
securities
securities
Amortization of interest rate derivative and deferred
costs on subordinated notes
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
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
(38,684)
564
441
132
(115)
6
13,908
—
—
—
—
—
—
—
—
—
—
—
(12,894)
3,247
(9,647)
4,261
37,716
41,977
5,059
(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
(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
$
$
$
$
846
730
$
$
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 and deferred
costs on subordinated notes
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
2017
2016
(In Thousands)
2015
$
51,564
$
45,342
$
46,502
(38,684)
564
—
—
—
441
132
(115)
6
13,908
—
—
—
—
—
—
—
—
(12,894)
3,247
(9,647)
4,261
37,716
41,977
5,059
(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
82
$
$
$
$
143
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Statements of Comprehensive Income
2017
2016
(In Thousands)
2015
Net Income
$
51,564
$
45,342
$
46,502
Unrealized appreciation on available-for-sale securities,
net of taxes (credit) of $0, $(90) and $273, for
2017, 2016 and 2015, respectively
Reclassification adjustment for gains included in net
income, net of (taxes) credit of $0, $(993) and $0,
for 2017, 2016 and 2015, respectively
Change in fair value of cash flow hedge, net of taxes
(credit) of $93, $50 and $(34) for 2017, 2016 and
2015, respectively
Comprehensive income (loss) of subsidiaries
—
—
161
(478)
(158)
(1,742)
87
(2,293)
400
—
(50)
(1,722)
Comprehensive Income
$
51,247
$
41,236
$
45,130
Note 28: Preferred Stock
On August 18, 2011, the Company entered into a Small Business Lending Fund-Securities Purchase
Agreement (the “SBLF Purchase Agreement”) with the Secretary of the Treasury, pursuant to which
the Company sold 57,943 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock,
Series A (the “SBLF Preferred Stock”) to the Secretary of the Treasury for a purchase price of $57.9
million. The SBLF Preferred Stock was issued pursuant to Treasury’s SBLF program, a $30 billion
fund established under the Small Business Jobs Act of 2010 that was created to encourage lending to
small businesses by providing Tier 1 capital to qualified community banks and holding companies with
assets of less than $10 billion. As required by the SBLF Purchase Agreement, the proceeds from the
sale of the SBLF Preferred Stock were used in connection with the redemption of all 58,000 shares of
the Company’s preferred stock, issued to Treasury in December 2008 pursuant to Treasury’s TARP
Capital Purchase Program (the “CPP Preferred Stock”). The shares of CPP Preferred Stock were
redeemed at their liquidation amount of $1,000 per share plus the accrued but unpaid dividends to the
redemption date.
The SBLF Preferred Stock qualified as Tier 1 capital. The holders of SBLF Preferred Stock were
entitled to receive noncumulative dividends, payable quarterly, on each January 1, April 1, July 1 and
October 1. The dividend rate, as a percentage of the liquidation amount, could fluctuate between one
percent (1%) and five percent (5%) per annum on a quarterly basis during the first 10 quarters during
which the SBLF Preferred Stock was outstanding, based upon changes in the level of “Qualified Small
Business Lending” or “QSBL” (as defined in the SBLF Purchase Agreement) by the Bank over the
adjusted baseline level calculated under the terms of the SBLF Preferred Stock $(249.7 million).
Based upon the increase in the Bank’s level of QSBL over the adjusted baseline level, the dividend rate
had been 1.0%. For the tenth calendar quarter through four and one-half years after issuance, the
dividend rate was fixed at between one percent (1%) and seven percent (7%) based upon the level of
qualifying loans. The Company’s dividend rate was 1.0% during 2015, and was expected to remain at
1% until four and one half years after the issuance, which is March 2016. After four and one half years
from issuance, the dividend rate would have increased to 9% (including a quarterly lending incentive
fee of 0.5%).
On December 15, 2015, the Company (with the approval of its federal banking regulator) redeemed all
57,943 shares of the SBLF Preferred Stock at their liquidation amount of $1,000 per share plus accrued
but unpaid dividends to the redemption date. The redemption of the SBLF Preferred Stock was
completed using internally available funds.
Note 29: Consolidation of Banking Centers
On September 24, 2015, the Company announced plans to consolidate operations of 16 banking centers
into other nearby Great Southern banking center locations. As part of an ongoing performance review
of its entire banking center network, Great Southern evaluated each location for a number of criteria,
including access and availability of services to affected customers, the proximity of other Great
Southern banking centers, profitability and transaction volumes, and market dynamics. This review
culminated in the approval of the consolidation of these banking centers by the Great Southern Board
of Directors. Subsequent to this announcement, the Bank entered into separate definitive agreements
to sell two of the 16 banking centers, including all of the associated deposits (totaling approximately
$20 million), to separate bank purchasers. The sale of one of the banking centers was completed on
February 19, 2016 and the sale of the other banking center 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 30: Acquisition of Loans, Deposits and Branches
On September 30, 2015, the Company announced that it entered into a purchase and assumption
agreement to acquire 12 branches and related deposits and loans in the St. Louis, Mo., area from
Cincinnati-based Fifth Third Bank. The acquisition was completed at the close of business on January
29, 2016.
The deposits assumed totaled approximately $228 million and had a weighted average rate of
approximately 0.28%, the composition of which was: demand deposits and NOW accounts – 42%;
money market accounts – 40%; and time deposits and IRAs – 18%.
The loans acquired totaled approximately $159 million and had a weighted average yield of
approximately 3.92%, the composition of which was: one- to four-family residential – 75%;
commercial real estate – 8%; home equity lines – 10%; commercial business – 5%; and consumer and
other – 2%. The one- to four-family residential loans are primarily loans made to professional
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.
144
83
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
dividend rate was fixed at between one percent (1%) and seven percent (7%) based upon the level of
qualifying loans. The Company’s dividend rate was 1.0% during 2015, and was expected to remain at
1% until four and one half years after the issuance, which is March 2016. After four and one half years
from issuance, the dividend rate would have increased to 9% (including a quarterly lending incentive
fee of 0.5%).
On December 15, 2015, the Company (with the approval of its federal banking regulator) redeemed all
57,943 shares of the SBLF Preferred Stock at their liquidation amount of $1,000 per share plus accrued
but unpaid dividends to the redemption date. The redemption of the SBLF Preferred Stock was
completed using internally available funds.
Note 29: Consolidation of Banking Centers
On September 24, 2015, the Company announced plans to consolidate operations of 16 banking centers
into other nearby Great Southern banking center locations. As part of an ongoing performance review
of its entire banking center network, Great Southern evaluated each location for a number of criteria,
including access and availability of services to affected customers, the proximity of other Great
Southern banking centers, profitability and transaction volumes, and market dynamics. This review
culminated in the approval of the consolidation of these banking centers by the Great Southern Board
of Directors. Subsequent to this announcement, the Bank entered into separate definitive agreements
to sell two of the 16 banking centers, including all of the associated deposits (totaling approximately
$20 million), to separate bank purchasers. The sale of one of the banking centers was completed on
February 19, 2016 and the sale of the other banking center 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 30: Acquisition of Loans, Deposits and Branches
On September 30, 2015, the Company announced that it entered into a purchase and assumption
agreement to acquire 12 branches and related deposits and loans in the St. Louis, Mo., area from
Cincinnati-based Fifth Third Bank. The acquisition was completed at the close of business on January
29, 2016.
The deposits assumed totaled approximately $228 million and had a weighted average rate of
approximately 0.28%, the composition of which was: demand deposits and NOW accounts – 42%;
money market accounts – 40%; and time deposits and IRAs – 18%.
The loans acquired totaled approximately $159 million and had a weighted average yield of
approximately 3.92%, the composition of which was: one- to four-family residential – 75%;
commercial real estate – 8%; home equity lines – 10%; commercial business – 5%; and consumer and
other – 2%. The one- to four-family residential loans are primarily loans made to professional
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.
145
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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:
Deposit premium per Purchase and Assumption Agreement
Purchase accounting adjustments
Deposits
Loans
Deferred income taxes
Core deposit intangible
Goodwill recognized on business acquisition
January 29,
2016
(In Thousands)
$
$
(7,135)
(277)
(1,340)
100
4,424
4,228
146
85
2017
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GreatSouthernBank.com