CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
800-749-7113
MAILING ADDRESS
P.O. Box 9009
Springfield, MO 65808
DIVIDEND REINVESTMENT
For details on the automatic reinvestment of
dividends in common stock of the Company,
call Computershare at 800-368-5948,
(outside of the U.S. 781-575-4223), or visit
computershare.com.
FORM 10-K
The Annual Report on Form 10-K filed with the
Securities and Exchange Commission may
be obtained from the Company’s website at
GreatSouthernBank.com, the SEC website or
without charge by request to:
Kelly Polonus
Great Southern Bancorp, Inc.
P.O. Box 9009
Springfield, MO 65808
INVESTOR RELATIONS
Kelly Polonus
Great Southern Bank
P.O. Box 9009
Springfield, MO 65808
AUDITORS
BKD, L.L.P.
P.O. Box 1190
Springfield, MO 65801-1190
LEGAL COUNSEL
Silver, Freedman, Taff and Tiernan, L.L.P.
3299 K St., N.W., Suite 100
Washington, DC 20007
Carnahan, Evans, Cantwell & Brown, P.C.
P.O. Box 10009
Springfield, MO 65808
TRANSFER AGENT AND REGISTRAR
Computershare
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
30th Annual
Meeting
of Stockholders
Corporate
Profile
Stock
Information
May 8, 2019
Great Southern Operations Center
218 S. Glenstone, Springfield, MO
Great Southern Bank was founded in 1923 with a $5,000
investment, four employees and 936 customers. Today, it
has grown to $4.7 billion in total assets, with more than
1,200 dedicated associates serving 160,000 households.
Headquartered in Springfield, Mo., the Company
operates 105 offices in 11 states, including 98 retail
banking centers in Missouri, Arkansas, Iowa, Kansas,
Nebraska and Minnesota, six commercial loan offices in
Dallas, Tex., Tulsa, Okla., Chicago, Ill., Omaha, Neb.,
Atlanta, Ga., and Denver, Colo., 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, 2018, there were 14,151,198 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, 2018 was $46.03.
High/Low Stock Price
2018
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Low
High
High
Low
$53.05 $48.10 $55.45 $47.35
55.10 47.25
56.00 47.50
58.45 50.55
60.20 48.60
61.65 54.50
58.49 43.30
2016
High
Low
$45.00 $35.47
41.29 34.56
43.54 34.48
56.70 38.35
Dividend Declarations
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018 2017
$.22
$.28
.24
.28
.24
.32
.24
.32
2016
$.22
.22
.22
.22
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
TO OUR
STOCKHOLDERS
Great Southern was
recognized for producing
the fifth best total all-time
shareholder return, nearly
15,000 percent, among
every publicly traded bank
in the United States.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
2
prefer. One way we are doing this is by looking at
of $4.7 billion. Total stockholders’ equity was $532.0
all of our operational processes. We are now fully
million, or 11.4% of assets, equivalent to a book
engaged in Process Matters, the Company’s
value of $37.59 per common share. Book value
ongoing process improvement strategy that
increased by $4.11, or 12.3%, from the end of 2017
focuses all of our activities on improving the
to the end of 2018.
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
The capital position of the Company continues to
For an even more holistic improvement approach,
be strong, significantly exceeding the thresholds
we are implementing Experience Matters, a
established by regulators to be considered
customer experience initiative that will help us
“well-capitalized.” Tangible common equity
better understand our customers’ desires and their
increased by 13.4% from the end of 2017, pushing
perceptions of our service quality. J.D. Power, a
the tangible common equity to tangible assets
leader in consumer satisfaction research, and
ratio (a common capital metric) to 11.2%, a high
other leading customer experience organizations
level by industry standards.
are engaged to assist us with this important work.
Finally, you will see some Community Matters
Since going public in 1989, Great Southern has
highlights from 2018 that support our enduring
declared consecutive quarterly cash dividends to
commitment to help make our communities even
stockholders. In 2018, quarterly cash dividends
greater places to live, work and play. We share this
totaling $1.20 per common share were declared.
information not to be self-promoting, but to
In January 2019, the Company declared a special
showcase just a few of the endless possibilities of
cash dividend of $0.75 per common share. This
how we all can work together to address commu-
special dividend reflected the Company’s recent
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
We were pleased with the Company’s financial
and other potential corporate initiatives.
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
During 2018, overall loan growth was strong. For
margin, solid credit quality and disciplined
the third year in a row, our commercial lenders
expense containment. We invite you to review
originated more than $1 billion in new loans. Total
details of our financial performance in the Annual
gross loans, including the undisbursed portion of
Report, or in our other Company filings.
loans and excluding FDIC-assisted acquired loans
and mortgages held for sale, increased $472.3
In summary, earnings for the year ended Decem-
million, or 10.8%, from the end of 2017. This
ber 31, 2018, were $67.1 million, or $4.71 per
increase was partially offset by expected decreas-
diluted common share. Return on average
es in the consumer auto loan portfolio (down
common equity was 13.46%, return on average
about $103.6 million) and the FDIC-acquired loan
assets was 1.49%, and net interest margin was
portfolios (down about $42.0 million). Outstanding
3.99%. The Company ended the year with assets
loan balances increased $262.7 million, from
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
While loan production was strong in 2018, it was
We still believe that banking centers are the most
not produced by succumbing to pricing pressures
important delivery channel for developing
or other competitive forces. Our underwriting
relationships with our customers, but also the most
criteria remains conservative and we grow the
expensive and dynamic channel. We analyze our
loan portfolio one quality relationship at a time.
system of banking centers to measure perfor-
During 2018, credit quality continued to improve
mance and to ensure responsiveness to changing
with credit quality metrics at historic positive levels.
customer needs and preferences. Thus, we open
At December 31, 2018, non-performing assets,
banking centers and invest resources where
excluding FDIC-acquired non-performing assets,
customer demand leads, and from time to time,
were $11.8 million, a decrease of $16.0 million
consolidate banking centers or even exit markets
from $27.8 million at December 31, 2017. Non-per-
when conditions dictate. As a result, several
forming assets as a percentage of total assets
banking center changes were initiated in 2018.
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
The Company sold four banking centers in the
were $5.2 million during 2018, as compared to
Omaha, Neb., metropolitan market to a Nebras-
$10.0 million during 2017. In 2018, approximately
ka-based bank in the third quarter of 2018. Branch
$3.9 million of the $5.2 million of net charge-offs
deposits of approximately $56 million and
were in the consumer auto category. Six commer-
substantially all branch-related real estate, fixed
cial loan relationships made up approximately
assets and ATMs were sold. As a result, the Com-
$1.3 million of the net charge-off total in 2018.
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
For the long-term success of our Company, we
common share. A commercial lending office
regularly evaluate the performance of all of our
remains in the Omaha market.
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
In the second quarter of 2018, the Company
quarter of 2019, we made the decision to exit the
consolidated operations of a banking center into
indirect automobile lending business, whereby we
a nearby office in Paola, Kan. Early in the second
provided financing for customers of automobile
quarter of 2019, the Company consolidated the
dealerships. The indirect lending business for us
banking center in Fayetteville, Ark., into the Rogers,
and many banks has been difficult over the last
Ark., office.
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
IN 2019
PROCESS OF MORE PROGRESS
ment took this step in an effort to improve credit
Our priorities in 2019 are straightforward and
quality in the portfolio and lower delinquencies
consistent with previous years’ priorities. We will
and charge-offs. The changes in underwriting
maintain a sharp focus on developing and
guidelines resulted in lower origination volume,
expanding customer relationships, sustain a
and as such, outstanding consumer auto loan
strong credit discipline and drive operational
balances have decreased significantly since the
efficiencies. Our geographic footprint is a proven
end of 2016. Market forces, including strong rate
strength for our lending team as it allows us to
competition for well qualified borrowers, have
make loans in many different market areas, giving
made indirect lending through automobile
us the ability to grow at a reasonable rate with
dealerships a significant barrier to efficient and
rational pricing and structure. On the retail side,
profitable operations over the long term. Our core
we are optimistic about developing relationships
business of direct consumer lending through our
in our banking center network, which has the
extensive banking center network remains an
capacity to bring on considerably more business
important focus.
without commensurate growth in our expense
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
Finally, we owe a debt of gratitude to our Board of
ment and the real possibility of falling interest rates
Directors for their guidance and support over the
at any time. Mitigating the risks of fluctuating
last year. We extend a special message of appre-
interest rates is a normal function of our asset and
ciation to Mr. William E. Barclay, who is now serving
liability management; the uniqueness of current
as an advisory board member. Mr. Barclay began
economic conditions makes it more interesting
serving Great Southern as a Board member in
and challenging. The Company’s interest rate risk
1975. His business knowledge, leadership skills,
models indicate that, generally, rising interest rates
deep commitment to Great Southern and humor
are expected to have a modestly positive impact
will forever be appreciated and never forgotten in
on the Company's net interest income, while
our Company’s rich history.
declining interest rates would have a negative
impact on net interest income. Strategies for rising
Thank you for your support of Great Southern. We
and falling rate scenarios are in place and
look to the future with great optimism. We invite
reviewed continually.
your feedback at any time.
In 2019, we already have several major improve-
Respectfully yours,
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
2018
prefer. One way we are doing this is by looking at
all of our operational processes. We are now fully
engaged in Process Matters, the Company’s
ongoing process improvement strategy that
focuses all of our activities on improving the
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
For an even more holistic improvement approach,
we are implementing Experience Matters, a
customer experience initiative that will help us
better understand our customers’ desires and their
perceptions of our service quality. J.D. Power, a
leader in consumer satisfaction research, and
other leading customer experience organizations
are engaged to assist us with this important work.
Finally, you will see some Community Matters
highlights from 2018 that support our enduring
commitment to help make our communities even
greater places to live, work and play. We share this
information not to be self-promoting, but to
showcase just a few of the endless possibilities of
how we all can work together to address commu-
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
We were pleased with the Company’s financial
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
margin, solid credit quality and disciplined
expense containment. We invite you to review
details of our financial performance in the Annual
Report, or in our other Company filings.
In summary, earnings for the year ended Decem-
ber 31, 2018, were $67.1 million, or $4.71 per
diluted common share. Return on average
common equity was 13.46%, return on average
assets was 1.49%, and net interest margin was
3.99%. The Company ended the year with assets
of $4.7 billion. Total stockholders’ equity was $532.0
million, or 11.4% of assets, equivalent to a book
value of $37.59 per common share. Book value
increased by $4.11, or 12.3%, from the end of 2017
to the end of 2018.
The capital position of the Company continues to
be strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Tangible common equity
increased by 13.4% from the end of 2017, pushing
the tangible common equity to tangible assets
ratio (a common capital metric) to 11.2%, a high
level by industry standards.
Since going public in 1989, Great Southern has
declared consecutive quarterly cash dividends to
stockholders. In 2018, quarterly cash dividends
totaling $1.20 per common share were declared.
In January 2019, the Company declared a special
cash dividend of $0.75 per common share. This
special dividend reflected the Company’s recent
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
and other potential corporate initiatives.
During 2018, overall loan growth was strong. For
the third 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 $472.3
million, or 10.8%, from the end of 2017. This
increase was partially offset by expected decreas-
es in the consumer auto loan portfolio (down
about $103.6 million) and the FDIC-acquired loan
portfolios (down about $42.0 million). Outstanding
loan balances increased $262.7 million, from
3
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
While loan production was strong in 2018, it was
We still believe that banking centers are the most
not produced by succumbing to pricing pressures
important delivery channel for developing
or other competitive forces. Our underwriting
relationships with our customers, but also the most
criteria remains conservative and we grow the
expensive and dynamic channel. We analyze our
loan portfolio one quality relationship at a time.
system of banking centers to measure perfor-
During 2018, credit quality continued to improve
mance and to ensure responsiveness to changing
with credit quality metrics at historic positive levels.
customer needs and preferences. Thus, we open
At December 31, 2018, non-performing assets,
banking centers and invest resources where
excluding FDIC-acquired non-performing assets,
customer demand leads, and from time to time,
were $11.8 million, a decrease of $16.0 million
consolidate banking centers or even exit markets
from $27.8 million at December 31, 2017. Non-per-
when conditions dictate. As a result, several
forming assets as a percentage of total assets
banking center changes were initiated in 2018.
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
The Company sold four banking centers in the
were $5.2 million during 2018, as compared to
Omaha, Neb., metropolitan market to a Nebras-
$10.0 million during 2017. In 2018, approximately
ka-based bank in the third quarter of 2018. Branch
$3.9 million of the $5.2 million of net charge-offs
deposits of approximately $56 million and
were in the consumer auto category. Six commer-
substantially all branch-related real estate, fixed
cial loan relationships made up approximately
assets and ATMs were sold. As a result, the Com-
$1.3 million of the net charge-off total in 2018.
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
For the long-term success of our Company, we
common share. A commercial lending office
regularly evaluate the performance of all of our
remains in the Omaha market.
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
In the second quarter of 2018, the Company
quarter of 2019, we made the decision to exit the
consolidated operations of a banking center into
indirect automobile lending business, whereby we
a nearby office in Paola, Kan. Early in the second
provided financing for customers of automobile
quarter of 2019, the Company consolidated the
dealerships. The indirect lending business for us
banking center in Fayetteville, Ark., into the Rogers,
and many banks has been difficult over the last
Ark., office.
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
IN 2019
PROCESS OF MORE PROGRESS
ment took this step in an effort to improve credit
Our priorities in 2019 are straightforward and
quality in the portfolio and lower delinquencies
consistent with previous years’ priorities. We will
and charge-offs. The changes in underwriting
maintain a sharp focus on developing and
guidelines resulted in lower origination volume,
expanding customer relationships, sustain a
and as such, outstanding consumer auto loan
strong credit discipline and drive operational
balances have decreased significantly since the
efficiencies. Our geographic footprint is a proven
end of 2016. Market forces, including strong rate
strength for our lending team as it allows us to
competition for well qualified borrowers, have
make loans in many different market areas, giving
made indirect lending through automobile
us the ability to grow at a reasonable rate with
dealerships a significant barrier to efficient and
rational pricing and structure. On the retail side,
profitable operations over the long term. Our core
we are optimistic about developing relationships
business of direct consumer lending through our
in our banking center network, which has the
extensive banking center network remains an
capacity to bring on considerably more business
important focus.
without commensurate growth in our expense
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
Finally, we owe a debt of gratitude to our Board of
ment and the real possibility of falling interest rates
Directors for their guidance and support over the
at any time. Mitigating the risks of fluctuating
last year. We extend a special message of appre-
interest rates is a normal function of our asset and
ciation to Mr. William E. Barclay, who is now serving
liability management; the uniqueness of current
as an advisory board member. Mr. Barclay began
economic conditions makes it more interesting
serving Great Southern as a Board member in
and challenging. The Company’s interest rate risk
1975. His business knowledge, leadership skills,
models indicate that, generally, rising interest rates
deep commitment to Great Southern and humor
are expected to have a modestly positive impact
will forever be appreciated and never forgotten in
on the Company's net interest income, while
our Company’s rich history.
declining interest rates would have a negative
impact on net interest income. Strategies for rising
Thank you for your support of Great Southern. We
and falling rate scenarios are in place and
look to the future with great optimism. We invite
reviewed continually.
your feedback at any time.
In 2019, we already have several major improve-
Respectfully yours,
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
prefer. One way we are doing this is by looking at
of $4.7 billion. Total stockholders’ equity was $532.0
all of our operational processes. We are now fully
million, or 11.4% of assets, equivalent to a book
engaged in Process Matters, the Company’s
value of $37.59 per common share. Book value
ongoing process improvement strategy that
increased by $4.11, or 12.3%, from the end of 2017
focuses all of our activities on improving the
to the end of 2018.
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
The capital position of the Company continues to
For an even more holistic improvement approach,
be strong, significantly exceeding the thresholds
we are implementing Experience Matters, a
established by regulators to be considered
customer experience initiative that will help us
“well-capitalized.” Tangible common equity
better understand our customers’ desires and their
increased by 13.4% from the end of 2017, pushing
perceptions of our service quality. J.D. Power, a
the tangible common equity to tangible assets
leader in consumer satisfaction research, and
ratio (a common capital metric) to 11.2%, a high
other leading customer experience organizations
level by industry standards.
are engaged to assist us with this important work.
Finally, you will see some Community Matters
Since going public in 1989, Great Southern has
highlights from 2018 that support our enduring
declared consecutive quarterly cash dividends to
commitment to help make our communities even
stockholders. In 2018, quarterly cash dividends
greater places to live, work and play. We share this
totaling $1.20 per common share were declared.
information not to be self-promoting, but to
In January 2019, the Company declared a special
showcase just a few of the endless possibilities of
cash dividend of $0.75 per common share. This
how we all can work together to address commu-
special dividend reflected the Company’s recent
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
We were pleased with the Company’s financial
and other potential corporate initiatives.
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
During 2018, overall loan growth was strong. For
margin, solid credit quality and disciplined
the third year in a row, our commercial lenders
expense containment. We invite you to review
originated more than $1 billion in new loans. Total
details of our financial performance in the Annual
gross loans, including the undisbursed portion of
Report, or in our other Company filings.
loans and excluding FDIC-assisted acquired loans
and mortgages held for sale, increased $472.3
In summary, earnings for the year ended Decem-
million, or 10.8%, from the end of 2017. This
ber 31, 2018, were $67.1 million, or $4.71 per
increase was partially offset by expected decreas-
diluted common share. Return on average
es in the consumer auto loan portfolio (down
common equity was 13.46%, return on average
about $103.6 million) and the FDIC-acquired loan
assets was 1.49%, and net interest margin was
portfolios (down about $42.0 million). Outstanding
3.99%. The Company ended the year with assets
loan balances increased $262.7 million, from
TOTAL ASSETS
$4.68B
TOTAL LOANS
$3.99B
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
4
1
0
2
TOTAL DEPOSITS
$3.73B
2018
$4B
$3B
$2B
$1B
$4B
$3B
$2B
$1B
$3B
$2B
$1B
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
4
While loan production was strong in 2018, it was
We still believe that banking centers are the most
not produced by succumbing to pricing pressures
important delivery channel for developing
or other competitive forces. Our underwriting
relationships with our customers, but also the most
criteria remains conservative and we grow the
expensive and dynamic channel. We analyze our
loan portfolio one quality relationship at a time.
system of banking centers to measure perfor-
During 2018, credit quality continued to improve
mance and to ensure responsiveness to changing
with credit quality metrics at historic positive levels.
customer needs and preferences. Thus, we open
At December 31, 2018, non-performing assets,
banking centers and invest resources where
excluding FDIC-acquired non-performing assets,
customer demand leads, and from time to time,
were $11.8 million, a decrease of $16.0 million
consolidate banking centers or even exit markets
from $27.8 million at December 31, 2017. Non-per-
when conditions dictate. As a result, several
forming assets as a percentage of total assets
banking center changes were initiated in 2018.
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
The Company sold four banking centers in the
were $5.2 million during 2018, as compared to
Omaha, Neb., metropolitan market to a Nebras-
$10.0 million during 2017. In 2018, approximately
ka-based bank in the third quarter of 2018. Branch
$3.9 million of the $5.2 million of net charge-offs
deposits of approximately $56 million and
were in the consumer auto category. Six commer-
substantially all branch-related real estate, fixed
cial loan relationships made up approximately
assets and ATMs were sold. As a result, the Com-
$1.3 million of the net charge-off total in 2018.
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
For the long-term success of our Company, we
common share. A commercial lending office
regularly evaluate the performance of all of our
remains in the Omaha market.
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
In the second quarter of 2018, the Company
quarter of 2019, we made the decision to exit the
consolidated operations of a banking center into
indirect automobile lending business, whereby we
a nearby office in Paola, Kan. Early in the second
provided financing for customers of automobile
quarter of 2019, the Company consolidated the
dealerships. The indirect lending business for us
banking center in Fayetteville, Ark., into the Rogers,
and many banks has been difficult over the last
Ark., office.
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
IN 2019
PROCESS OF MORE PROGRESS
ment took this step in an effort to improve credit
Our priorities in 2019 are straightforward and
quality in the portfolio and lower delinquencies
consistent with previous years’ priorities. We will
and charge-offs. The changes in underwriting
maintain a sharp focus on developing and
guidelines resulted in lower origination volume,
expanding customer relationships, sustain a
and as such, outstanding consumer auto loan
strong credit discipline and drive operational
balances have decreased significantly since the
efficiencies. Our geographic footprint is a proven
end of 2016. Market forces, including strong rate
strength for our lending team as it allows us to
competition for well qualified borrowers, have
make loans in many different market areas, giving
made indirect lending through automobile
us the ability to grow at a reasonable rate with
dealerships a significant barrier to efficient and
rational pricing and structure. On the retail side,
profitable operations over the long term. Our core
we are optimistic about developing relationships
business of direct consumer lending through our
in our banking center network, which has the
extensive banking center network remains an
capacity to bring on considerably more business
important focus.
without commensurate growth in our expense
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
Finally, we owe a debt of gratitude to our Board of
ment and the real possibility of falling interest rates
Directors for their guidance and support over the
at any time. Mitigating the risks of fluctuating
last year. We extend a special message of appre-
interest rates is a normal function of our asset and
ciation to Mr. William E. Barclay, who is now serving
liability management; the uniqueness of current
as an advisory board member. Mr. Barclay began
economic conditions makes it more interesting
serving Great Southern as a Board member in
and challenging. The Company’s interest rate risk
1975. His business knowledge, leadership skills,
models indicate that, generally, rising interest rates
deep commitment to Great Southern and humor
are expected to have a modestly positive impact
will forever be appreciated and never forgotten in
on the Company's net interest income, while
our Company’s rich history.
declining interest rates would have a negative
impact on net interest income. Strategies for rising
Thank you for your support of Great Southern. We
and falling rate scenarios are in place and
look to the future with great optimism. We invite
reviewed continually.
your feedback at any time.
In 2019, we already have several major improve-
Respectfully yours,
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
prefer. One way we are doing this is by looking at
of $4.7 billion. Total stockholders’ equity was $532.0
all of our operational processes. We are now fully
million, or 11.4% of assets, equivalent to a book
engaged in Process Matters, the Company’s
value of $37.59 per common share. Book value
ongoing process improvement strategy that
increased by $4.11, or 12.3%, from the end of 2017
focuses all of our activities on improving the
to the end of 2018.
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
The capital position of the Company continues to
For an even more holistic improvement approach,
be strong, significantly exceeding the thresholds
we are implementing Experience Matters, a
established by regulators to be considered
customer experience initiative that will help us
“well-capitalized.” Tangible common equity
better understand our customers’ desires and their
increased by 13.4% from the end of 2017, pushing
perceptions of our service quality. J.D. Power, a
the tangible common equity to tangible assets
leader in consumer satisfaction research, and
ratio (a common capital metric) to 11.2%, a high
other leading customer experience organizations
level by industry standards.
are engaged to assist us with this important work.
Finally, you will see some Community Matters
Since going public in 1989, Great Southern has
highlights from 2018 that support our enduring
declared consecutive quarterly cash dividends to
commitment to help make our communities even
stockholders. In 2018, quarterly cash dividends
greater places to live, work and play. We share this
totaling $1.20 per common share were declared.
information not to be self-promoting, but to
In January 2019, the Company declared a special
showcase just a few of the endless possibilities of
cash dividend of $0.75 per common share. This
how we all can work together to address commu-
special dividend reflected the Company’s recent
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
We were pleased with the Company’s financial
and other potential corporate initiatives.
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
During 2018, overall loan growth was strong. For
margin, solid credit quality and disciplined
the third year in a row, our commercial lenders
expense containment. We invite you to review
originated more than $1 billion in new loans. Total
details of our financial performance in the Annual
gross loans, including the undisbursed portion of
Report, or in our other Company filings.
loans and excluding FDIC-assisted acquired loans
and mortgages held for sale, increased $472.3
In summary, earnings for the year ended Decem-
million, or 10.8%, from the end of 2017. This
ber 31, 2018, were $67.1 million, or $4.71 per
increase was partially offset by expected decreas-
diluted common share. Return on average
es in the consumer auto loan portfolio (down
common equity was 13.46%, return on average
about $103.6 million) and the FDIC-acquired loan
assets was 1.49%, and net interest margin was
portfolios (down about $42.0 million). Outstanding
3.99%. The Company ended the year with assets
loan balances increased $262.7 million, from
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
TOTAL NET INCOME
$67.11M
BOOK VALUE
PER COMMON SHARE
$37.59
33.48
30.77
28.67
26.30
2014
2015
2016
2017
2018
TOTAL RETURN
5 YEAR CUMULATIVE*
$168.58
$60
$50
$40
$30
$20
$10
Great Southern Bancorp Inc
NASDAQ Composite Index
NASDAQ Financial
100 Index
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
4
1
0
2
200
150
100
2013
2014
2015
2016
2017
2018
* 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, 2013, through December 31, 2018.
The graph assumes that $100 was invested in GSBC Common Stock on December 31, 2013, and that all dividends were reinvested.
5
While loan production was strong in 2018, it was
We still believe that banking centers are the most
not produced by succumbing to pricing pressures
important delivery channel for developing
or other competitive forces. Our underwriting
relationships with our customers, but also the most
criteria remains conservative and we grow the
expensive and dynamic channel. We analyze our
loan portfolio one quality relationship at a time.
system of banking centers to measure perfor-
During 2018, credit quality continued to improve
mance and to ensure responsiveness to changing
with credit quality metrics at historic positive levels.
customer needs and preferences. Thus, we open
At December 31, 2018, non-performing assets,
banking centers and invest resources where
excluding FDIC-acquired non-performing assets,
customer demand leads, and from time to time,
were $11.8 million, a decrease of $16.0 million
consolidate banking centers or even exit markets
from $27.8 million at December 31, 2017. Non-per-
when conditions dictate. As a result, several
forming assets as a percentage of total assets
banking center changes were initiated in 2018.
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
The Company sold four banking centers in the
were $5.2 million during 2018, as compared to
Omaha, Neb., metropolitan market to a Nebras-
$10.0 million during 2017. In 2018, approximately
ka-based bank in the third quarter of 2018. Branch
$3.9 million of the $5.2 million of net charge-offs
deposits of approximately $56 million and
were in the consumer auto category. Six commer-
substantially all branch-related real estate, fixed
cial loan relationships made up approximately
assets and ATMs were sold. As a result, the Com-
$1.3 million of the net charge-off total in 2018.
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
For the long-term success of our Company, we
common share. A commercial lending office
regularly evaluate the performance of all of our
remains in the Omaha market.
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
In the second quarter of 2018, the Company
quarter of 2019, we made the decision to exit the
consolidated operations of a banking center into
indirect automobile lending business, whereby we
a nearby office in Paola, Kan. Early in the second
provided financing for customers of automobile
quarter of 2019, the Company consolidated the
dealerships. The indirect lending business for us
banking center in Fayetteville, Ark., into the Rogers,
and many banks has been difficult over the last
Ark., office.
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
IN 2019
PROCESS OF MORE PROGRESS
ment took this step in an effort to improve credit
Our priorities in 2019 are straightforward and
quality in the portfolio and lower delinquencies
consistent with previous years’ priorities. We will
and charge-offs. The changes in underwriting
maintain a sharp focus on developing and
guidelines resulted in lower origination volume,
expanding customer relationships, sustain a
and as such, outstanding consumer auto loan
strong credit discipline and drive operational
balances have decreased significantly since the
efficiencies. Our geographic footprint is a proven
end of 2016. Market forces, including strong rate
strength for our lending team as it allows us to
competition for well qualified borrowers, have
make loans in many different market areas, giving
made indirect lending through automobile
us the ability to grow at a reasonable rate with
dealerships a significant barrier to efficient and
rational pricing and structure. On the retail side,
profitable operations over the long term. Our core
we are optimistic about developing relationships
business of direct consumer lending through our
in our banking center network, which has the
extensive banking center network remains an
capacity to bring on considerably more business
important focus.
without commensurate growth in our expense
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
Finally, we owe a debt of gratitude to our Board of
ment and the real possibility of falling interest rates
Directors for their guidance and support over the
at any time. Mitigating the risks of fluctuating
last year. We extend a special message of appre-
interest rates is a normal function of our asset and
ciation to Mr. William E. Barclay, who is now serving
liability management; the uniqueness of current
as an advisory board member. Mr. Barclay began
economic conditions makes it more interesting
serving Great Southern as a Board member in
and challenging. The Company’s interest rate risk
1975. His business knowledge, leadership skills,
models indicate that, generally, rising interest rates
deep commitment to Great Southern and humor
are expected to have a modestly positive impact
will forever be appreciated and never forgotten in
on the Company's net interest income, while
our Company’s rich history.
declining interest rates would have a negative
impact on net interest income. Strategies for rising
Thank you for your support of Great Southern. We
and falling rate scenarios are in place and
look to the future with great optimism. We invite
reviewed continually.
your feedback at any time.
In 2019, we already have several major improve-
Respectfully yours,
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
prefer. One way we are doing this is by looking at
of $4.7 billion. Total stockholders’ equity was $532.0
all of our operational processes. We are now fully
million, or 11.4% of assets, equivalent to a book
engaged in Process Matters, the Company’s
value of $37.59 per common share. Book value
ongoing process improvement strategy that
increased by $4.11, or 12.3%, from the end of 2017
focuses all of our activities on improving the
to the end of 2018.
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
The capital position of the Company continues to
For an even more holistic improvement approach,
be strong, significantly exceeding the thresholds
we are implementing Experience Matters, a
established by regulators to be considered
customer experience initiative that will help us
“well-capitalized.” Tangible common equity
better understand our customers’ desires and their
increased by 13.4% from the end of 2017, pushing
perceptions of our service quality. J.D. Power, a
the tangible common equity to tangible assets
leader in consumer satisfaction research, and
ratio (a common capital metric) to 11.2%, a high
other leading customer experience organizations
level by industry standards.
are engaged to assist us with this important work.
Finally, you will see some Community Matters
Since going public in 1989, Great Southern has
highlights from 2018 that support our enduring
declared consecutive quarterly cash dividends to
commitment to help make our communities even
stockholders. In 2018, quarterly cash dividends
greater places to live, work and play. We share this
totaling $1.20 per common share were declared.
information not to be self-promoting, but to
In January 2019, the Company declared a special
showcase just a few of the endless possibilities of
cash dividend of $0.75 per common share. This
how we all can work together to address commu-
special dividend reflected the Company’s recent
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
We were pleased with the Company’s financial
and other potential corporate initiatives.
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
During 2018, overall loan growth was strong. For
margin, solid credit quality and disciplined
the third year in a row, our commercial lenders
expense containment. We invite you to review
originated more than $1 billion in new loans. Total
details of our financial performance in the Annual
gross loans, including the undisbursed portion of
Report, or in our other Company filings.
loans and excluding FDIC-assisted acquired loans
and mortgages held for sale, increased $472.3
In summary, earnings for the year ended Decem-
million, or 10.8%, from the end of 2017. This
ber 31, 2018, were $67.1 million, or $4.71 per
increase was partially offset by expected decreas-
diluted common share. Return on average
es in the consumer auto loan portfolio (down
common equity was 13.46%, return on average
about $103.6 million) and the FDIC-acquired loan
assets was 1.49%, and net interest margin was
portfolios (down about $42.0 million). Outstanding
3.99%. The Company ended the year with assets
loan balances increased $262.7 million, from
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
While loan production was strong in 2018, it was
not produced by succumbing to pricing pressures
or other competitive forces. Our underwriting
criteria remains conservative and we grow the
loan portfolio one quality relationship at a time.
During 2018, credit quality continued to improve
with credit quality metrics at historic positive levels.
At December 31, 2018, non-performing assets,
excluding FDIC-acquired non-performing assets,
were $11.8 million, a decrease of $16.0 million
from $27.8 million at December 31, 2017. Non-per-
forming assets as a percentage of total assets
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
were $5.2 million during 2018, as compared to
$10.0 million during 2017. In 2018, approximately
$3.9 million of the $5.2 million of net charge-offs
were in the consumer auto category. Six commer-
cial loan relationships made up approximately
$1.3 million of the net charge-off total in 2018.
For the long-term success of our Company, we
regularly evaluate the performance of all of our
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
quarter of 2019, we made the decision to exit the
indirect automobile lending business, whereby we
provided financing for customers of automobile
dealerships. The indirect lending business for us
and many banks has been difficult over the last
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
ment took this step in an effort to improve credit
quality in the portfolio and lower delinquencies
and charge-offs. The changes in underwriting
guidelines resulted in lower origination volume,
and as such, outstanding consumer auto loan
balances have decreased significantly since the
end of 2016. Market forces, including strong rate
competition for well qualified borrowers, have
made indirect lending through automobile
dealerships a significant barrier to efficient and
profitable operations over the long term. Our core
business of direct consumer lending through our
extensive banking center network remains an
important focus.
We still believe that banking centers are the most
important delivery channel for developing
relationships with our customers, but also the most
expensive and dynamic channel. We analyze our
system of banking centers to measure perfor-
mance and to ensure responsiveness to changing
customer needs and preferences. Thus, we open
banking centers and invest resources where
customer demand leads, and from time to time,
consolidate banking centers or even exit markets
when conditions dictate. As a result, several
banking center changes were initiated in 2018.
The Company sold four banking centers in the
Omaha, Neb., metropolitan market to a Nebras-
ka-based bank in the third quarter of 2018. Branch
deposits of approximately $56 million and
substantially all branch-related real estate, fixed
assets and ATMs were sold. As a result, the Com-
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
common share. A commercial lending office
remains in the Omaha market.
In the second quarter of 2018, the Company
consolidated operations of a banking center into
a nearby office in Paola, Kan. Early in the second
quarter of 2019, the Company consolidated the
banking center in Fayetteville, Ark., into the Rogers,
Ark., office.
PROCESS OF MORE PROGRESS
IN 2019
Our priorities in 2019 are straightforward 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 structure. On the retail side,
we are optimistic about developing relationships
in our banking center network, which has the
capacity to bring on considerably more business
without commensurate growth in our expense
6
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
Finally, we owe a debt of gratitude to our Board of
ment and the real possibility of falling interest rates
Directors for their guidance and support over the
at any time. Mitigating the risks of fluctuating
last year. We extend a special message of appre-
interest rates is a normal function of our asset and
ciation to Mr. William E. Barclay, who is now serving
liability management; the uniqueness of current
as an advisory board member. Mr. Barclay began
economic conditions makes it more interesting
serving Great Southern as a Board member in
and challenging. The Company’s interest rate risk
1975. His business knowledge, leadership skills,
models indicate that, generally, rising interest rates
deep commitment to Great Southern and humor
are expected to have a modestly positive impact
will forever be appreciated and never forgotten in
on the Company's net interest income, while
our Company’s rich history.
declining interest rates would have a negative
impact on net interest income. Strategies for rising
Thank you for your support of Great Southern. We
and falling rate scenarios are in place and
look to the future with great optimism. We invite
reviewed continually.
your feedback at any time.
In 2019, we already have several major improve-
Respectfully yours,
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
On behalf of our more than 1,200 Great Southern
associates, we are pleased to present our 2018
Annual Report. The theme of this year’s report,
Process of Progress, encapsulates our Company’s
culture and how we manage for the long term.
This guiding principle of managing with a
long-term view has been key to our success for 95
years and, if anything, we adhere to it more closely
than ever. Put simply, we guard against making
short-sighted decisions that deliver only near-term
benefit. We engage in practices that we believe
will drive sustainability, long-term growth and
profitability.
Great Southern became a public company
nearly 30 years ago. Since our initial public
offering in 1989, the Company has made great
progress and delivered long-term value to our
stockholders. This was recently highlighted in an
August 2018 article published by Bank Director
entitled “A Valuable Lesson from the Best Bank
You’ve Never Heard of.” Great Southern was
featured in this article and recognized for produc-
ing the fifth best total all-time shareholder return,
nearly 15,000 percent, among every publicly
traded bank in the United States. This recognition
of our Company’s performance was both exciting
and humbling, and a direct reflection of the hard
work and dedication of Great Southern associ-
ates, past and present. It has fueled our already
deep motivation for continuous improvement and
exceeding the expectations of the constituents
that we serve.
In the following pages of the report, you will learn
about some of the Company’s activities that
perpetuate our desire to make Great Southern an
even better company for those we serve. You will
see that we are optimizing and enhancing our
customer access channels to ensure that our
customers are served when, where and how they
prefer. One way we are doing this is by looking at
of $4.7 billion. Total stockholders’ equity was $532.0
all of our operational processes. We are now fully
million, or 11.4% of assets, equivalent to a book
engaged in Process Matters, the Company’s
value of $37.59 per common share. Book value
ongoing process improvement strategy that
increased by $4.11, or 12.3%, from the end of 2017
focuses all of our activities on improving the
to the end of 2018.
customer experience and that utilizes the princi-
ples and tested methodology of Lean Six Sigma.
The capital position of the Company continues to
For an even more holistic improvement approach,
be strong, significantly exceeding the thresholds
we are implementing Experience Matters, a
established by regulators to be considered
customer experience initiative that will help us
“well-capitalized.” Tangible common equity
better understand our customers’ desires and their
increased by 13.4% from the end of 2017, pushing
perceptions of our service quality. J.D. Power, a
the tangible common equity to tangible assets
leader in consumer satisfaction research, and
ratio (a common capital metric) to 11.2%, a high
other leading customer experience organizations
level by industry standards.
are engaged to assist us with this important work.
Finally, you will see some Community Matters
Since going public in 1989, Great Southern has
highlights from 2018 that support our enduring
declared consecutive quarterly cash dividends to
commitment to help make our communities even
stockholders. In 2018, quarterly cash dividends
greater places to live, work and play. We share this
totaling $1.20 per common share were declared.
information not to be self-promoting, but to
In January 2019, the Company declared a special
showcase just a few of the endless possibilities of
cash dividend of $0.75 per common share. This
how we all can work together to address commu-
special dividend reflected the Company’s recent
nity needs.
PROCESS OF PROGRESS
HIGHLIGHTS IN 2018
operating performance, solid financial condition
and commitment to delivering long-term share-
holder value. It also underscored continued efforts
to actively manage our capital position while
maintaining sufficient capacity for organic growth
We were pleased with the Company’s financial
and other potential corporate initiatives.
performance in 2018. Our earnings were driven by
strong loan growth, an expanding net interest
During 2018, overall loan growth was strong. For
margin, solid credit quality and disciplined
the third year in a row, our commercial lenders
expense containment. We invite you to review
originated more than $1 billion in new loans. Total
details of our financial performance in the Annual
gross loans, including the undisbursed portion of
Report, or in our other Company filings.
loans and excluding FDIC-assisted acquired loans
and mortgages held for sale, increased $472.3
In summary, earnings for the year ended Decem-
million, or 10.8%, from the end of 2017. This
ber 31, 2018, were $67.1 million, or $4.71 per
increase was partially offset by expected decreas-
diluted common share. Return on average
es in the consumer auto loan portfolio (down
common equity was 13.46%, return on average
about $103.6 million) and the FDIC-acquired loan
assets was 1.49%, and net interest margin was
portfolios (down about $42.0 million). Outstanding
3.99%. The Company ended the year with assets
loan balances increased $262.7 million, from
$3.73 billion at December 31, 2017, to $3.99 billion
at December 31, 2018.
Total loan production occurred across several
loan types, primarily construction loans, commer-
cial real estate loans, one- to four-family residential
mortgage loans and multi-family loans and came
from most of Great Southern’s primary lending
locations, including St. Louis, Kansas City, Kan.,
Tulsa, Okla., Dallas, Chicago, Minneapolis, and
Springfield, Mo. It is important to note that we do
not anticipate that our overall loan growth will
occur evenly over time. There will be years that
economic conditions and the competitive
landscape will allow for stronger growth, and
years where growth may be slower.
Commercial loan production offices (LPOs)
continue to play a significant role in developing
the commercial loan portfolio. In 2018, more than
40% of total loan production came from our LPOs,
which are located in Chicago, Dallas, Omaha,
Neb., and Tulsa. The LPO network was expanded
late in the fourth quarter of 2018 with the opening
of offices in Atlanta, and Denver. Entering new
markets with LPOs has proven to be an effective
business model in serving commercial loan
customers; in fact, our key St. Louis and Kansas
City markets began as LPOs more than a decade
ago. The key to a successful LPO is that each
office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years of
tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure
a consistent credit culture.
To add breadth to our lending capabilities, we
welcomed a new Small Business Administration
(SBA) lending manager who has many years of
experience in SBA lending. The new line of
business will focus exclusively on serving loan
customers throughout all of our markets who can
benefit from SBA-secured loan programs, including
7(a) and 504 loans.
While loan production was strong in 2018, it was
We still believe that banking centers are the most
not produced by succumbing to pricing pressures
important delivery channel for developing
or other competitive forces. Our underwriting
relationships with our customers, but also the most
criteria remains conservative and we grow the
expensive and dynamic channel. We analyze our
loan portfolio one quality relationship at a time.
system of banking centers to measure perfor-
During 2018, credit quality continued to improve
mance and to ensure responsiveness to changing
with credit quality metrics at historic positive levels.
customer needs and preferences. Thus, we open
At December 31, 2018, non-performing assets,
banking centers and invest resources where
excluding FDIC-acquired non-performing assets,
customer demand leads, and from time to time,
were $11.8 million, a decrease of $16.0 million
consolidate banking centers or even exit markets
from $27.8 million at December 31, 2017. Non-per-
when conditions dictate. As a result, several
forming assets as a percentage of total assets
banking center changes were initiated in 2018.
were 0.25% at December 31, 2018, compared to
0.63% at December 31, 2017. Total net charge-offs
The Company sold four banking centers in the
were $5.2 million during 2018, as compared to
Omaha, Neb., metropolitan market to a Nebras-
$10.0 million during 2017. In 2018, approximately
ka-based bank in the third quarter of 2018. Branch
$3.9 million of the $5.2 million of net charge-offs
deposits of approximately $56 million and
were in the consumer auto category. Six commer-
substantially all branch-related real estate, fixed
cial loan relationships made up approximately
assets and ATMs were sold. As a result, the Com-
$1.3 million of the net charge-off total in 2018.
pany recorded pre-tax income, net of expenses, of
$7.25 million, or $0.39 (after tax) per diluted
For the long-term success of our Company, we
common share. A commercial lending office
regularly evaluate the performance of all of our
remains in the Omaha market.
business lines. At times, this leads to making
difficult, but necessary, decisions. In the first
In the second quarter of 2018, the Company
quarter of 2019, we made the decision to exit the
consolidated operations of a banking center into
indirect automobile lending business, whereby we
a nearby office in Paola, Kan. Early in the second
provided financing for customers of automobile
quarter of 2019, the Company consolidated the
dealerships. The indirect lending business for us
banking center in Fayetteville, Ark., into the Rogers,
and many banks has been difficult over the last
Ark., office.
few years. In response to a more challenging
consumer credit environment, the Company
tightened its underwriting guidelines on automo-
bile lending in the latter part of 2016. Manage-
IN 2019
PROCESS OF MORE PROGRESS
ment took this step in an effort to improve credit
Our priorities in 2019 are straightforward and
quality in the portfolio and lower delinquencies
consistent with previous years’ priorities. We will
and charge-offs. The changes in underwriting
maintain a sharp focus on developing and
guidelines resulted in lower origination volume,
expanding customer relationships, sustain a
and as such, outstanding consumer auto loan
strong credit discipline and drive operational
balances have decreased significantly since the
efficiencies. Our geographic footprint is a proven
end of 2016. Market forces, including strong rate
strength for our lending team as it allows us to
competition for well qualified borrowers, have
make loans in many different market areas, giving
made indirect lending through automobile
us the ability to grow at a reasonable rate with
dealerships a significant barrier to efficient and
rational pricing and structure. On the retail side,
profitable operations over the long term. Our core
we are optimistic about developing relationships
business of direct consumer lending through our
in our banking center network, which has the
extensive banking center network remains an
capacity to bring on considerably more business
important focus.
without commensurate growth in our expense
2019
base. We anticipate that increased competition
for deposits to support loan demand will create a
more challenging funding environment. Again, the
size and scope of our Company should prove
advantageous in deposit gathering.
Economic and market uncertainty and volatility
continue to pose challenges for the banking
industry. Many believe we are in the very late
stages of the current economic expansion. As
such, we must be positioned to mitigate risks
associated with the present interest rate environ-
ment and the real possibility of falling interest rates
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 modestly positive impact
on the Company's net interest income, while
declining interest rates would have a negative
impact on net interest income. Strategies for rising
and falling rate scenarios are in place and
reviewed continually.
In 2019, we already have several major improve-
ment initiatives in motion. We have challenged
our management team to analyze all customer
access channels to ensure that we are properly
positioned for both the current and the next
generations of customers. We must stay responsive
to continue to meet the demands and expecta-
tions of all of our customers, current and future.
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 advance. For our custom-
ers, it is our mission to build winning and lasting
relationships by providing the right products and
services with preferred access channels. For our
many communities, we strive to support causes
and address needs to help them be even better
places to live and work. And, for our stockholders,
we desire to provide a superior long-term return
on their investment in our Company.
7
More progress for our customers
More success for our communities
More value for our shareholders
Finally, we owe a debt of gratitude to our Board of
Directors for their guidance and support over the
last year. We extend a special message of appre-
ciation to Mr. William E. Barclay, who is now serving
as an advisory board member. Mr. Barclay began
serving Great Southern as a Board member in
1975. His business knowledge, leadership skills,
deep commitment to Great Southern and humor
will forever be appreciated and never forgotten in
our Company’s rich history.
Thank you for your support of Great Southern. We
look to the future with great optimism. We invite
your feedback at any time.
Respectfully yours,
William V. Turner
Joseph W. Turner
the process
of understanding what really matters
Our motto, “Understanding what really matters,” was formally adopted
in 2011, but the concept has been a fundamental piece of our
corporate culture for decades. By understanding what really matters,
we can fulfill our mission of building winning relationships and gain
perspective on how we should invest and prioritize resources.
We've made great progress by establishing initiatives that focus on
what we know matters: better serving our customers, promoting
efficiency for our associates, creating long-term value for our
shareholders, and supporting the communities where we do business.
EXPERIENCE
MATTERS
A customer feedback box established in the late
eighties by our Chairman, Bill Turner, was the
Company's initial formal approach for obtaining
feedback from our customers and making
changes to improve their experience. Customers
were invited to share their thoughts about Great
Southern, its programs, products, services and
people. While we have evolved since the eighties
in our ways of asking for customer feedback, this
box still stands at our E. Battlefield banking center
as a reminder of our commitment to provide an
excellent customer experience.
SURVEYS
CUSTOMER
EXPERIENCE
ANALYSIS
We are even furthering our feedback efforts by
making a significant investment to understand
our customers' desires and experiences by
partnering with leading customer experience
organizations like J.D. Power. Through electronic
surveying and other techniques, we're
establishing a dialogue with our customers by
asking for candid feedback in several critical
areas around their banking experience. Using the
platform's analytics, we can predict customer
behavior and guide future enhancements to the
overall customer experience.
The J.D. Power platform intelligently analyzes what
we, and our competitors, are getting right and
where improvements could be made in the future.
This strategic competitive benchmarking will help
us stay ahead as the banking industry and our
customers' preferences evolve.
8
Identify area for improvement
WORKSHOP
Analysis
Steps to
streamline
PROCESS
MATTERS
Last year, we introduced Process Matters, our
company-wide process improvement initiative.
Using the proven Lean Six Sigma methodology, we
assess current processes in week-long workshops
to identify gaps that create inefficiencies or
delays in serving our customers. Each associate
involved in the workshop has an equal voice,
regardless of title, and is empowered to suggest
changes.
We evaluated a number of key processes in both
lending and deposit operations during 2018, and
each workshop led to improvements in the
customer experience, reduced costs and
increased efficiency for the Company. Process
Matters has become part of our corporate culture
and is championed by our associates. Their
commitment to this initiative is reflected in the
successful outcomes of each workshop.
A Process Matters Steering Committee, comprised
of associates from various departments and roles,
was established at the beginning of 2019. The
committee will meet quarterly to evaluate and
recommend future Process Matters workshops.
Estimated results
going forward:
STOP PAYMENTS SIMPLIFIED
reviews reduced
by 80-90%
Changes will reduce manual review of
false positives and eliminate data re-entry.
DOCUMENT SCANNING IMPROVED
errors down
by 75%
Improvements in delivery of customer
documents will make processing faster.
COLLECTIONS STREAMLINED
eliminated
40% of steps
Unnecessary steps were removed to
create a more efficient process.
WIRE TRANSFERS MADE FASTER
8 minutes
saved per wire
101 hours
saved per month
By reducing hands-on time for each wire,
wait time has been shortened, saving
customers valuable time.
9
community
matters
Great Southern understands that our Company is only as strong as
the communities we serve. Our Community Matters program was
established to address the needs of each of our communities and
make them better, more prosperous places to live, work and do
business.
Our regional Community Matters Teams, which represent the entire
Company's footprint, fulfill this philosophy by developing action plans
that address local needs. They build strong partnerships with the
community and encourage associates at all levels to get involved
with organizations and projects that align with their passions.
creating a
PATH FORWARD
The Bill and Ann Turner Distinguished Community
Service Award recognizes and honors an
outstanding Great Southern Bank associate who
demonstrates excellence in volunteer service to
their community. The award exemplifies the
community leadership and civic engagement of
our Chairman, Bill Turner, and his wife Ann. Their
spirit of giving has resonated throughout our
Company, creating a culture of always doing
what is right and a desire to help our neighbors.
The 2019 recipient was Eric Mitchell, Assistant
Regional Banking Center Manager in St. Louis, Mo.
Eric is passionate about empowering those
around him to succeed and uses his financial
knowledge to teach educational workshops
focused on budgeting, credit and the benefits of
a traditional banking relationship. His involvement
in several community organizations focused on
reducing poverty rates in the St. Louis area is a
true reflection of our Community Matters
philosophy – always doing what is right and
helping our neighbors.
10
Volunteerism shines a light not
only on the Bank, but also on the
people and groups we’re trying
to support. I think it’s huge and
brings hope to the community.
Eric Mitchell
Eric is a member of many organizations,
including the Pathways to Progress Initiative,
which is dedicated to strengthening families by
creating a pathway to live safe, productive and
sustainable lives.
A NEW
APPROACH
Eden Village
One of many impactful partnerships throughout
our footprint is Eden Village. This tiny home
community, established by the Springfield-based
nonprofit, The Gathering Tree, was designed to
address homelessness among chronically
disabled individuals. The tiny homes measure
approximately 400 square feet and provide
dignified housing at a fraction of the cost of
traditional options; positioning these individuals to
address the root causes of homelessness from a
positive position.
Great Southern was honored to purchase and
donate a home to the Eden Village community.
Our home was named Sunrise Cottage – a subtle
nod to the four suns that form our logo and
representative of warmth and a new day.
Associates throughout our footprint donated
money and purchased new household items to
furnish the tiny home; ensuring the resident, Nancy,
would have everything needed for a new
beginning before she moved into the home in
September.
Our commitment to this project extends well
beyond merely purchasing the home and
furnishing it; our associates formed a “Home Team”
to maintain an ongoing relationship with Nancy
and spend time with her each month.
TAKING STEPS
TO ADDRESS CHRONIC HOMELESSNESS
PERMANENT HOUSING
residents no longer have the
stress of finding shelter
STABLE ENVIRONMENT
makes it easier to manage
health and disabilities, find work,
and establish routines
ONGOING SUPPORT SYSTEM
provides assistance, connections
and a sense of community
BETTER OUTCOMES
for residents and the community
2018
VOLUNTEER
HOURS
ASSOCIATE
DONATIONS
CORPORATE
DONATIONS
ORGANIZATIONS
SUPPORTED
8,200+
$81,000
$1,000,000+
700+
11
progress in
commercial
lending
BUILDING
our portfolio
For the third consecutive year, our commercial
lending team achieved record production,
originating more than $1 billion in loans.
Commercial lending is a driver of results for the
Company and has been an area of expertise
for decades. Our portfolio remains diversified
by type and region, and we saw positive
growth in many areas including commercial
construction, commercial real estate and
single family real estate.
$1.36B
8
1
0
2
7
1
0
2
$1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
Commercial
Business
7%
Bonds
0%
Consumer*
11%
Single
Family
10%
Multi-family
Real Estate
20%
*Includes Home Equity
Loans of $121,352
Commercial
Real Estate
35%
Construction &
Land Development
17%
2018
LEGACY LOANS PORTFOLIO
$764M
$638M
$401M
Commercial
Real Estate
Construction
and Land
Development
Multi-family
Real Estate
Single Family
12
REVIVING
good places
to live
Of the many projects we financed throughout
2018, one of the most unique is Bishop Highline, a
118-unit apartment building in Dallas, Texas. The
building is located in the heart of the Bishop Arts
District and has become a work of art itself,
featuring an exterior mural painted by local artists.
EXPANDING
our footprint
We expanded our commercial lending presence
to Atlanta, Ga. and Denver, Colo. in 2018. Led by
local banking veterans, these markets offer stable,
attractive commercial real estate opportunities.
The first phase of this development took a vacant
block and revitalized it to offer affordable living
options near downtown Dallas. The location,
amenities of the building, and close proximity to
more than 60 nearby businesses are incredibly
attractive to future tenants. Within a one-mile
radius, Bishop Highline residents can access
gyms, yoga studios, art galleries, restaurants, a
theatre and more.
Loan Production Office
Loan Production Office
Banking Center Network
Banking Center Network
MINNESOTA
MINNESOTA
IOWA
IOWA
NEBRASKA
NEBRASKA
Illinois
Illinois
COLORADO
COLORADO
KANSAS
KANSAS
MISSOURI
MISSOURI
OKLAHOMA
OKLAHOMA
ARKANSAS
ARKANSAS
GEORGIA
GEORGIA
TEXAS
TEXAS
the process of reaching
our customers
discovering
what matters
IN PERSON
Our banking center network plays a vital role in
reaching our customers. Speaking with banking
experts face-to-face remains a critical part of the
banking experience. Whether they need to open a
new account, apply for a loan or plan for retirement,
customers want to sit down in person with their
trusted banker to discuss options. Our banking
center associates build valuable relationships with
our customers every day; they know how to uncover
and identify needs by learning who our customers
are, who their families are, and their financial goals.
Once they've uncovered a customer need, they
take the time to recommend products and services
we offer to fulfill it.
enhancing
ONLINE & MOBILE
Customer adoption of convenient Mobile and
Online Banking services continues to grow year
after year. It's important that we remain accessible
no matter which channel a customer uses to
bank with us. We're mindful of optimizing our
banking channels as technology and customer
needs evolve.
We're developing a new, customized Online
Banking platform. The enhancements will bolster
our online capabilities and provide more
information and services to our Online Banking
users. We updated our online account opening
system in January 2019, which allows us to reach
consumers outside of our brick-and-mortar
footprint and competitively promote product
offerings in specific markets. As we know the desire
to bank on-the-go is important to many
customers, we've optimized both of these systems
for mobile devices.
14
72,093
72,093
Online
Online
Banking IDs
Banking IDs
up 32%
up 32%
ACTIVE USERS
2018
2014
(thousands)
Text Banking
Mobile Check Deposit
Mobile Banking
199%
increase
375%
increase
133%
increase
40
30
20
10
0
?
?
?
?
?
?
bringing it to
THE GAME
One way we reach current and potential
customers is through various sponsorships and
events. We make a significant investment, for
example, in sports marketing assets. Sporting
events act as a hub for many communities; they
bring people together from all different
backgrounds to support a common interest. Our
support of athletics at many universities is an
investment in higher education and our
communities, and also an innovative way to reach
audiences. The Great Southern logo can be seen
in arenas and stadiums throughout our footprint.
We established a new relationship with the St.
Louis University Men's Basketball team in 2018. This
partnership not only increases our visibility in an
important market, but also includes a charitable
aspect that aligns with our Community Matters
philosophy. During the 2018-2019 season, we
sponsored the Assist to Literacy program. For each
assist the men's basketball team made, Great
Southern agreed to purchase and donate a book
to a school in need. We selected Yeatman Middle
School in St. Louis City, a school we have a
relationship with through another volunteer
program, to receive the books.
We participated in a unique advertising
opportunity with Fox Sports Midwest during
baseball season. We created short commercial
spots that aired during split-screen breaks in
game play instead of full commercial breaks. We
focused our message on connecting with fans by
showing them how our Mobile Banking services
make their lives more convenient, even at the
ballpark. The partnership was positively received
and we plan to advertise again this season with
Fox Sports Midwest for both baseball and hockey.
improving
THE CALL
It's important that we make it convenient and
easy for our customers to contact their bank and
get the information they need in a timely manner.
As part of a Process Matters workshop, the
Company merged several department-specific
call centers into our Customer Service
Department to form one, full-service call center.
We established a very thorough training program
for each new representative to help make them
experts in all topics they could encounter. This
change has been positive for our customers.
When contacting us with any banking need,
whether it be a balance inquiry, a lost or stolen
debit card or a loan payment, Customer Service
can now assist the customer without having to
transfer them to various departments.
400 Books donated
150 in-game ads
x 307,000 avg. viewers per game
= 46,050,000 impressions
15
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
Matt Snyder Director of Human Resources
Lin Thomason* Director of Information Services
Bryan Tiede Director of Risk Management
Joseph W. Turner* President and Chief Executive Officer
*Denotes Executive Officer
17
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 income 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
2018
2017
2016
2015
2014
December 31,
(Dollars in Thousands)
$4,676,200
3,990,651
38,409
243,968
$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
8,440
3,725,007
397,594
531,977
531,977
3,910,819
4,503,326
3,556,240
498,508
227,240
99
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
419,745
361,802
2,784,106
3,824,493
3,007,588
402,670
217,877
108
18
Summary Statement of Income Information:
Interest income:
For the Year Ended December 31,
2018
2017
2016
2015
2014
(In Thousands)
Loans
$ 198,226 $ 176,654 $ 178,883 $ 177,240 $ 172,569
Investment securities and other
7,723
6,407
6,292
7,111
10,793
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
205,949
183,061
185,175
184,351
183,362
27,957
20,595
17,387
13,511
11,225
3,985
1,516
765
953
747
949
4,097
4,098
1,214
1,137
803
1,578
1,707
65
714
—
2,910
1,099
567
—
37,757
27,905
22,119
15,997
15,801
168,192
155,156
163,056
168,354
167,561
7,150
9,100
9,281
5,519
4,151
Net interest income after provision for loan losses
161,042
146,056
153,775
162,835
163,410
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
2
—
Late charges and fees on loans
1,622
2,231
Gain (loss) on derivative interest rate products
Gain recognized on sale of business units
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
1,137
1,041
1,097
1,136
21,695
21,628
21,666
19,841
1,788
3,150
3,941
2,873
1,747
66
—
—
28
—
—
7,705
(584 )
3,888
2
2,129
(43 )
—
—
—
1,163
19,075
4,133
2,139
1,400
(345 )
—
10,805
—
25
7,414
—
—
—
(486 )
(6,351 )
(18,345 )
(27,868 )
2,535
3,230
4,055
4,973
36,218
38,527
28,510
13,581
4,229
14,731
60,215
25,628
60,034
24,613
60,377
26,077
58,682
25,985
56,032
23,541
3,348
2,674
2,460
1,047
3,272
3,423
4,919
575
1,562
6,187
3,461
2,959
2,311
1,446
3,188
2,862
3,929
930
1,650
6,878
3,791
3,482
2,228
1,708
3,483
3,191
4,111
1,681
1,910
8,388
3,787
3,566
2,317
1,333
3,235
2,713
2,526
1,680
1,750
6,776
3,578
3,837
2,404
1,464
2,866
3,957
5,636
1,720
1,519
14,305
115,310
114,261
120,427
114,350
120,859
Income before income taxes
Provision for income taxes
Net income
81,950
70,322
61,858
62,066
14,841
18,758
16,516
15,564
67,109
51,564
45,342
46,502
Preferred stock dividends and discount accretion
—
—
—
554
57,282
13,753
43,529
579
Net income available to common shareholders
$ 67,109 $ 51,564 $ 45,342 $ 45,948 $ 42,950
19
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,
2018
2017
2016
2015
2014
(Number of shares in thousands)
$ 4.75
4.71
1.20
37.59
$ 3.67
3.64
0.94
33.48
14,132
14,151
14,260
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
1.49 %
1.16 %
1.04 %
1.14 %
1.14 %
13.46
0.80
2.56
3.75
3.60
3.99
56.41
1.76
25.48
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
Asset Quality Ratios (8):
Allowance for loan losses/year-end loans
Non-performing assets/year-end loans and foreclosed assets
Allowance for loan losses/non-performing loans
Net charge-offs/average loans
Gross non-performing assets/year end assets
Non-performing loans/year-end loans
0.98 %
1.01 %
1.04 %
1.20 %
1.34 %
0.29
609.67
0.13
0.25
0.16
0.73
324.23
0.26
0.63
0.30
1.02
265.60
0.29
0.86
0.37
1.28
230.24
0.20
1.07
0.49
1.39
471.77
0.24
1.11
0.26
Balance Sheet Ratios:
Loans to deposits
Average interest-earning assets as a percentage
of average interest-bearing liabilities
Capital Ratios:
Average common stockholders' equity to average assets
Year-end tangible common stockholders' equity to
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
106.76 %
103.82 %
102.70 %
102.58 %
102.09 %
126.47
123.74
121.33
121.60
120.95
11.1 %
10.2 %
9.5 %
9.4 %
9.0 %
11.2
10.5
9.2
9.6
9.0
11.9
14.4
11.7
11.4
12.4
13.3
12.2
12.4
11.4
14.1
10.9
10.9
12.3
13.2
11.7
12.3
10.8
13.6
9.9
10.2
11.8
12.7
10.8
11.8
11.5
12.6
10.2
10.8
11.0
12.1
9.8
11.0
13.3
14.5
11.1
—
11.4
12.6
9.5
—
(1) Net income divided by average total assets.
(2) Net income divided by average stockholders' equity.
(3) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest income
plus non-interest income.
(6) Non-interest expense less non-interest income divided by
average total assets.
(7) Cash dividends per common share divided by earnings per common
share.
(8) Excludes 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.
20
2018
Financial Information
CONTENTS
22 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
62 Report of Independent Registered Public Accounting Firm
63 Consolidated Statements of Financial Condition
65 Consolidated Statements of Income
67 Consolidated Statements of Comprehensive Income
68 Consolidated Statements of Stockholders’ Equity
70 Consolidated Statements of Cash Flows
73 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 Great Southern Bancorp, Inc. (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 changes in non-interest income, non-interest expense
and interest expense actually resulting from Great Southern Bank's recently completed transaction with West Gate Bank might be
materially different from estimated amounts; (ii) 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; (iii) 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; (iv)
changes in economic conditions, either nationally or in the Company's market areas; (v) fluctuations in interest rates; (vi) 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; (vii) the possibility of other-than-temporary impairments of securities held
in the Company's securities portfolio; (viii) the Company's ability to access cost-effective funding; (ix) fluctuations in real estate
values and both residential and commercial real estate market conditions; (x) demand for loans and deposits in the Company's market
areas; (xi) the ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace;
(xii) 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; (xiii) 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; (xiv) changes in accounting principles, policies or guidelines; (xv) monetary and fiscal policies of the Federal
Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xvi) results of
examinations of the Company and Great Southern 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; (xvii) costs and effects of litigation, including settlements and judgments; and (xviii)
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.
1
22
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 2018 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
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.
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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,
2018, 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, 2018, 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, 2018, the amortizable intangible assets consisted of core deposit intangibles of $3.9 million, including $2.6
million related to the Fifth Third Bank transaction in January 2016, $1.0 million related to the Valley Bank transaction in June 2014
and $275,000 related to the Boulevard Bank transaction in March 2014. These amortizable intangible assets are reviewed for
impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value. See Note 1 of the
accompanying audited financial statements for additional information.
For purposes of testing goodwill for impairment, the Company used a market approach to value its reporting unit. The market
approach applies a market multiple, based on observed purchase transactions for each reporting unit, to the metrics appropriate for the
valuation of the operating unit. Significant judgment is applied when goodwill is assessed for impairment. This judgment may include
developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating
general economic and market conditions.
Based on the Company’s goodwill impairment testing, management does not believe any of its goodwill or other intangible assets are
impaired as of December 31, 2018. While the Company believes no impairment existed at December 31, 2018, different conditions or
assumptions used to measure fair value of the reporting unit, or changes in cash flows or profitability, if significantly negative or
unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.
Current Economic Conditions
Changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly,
resulting in material future adjustments in asset values, the allowance for loan losses, or capital that could negatively impact the
Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
Following the housing and mortgage crisis and correction beginning in mid-2007, the United States entered a 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 significantly improved since then, as indicated by consumer confidence
levels, increased economic activity and low unemployment levels.
The national unemployment rate rose to 3.9% in December 2018 from a 49-year low of 3.7% the previous month. The rate compares
to an employment rate of 4.1% at December 2017. Total nonfarm payroll employment increased by 312,000 in December 2018 with
employment increases in health care, food services and drinking places, construction, manufacturing and retail trade. In December
2018, the U.S. labor force participation rate (the share of working-age Americans who are either employed or are actively looking for
a job) was 63.1% and the employment population ratio was 60.6%, with both ratios changing little since November 2018. The
unemployment rate for the Midwest, where most of the Company’s business is conducted, was at 3.7% in December 2018, which is
slightly better than the national unemployment rate of 3.9%. Unemployment rates for December 2018 were: Missouri at 3.1%,
Arkansas at 3.6%, Kansas at 3.3%, Iowa at 2.4%, Minnesota at 2.8%, Illinois at 4.3%, Oklahoma at 3.2%, Texas at 3.7%, Georgia at
3.6% and Colorado at 3.5%. Of the metropolitan areas in which the Company does business, the Chicago area had the highest
unemployment level at 4.0% as of December 2018. This rate had improved significantly since the 4.7% rate reported as of December
2017. The unemployment rates for the Springfield and St. Louis market areas at 2.6% and 3.4%, respectively, were well below the
national average. Metropolitan areas in Iowa, Missouri, Arkansas and Minnesota continued to boast unemployment levels amongst
the lowest in the nation.
Sales of newly built single-family homes for November 2018 were at a seasonally adjusted annual rate of 657,000 according to U.S.
Census Bureau and the Department of Housing and Urban Development estimates. This is 16.9% above the revised October 2018
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seasonally adjusted annual rate of 562,000, but is 7.7% below the November 2017 seasonally adjusted annual rate of 712,000. The
median sales price of new houses sold in November 2018 was $302,400, down from $343,300 a year earlier. The average sales price
was $362,400, down from $402,900 as of December 2017. The inventory of new homes for sale at the end of November would
support 6 months’ supply at the current sales pace, down from 7.1 months in September, and similar to 5.7 months a year ago.
After two consecutive months of increases, existing home sales declined in the month of December, according to the National
Association of Realtors (NAR). Total existing home sales decreased 6.4% from November 2018 to a seasonally adjusted rate of 4.99
million in December 2018. Sales are now down 10.3% from a year ago. Total housing inventory at the end of December decreased to
1.55 million, down from 1.74 million existing homes available for sale in November. Unsold inventory is at a 3.7 month supply at the
current sales pace, up from 3.2 months a year ago.
The national median existing home price for all housing types in December was $253,600, up 2.9% from December 2017. December’s
price increase marks the 82nd straight month of year-over-year gains. The Midwest region existing home median sale price, after some
fluctuations, landed at $191,300 for December 2018, the same as a year ago. First-time buyers accounted for 32% of sales in
December, down slightly from 33% last month but the same as a year ago.
The multi-family sector rebounded in 2017 and 2018, with demand approaching the highest level on record. National vacancy rates
were 6% at the end of December 2018 while our market areas reflected the following vacancy levels: Springfield, Mo. at 5.4%, St.
Louis at 9.0%, Kansas City at 7.1%, Minneapolis at 4.7%, Tulsa, Okla. at 9.5%, Dallas-Fort Worth at 8.1% and Chicago at 6.4%. Rent
growth picked up in recent months and demand has increased at a steady rate supported by the strong economy. Vacancy rates have
increased in Tulsa, St. Louis and Dallas due to an increased number of units coming on-line. Developers continue to favor more-
expensive submarkets. Transaction volume has slowed, but pricing has remained on an upward trajectory. Cap rates are still at very
low levels. Continued increase in the homeownership rate is the single largest risk to the apartment sector. Despite the decline in
affordability and rigid mortgage origination standards, about two-thirds of consumers still believe now is a good time to buy a home,
according to a recent University of Michigan consumer survey. The homeownership rate has risen by more than a percentage point
since 2016, to 64.4% in the third quarter of 2018. All of the Company’s market areas within the multi-family sector are in expansion
phase with the exception of Denver and Atlanta which are both currently in a hyper-supply phase.
Nationally, approximately 45% 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. Signs of late-cycle conditions are spreading as we begin 2019. Both CBD and suburban markets are being categorized as
either in recession or in hyper-supply by about one in 10 market respondents. So while most markets are in recovery or expansion,
they tilt toward risk in the coming years. 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/expansion market cycle --
typified by decreasing vacancy rates, low new construction, moderate absorption, low/moderate employment growth and negative/low
rental rate growth. Chicago is currently in a recession market cycle typified by increasing vacancies, low absorption and low new
construction while Denver is in hyper-supply.
Approximately 70% of the retail sector is in the expansion phase of the market cycle, with another 20% in recovery mode and the
remaining 10% in hyper-supply and recession. The Company’s larger market areas included in the retail expansion market segment
are Chicago, Denver, Minneapolis, Kansas City, Dallas-Ft. Worth, and St. Louis, with Chicago and Minneapolis nearing hyper-supply.
The Atlanta and Tulsa markets are each in recovery phase.
The industrial segment, once concentrated in manufacturing, is now epitomized by a dense network of warehousing, distribution,
logistics, and R&D/Flex properties which is the conduit of the current global e-commerce revolution. All of the Company’s larger
industrial market areas are categorized as being in the expansion cycle with prospects of continuing good economic growth. Two
market areas; Chicago and Kansas City are in the latter stages of the expansion cycle.
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. Moderate real estate sales and financing
activity is continuing to support loan growth.
While current economic indicators show stability 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.
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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.
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.
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 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 earnings are 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 Team Bank, 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.
In the year ended December 31, 2018, Great Southern's total assets increased $261.7 million, or 5.9%, from $4.41 billion at December
31, 2017, to $4.68 billion at December 31, 2018. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2018 and December 31, 2017” section.
Loans. In the year ended December 31, 2018, Great Southern's net loans increased $262.7 million, or 7.0%, from $3.73 billion at
December 31, 2017, to $3.99 billion at December 31, 2018. Excluding FDIC-assisted acquired loans and mortgage loans held for sale,
total gross loans increased $472.3 million, or 10.8%, from December 31, 2017 to December 31, 2018. This increase was primarily in
construction loans, commercial real estate loans, one- to four-family residential mortgage loans and other residential (multi-family)
real estate loans. These increases were offset by a decrease in consumer auto loans of $103.6 million and decrease in the FDIC-
acquired loan portfolios of $42.0 million. In addition, there were higher than usual unscheduled significant paydowns on loans during
2018 due to borrowers selling projects or refinancing debt. Total loan paydowns in excess of $1.0 million exceeded $668 million
during 2018. 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 2018 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, Omaha 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
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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 were 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. In 2019, the Company made the decision to discontinue indirect auto loan
originations.
Of the total loan portfolio at December 31, 2018 and 2017, 84.4% and 79.9%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2018 and 2017, commercial real estate and commercial construction
loans were 49.7% and 48.0% 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,
2018 and 2017, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 9% and 11% 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, 2018 and 2017, 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 2018 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 55% as of December 31,
2018 due to customer preference for fixed rate loans during this period of low and, more recently, increasing interest rates. The
majority of the increase in fixed rate loans was in commercial construction and commercial real estate, both of which typically have
short durations within our portfolio. Of the total amount of fixed rate loans in our portfolio as of December 31, 2018, approximately
81% 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, 2018, our
interest rate risk models indicated a one-year interest rate earnings sensitivity position that is modestly positive in an increasing rate
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 “Item 1A. Risk Factors – We may be
adversely affected by interest rate changes” in the Company’s 2018 Annual Report on Form 10-K.
While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans
with loan-to-value ratios at that level are minimal. 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, 2018 and 2017, an estimated 0.1% and 0.1%, respectively, of total owner occupied one- to four-family residential loans
had loan-to-value ratios above 100% at origination. At December 31, 2018 and 2017, an estimated 0.9% and 1.5%, respectively, of
total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
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At December 31, 2018, troubled debt restructurings totaled $6.9 million, or 0.2% of total loans, down $8.1 million from $15.0 million,
or 0.4% of total loans, at December 31, 2017. 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. For troubled debt restructurings occurring during the year ended December 31, 2018, five loans totaling $31,000
were restructured into multiple new loans. For troubled debt restructurings occurring during the year ended December 31, 2017, 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, 2018, 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, 2018, available-for-sale securities increased $64.8 million, or 36.2%,
from $179.2 million at December 31, 2017, to $244.0 million at December 31, 2018. The increase was primarily due to the purchase
of FNMA and GNMA fixed-rate multi-family mortgage-backed securities, partially offset by 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, 2018, total deposit balances increased $127.9
million, or 3.6%. Transaction account balances decreased $93.7 million and retail certificates of deposit increased $120.1 million
compared to December 31, 2017. A large portion of the decrease in transaction accounts was due to the sale of the Company’s
branches and deposits in Omaha, Neb. during 2018, which resulted in a decrease in transaction account balances of $39.7 million and
a decrease in retail certificates of deposit of $16.1 million. Excluding the Omaha branch deposits sold, transaction account balances
decreased $54.0 million to $2.13 billion at December 31, 2018, while retail certificates of deposit increased $136.2 million compared
to December 31, 2017, to $1.26 billion at December 31, 2018. The decreases in transaction accounts were primarily a result of
decreases in money market deposit accounts, with a smaller portion of the decreases coming from NOW account deposit accounts.
Retail certificates of deposit increased due to an increase of approximately $56 million in retail certificates generated through our
banking centers and an increase of approximately $70 million in certificates of deposit opened through the Company’s internet deposit
acquisition channels during 2018. Some of these deposits were generated as a result of our rates intentionally being in the top tier
compared to our competitors in the internet channels during the last few months of 2018. Brokered deposits, including CDARS
program purchased funds, were $326.9 million at December 31, 2018, an increase of $101.4 million from $225.5 million at December
31, 2017.
Our deposit balances may fluctuate depending on customer preferences and our relative need for funding. We do not consider our
retail certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal
interest penalty. When loan demand trends upward, we can increase rates paid on deposits to increase deposit balances and utilize
brokered deposits to provide additional funding. The level of competition for deposits in our markets is high. It is our goal to gain
deposit market share, particularly checking accounts, in our branch footprint. To accomplish this goal, increasing rates to attract
deposits may be necessary, which could negatively impact the Company’s net interest margin.
Our ability to fund growth in future periods may also depend on our ability to continue to access brokered deposits and FHLBank
advances. In times when our loan demand has outpaced our generation of new deposits, we have utilized brokered deposits and
FHLBank advances to fund these loans. These funding sources have been attractive to us because we can create either fixed or
variable rate funding, as desired, which more closely matches the interest rate nature of much of our loan portfolio. It also gives us
greater flexibility in increasing or decreasing the duration of our funding. 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.
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Federal Home Loan Bank Advances and Short Term Borrowings. The Company’s Federal Home Loan Bank advances totaled $-0-
at December 31, 2018, compared to $127.5 million at December 31, 2017. The balance of $127.5 million at December 31, 2017,
consisted of short-term advances. At December 31, 2018, there were no borrowings from the FHLBank, other than overnight
advances, which are included in the short term borrowings category.
Short term borrowings and other interest-bearing liabilities increased $176.1 million from $16.6 million at December 31, 2017 to
$192.7 million at December 31, 2018. The short term borrowings included overnight FHLBank borrowings of $178.0 million at
December 31, 2018 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 June 29, 2006. The FRB has now also implemented rate increases of 0.25% on eight different occasions beginning
December 14, 2016, with the Federal Funds rate now at 2.50%. Great Southern has a substantial portion of its loan portfolio ($1.46
billion at December 31, 2018) which is tied to the one-month or three-month LIBOR index and will be subject to adjust at least once
within 90 days after December 31, 2018. Of these loans, $1.34 billion as of December 31, 2018 had interest rate floors. Great
Southern also has a portfolio of loans ($257 million at December 31, 2018) which are tied to a "prime rate" of interest and will adjust
immediately with changes to the "prime rate" of interest. 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 still 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. As of December 31, 2018, 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. 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, late charges and prepayment fees
on loans, gains on sales of loans and available-for-sale investments and other general operating income. In 2016, 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, 2018 and 2017.”
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Business Initiatives
The Company implemented several business and operational initiatives in 2018.
The Company continually evaluates the performance of its banking center network and other customer access channels. As a result,
several activities were initiated in 2018. In the second quarter of 2018, the Company consolidated operations of a banking center into a
nearby office in Paola, Kan. The banking center, located at 1 S. Pearl Street, was closed and all accounts were automatically
transferred to the banking center at 1515 Baptiste Drive, less than a mile away. A deposit-taking ATM and interactive teller machine
remain available for customers at the S. Pearl Street building.
In the third quarter of 2018, the Company completed its sale of four banking centers in the Omaha, Neb., metropolitan market to a
Nebraska-based bank. Pursuant to the purchase and assumption agreement, Great Southern sold branch deposits of approximately $56
million and sold substantially all branch-related real estate, fixed assets and ATMs. The Company recorded pre-tax income, net of
expenses, of $7.25 million, or $0.39 (after tax) per diluted common share. A commercial loan production office is all that remains in
the Omaha market.
In the fourth quarter of 2018, the Company announced that in April 2019 it expects to consolidate its Fayetteville, Ark., banking
center into its Rogers, Ark., office, approximately 20 miles away. The Fayetteville office opened in 2014 and has not met performance
expectations. After this consolidation, the Company will operate one Arkansas banking center, in Rogers.
The online account opening platform on the Company’s website was upgraded and available to customers in January 2019. The new
platform provides a faster and more streamlined experience for opening deposit accounts. It is expected that online account opening
will continue to increase in the future as customer preferences evolve. The Company’s online banking and bill payment platform is
also being significantly upgraded and is expected to be ready for customers beginning in mid-2019.
Commercial loan production offices opened in Atlanta, Ga., and Denver, Colo. in the fourth quarter of 2018. Each office is managed
by a local and highly-experienced commercial lender. The Company also operates commercial loan production offices in Chicago,
Dallas, Omaha, Neb., and Tulsa, Okla.
In 2018, an experienced lender was hired to serve as Small Business Administration (SBA) Manager, a new role in the Company.
Based in the Dallas commercial loan production office, the Manager and his staff will exclusively focus on sourcing and servicing
SBA 7a, SBA 504 and other commercial real estate loan opportunities throughout Great Southern’s market areas.
In February 2019, the Company determined that it would cease providing indirect lending services to automobile dealerships, effective
March 31, 2019. Market and financial forces, including strong rate competition for well-qualified borrowers, have made indirect
automobile lending less profitable over the long term. The Company will continue servicing indirect automobile loans made before
March 31, 2019, until each loan agreement is satisfied. Direct consumer lending through the Company’s banking center network is
expected to continue as normal.
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.
Dodd-Frank Act. 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 FRB to examine the Company and its non-bank subsidiaries.
Certain aspects of the Dodd-Frank Act remain subject to rulemaking and 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 require revisions to the capital requirements of the Company and the Bank could
require the Company and the Bank to seek additional sources of capital in the future.
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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.
Certain aspects of the Dodd-Frank Act have been affected by the recently EGRRCP Act, as defined and discussed below under “-
EGRRCP Act.”
Capital Rules. The federal banking agencies have adopted regulatory capital rules that substantially amend the risk-based capital rules
applicable to the Bank and the Company. The 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 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 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 increased an equal amount each year until the buffer
requirement of greater than 2.5% of risk-weighted assets became fully implemented on January 1, 2019.
Effective January 1, 2015, these 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.
EGRRCP Act. In May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCCP Act”), was
enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-
Frank Act. While the EGRRCP Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain
aspects of the regulatory framework for depository institutions with assets of less than $10 billion and for banks with assets of more
than $50 billion. Many of these changes could result in meaningful regulatory relief for community banks such as Great Southern.
The EGRRCP Act, among other matters, expands the definition of qualified mortgages that may be held by a financial institution and
simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than
$10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10
percent. Any qualifying depository institution or its holding company that exceeds the “community bank leverage ratio” will be
considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository
institution that exceeds the new ratio will be considered to be “well capitalized” under the prompt corrective action rules. In addition,
the EGRRCP Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker
Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
It is difficult at this time to predict when or how any new standards under the EGRRCP Act will ultimately be applied to the Company
and the Bank or what specific impact the EGRRCP Act and the yet-to-be-written implementing rules and regulations will have on
community banks.
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.
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Comparison of Financial Condition at December 31, 2018 and December 31, 2017
During the year ended December 31, 2018, total assets increased by $261.7 million to $4.68 billion. The increase was primarily
attributable to increases in loans receivable and available-for-sale investment securities, partially offset by decreases in cash and cash
equivalents, other real estate owned and repossessions and current and deferred income taxes.
Cash and cash equivalents were $202.7 million at December 31, 2018, a decrease of $39.6 million, or 16.3%, from $242.3 million at
December 31, 2017. During 2018, cash and cash equivalents decreased primarily in order to fund the origination of loans and
purchase of available for sale securities. This decrease in cash and cash equivalents was partially offset by an increase in deposits.
The Company’s available for sale securities increased $64.8 million, or 36.2%, compared to December 31, 2017. The increase was
primarily due to the purchase of FNMA and GNMA fixed-rate multi-family mortgage-backed securities, partially offset by calls of
municipal securities and normal monthly payments received related to the portfolio of mortgage-backed securities. The available-for-
sale securities portfolio was 5.2% and 4.1% of total assets at December 31, 2018 and 2017, respectively.
Net loans increased $262.7 million from December 31, 2017, to $3.99 billion at December 31, 2018. Excluding FDIC-assisted
acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) increased $472.3
million, or 10.8%, from December 31, 2017 to December 31, 2018. Increases primarily occurred in commercial construction loans,
commercial real estate loans, other residential (multi-family) loans and one- to four-family residential mortgage loans. Outstanding
and undisbursed balances of commercial construction loans increased $350.5 million, or 30.4%, commercial real estate loans
increased $136.1 million, or 11.0%, one- to four-family residential loans increased $89.3 million, or 28.8%, and other residential
(multi-family) loans increased $39.2 million, or 5.3%. Partially offsetting the increases in these loans were reductions of $103.6
million, or 29.0%, in consumer auto loans and $42.0 million, or 20.0%, in the FDIC-acquired loan portfolios.
Other real estate owned and repossessions were $8.4 million at December 31, 2018, a decrease of $13.6 million, or 61.6%, from $22.0
million at December 31, 2017. The decrease was primarily due to sales of other real estate properties during the period, and is
discussed in more detail in the Non-performing Assets section below.
Total liabilities increased $201.4 million from $3.94 billion at December 31, 2017 to $4.14 billion at December 31, 2018. The increase
was primarily attributable to an increase in deposits and short-term borrowings, partially offset by a decrease in FHLB advances.
Total deposits increased $127.9 million, or 3.6%, from $3.60 billion at December 31, 2017 to $3.73 billion at December 31,
2018. Partially offsetting the increase in deposits was a decrease due to the sale of the Company’s branches and deposits in Omaha,
Neb. during 2018, which resulted in a decrease in transaction account balances of $39.7 million and a decrease in retail certificates of
deposit of $16.1 million. Excluding the Omaha branch deposits sold, transaction account balances decreased $54.0 million to $2.13
billion at December 31, 2018, while retail certificates of deposit increased $136.2 million compared to December 31, 2017, to $1.26
billion at December 31, 2018. Customer retail certificates increased by $72.3 million during the year ended December 31, 2018 and
certificates of deposit opened through the Company's internet deposit acquisition channels increased by $70.5 million. Brokered
deposits, including CDARS program purchased funds, were $326.9 million at December 31, 2018, an increase of $101.4 million from
$225.5 million at December 31, 2017.
The Company’s Federal Home Loan Bank advances totaled $-0- at December 31, 2018, compared to $127.5 million at December 31,
2017. The balance of $127.5 million at December 31, 2017, consisted of short-term advances. At December 31, 2018, there were no
borrowings from the FHLBank, other than overnight borrowings, which are included in the short term borrowings category. The
Company utilizes both overnight borrowings and short-term FHLBank advances depending on relative interest rates.
Short term borrowings and other interest-bearing liabilities increased $176.1 million from $16.6 million at December 31, 2017 to
$192.7 million at December 31, 2018. The short term borrowings included overnight FHLBank borrowings of $178.0 million at
December 31, 2018 and $15.0 million at December 31, 2017.
Securities sold under reverse repurchase agreements with customers increased $24.7 million, or 30.7%, from December 31, 2017 to
December 31, 2018 as these balances fluctuate over time based on customer demand for this product.
Total stockholders' equity increased $60.3 million from $471.7 million at December 31, 2017 to $532.0 million at December 31, 2018.
The Company recorded net income of $67.1 million for the year ended December 31, 2018, and dividends declared on common stock
were $17.0 million. Accumulated other comprehensive income increased $8.4 million due to increases in the fair value of available-
for-sale investment securities and the fair value of cash flow hedges. In addition, total stockholders’ equity increased $3.0 million due
to stock option exercises. Total stockholders’ equity decreased $903,000 due to the repurchase of the Company’s common stock.
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Results of Operations and Comparison for the Years Ended December 31, 2018 and 2017
General
Net income increased $15.5 million, or 30.1%, during the year ended December 31, 2018, compared to the year ended December 31,
2017. Net income was $67.1 million for the year ended December 31, 2018 compared to $51.6 million for the year ended December
31, 2017. This increase was due to an increase in net interest income of $13.0 million, or 8.4%, a decrease in provision for income
taxes of $3.9 million, or 20.9%, and a decrease in the provision for loan losses of $2.0 million, or 21.4%, partially offset by a decrease
in non-interest income of $2.3 million, or 6.0%, and an increase in non-interest expense of $1.0 million, or 0.9%. Net income
available to common shareholders was $67.1 million for the year ended December 31, 2018 compared to $51.6 million for the year
ended December 31, 2017.
Total Interest Income
Total interest income increased $22.9 million, or 12.5%, during the year ended December 31, 2018 compared to the year ended
December 31, 2017. The increase was due to a $21.6 million, or 12.2%, increase in interest income on loans and a $1.3 million, or
20.5%, increase in interest income on investment securities and other interest-earning assets. Interest income on loans increased in
2018 due to higher average rates of interest and higher average balances of loans. Interest income from investment securities and
other interest-earning assets increased during 2018 compared to 2017 primarily due to higher average rates of interest, partially offset
by lower average balances.
Interest Income – Loans
During the year ended December 31, 2018 compared to the year ended December 31, 2017, interest income on loans increased due to
higher average interest rates and higher average balances. Interest income increased $17.0 million as the result of higher average
interest rates on loans. The average yield on loans increased from 4.63% during the year ended December 31, 2017 to 5.07% during
the year ended December 31, 2018. This increase was primarily due to increased yields in most loan categories as a result of
increased LIBOR and Federal Funds interest rates. Interest income increased $4.5 million as the result of higher average loan
balances, which increased from $3.81 billion during the year ended December 31, 2017, to $3.91 billion during the year ended
December 31, 2018. The higher average balances were primarily due to organic loan growth in commercial construction loans,
commercial real estate loans and other residential (multi-family) loans, partially offset by decreases in consumer loans.
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. 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,
2018 and 2017, the adjustments increased interest income by $5.1 million and $5.0 million, respectively, and decreased non-interest
income by $-0- and $634,000, respectively. The net impact to pre-tax income was $5.1 million and $4.4 million, respectively, for the
years ended December 31, 2018 and 2017.
As of December 31, 2018, the remaining accretable yield adjustment that will affect interest income was $2.7 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 $2.0 million of interest income during 2019. 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 4.94% during the year ended December 31, 2018, compared to
4.50% during the year ended December 31, 2017, as a result of higher current market rates on adjustable rate loans and new loans
originated during the year.
In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies
to hedge the risk of its floating rate loans. The notional amount of the swap is $400 million with a termination date of October 6, 2025.
Under the terms of the swap, the Company will receive a fixed rate of interest of 3.018% and will pay a floating rate of interest equal
to one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of interest due to/from the counterparty will
also occur monthly. The floating rate of interest was 2.383% as of December 31, 2018. Therefore, in the near term, the Company will
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receive net interest settlements which will be recorded as loan interest income, to the extent that the fixed rate of interest continues to
exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest in future periods, the Company will be required to
pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans. The Company
recorded loan interest income of $673,000 in 2018 related to this interest rate swap.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments increased $640,000 in the year ended December 31, 2018 compared to the year ended December 31,
2017. Interest income increased $796,000 due to an increase in average interest rates from 2.50% during the year ended December 31,
2017 to 2.90% during the year ended December 31, 2018, due to higher market rates of interest on investment securities and a
decrease in the volume of prepayments on mortgage-backed securities. Partially offsetting that increase in average interest rates,
interest income decreased $156,000 as a result of a decrease in average balances from $207.8 million during the year ended December
31, 2017, to $201.3 million during the year ended December 31, 2018. Average balances of securities decreased primarily due to
certain municipal securities being called and the normal monthly payments received on the portfolio of mortgage-backed securities.
Interest income on other interest-earning assets increased $676,000 in the year ended December 31, 2018 compared to the year ended
December 31, 2017. Interest income increased $819,000 due to an increase in average interest rates from 1.00% during the year ended
December 31, 2017, to 1.81% during the year ended December 31, 2018, primarily due to higher market rates of interest on other
interest-bearing deposits in financial institutions. Partially offsetting that increase, interest income decreased $143,000 as a result of a
decrease in average balances from $121.6 million during the year ended December 31, 2017, to $104.2 million during the year ended
December 31, 2018.
Total Interest Expense
Total interest expense increased $9.9 million, or 35.3%, during the year ended December 31, 2018, when compared with the year
ended December 31, 2017, due to an increase in interest expense on deposits of $7.4 million, or 35.7%, an increase in interest expense
on FHLBank advances of $2.5 million, or 162.9%, an increase in interest expense on short-term and repurchase agreement borrowings
of $18,000, or 2.4%, and an increase in interest expense on subordinated debentures issued to capital trust of $4,000, or 0.4%.
Interest Expense - Deposits
Interest on demand deposits increased $1.4 million due to an increase in average rates from 0.30% during the year ended December 31,
2017, to 0.39% during the year ended December 31, 2018. Partially offsetting that increase, interest on demand deposits decreased
$71,000 due to a decrease in average balances from $1.56 billion in the year ended December 31, 2017, to $1.53 billion in the year
ended December 31, 2018. The increase in average interest rates of interest-bearing demand deposits was primarily a result of
increased market interest rates on these types of accounts since December 2016.
Interest expense on time deposits increased $6.5 million as a result of an increase in average rates of interest from 1.12% during the
year ended December 31, 2017, to 1.60% during the year ended December 31, 2018. Partially offsetting that increase, interest
expense on time deposits decreased $422,000 due to a decrease in average balances of time deposits from $1.41 billion during the year
ended December 31, 2017, to $1.38 billion during the year ended December 31, 2018. 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 resulted in the
Company paying a higher rate of interest due to market interest rate increases in 2017 and 2018. The decrease in average balances of
time deposits was primarily a result of decreases in CDARS program purchased funds brokered deposits.
Interest Expense - FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures
Issued to Capital Trust and Subordinated Notes
Interest expense on FHLBank advances increased due to higher average balances and higher average rates of interest. Interest expense
on FHLBank advances increased $1.9 million due to an increase in average balances from $93.5 million during the year ended
December 31, 2017, to $190.2 million during the year ended December 31, 2018. This increase was primarily due to an increase in
borrowings to fund loan growth and 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 in June 2017. In addition, interest expense on FHLBank advances increased
$544,000 due to an increase in average interest rates from 1.62% in the year ended December 31, 2017, to 2.09% in the year ended
December 31, 2018. The increase in the average rate was due to market interest rate increases during 2018.
Interest expense on short-term borrowings and repurchase agreements increased $55,000 due to average rates that increased from
0.40% in the year ended December 31, 2017, to 0.56% in the year ended December 31, 2018. The increase was due to increases in
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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. Partially offsetting the increase, interest expense on short-term borrowings
and repurchase agreements decreased $37,000 due to a decrease in average balances from $186.4 million during the year ended
December 31, 2017, to $137.3 million during the year ended December 31, 2018, which is primarily due to changes in the Company’s
funding needs and the mix of funding, which can fluctuate. The Company had a higher amount of overnight borrowings from the
FHLBank in 2017.
During the year ended December 31, 2018, compared to the year ended December 31, 2017, interest expense on subordinated
debentures issued to capital trusts increased $4,000 due to slightly higher average interest rates. The average interest rate was 3.68%
in 2017, compared to 3.70% in 2018. There was no change in the average balance of the subordinated debentures between the 2018
and the 2017 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 both of the years ended December 31, 2018 and 2017, was $4.1 million.
Net Interest Income
Net interest income for the year ended December 31, 2018 increased $13.0 million, or 8.4%, to $168.2 million, compared to $155.2
million for the year ended December 31, 2017. Net interest margin was 3.99% for the year ended December 31, 2018, compared to
3.74% in 2017, an increase of 25 basis points. In both years, the Company’s net interest income and margin were positively impacted
by the increases in expected cash flows 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, 2018 and 2017 were increases in interest income of $5.1 million
and $5.0 million, respectively, and increases in net interest margin of 12 basis points and 12 basis points, respectively. Excluding the
positive impact of the additional yield accretion, net interest margin increased 25 basis points during the year ended December 31,
2018. The increase in net interest margin is primarily due to increased yields in most loan categories and higher overall yields on
investments and interest-earning deposits at the Federal Reserve Bank, partially offset by an increase in the average interest rate on
deposits and FHLBank advances and other borrowings.
The Company's overall interest rate spread increased 16 basis points, or 4.4%, from 3.59% during the year ended December 31, 2017,
to 3.75% during the year ended December 31, 2018. The increase was due to a 46 basis point increase in the weighted average yield
on interest-earning assets, partially offset by a 30 basis point increase in the weighted average rate paid on interest-bearing liabilities.
In comparing the two years, the yield on loans increased 44 basis points, the yield on investment securities increased 40 basis points
and the yield on other interest-earning assets increased 81 basis points. The rate paid on deposits increased 27 basis points, the rate
paid on FHLBank advances increased 47 basis points, the rate paid on subordinated debentures issued to capital trust increased two
basis points, the rate paid on short-term borrowings increased 16 basis points, and the rate paid on subordinated notes decreased two
basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will
cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision
charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix,
actual and potential losses identified in the loan portfolio, economic conditions, and internal as well as external reviews. The levels of
non-performing assets, potential problem loans, loan loss provisions and net charge-offs fluctuate from period to period and are
difficult to predict.
Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or
requirements for an increase in loan loss provision expense. Management maintains various controls in an attempt to limit future
losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the
quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan
portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan
work-outs. Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional
provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
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The provision for loan losses for the year ended December 31, 2018 decreased $1.9 million, to $7.2 million, compared with $9.1
million for the year ended December 31, 2017. At December 31, 2018 and December 31, 2017, the allowance for loan losses was
$38.4 million and $36.5 million, respectively. Total net charge-offs were $5.2 million and $10.0 million for the years ended
December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, $3.9 million of the $5.2 million of net charge-
offs were in the consumer auto category. 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 reduced origination volume and, as such, the
outstanding balance of the Company's automobile loans declined approximately $104 million in the year ended December 31,
2018. We expect further declines in the automobile loan outstanding balance in 2019 as the Company determined in February 2019
that it will cease providing indirect lending services to automobile dealerships. In addition, six commercial loan relationships
amounted to $1.3 million of the total net charge-offs during the year ended December 31, 2018. Charge-offs were partially offset by
recoveries on multiple loans during the year. 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.
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 management 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 monitoring of payment performance, review of financial information and credit scores,
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 FDIC-acquired loans, was 0.98% and 1.01% at
December 31, 2018 and December 31, 2017, respectively. Management considers the allowance for loan losses adequate to cover
losses inherent in the Bank’s loan portfolio at December 31, 2018, 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
Non-performing assets acquired through FDIC-assisted transactions, 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 overall performance of the loan pools acquired in each of the five FDIC-
assisted transactions has been better than original expectations as of the acquisition dates.
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
time to time, and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate.
Non-performing assets, excluding all FDIC-assisted acquired assets, at December 31, 2018, were $11.8 million, a decrease of $16.0
million from $27.8 million at December 31, 2017. Non-performing assets, excluding all FDIC-assisted acquired assets, as a
percentage of total assets were 0.25% at December 31, 2018, compared to 0.63% at December 31, 2017.
Compared to December 31, 2017, non-performing loans decreased $5.0 million to $6.3 million at December 31, 2018, and foreclosed
assets decreased $11.1 million to $5.5 million at December 31, 2018. Non-performing one-to four-family residential loans comprised
$2.7 million, or 42.3%, of the total $6.3 million of non-performing loans at December 31, 2018. Non-performing consumer loans
comprised $1.8 million, or 28.8%, of the total non-performing loans at December 31, 2018. Non-performing commercial business
loans comprised $1.4 million, or 22.8%, of total non-performing loans at December 31, 2018. Non-performing commercial real estate
loans comprised $334,000, or 5.3%, of total non-performing loans at December 31, 2018. The majority of the decrease in the non-
performing commercial real estate category was due to one relationship totaling approximately $650,000 being transferred to
foreclosed assets during 2018. Non-performing other residential loans were $-0- at December 31, 2018. The decrease in non-
performing other residential loans was due to the one loan previously in this category being transferred to foreclosed assets during
2018.
15
36
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2018, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2018, was as follows:
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2018, was as follows:
Beginning
Beginning
Beginning
Additions to
Additions to
Additions to
Removed
Removed
Removed
Transfers to
Transfers to
Transfers to
Foreclosed
Foreclosed
Foreclosed
Balance,
Balance,
Balance,
Non-
Non-
Non-
from Non-
from Non-
from Non-
Potential
Potential
Potential
Assets and
Assets and
Assets and
Ending
Ending
Ending
Balance,
Balance,
Balance,
January 1
January 1
January 1
Performing
Performing
Performing
Performing
Performing
Performing
Problem Loans
Problem Loans
Problem Loans
Repossessions Charge-Offs
Repossessions Charge-Offs
Repossessions Charge-Offs
Payments
Payments
Payments
December 31
December 31
December 31
Transfers to
Transfers to
Transfers to
(In Thousands)
(In Thousands)
(In Thousands)
One- to four-family construction
One- to four-family construction
One- to four-family construction
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
Subdivision construction
Subdivision construction
Subdivision construction
Land development
Land development
Land development
Commercial construction
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Other commercial
Consumer
Consumer
Consumer
98
98
98
—
—
—
—
—
—
2,728
2,728
2,728
1,877
1,877
1,877
1,226
1,226
1,226
2,063
2,063
2,063
3,263
3,263
3,263
—
—
—
49
49
49
—
—
—
975
975
975
3
3
3
157
157
157
2,321
2,321
2,321
2,725
2,725
2,725
—
—
—
—
—
—
—
—
—
(81)
(81)
(81)
—
—
—
—
—
—
—
—
—
(7)
(7)
(7)
—
—
—
—
—
—
—
—
—
(67)
(67)
(67)
—
—
—
—
—
—
—
—
—
(461)
(461)
(461)
—
—
—
—
—
—
—
—
—
(467)
(467)
(467)
(1,601)
(1,601)
(1,601)
(894)
(894)
(894)
—
—
—
(790)
(790)
(790)
(3)
(3)
(3)
—
—
—
—
—
—
(30)
(30)
(30)
(279)
(279)
(279)
(101)
(101)
(101)
(1,024)
(1,024)
(1,024)
(1,884)
(1,884)
(1,884)
(95)
(95)
(95)
—
—
—
—
—
—
—
—
—
—
—
—
49
49
49
—
—
—
(394)
(394)
(394)
2,664
2,664
2,664
—
—
—
(54)
(54)
(54)
(1,923)
(1,923)
(1,923)
(1,030)
(1,030)
(1,030)
—
—
—
334
334
334
1,437
1,437
1,437
1,816
1,816
1,816
Total
Total
Total
$
$
$
11,255 $
11,255 $
11,255 $
6,230 $
6,230 $
6,230 $
(88) $
(88) $
(88) $
(528) $
(528) $
(528) $
(3,752) $
(3,752) $
(3,752) $
(3,321) $
(3,321) $
(3,321) $
(3,496) $
(3,496) $
(3,496) $
6,300
6,300
6,300
At December 31, 2018, the non-performing one- to four-family residential category included 28 loans, eight of which were added
At December 31, 2018, the non-performing one- to four-family residential category included 28 loans, eight of which were added
At December 31, 2018, the non-performing one- to four-family residential category included 28 loans, eight of which were added
during 2018. The largest relationship in this category was added in 2017 and included nine loans totaling $1.3 million, or 48.4% of
during 2018. The largest relationship in this category was added in 2017 and included nine loans totaling $1.3 million, or 48.4% of
during 2018. The largest relationship in this category was added in 2017 and included nine loans totaling $1.3 million, or 48.4% of
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing consumer
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing consumer
the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing consumer
category included 176 loans, 104 of which were added during 2018, and the majority of which are indirect used automobile loans. The
category included 176 loans, 104 of which were added during 2018, and the majority of which are indirect used automobile loans. The
category included 176 loans, 104 of which were added during 2018, and the majority of which are indirect used automobile loans. The
non-performing commercial business category included five loans, all of which were added during 2018. The largest relationship in
non-performing commercial business category included five loans, all of which were added during 2018. The largest relationship in
non-performing commercial business category included five loans, all of which were added during 2018. The largest relationship in
this category totaled $1.1 million, or 78.6% of the total category. This relationship is collateralized by an assignment of an interest in
this category totaled $1.1 million, or 78.6% of the total category. This relationship is collateralized by an assignment of an interest in
this category totaled $1.1 million, or 78.6% of the total category. This relationship is collateralized by an assignment of an interest in
a real estate project. A relationship in the commercial business category, which previously totaled $1.5 million, received payments
a real estate project. A relationship in the commercial business category, which previously totaled $1.5 million, received payments
a real estate project. A relationship in the commercial business category, which previously totaled $1.5 million, received payments
during the year ended December 31, 2018, to satisfy the remaining recorded balance. The non-performing commercial real estate
during the year ended December 31, 2018, to satisfy the remaining recorded balance. The non-performing commercial real estate
during the year ended December 31, 2018, to satisfy the remaining recorded balance. The non-performing commercial real estate
category included five loans, two of which were added during 2018 and were part of the same customer relationship. Three loans in
category included five loans, two of which were added during 2018 and were part of the same customer relationship. Three loans in
category included five loans, two of which were added during 2018 and were part of the same customer relationship. Three loans in
the category were transferred to foreclosed assets during 2018, the largest of which totaled $652,000 and was collateralized by
the category were transferred to foreclosed assets during 2018, the largest of which totaled $652,000 and was collateralized by
the category were transferred to foreclosed assets during 2018, the largest of which totaled $652,000 and was collateralized by
commercial property in the St. Louis, Mo., area. The non-performing other residential category had a balance of $-0- at December 31,
commercial property in the St. Louis, Mo., area. The non-performing other residential category had a balance of $-0- at December 31,
commercial property in the St. Louis, Mo., area. The non-performing other residential category had a balance of $-0- at December 31,
2018. The one loan previously in this category, which was collateralized by an apartment project in the central Missouri area, had
2018. The one loan previously in this category, which was collateralized by an apartment project in the central Missouri area, had
2018. The one loan previously in this category, which was collateralized by an apartment project in the central Missouri area, had
charge-offs of $279,000 during the year ended December 31, 2018 and the remaining balance of $1.6 million was transferred to
charge-offs of $279,000 during the year ended December 31, 2018 and the remaining balance of $1.6 million was transferred to
charge-offs of $279,000 during the year ended December 31, 2018 and the remaining balance of $1.6 million was transferred to
foreclosed assets.
foreclosed assets.
foreclosed assets.
16
16
16
37
Other Real Estate Owned and Repossessions. Of the total $8.4 million of other real estate owned and repossessions at December 31,
2018, $1.4 million represents the fair value of foreclosed and repossessed assets related to loans acquired in FDIC-assisted
transactions and $1.6 million represents properties which were not acquired through foreclosure. The 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 and repossessions. Because sales and write-downs of foreclosed and repossessed properties
exceeded additions, total foreclosed assets and repossessions decreased. Activity in foreclosed assets and repossessions during the
year ended December 31, 2018, was as follows:
Beginning
Balance,
January 1
ORE and
Repossession
Sales
Capitalized
Costs
ORE and
Repossession
Write-Downs
Ending
Balance,
December 31
Additions
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
5,413
7,729
—
112
140
1,194
—
1,987
(In Thousands)
— $
(2,402)
(2,837)
—
(663)
(1,884)
(1,932)
—
(8,770)
— $
—
20
—
820
1,601
894
—
7,711
— $
—
—
—
—
143
10
—
—
— $
(1,919)
(1,721)
—
—
—
(166)
—
—
—
1,092
3,191
—
269
—
—
—
928
Total
$
16,575
$
11,046 $
(18,488) $
153 $
(3,806) $
5,480
Excluding the consumer category, during the year ended December 31, 2018, the Company reduced its foreclosed assets by $9.7
million through asset sales. At December 31, 2018, the land development category of foreclosed assets included seven properties, the
largest of which was located in the Branson, Mo. area and had a balance of $913,000, or 28.6% of the total category. Of the total
dollar amount in the land development category of foreclosed assets, 66.8% was located in the Branson, Mo. area, including the
largest property previously mentioned. The subdivision construction category of foreclosed assets included seven properties, the
largest of which was located in the Branson, Mo. area and had a balance of $350,000, or 32.1% of the total category. Of the total
dollar amount in the subdivision construction category of foreclosed assets, 65.0% is located in the Branson, Mo. area, including the
largest property previously mentioned. The write-downs in the land development and subdivision construction categories resulted
from management’s decision during the three months ended June 30, 2018, after marketing these assets for an extended period, to
reduce the asking price for several parcels of land. The Company experienced increased levels of delinquencies and repossessions in
indirect and used automobile loans throughout 2016 and 2017. The 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 level of
delinquencies and repossessions in indirect and used automobile loans decreased in 2018. The commercial real estate category of
foreclosed assets had a zero balance at December 31, 2018. All of the previously remaining properties in the commercial real estate
category, totaling $1.9 million, were sold during 2018. The other residential category of foreclosed assets had a zero balance at
December 31, 2018. The previously remaining property in the category, an apartment building in central Missouri totaling $1.7
million, was sold during 2018.
17
38
Potential Problem Loans. Potential problem loans decreased $4.6 million during the year ended December 31, 2018, from $7.9
Potential Problem Loans. Potential problem loans decreased $4.6 million during the year ended December 31, 2018, from $7.9
Potential Problem Loans. Potential problem loans decreased $4.6 million during the year ended December 31, 2018, from $7.9
million at December 31, 2017 to $3.3 million at December 31, 2018. This decrease was primarily due to $5.3 million in loans removed
million at December 31, 2017 to $3.3 million at December 31, 2018. This decrease was primarily due to $5.3 million in loans removed
million at December 31, 2017 to $3.3 million at December 31, 2018. This decrease was primarily due to $5.3 million in loans removed
from potential problem loans due to improvements in the credits, $1.6 million in payments on potential problem loans and $489,000 in
from potential problem loans due to improvements in the credits, $1.6 million in payments on potential problem loans and $489,000 in
from potential problem loans due to improvements in the credits, $1.6 million in payments on potential problem loans and $489,000 in
loans transferred to the non-performing category, partially offset by the addition of $2.8 million of loans to potential problem loans.
loans transferred to the non-performing category, partially offset by the addition of $2.8 million of loans to potential problem loans.
loans transferred to the non-performing category, partially offset by the addition of $2.8 million of loans to potential problem loans.
Potential problem loans are loans which management has identified through routine internal review procedures as having possible
Potential problem loans are loans which management has identified through routine internal review procedures as having possible
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
credit problems that may cause the borrowers difficulty in complying with current repayment terms. These loans are not reflected in
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
non-performing assets, but are considered in determining the adequacy of the allowance for loan losses. Activity in the potential
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, 2018, was as follows:
problem loans category during the year ended December 31, 2018, was as follows:
problem loans category during the year ended December 31, 2018, was as follows:
Beginning
Beginning
Beginning
Additions to
Additions to
Additions to
Removed
Removed
Removed
Transfers to
Transfers to
Transfers to
Foreclosed
Foreclosed
Foreclosed
Balance,
Balance,
Balance,
Potential
Potential
Potential
from Potential
from Potential
from Potential
Non-
Non-
Non-
Assets and
Assets and
Assets and
Ending
Ending
Ending
Balance,
Balance,
Balance,
January 1
January 1
January 1
Problem
Problem
Problem
Problem
Problem
Problem
Performing
Performing
Performing
Repossessions Charge-Offs
Repossessions Charge-Offs
Repossessions Charge-Offs
Payments
Payments
Payments
December 31
December 31
December 31
Transfers to
Transfers to
Transfers to
(In Thousands)
(In Thousands)
(In Thousands)
One- to four-family construction
One- to four-family construction
One- to four-family construction
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
Subdivision construction
Subdivision construction
Subdivision construction
Land development
Land development
Land development
Commercial construction
Commercial construction
Commercial construction
One- to four-family residential
One- to four-family residential
One- to four-family residential
Other residential
Other residential
Other residential
Commercial real estate
Commercial real estate
Commercial real estate
Other commercial
Other commercial
Other commercial
Consumer
Consumer
Consumer
—
—
—
4
4
4
—
—
—
1,122
1,122
1,122
—
—
—
5,759
5,759
5,759
503
503
503
549
549
549
—
—
—
—
—
—
—
—
—
122
122
122
—
—
—
2,180
2,180
2,180
—
—
—
455
455
455
—
—
—
(3)
(3)
(3)
—
—
—
—
—
—
—
—
—
(4,709)
(4,709)
(4,709)
(59)
(59)
(59)
(497)
(497)
(497)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(407)
(407)
(407)
(82)
(82)
(82)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(30)
(30)
(30)
—
—
—
(1)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(200)
(200)
(200)
1,044
1,044
1,044
—
—
—
—
—
—
(1,177)
(1,177)
(1,177)
2,053
2,053
2,053
(37)
(37)
(37)
(189)
(189)
(189)
—
—
—
206
206
206
Total
Total
Total
$
$
$
7,937 $
7,937 $
7,937 $
2,757 $
2,757 $
2,757 $
(5,268) $
(5,268) $
(5,268) $
(489) $
(489) $
(489) $
— $
— $
— $
(30) $
(30) $
(30) $
(1,604) $
(1,604) $
(1,604) $
3,303
3,303
3,303
At December 31, 2018, the commercial real estate category of potential problem loans included two loans, both of which were added
At December 31, 2018, the commercial real estate category of potential problem loans included two loans, both of which were added
At December 31, 2018, the commercial real estate category of potential problem loans included two loans, both of which were added
during 2018. The largest relationship in this category, totaling $1.9 million, or 93.9% of the total category, is collateralized by a
during 2018. The largest relationship in this category, totaling $1.9 million, or 93.9% of the total category, is collateralized by a
during 2018. The largest relationship in this category, totaling $1.9 million, or 93.9% of the total category, is collateralized by a
mixed use commercial retail building. One relationship previously in this category consists of three loans totaling $4.7 million
mixed use commercial retail building. One relationship previously in this category consists of three loans totaling $4.7 million
mixed use commercial retail building. One relationship previously in this category consists of three loans totaling $4.7 million
collateralized by theatre and retail property in Branson, Mo. The decision to remove this relationship from potential problem loans
collateralized by theatre and retail property in Branson, Mo. The decision to remove this relationship from potential problem loans
collateralized by theatre and retail property in Branson, Mo. The decision to remove this relationship from potential problem loans
during the year was due to an improvement in debt service coverage, and timely principal and interest payments on these loans,
during the year was due to an improvement in debt service coverage, and timely principal and interest payments on these loans,
during the year was due to an improvement in debt service coverage, and timely principal and interest payments on these loans,
including over $1.0 million in payments during 2018. The one- to four-family residential category of potential problem loans
including over $1.0 million in payments during 2018. The one- to four-family residential category of potential problem loans
including over $1.0 million in payments during 2018. The one- to four-family residential category of potential problem loans
included 18 loans, four of which were added during 2018. The consumer category of potential problem loans included 18 loans, 15 of
included 18 loans, four of which were added during 2018. The consumer category of potential problem loans included 18 loans, 15 of
included 18 loans, four of which were added during 2018. The consumer category of potential problem loans included 18 loans, 15 of
which were added during 2018.
which were added during 2018.
which were added during 2018.
Non-Interest Income
Non-Interest Income
Non-Interest Income
Non-interest income for the year ended December 31, 2018 was $36.2 million compared with $38.5 million for the year ended
Non-interest income for the year ended December 31, 2018 was $36.2 million compared with $38.5 million for the year ended
Non-interest income for the year ended December 31, 2018 was $36.2 million compared with $38.5 million for the year ended
December 31, 2017. The decrease of $2.3 million, or 6.0%, was primarily as a result of the following items:
December 31, 2017. The decrease of $2.3 million, or 6.0%, was primarily as a result of the following items:
December 31, 2017. The decrease of $2.3 million, or 6.0%, was primarily as a result of the following items:
2017 gain on early termination of FDIC loss sharing agreements for Inter Savings Bank: In 2017, the Company recognized a one-time
2017 gain on early termination of FDIC loss sharing agreements for Inter Savings Bank: In 2017, the Company recognized a one-time
2017 gain on early termination of FDIC loss sharing agreements for Inter Savings Bank: In 2017, the Company recognized a one-time
gross gain of $7.7 million from the termination of the loss sharing agreements for Inter Savings Bank, which was recorded in the gain
gross gain of $7.7 million from the termination of the loss sharing agreements for Inter Savings Bank, which was recorded in the gain
gross gain of $7.7 million from the termination of the loss sharing agreements for Inter Savings Bank, which was recorded in the gain
on termination of loss sharing agreements line item of the consolidated statements of income for the year ended December 31, 2017.
on termination of loss sharing agreements line item of the consolidated statements of income for the year ended December 31, 2017.
on termination of loss sharing agreements line item of the consolidated statements of income for the year ended December 31, 2017.
Net gains on loan sales: Net gains on loan sales decreased $1.4 million compared to the prior year. The decrease was due to a
Net gains on loan sales: Net gains on loan sales decreased $1.4 million compared to the prior year. The decrease was due to a
Net gains on loan sales: Net gains on loan sales decreased $1.4 million compared to the prior year. The decrease was due to a
decrease in originations of fixed-rate loans during 2018 compared to 2017. Fixed rate single-family mortgage loans originated are
decrease in originations of fixed-rate loans during 2018 compared to 2017. Fixed rate single-family mortgage loans originated are
decrease in originations of fixed-rate loans during 2018 compared to 2017. Fixed rate single-family mortgage loans originated are
generally subsequently sold in the secondary market. In 2018, the Company originated more variable-rate single-family mortgage
generally subsequently sold in the secondary market. In 2018, the Company originated more variable-rate single-family mortgage
generally subsequently sold in the secondary market. In 2018, the Company originated more variable-rate single-family mortgage
loans, partially due to higher market rates of interest, which have been retained in the Company’s portfolio.
loans, partially due to higher market rates of interest, which have been retained in the Company’s portfolio.
loans, partially due to higher market rates of interest, which have been retained in the Company’s portfolio.
Late charges and fees on loans: Late charges and fees on loans decreased $609,000 compared to the prior year. The decrease was
Late charges and fees on loans: Late charges and fees on loans decreased $609,000 compared to the prior year. The decrease was
Late charges and fees on loans: Late charges and fees on loans decreased $609,000 compared to the prior year. The decrease was
primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships in 2017 which were not repeated in 2018.
primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships in 2017 which were not repeated in 2018.
primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships in 2017 which were not repeated in 2018.
18
18
18
39
Other income: Other income decreased $695,000 compared to the prior year period. The decrease was primarily due to income from
interest rate swaps entered into in 2017, the receipt of approximately $260,000 more income related to the exit of certain tax credit
partnerships in 2017 compared to 2018 and $250,000 less in merchant card services fees compared to 2017.
Sale of Omaha-area banking centers: On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb.,
metropolitan market. The Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate,
fixed assets and ATMs. The Company recorded a pre-tax gain of $7.4 million on the sale during the year ended December 31, 2018.
Amortization of income related to business acquisitions: Because of the termination of the remaining loss sharing agreements in June
2017, the net amortization expense related to business acquisitions was $-0- for the year ended December 31, 2018, compared to
$486,000 for the year ended December 31, 2017, which reduced non-interest income by that amount in the previous year.
Non-Interest Expense
Total non-interest expense increased $1.0 million, or 0.9%, from $114.3 million in the year ended December 31, 2017, to $115.3
million in the year ended December 31, 2018. The Company’s efficiency ratio for the year ended December 31, 2018 was 56.41%, a
decrease from 58.99% for 2017. The improvement in the ratio for 2018 was primarily due to an increase in net interest income,
partially offset by a decrease in non-interest income and an increase in non-interest expense. In the year ended December 31, 2018, the
Company’s efficiency ratio was positively impacted by the significant gain recorded related to the sale of the Bank’s branches and
deposits in Omaha, Neb. In the year ended December 31, 2017, the Company’s efficiency ratio was positively impacted by the
significant gain recorded related to the termination of the Inter Savings Bank loss sharing agreements. The Company’s ratio of non-
interest expense to average assets was 2.56% for each of the years ended December 31, 2018 and 2017. Average assets for the year
ended December 31, 2018, increased $43.1 million, or 1.0%, from the year ended December 31, 2017, primarily due to organic loan
growth, partially offset by decreases in investment securities and other interest-earning assets.
The following were key items related to the increase in non-interest expense for the year ended December 31, 2018 as compared to the
year ended December 31, 2017:
Net occupancy and equipment expense: Net occupancy expense increased $1.0 million in the year ended December 31, 2018
compared to the year ended December 31, 2017. This increase was primarily due to increased expenses related to hardware and
software costs for loan loss accounting and commercial loan systems and data servers at the Company’s disaster recovery site,
increased depreciation expense for upgraded ATM/ITM machines, deconversion expenses related to the sale of the Omaha-area
banking centers and repairs and maintenance costs for various banking centers.
Expense on other real estate and repossessions: Expense on other real estate and repossessions increased $990,000 compared to the
prior year primarily due to the valuation write-down of certain foreclosed assets during the second quarter 2018, totaling
approximately $2.1 million, partially offset by gains on sales of foreclosed and repossessed assets in 2018 and lower repossession and
collection expenses in 2018.
Legal, audit and other professional fees: Legal, audit and other professional fees increased $561,000 in the year ended December 31,
2018 compared to 2017. The increase was primarily due to fees for professional services related to process improvement initiatives,
fees paid to advisors for the negotiation and implementation of derivative transactions, consulting fees related to the ongoing
implementation of an accounting system which will be utilized for the new loan loss accounting standard and legal costs related to the
sale of the Omaha-area banking centers.
Other operating expenses: Other operating expenses decreased $691,000 in the year ended December 31, 2018 compared to 2017.
During 2017, the Company incurred a $340,000 prepayment penalty when FHLB advances totaling $31.4 million were repaid prior to
maturity, which was not repeated in the 2018 period. In addition, the Company experienced significantly lower debit card and check
fraud losses in 2018 compared to 2017.
Office supplies and printing expense: Office supplies and printing expense decreased $399,000 in the year ended December 31, 2018
compared to 2017. During 2017 the Bank incurred printing and other costs totaling $373,000 related to the replacement of a portion
of customer debit cards with chip-enabled cards, which was not repeated in the current year.
Partnership tax credit: Partnership tax credit expense decreased $355,000 in the year ended December 31, 2018 compared to the 2017
year. The Company periodically invests in certain tax credits and amortizes those investments over the period that the tax credits are
used. The tax credit period for certain of these credits ended in 2017 and so the final amortization of the investment in those credits
also ended in 2017.
19
40
Provision for Income Taxes
For the years ended December 31, 2018 and 2017, the Company's effective tax rate was 18.1% and 26.7%, respectively. These
effective rates were lower than the statutory federal tax rates of 21% (2018) and 35% (2017), 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 in future periods 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
income tax rate was slightly higher than its typical effective tax rate in the 2018 and 2017 years due to gains on the sale of the Omaha
branches and related deposits (2018) and increased net income resulting from the gain on termination of the loss sharing agreements
for the Inter Savings Bank FDIC-assisted transaction (2017). The Company currently expects its effective tax rate (combined federal
and state) to be approximately 17.0% to 18.5% in future periods, 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.
On December 22, 2017, H.R.1, originally known as the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law. Among other
things, the TCJ 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.
In 2017, 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 TCJ Act,
partially offset by the impacts of other tax planning strategies implemented. This impact on the Company’s net deferred tax liabilities,
which included, among other things, the timing of recognition of various revenues and expenses, was 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 year ended December 31, 2017, including those accounted for in accumulated other
comprehensive income.
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. Net fees included in interest income were
$3.5 million, $2.9 million and $5.0 million for 2018, 2017 and 2016, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
20
41
Dec. 31,
2018(2)
Yield/
Rate
4.23%
5.13
4.91
5.35
5.22
6.01
4.82
5.16
3.36
2.50
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
$ 449,917
761,115
1,325,398
569,570
285,125
499,131
20,563
$ 22,924
38,863
64,605
31,198
14,104
25,250
1,282
5.10%
5.11
4.87
5.48
4.95
5.06
6.23
$ 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
4.81%
4.53
4.43
4.64
4.97
4.80
1,550 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
3,910,819
198,226
5.07
3,814,560
176,654
4.63
3,659,360
178,883
4.89
201,330
104,220
5,835
1,888
2.90
1.81
207,803
121,604
5,195
2.50
1,212 1.00
249,484
116,812
5,741
551
2.30
0.47
5.00
4,216,369
205,949
4.88
4,143,967
183,06
4.42
4,025,656
185,175
4.60
97,796
189,161
$4,503,326
103,505
212,724
$4,460,196
108,593
236,544
$4,370,793
0.46
1.98
1.25
1.68
4.14
5.55
0.00
$ 1,531,375
1,375,508
2,906,883
5,982
21,975
27,957
0.39
1.60
0.96
$ 1,555,375
1,414,189
2,969,564
4,698
0.30
15,897 1.12
0.69
20,595
$ 1,496,837
1,370,935
2,867,772
3,888
13,499
17,387
0.26
0.98
0.61
137,257
765
0.56
186,364
747
0.40
327,658
1,137
0.35
25,774
73,772
190,245
953
4,097
3,985
3.70
5.55
2.09
25,774
73,613
93,524
949
4,098
3.68
5.57
1,516 1.62
25,774
28,526
68,325
803
1,578
1,214
3.12
5.53
1.78
1.40
3,333,931
37,757
1.13
3,348,839
27,905 0.83
3,318,055
22,119
0.67
649,357
21,530
4,004,818
498,508
$4,503,326
629,015
26,638
4,004,492
455,704
$4,460,196
608,115
29,824
3,955,994
414,799
$4,370,793
3.60%
$168,192
3.75%
3.99%
$155,156
3.59%
3.74%
$163,056
3.93%
4.05%
126.5%
123.7%
121.3%
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,
repurchase agreements and
other interest-bearing
liabilities
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 $53.6 million, $61.5 million and $72.0 million for 2018,
2017 and 2016, respectively. In addition, average tax-exempt industrial revenue bonds were $24.76 million, $28.6 million and $32.0 million in 2018, 2017 and
2016, respectively. Interest income on tax-exempt assets included in this table was $3.1 million, $3.3 million and $3.8 million for 2018, 2017 and 2016,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $2.9 million, $3.1 million and $3.7 million for 2018, 2017 and
2016, respectively.
(2) The yield/rate on loans at December 31, 2018 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 2018 results of operations.
21
42
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-
earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii)
changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated
on a tax equivalent basis.
Year Ended
December 31, 2018 vs.
December 31, 2017
Year Ended
December 31, 2017 vs.
December 31, 2016
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
$
(9,638)
468
638
(8,532)
$
7,409
(1,014)
23
6,418
$
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
Subordinated debentures issued
to capital trust
Subordinated notes
FHLBank advances
Total interest-bearing liabilities
Net interest income
$
17,025
796
819
18,640
1,355
6,500
7,855
55
4
(1)
544
8,457
10,183
$
$
4,547
(156)
(143)
4,248
(71)
(422)
(493)
(37)
—
—
1,925
1,395
2,853
$
$
21,572
640
676
22,888
1,284
6,078
7,362
18
4
(1)
2,469
9,852
13,036
$
$
653
1,961
2,614
156
146
216
(114)
3,018
(11,550)
$
(2,229)
(546)
661
(2,114)
810
2,398
3,208
157
437
594
(546)
(390)
—
2,304
416
2,768
3,650
$
146
2,520
302
5,786
(7,900)
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.
22
43
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.
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
23
44
$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.
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 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 the Company 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 was 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
24
45
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.
Provision for Loan Losses and Allowance for Loan Losses
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. 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.
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.
As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from
time to time, and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate.
Non-performing assets, excluding 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
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
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
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
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
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,
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
25
46
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)
—
—
—
(125)
(125)
(125)
—
—
—
(37)
(37)
(37)
(488)
(488)
(488)
(1,649)
(1,649)
(1,649)
(829)
(829)
(829)
(2,075)
(2,075)
(2,075)
(11)
(11)
(11)
(5,468)
(5,468)
(5,468)
—
—
—
(437)
(437)
(437)
(1)
(1)
(1)
(601)
(601)
(601)
(246)
(246)
(246)
(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 partially sold, with the remaining assets
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was partially sold, with the remaining assets
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was partially sold, with the remaining assets
transferred to foreclosed assets; therefore, the balance was reclassified from commercial real estate to commercial business in the
transferred to foreclosed assets; therefore, the balance was reclassified from commercial real estate to commercial business in the
transferred to foreclosed assets; therefore, the balance was reclassified from commercial real estate to commercial business in the
Beginning Balance, January 1 presentation in the table above.
Beginning Balance, January 1 presentation in the table above.
Beginning Balance, January 1 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 was foreclosed
This relationship, discussed in the paragraph above, was previously collateralized by commercial real estate which was foreclosed
This relationship, discussed in the paragraph above, was previously collateralized by commercial real estate which was foreclosed
upon and subsequently sold. One loan in this category, totaling $2.9 million and secured by the borrower’s interest in a condo project
upon and subsequently sold. One loan in this category, totaling $2.9 million and secured by the borrower’s interest in a condo project
upon and subsequently sold. 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 foreclosed assets during 2017. One loan totaling $970,000 was transferred from potential problem
in Branson, Mo, was transferred to foreclosed assets during 2017. One loan totaling $970,000 was transferred from potential problem
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 added to potential problem loans earlier in 2017 and was subsequently transferred to non-
loans during 2017. This loan was added to potential problem loans earlier in 2017 and was subsequently transferred to non-
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 down $470,000 and the remaining balance at December 31, 2017 was $500,000. The loan is
performing loans. The loan was charged down $470,000 and the remaining balance at December 31, 2017 was $500,000. The loan is
performing loans. The loan was charged down $470,000 and the remaining balance at December 31, 2017 was $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
collateralized by the business assets of an entity in the St. Louis, Mo. area. The non-performing other residential category included
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. This loan is collateralized by an apartment project in the central Missouri area and was
one loan, which was added during 2017. This loan is collateralized by an apartment project in the central Missouri area and was
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 commercial real estate category included six loans, three of which were added during the
originated in 2004. The non-performing commercial real estate category included six loans, three of which were added during the
originated in 2004. The non-performing 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
year. The largest relationship in this category, which was added during 2017, totaled $667,000, or 54.4% of the total category. This
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,
loan is collateralized by commercial property in the St. Louis, Mo., area. One relationship in this category, which included two loans,
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
had $358,000 of charge-offs during 2017 and the remaining balance of $465,000 was transferred to foreclosed assets. The relationship
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
was collateralized by commercial entertainment property and other property in Branson, Mo. One loan in this category with a balance
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
of $498,000 was transferred to foreclosed assets during the period. One relationship in this category, which was collateralized by a
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
theatre property in Branson, Mo., incurred charge-offs of $1.2 million and received payments of $480,000 during the year, which paid
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
off the remaining balance of that loan. The non-performing consumer category included 255 loans, 204 of which were added during
off the remaining balance of that loan. The non-performing consumer category included 255 loans, 204 of which were added during
2017, and the majority of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company
2017, and the majority of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company
2017, and the majority of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company
experienced increased levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans. The
experienced increased levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans. The
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
non-performing land development category was zero at December 31, 2017. During the year, one loan, which is the same relationship
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
as one of the loans discussed in the commercial real estate category, and was collateralized by land in the Branson, Mo. area had
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,
charge-offs of $92,000 and received payments of $3.8 million, which paid off the remaining balance of that loan. Also during 2017,
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.
one loan in this category received payments of $1.6 million, which paid off the remaining balance of that loan.
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. 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. 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
foreclosed assets previously covered by FDIC loss sharing agreements, $1.7 million represents foreclosed assets related to Valley
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
Bank and not previously covered by loss sharing agreements, and $1.6 million represents properties which were not acquired through
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 were closed and held for sale and land which was acquired for a potential branch
foreclosure, including former branch locations that were closed and held for sale and land which was acquired for a potential branch
foreclosure, including former branch locations that were closed and held for sale and land which was acquired for a potential branch
26
26
26
47
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.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2017, was as follows:
Beginning
Balance,
Removed
Transfers to
Transfers to
from Non-
Potential
Foreclosed
Ending
Balance,
January 1
Additions
Performing
Problem Loans
Assets
Charge-Offs
Payments
December 31
(In Thousands)
One- to four-family construction
$
— $
381 $
— $
— $
— $
— $
(381) $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
109
1,718
—
1,825
162
2,727
4,765
2,775
4,060
—
—
2,487
2,442
2,550
1,256
5,923
—
—
—
(36)
(77)
(394)
—
(217)
—
—
—
—
—
(840)
(347)
(329)
(185)
—
—
(242)
(161)
(1,060)
(2,883)
(1,081)
(125)
—
—
(37)
(488)
(1,649)
(829)
(2,075)
(11)
(5,468)
—
(437)
(1)
(601)
(246)
(1,725)
—
98
—
—
2,720
1,877
1,226
2,063
3,271
Total
$
14,081 $
19,099 $
(724) $
(1,516) $
(5,612) $
(5,203) $
(8,870) $
11,255
Commercial real estate collateral that secured one relationship, totaling $1.7 million, was partially sold, with the remaining assets
transferred to foreclosed assets; therefore, the balance was reclassified from commercial real estate to commercial business in the
Beginning Balance, January 1 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
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
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 was foreclosed
upon and subsequently sold. 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 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 down $470,000 and the remaining balance at December 31, 2017 was $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. This loan is collateralized by an apartment project in the central Missouri area and was
originated in 2004. The non-performing 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
2017, and the majority of which are indirect used automobile loans. Compared to previous years, in 2016 and 2017 the Company
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 were closed and 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
26
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
$
— $
6,360
10,886
—
1,217
954
3,841
—
1,991
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
Ending
Balance,
December 31
(In Thousands)
— $
(1,297)
(2,431)
—
(1,470)
(1,071)
(2,843)
(2,876)
(15,732)
— $
350
—
—
374
161
896
2,876
15,728
— $
—
—
—
—
117
—
—
—
— $
—
(1,226)
—
(9)
(21)
(200)
—
—
—
5,413
7,229
—
112
140
1,694
—
1,987
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Total
$
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% was 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 had 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
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
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
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.
48
27
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
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)
(In Thousands)
(In Thousands)
(In Thousands)
— $
— $
— $
—
—
—
(3,980)
(3,980)
(3,980)
—
—
—
(131)
(131)
(131)
—
—
—
(803)
(803)
(803)
(970)
(970)
(970)
(28)
(28)
(28)
—
—
—
—
—
—
—
—
—
(89)
(89)
(89)
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
(290)
(290)
(290)
—
—
—
—
—
—
—
—
—
4
4
4
—
—
—
(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
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 had been experiencing cash flow issues due to vacancies in some of the properties and the loans were added to potential
borrower had been experiencing cash flow issues due to vacancies in some of the properties and the loans were added to potential
borrower had been 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
problem loans during 2017. $963,000 of the payments in the category related to one relationship, the remainder of which was moved
problem 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
to non-performing loans during 2017. The one- to four-family residential category of potential problem loans included 16 loans, 10 of
to non-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
which were added during 2017. The commercial business category of potential problem loans included five loans, one of which was
which 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
added during 2017. One loan in this category totaling $970,000 was added to potential problem loans during 2017 and then
added 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
subsequently transferred to non-performing loans during the year, and is discussed above in non-performing loans. The consumer
subsequently 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
category of potential problem loans included 43 loans, 36 of which were added during 2017. The land development category of
category of 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-
potential problem loans decreased from December 31, 2016 primarily due to the transfer of one loan totaling $3.8 million to the non-
potential 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.
performing loans category, which is discussed above in non-performing loans.
performing 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: During 2017, the Company’s loss sharing
Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: During 2017, the Company’s loss sharing
Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: During 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
agreement with the FDIC related to Inter Savings Bank was terminated early and the Company received a payment of $15.0 million to
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 agreement. The Company recognized a one-time gross gain in 2017 of $7.7
settle all outstanding items related to the terminated agreement. The Company recognized a one-time gross gain in 2017 of $7.7
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.
million related to the termination.
million related to the termination.
Amortization of income related to business acquisitions: Because of the termination of FDIC loss sharing agreements in previous
Amortization of income related to business acquisitions: Because of the termination of FDIC loss sharing agreements in previous
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
periods, the net amortization expense related to business acquisitions was $486,000 for the year ended December 31, 2017, compared
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
to $6.4 million for the year ended December 31, 2016. The amortization expense for the year ended December 31, 2017, consisted of
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-
the following items: $504,000 of amortization expense related to the changes in cash flows expected to be collected from the FDIC-
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
covered loan portfolios acquired from InterBank and $140,000 of amortization of the clawback liability. Partially offsetting the
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.
expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
28
28
28
49
Late charges and fees on loans: Late charges and fees on loans increased $484,000 in 2017 compared to 2016. 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 in 2017 compared to 2016. 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 in 2017 compared to 2016. 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 2016.
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 2017.
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 ratio for 2017 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 were budgeted but unfilled positions in various areas of the Company that
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, resulting in
less depreciation expense during 2017. 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 2017.
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 2016 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.
29
50
Postage: Postage decreased $330,000 in 2017 from 2016. 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 in 2017 from 2016 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 2016.
The decrease in other operating expenses was primarily due to higher levels of debit card and check fraud losses in 2016. 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 2017, the Company experienced debit card and check fraud losses totaling $1.0
million. Additionally, $436,000 of the decrease in operating expenses was 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 in 2016 and 2017 than it
had typically been in prior 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).
Based upon current accounting guidance and the utilization and recognition of timing differences, 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 TCJ 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, was 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.
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, 2018, the Company had commitments of approximately $129.6 million to fund loan originations, $1.24 billion of
unused lines of credit and unadvanced loans, and $28.9 million of outstanding letters of credit.
30
51
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2018. 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
$ 2,133,596
1,215,822
—
297,978
—
—
958
4,528
(In Thousands)
$ —
374,145
—
—
—
—
2,483
—
$
—
1,444
—
—
25,774
73,842
837
—
$ 2,133,596
1,591,411
—
297,978
25,774
73,842
4,278
4,528
$ 3,652,882
$
376,628
$
101,897
$ 4,131,407
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, 2018 and 2017, 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, 2018
$666.8 million
December 31, 2017
$570.5 million
460.7 million
202.7 million
87.1 million
528.9 million
242.3 million
46.4 million
Statements of Cash Flows. During the years ended December 31, 2018, 2017 and 2016, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
2018 and 2016 and positive cash flows from investing activities during the year ended December 31, 2017. The Company
experienced positive cash flows from financing activities during the years ended December 31, 2018 and 2016 and negative cash
flows from financing activities during the year ended December 31, 2017.
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 $94.2
million, $62.8 million and $80.6 million during the years ended December 31, 2018, 2017 and 2016, respectively.
During the years ended December 31, 2018 and 2016, investing activities used cash of $381.3 million and $198.7 million, respectively,
primarily due to the net increases and purchases of loans and investment securities and the cash paid for the sale of deposits and
branches (2018), partially offset by the sales of investment securities (2016) and cash received from the purchase of deposits and
branches (2016). 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.
31
52
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 and issuance of subordinated notes (2016). Financing activities provided cash flows of $247.6 million and $198.7
million during the years ended December 31, 2018 and 2016, respectively, primarily due to increases in customer deposit balances, net
increases or decreases in various borrowings and issuance of subordinated notes (2016), partially offset by dividend payments to
stockholders. 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.
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, 2018, total stockholders’ equity and common stockholders’ equity were each $532.0 million, or 11.4% of total
assets, equivalent to a book value of $37.59 per common share. 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. At
December 31, 2018, the Company’s tangible common equity to tangible assets ratio was 11.2% as compared to 10.5% at December 31,
2017.
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, 2018,
the Bank's common equity Tier 1 capital ratio was 12.4%, its Tier 1 capital ratio was 12.4%, its total capital ratio was 13.3% and its
Tier 1 leverage ratio was 12.2%. As a result, as of December 31, 2018, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. 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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2018, the Company's common equity Tier 1 capital ratio was 11.4%, its Tier 1 capital ratio was 11.9%, its total capital
ratio was 14.4% and its Tier 1 leverage ratio was 11.7%. 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, 2018, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2017, 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 increased an equal amount each year until the buffer requirement of greater than 2.5% of risk-weighted assets
was 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.
32
53
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, 2018, the Company declared common stock cash dividends of $1.20 per share
(25.5% of net income per common share) and paid common stock cash dividends of $1.12 per share. 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. The Board of Directors meets regularly to consider the level and the
timing of dividend payments. The $0.32 per share dividend declared but unpaid as of December 31, 2018, was paid to stockholders in
January 2019. 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
year ended December 31, 2018, the Company repurchased 17,542 shares of its common stock at an average price of $51.52 per share.
During the year ended December 31, 2017, the Company did not repurchase any shares of its common stock. During the years ended
December 31, 2018 and 2017, the Company issued 81,207 shares of stock at an average price of $27.60 per share and 119,147 shares
of stock at an average price of $27.35 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
54
Non-GAAP Financial Measures
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,
2018
December 31,
2017
December 31,
2016
(Dollars in thousands)
December 31,
2015
December 31,
2014
$
$
$
$
531,977
9,288
522,689
4,676,200
9,288
4,666,912
$
$
$
$
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
11.20%
10.46%
9.20%
9.58%
8.98%
34
55
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, 2018, 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 FRB had last changed interest rates on December 16, 2008. This was the first rate increase since
June 29, 2006. The FRB has now also implemented rate increases of 0.25% on eight different occasions beginning December 14,
2016, with the Federal Funds rate now at 2.50%. A substantial portion of Great Southern's loan portfolio ($1.46 billion at December
31, 2018) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after
December 31, 2018. Of these loans, $1.34 billion as of December 31, 2018 had interest rate floors. Great Southern also has a
portfolio of loans ($257 million at December 31, 2018) 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
35
56
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 an interest rate cap agreement related to its floating rate debt associated with its trust preferred
securities. The agreement provided that the counterparty would reimburse the Company if interest rates rise above a certain threshold,
thus creating a cap on the effective interest rate paid by the Company. This agreement was classified as a hedging instrument, and the
effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income and reclassified
into earnings in the same period or periods during which the hedged transaction affects earnings. The interest rate cap related to the
$25.0 million trust preferred security terminated per its contractual terms in the third quarter of 2017.
In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies
to hedge the risk of its floating rate loans. The notional amount of the swap is $400 million with a termination date of October 6, 2025.
Under the terms of the swap, the Company will receive a fixed rate of interest of 3.018% and will pay a floating rate of interest equal
to one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of interest due to/from the counterparty will
also occur monthly. The floating rate of interest was 2.383% as of December 31, 2018. Therefore, in the near term, the Company will
receive net interest settlements which will be recorded as loan interest income, to the extent that the fixed rate of interest continues to
exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest in future periods, the Company will be required to
pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans. 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 affected earnings. Gains and losses on the derivative representing
either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
The Company’s interest rate derivatives and hedging activities are discussed further in Note 17 of the accompanying audited financial
statements.
36
57
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2018. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
Maturities
December 31,
2019
2020
2021
2022
2023
Thereafter
Total
(Dollars In Thousands)
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
$
$
$
$
92,634
2.50%
15,847
$
4.96 %
—
—
17,571
5.12%
$
—
—
6,012
4.86%
$
—
—
1,710
5.50%
—
—
$ 13,227
3.09%
443,238
$ 330,228
$ 467,422
$ 299,033
$ 218,671
5.44 %
5.52%
5.29%
5.37%
5.31%
279,268
$ 307,867
$ 375,550
$ 251,209
$ 249,104
$
$
$
4.45 %
—
—
4.72%
—
—
5.06%
—
—
5.73%
—
—
5.48%
— $
—
— $
—
189,601
$
2.94%
497,982
4.15%
333,688
5.31%
12,438
4.68%
Total financial assets
$
830,987
$ 655,666
$ 848,984
$ 551,952
$ 481,002
$ 1,033,709
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand
Weighted average rate
Short-term borrowings
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
$ 1, 215,822
$ 259,704
$
73,724
$ 26,012
$ 14,705
$
1.92%
$ 1,472,535
0.46%
$
$
661,061
—
297,978
1.68 %
—
—
—
—
2.22%
—
—
—
—
—
—
—
—
—
—
2.20%
—
—
—
—
—
—
—
—
—
—
1.95%
—
—
—
—
—
—
—
—
—
—
2.18%
—
—
—
—
—
—
— $
—
— $
—
1,444
1.77%
— $
—
— $
—
— $
—
75,000
$
5.55 %
25,774
4.14%
Total financial liabilities
$ 3,647,396
$ 259,704
$
73,724
$ 26,012
$ 14,705
$
102,218
92,634
2.50%
243,968
3.29%
2,256,574
5.12%
1,796,686
5.11%
12,438
4.68%
4,402,300
1.98%
1,472,535
0.46%
661,061
—
297,978
1.68%
75,000
5.55%
25,774
4.14%
4,123,759
$
$
$
$
$
$
$
1,591,411
December 31,
2018
Fair Value
$
$
$
$
$
$
$
$
$
$
$
92,634
243,968
2,189,440
1,766,346
12,438
1,584,303
1,472,535
661,061
297,978
75,188
25,774
_______________
(1)
Available-for-sale debt securities include approximately $192.5 million of mortgage-backed securities which pay interest and principal monthly to the
Company. Of this total, $84.0 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
58
Repricing
Repricing
Repricing
Financial Assets:
Financial Assets:
Financial Assets:
Interest bearing deposits
Interest bearing deposits
Interest bearing deposits
Weighted average rate
Weighted average rate
Weighted average rate
Available-for-sale debt securities(1)
Available-for-sale debt securities(1)
Available-for-sale debt securities(1)
Weighted average rate
Weighted average rate
Weighted average rate
Adjustable rate loans
Adjustable rate loans
Adjustable rate loans
Weighted average rate
Weighted average rate
Weighted average rate
Fixed rate loans
Fixed rate loans
Fixed rate loans
Weighted average rate
Weighted average rate
Weighted average rate
Federal Home Loan Bank stock
Federal Home Loan Bank stock
Federal Home Loan Bank stock
Weighted average rate
Weighted average rate
Weighted average rate
December 31,
December 31,
December 31,
2019
2019
2019
2020
2020
2020
2021
2021
2021
2022
2022
2022
(Dollars In Thousands)
(Dollars In Thousands)
(Dollars In Thousands)
2023
2023
2023
Thereafter
Thereafter
Thereafter
Total
Total
Total
$
$
$
$
$
$
$
$
$ 1,983,704
$ 1,983,704
2.50%
$
$
43,202
43,202
92,634
92,634
92,634
2.50%
2.50%
43,202
3.68%
3.68%
$ 1,983,704
5.28%
5.28%
279,268
4.45%
4.45%
12,438
4.68%
4.68%
279,268
279,268
12,438
12,438
$
$
3.68%
5.28%
4.45%
4.68%
$
$
$
$
$
$
$
$
$
87,167
87,167
—
—
—
—
—
—
$
$
17,571
17,571
17,571
5.12%
5.12%
5.12%
$
87,167
$
3.80%
3.80%
3.80%
$
$
307,867
4.72%
4.72%
4.72%
—
—
—
—
—
—
307,867
307,867
$
$
$
—
—
—
—
—
—
12,757
12,757
12,757
3.35%
3.35%
3.35%
43,032
43,032
43,032
4.03%
4.03%
4.03%
375,550
375,550
375,550
5.06%
5.06%
5.06%
—
—
—
—
—
—
—
—
—
—
—
—
24,406
24,406
24,406
2.47%
2.47%
2.47%
11,740
11,740
11,740
3.70%
3.70%
3.70%
$
$
$
$
$
$
$
$
$
251,209
251,209
251,209
$
$
$
$
$
$
$
$
$
5.73%
5.73%
5.73%
—
—
—
—
—
—
—
—
—
—
—
—
36,022
36,022
36,022
2.43%
2.43%
2.43%
32,874
32,874
32,874
4.41%
4.41%
4.41%
249,104
249,104
249,104
$
$
$
$
$
$
$
$
$
5.48%
5.48%
5.48%
—
—
—
—
—
—
2.50%
2.50%
$
$
92,634
243,968
— $
— $
— $
—
—
—
110,010
110,010
$
110,010
3.33%
3.33%
3.33%
98,057
98,057
98,057
3.95%
3.95%
3.95%
333,688
333,688
333,688
5.31%
5.31%
5.31%
— $
— $
— $
—
—
—
92,634
92,634
2.50%
243,968
243,968
3.29%
$ 2,256,574
$ 2,256,574
5.12%
$ 1,796,686
$ 1,796,686
5.11%
12,438
12,438
4.68%
$ 1,796,686
$ 2,256,574
12,438
3.29%
3.29%
5.12%
5.12%
4.68%
4.68%
5.11%
5.11%
Total financial assets
Total financial assets
Total financial assets
$ 2,411,246
$ 2,411,246
$ 2,411,246
$
$
$
412,605
412,605
412,605
$
$
$
431,339
431,339
431,339
$
$
$
287,355
287,355
287,355
$
$
$
318,000
318,000
318,000
$
$
$
541,755
541,755
541,755
$ 4,402,300
$ 4,402,300
$ 4,402,300
Financial Liabilities:
Financial Liabilities:
Financial Liabilities:
Time deposits
Time deposits
Time deposits
Weighted average rate
Weighted average rate
Weighted average rate
Interest-bearing demand
Interest-bearing demand
Interest-bearing demand
Weighted average rate
Weighted average rate
Weighted average rate
Non-interest-bearing demand(2)
Non-interest-bearing demand(2)
Non-interest-bearing demand(2)
Weighted average rate
Weighted average rate
Weighted average rate
Short-term borrowings
Short-term borrowings
Short-term borrowings
Weighted average rate
Weighted average rate
Weighted average rate
Subordinated notes
Subordinated notes
Subordinated notes
Weighted average rate
Weighted average rate
Weighted average rate
Subordinated debentures
Subordinated debentures
Subordinated debentures
Weighted average rate
Weighted average rate
Weighted average rate
$ 1,215,822
$ 1,215,822
$ 1,472,535
$ 1,472,535
1.92%
$ 1,215,822
1.92%
1.92%
$ 1,472,535
0.46%
0.46%
0.46%
—
—
—
—
—
—
297,978
297,978
297,978
1.68%
1.68%
1.68%
—
—
—
—
—
—
25,774
25,774
25,774
4.14%
4.14%
4.14%
$
$
$
$
$
$
259,704
259,704
$
$
259,704
2.22%
2.22%
2.22%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73,724
73,724
73,724
2.20%
2.20%
2.20%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
26,012
26,012
26,012
$
$
$
14,705
14,705
14,705
$
$
$
1.93%
1.93%
1.93%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.18%
2.18%
2.18%
—
—
—
—
—
—
— $
— $
— $
—
—
—
—
—
—
—
—
—
— $
— $
— $
—
—
—
—
—
—
—
—
—
$
$
$
$
1.98%
1.98%
0.46%
0.46%
$
$
$
$ 1,591,411
1,444
$ 1,591,411
$ 1,591,411
1,444
1,444
1.77%
1.77%
1.98%
1.77%
— $ 1,472,535
— $ 1,472,535
— $ 1,472,535
—
—
0.46%
—
661,061
661,061
661,061
661,061
661,061
661,061
—
—
—
—
—
—
— $
297,978
297,978
— $
297,978
— $
—
—
1.68%
—
75,000
75,000
75,000
75,000
$
75,000
5.55%
5.55%
5.55%
5.55%
25,774
25,774
— $
— $
— $
—
—
4.14%
—
75,000
25,774
$
$
5.55%
5.55%
4.14%
4.14%
1.68%
1.68%
December
December
December
31,
31,
31,
2018
2018
2018
Fair Value
Fair Value
Fair Value
$
$
$
92,634
92,634
92,634
$
$
$
243,968
243,968
243,968
$ 2,189,440
$ 2,189,440
$ 2,189,440
$ 1,766,346
$ 1,766,346
$ 1,766,346
$
$
$
12,438
12,438
12,438
$ 1,584,303
$ 1,584,303
$ 1,584,303
$ 1,472,535
$ 1,472,535
$ 1,472,535
$
$
$
661,061
661,061
661,061
$
$
$
297,978
297,978
297,978
$
$
$
75,188
75,188
75,188
$
$
$
25,774
25,774
25,774
Total financial liabilities
Total financial liabilities
Total financial liabilities
$ 3,012,109
$ 3,012,109
$ 3,012,109
$
$
$
259,704
259,704
259,704
$
$
$
73,724
73,724
73,724
$
$
$
26,012
26,012
26,012
Periodic repricing GAP
Periodic repricing GAP
Periodic repricing GAP
Cumulative repricing GAP
Cumulative repricing GAP
Cumulative repricing GAP
$
$
$
$
$
(600,863)
(600,863)
(600,863)
$
$
$
152,901
152,901
152,901
$
$
$
357,615
357,615
357,615
$
$
$
261,343
261,343
261,343
$
(600,863)
(600,863)
(600,863)
$ (447,962) $
$ (447,962) $
$ (447,962) $
(90,347) $
(90,347) $
(90,347) $
170,996
170,996
170,996
$
$
$
$
$
$
$
$
$
14,705
14,705
14,705
$
$
$
737,505
737,505
737,505
$ 4,123,759
$ 4,123,759
$ 4,123,759
303,295
303,295
303,295
$
$
$
(195,750)
(195,750)
(195,750)
$
$
$
278,541
278,541
278,541
474,291
474,291
474,291
$
$
$
278,541
278,541
278,541
_______________
_______________
_______________
(1) Available-for-sale debt securities include approximately $192.5 million of mortgage-backed securities which pay interest and principal monthly to the Company.
(1) Available-for-sale debt securities include approximately $192.5 million of mortgage-backed securities which pay interest and principal monthly to the Company.
(1) Available-for-sale debt securities include approximately $192.5 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $84.0 million represents securities that have variable rates of interest after a fixed interest period. These securities will experience rate changes at
Of this total, $84.0 million represents securities that have variable rates of interest after a fixed interest period. These securities will experience rate changes at
Of this total, $84.0 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.
varying times over the next ten years. This table does not show the effect of these monthly repayments of principal or rate changes.
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
(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
(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.
is nothing to reprice.
is nothing to reprice.
38
38
38
59
60
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2018 and 2017
61
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018,
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, 2018, based on Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 7, 2019 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 7, 2019
62
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2018 and 2017
(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
2018
2017
$
110,108
$
115,600
92,634
202,742
126,653
242,253
243,968
179,179
—
1,650
130
8,203
Loans receivable, net of allowance for loan losses of $38,409 and $36,492 at
December 31, 2018 and 2017, respectively
3,989,001
3,726,302
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
13,448
55,336
8,440
12,338
47,122
22,002
132,424
138,018
9,288
12,438
7,465
10,850
11,182
16,942
Total assets
$
4,676,200
$
4,414,521
See Notes to Consolidated Financial Statements
63
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2018 and 2017
(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 and other interest-bearing liabilities
Subordinated debentures issued to capital trust
Subordinated notes
Accrued interest payable
Advances from borrowers for taxes and insurance
Accrued expenses and other liabilities
$
2018
2017
3,725,007
—
105,253
192,725
25,774
73,842
3,570
5,092
12,960
$
3,597,144
127,500
80,531
16,604
25,774
73,688
2,904
5,319
13,395
Total liabilities
4,144,223
3,942,859
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2018 and 2017 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2018 – 14,151,198 shares, 2017 –
14,087,533 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes of $2,844
and $708 at December 31, 2018 and 2017, respectively
Total stockholders’ equity
—
—
142
30,121
492,087
9,627
531,977
—
—
141
28,203
442,077
1,241
471,662
Total liabilities and stockholders’ equity
$
4,676,200
$
4,414,521
See Notes to Consolidated Financial Statements
2
64
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2018, 2017 and 2016
(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 on derivative interest rate products
Gain on sale of business units
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
2018
2017
2016
$
$
198,226
7,723
205,949
$
176,654
6,407
183,061
178,883
6,292
185,175
27,957
3,985
765
953
4,097
37,757
168,192
7,150
161,042
1,137
21,695
1,788
2
1,622
25
7,414
—
—
2,535
36,218
60,215
25,628
3,348
2,674
2,460
1,047
3,272
3,423
4,919
575
1,562
6,187
115,310
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
See Notes to Consolidated Financial Statements
3
65
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2018, 2017 and 2016
(In Thousands, Except Per Share Data)
Income Before Income Taxes
Provision for Income Taxes
Net Income and Net Income Available to Common
Shareholders
Earnings Per Common Share
Basic
Diluted
2018
2017
2016
81,950
$
70,322
$
61,858
14,841
18,758
16,516
67,109
4.75
4.71
$
$
$
51,564
3.67
3.64
$
$
$
45,342
3.26
3.21
$
$
$
$
See Notes to Consolidated Financial Statements
4
66
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2018, 2017 and 2016
(In Thousands)
Net Income
$
67,109
$
51,564
$
45,342
2018
2017
2016
Unrealized depreciation on available-for-sale securities,
net of taxes (credit) of $(353), $(272) and $(1,346) for
2018, 2017 and 2016, respectively
Less: reclassification adjustment for gains included in
net income, net of taxes (credit) of $0, $0 and
$(1,043) for 2018, 2017 and 2016, respectively
Change in fair value of cash flow hedge, net of taxes of
$2,761, $93 and $50 for 2018, 2017 and 2016,
respectively
Other comprehensive income (loss)
(1,229)
(478)
(2,363)
(2)
—
(1,830)
9,345
8,114
161
(317)
87
(4,106)
Comprehensive Income
$
75,223
$
51,247
$
41,236
See Notes to Consolidated Financial Statements
5
67
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2018, 2017 and 2016
(In Thousands, Except Per Share Data)
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2018, 2017 and 2016
(In Thousands, Except Per Share Data)
Common
Stock
Common
Stock
$
Balance, January 1, 2016
Balance, January 1, 2016
Net income
Net income
Stock issued under Stock Option Plan
Stock issued under Stock Option Plan
Common dividends declared, $.88 per share
Common dividends declared, $.88 per share
Other comprehensive loss
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Reclassification of treasury stock per Maryland law
Balance, December 31, 2016
Balance, December 31, 2016
Net income
Net income
Stock issued under Stock Option Plan
Stock issued under Stock Option Plan
Common dividends declared, $.94 per share
Common dividends declared, $.94 per share
Other comprehensive loss
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Reclassification of treasury stock per Maryland law
Balance, December 31, 2017
Balance, December 31, 2017
Net income
Net income
Stock issued under Stock Option Plan
Stock issued under Stock Option Plan
Common dividends declared, $1.20 per share
Common dividends declared, $1.20 per share
Purchase of the Company’s common stock
Purchase of the Company’s common stock
Reclassification of stranded tax effects resulting from change in Federal
Reclassification of stranded tax effects resulting from change in Federal
income tax rate
income tax rate
Other comprehensive gain
Other comprehensive gain
Reclassification of treasury stock per Maryland law
Reclassification of treasury stock per Maryland law
$
139
—
—
—
—
1
140
—
—
—
—
1
141
—
—
—
—
—
—
1
139
—
—
—
—
1
140
—
—
—
—
1
141
—
—
—
—
—
—
1
Balance, December 31, 2018
Balance, December 31, 2018
$
142
$
142
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
68
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury
Stock
Total
$
24,371
—
1,571
—
—
—
25,942
—
2,261
—
—
—
28,203
—
1,918
—
—
—
—
—
$
$
368,053
45,342
—
(12,250)
—
1,021
402,166
51,564
—
(13,202)
—
1,549
442,077
67,109
—
(16,966)
—
(272)
—
139
5,664
—
—
—
(4,106)
—
1,558
—
—
—
(317)
—
1,241
—
—
—
—
272
8,114
—
$
— $
—
1,022
—
—
(1,022)
—
—
1,550
—
—
(1,550)
—
—
1,043
—
(903)
—
—
(140)
398,227
45,342
2,593
(12,250)
(4,106)
—
429,806
51,564
3,811
(13,202)
(317)
—
471,662
67,109
2,961
(16,966)
(903)
—
8,114
—
$
30,121
$
492,087
$
9,627
$
— $
531,977
69
6
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2018, 2017 and 2016
(In Thousands)
Operating Activities
Net income
Proceeds from sales of loans held for sale
Originations of loans held for sale
Items not requiring (providing) cash
Depreciation
Amortization
Compensation expense for stock option grants
Provision for loan losses
Net gains on loan sales
Net realized gains on available-for-sale securities
(Gain) loss on sale of premises and equipment
(Gain) loss on sale/write-down of other real estate
and repossessions
Gain on sales of business units
(Gain) loss realized on termination of loss sharing
agreements
(Accretion) amortization of deferred income,
premiums, discounts and other
Gain 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
2018
2017
2016
$
67,109
92,422
(83,806)
$
51,564
138,659
(126,215)
$
45,342
156,835
(156,036)
9,118
2,291
737
7,150
(1,788)
(2)
193
1,886
(7,414)
—
(2,918)
(25)
(4,450)
(1,110)
3,002
280
11,520
94,195
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
See Notes to Consolidated Financial Statements
7
70
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2018, 2017 and 2016
(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 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 (purchase) of Federal Home Loan Bank stock
2018
2017
2016
$
(147,945)
(128,038)
$
136,596
(133,018)
$
—
—
—
(50,356)
(9,317)
2,328
20,426
(153)
130
502
25,734
(93,378)
(1,256)
—
—
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
Net cash provided by (used in) investing activities
(381,323)
81,379
(198,730)
See Notes to Consolidated Financial Statements
8
71
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2018, 2017 and 2016
(In Thousands)
Financing Activities
Net increase (decrease) in certificates of deposit
Net increase (decrease) in checking and savings accounts
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net increase (decrease) in short-term borrowings and other
interest-bearing liabilities
Proceeds from issuance of subordinated notes
Advances from (to) borrowers for taxes and insurance
Purchase of the Company’s common stock
Dividends paid
Stock options exercised
2018
2017
2016
$
242,955
(53,956)
2,621,500
(2,749,000)
$
(114,714)
34,796
1,420,500
(1,324,435)
$
162,763
36,126
1,793,000
(2,025,070)
200,843
—
(227)
(903)
(15,819)
2,224
(188,888)
—
676
—
(12,894)
3,247
168,546
73,472
(38)
—
(12,232)
2,110
Net cash provided by (used in) financing activities
247,617
(181,712)
198,677
Increase (Decrease) in Cash and Cash Equivalents
(39,511)
(37,516)
80,586
Cash and Cash Equivalents, Beginning of Year
242,253
279,769
199,183
Cash and Cash Equivalents, End of Year
$
202,742
$
242,253
$
279,769
See Notes to Consolidated Financial Statements
9
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, Okla., Chicago, Ill.,
Atlanta, Ga., Denver, Colo. and Omaha, Neb. 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.
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.
73
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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.
74
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Loans Originated by the Company
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest
income is reported on the interest method and includes amortization of net deferred loan fees and costs over the
loan term. Past due status is based on the contractual terms of a loan. Generally, loans are placed on nonaccrual
status at 90 days past due and interest is considered a loss, unless the loan is well secured and in the process of
collection. Payments received on nonaccrual loans are applied to principal until the loans are returned to accrual
status. Loans are returned to accrual status when all payments contractually due are brought current, payment
performance is sustained for a period of time, generally six months, and future payments are reasonably assured.
With the exception of consumer loans, charge-offs on loans are recorded when available information indicates a
loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are charged-off at specified
delinquency dates consistent with regulatory guidelines.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan
losses charged to earnings. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are
classified as impaired. For 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.
75
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 acquired 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
13
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 agreements prior to their contractual termination dates. These acquisitions and agreements are
more fully discussed in Note 4.
Other Real Estate Owned and Repossessions
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 years ended December 31, 2018 and 2017. At December
31, 2018, the remaining valuation allowance related to various properties was $928,000.
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14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Goodwill and Intangible Assets
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A
qualitative assessment is performed to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If,
based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying
value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its
carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value.
Subsequent increases in goodwill fair value are not recognized in the financial statements.
Intangible assets are being amortized on the straight-line basis generally over a period of seven years. Such assets
are periodically evaluated as to the recoverability of their carrying value.
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Deposit intangibles
Sun Security Bank
InterBank
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2018
2017
(In Thousands)
$
5,396
$
—
36
275
1,000
2,581
3,892
5,396
263
181
397
1,400
3,213
5,454
$
9,288
$
10,850
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.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares
outstanding during each year. Diluted earnings per common share are computed using the weighted average
common shares and all potential dilutive common shares outstanding during the period.
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15
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Earnings per common share (EPS) were computed as follows:
2018
2016
2017
(In Thousands, Except Per Share Data)
Net income and net income available to
common shareholders
$
67,109
$
51,564
$
45,342
Average common shares outstanding
14,132
14,032
13,912
Average common share stock options
outstanding
Average diluted common shares
Earnings per common share – basic
Earnings per common share – diluted
128
14,260
148
14,180
$
$
4.75
4.71
$
$
3.67
3.64
$
$
229
14,141
3.26
3.21
Options outstanding at December 31, 2018, 2017 and 2016, to purchase 424,833, 253,711 and 108,450 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, 2018, 2017 and 2016, 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, 2018,
2017 and 2016, share-based compensation expense totaling $737,000, $564,000 and $483,000, respectively, was
included in salaries and employee benefits expense in the consolidated statements of income.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.
At December 31, 2018 and 2017, cash equivalents consisted of interest-bearing deposits in other financial institutions.
At December 31, 2018, 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.
79
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and
2017, no valuation allowance was established.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries.
Derivatives and Hedging Activities
FASB ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and hedging
activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and
why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged
items and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives
and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses
on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
For detailed disclosures on derivatives and hedging activities, see Note 17.
As required by FASB ASC 815, the Company records all derivatives in the statement of financial condition at fair
value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative,
whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting
and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
Restriction on Cash and Due From Banks
The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve
required at December 31, 2018 and 2017, respectively, was $62.6 million and $59.1 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 determined that certain components of our non-interest income 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.
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17
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Under ASU 2014-09, for revenue not associated with financial instruments, we apply the following steps when
recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance
obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations
and (v) recognize revenue when performance obligation is satisfied. Our contracts with customers are generally
short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice
period. Performance obligations for our customer contracts are generally satisfied at a single point in time,
typically when the transaction is complete, or over time. For performance obligations satisfied over time, we
primarily use the output method, directly measuring the value of the products/services transferred to the customer,
to determine when performance obligations have been satisfied. We typically receive payment from customers and
recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs
within a single financial reporting period. For payments received in advance of the satisfaction of performance
obligations, revenue recognition is deferred until such time the performance obligations have been satisfied. In
cases where we have not received payment despite satisfaction of our performance obligations, we accrue an
estimate of the amount due in the period our performance obligations have been satisfied. For contracts with
variable components, only amounts for which collection is probable are accrued. We generally act in a principal
capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue
and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in
an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such
transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial
statements. These transactions primarily relate to fees derived from our customers' use of various interchange and
ATM/debit card networks.
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. The update enhances the reporting model for financial instruments to provide users of
financial statements with more decision-useful information by updating certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. Among other changes, the update requires public business entities
to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 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.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018 FASB issued ASU No.
2018-10, Codification Improvements to Topic 842, Leases. 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 was effective for the Company January 1, 2019. Adoption of the
standard requires the use of a modified retrospective transition approach for all periods presented at the time of
adoption. Based on the Company’s leases outstanding at December 31, 2018, which totaled less than 20 leased
properties and no significant leased equipment, the adoption of the new standard did not have a material impact on our
consolidated statements of financial condition or our consolidated statements of income, although an increase to assets
and liabilities occurs at the time of adoption. In the first quarter of 2019, the Company recognized a lease liability and
a corresponding right-of-use asset for all leases of approximately $9 million based on our current lease portfolio.
Subsequent to December 31, 2018, the Company’s lease terminations, new leases and lease modifications and
renewals will impact the amount of lease liability and a corresponding right-of-use asset recognized. The Company’s
leases are currently all “operating leases” as defined in the Update; therefore, no material change in the income
statement presentation of lease expense is anticipated.
81
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 completed the upload of the necessary historical loan data to the software that will be
used in meeting certain requirements of this standard. Parallel testing of the new methodology compared to the
current methodology will commence in the first quarter of 2019. 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.
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
19
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 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 Company early adopted the ASU on a prospective basis effective October 1, 2018,
and the adoption did not have a material effect on the Company’s consolidated 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 chose to early adopt
ASU 2018-02 effective January 1, 2018. The stranded tax amount related to unrealized gains and losses on
available for sale securities, which was reclassified from accumulated other comprehensive income to retained
earnings at the time of adoption, was $272,000. There were no other income tax effects related to the application
of the Act to be reclassified from AOCI to retained earnings.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure
requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no
longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add
disclosure requirements identified as relevant. ASU 2018-13 is effective for periods beginning after December 15,
2019, with early adoption permitted for certain removed and modified disclosures, and is not expected to have a
significant impact on our financial statements.
83
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Note 2:
Investments in Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
Amortized
Cost
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Agency mortgage-backed securities
Agency collateralized mortgage
$
154,557
obligations
States and political subdivisions
39,024
50,022
$
243,603
Amortized
Cost
$
$
123,300
53,930
177,230
Agency mortgage-backed securities
States and political subdivisions
(In Thousands)
1,272
$
2,571
$
153,258
250
1,428
14
—
39,260
51,450
2,950
$
2,585
$
243,968
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
871
2,716
3,587
$
$
1,638
—
1,638
$
$
122,533
56,646
179,179
$
$
$
$
At December 31, 2018, the Company’s agency mortgage-backed securities portfolio consisted of FHLMC
securities totaling $37.2 million, FNMA securities totaling $92.1 million and GNMA securities totaling $23.9
million. At December 31, 2018, agency collateralized mortgage obligations consisted of GNMA securities
totaling $39.3 million, all of which are commercial multi-family fixed rate securities. At December 31, 2018,
$108.5 million of the Company’s agency mortgage-backed securities had fixed rates of interest and $84.0 million
had variable rates of interest. Of the total FNMA securities at December 31, 2018, $56.3 million are commercial
multi-family fixed rate securities.
The amortized cost and fair value of available-for-sale securities at December 31, 2018, 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)
$
849
9,959
39,214
193,581
$
919
10,139
40,392
192,518
$
243,603
$
243,968
21
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The amortized cost and fair values of securities classified as held to maturity were as follows. There were no
securities classified as held to maturity at December 31, 2018:
Amortized
Cost
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
States and political
subdivisions
$
130
$
1
$
—
$
131
The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2018 and
2017:
Public deposits
Collateralized borrowing
accounts
Other
2018
2017
Amortized
Cost
Fair
Value
Amortized
Cost
(In Thousands)
Fair
Value
$
9,482
$
9,802
$
10,958
$
11,490
148,050
763
146,337
761
120,622
1,579
119,776
1,601
$
158,295
$
156,900
$
133,159
$
132,867
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, 2018 and 2017, was approximately $95.7 million and
$89.7 million, respectively, which is approximately 39.2% and 50.0% of the Company’s available-for-sale and
held-to-maturity investment portfolio, respectively.
Based on evaluation of available evidence, including recent changes in market interest rates, credit rating
information and information obtained from regulatory filings, management believes the declines in fair value for
these debt securities are temporary.
85
22
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, 2018, 2017 and 2016
December 31, 2018, 2017 and 2016
December 31, 2018, 2017 and 2016
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position at
category and length of time that individual securities have been in a continuous unrealized loss position at
category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2018 and 2017:
December 31, 2018 and 2017:
December 31, 2018 and 2017:
Description of Securities
Description of Securities
Description of Securities
Agency mortgage-backed
Agency mortgage-backed
Agency mortgage-backed
securities
securities
securities
Agency collateralized
Agency collateralized
Agency collateralized
mortgage obligations
mortgage obligations
mortgage obligations
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
2018
2018
2018
12 Months or More
12 Months or More
12 Months or More
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Losses
Value
Value
(In Thousands)
(In Thousands)
(In Thousands)
Total
Total
Total
Fair
Value
Fair
Fair
Value
Value
Unrealized
Losses
Unrealized
Unrealized
Losses
Losses
$
$
$
11,255
11,255
11,255
$
$
$
(82)
(82)
(82)
$
$
$
74,186
74,186
74,186
$
$
$
(2,489)
(2,489)
(2,489)
$
$
$
85,441
85,441
85,441
$
$
(2,571)
$
(2,571)
(2,571)
9,725
9,725
9,725
511
511
511
(14)
(14)
(14)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,725
9,725
9,725
(14)
(14)
(14)
511
511
511
—
—
—
$
$
$
21,491
21,491
21,491
$
$
$
(96)
(96)
(96)
$
$
$
74,186
74,186
74,186
$
$
$
(2,489)
(2,489)
(2,489)
$
$
$
95,677
95,677
95,677
$
$
(2,585)
$
(2,585)
(2,585)
Description of Securities
Description of Securities
Description of Securities
Agency mortgage-backed
Agency mortgage-backed
Agency mortgage-backed
securities
securities
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
Fair
Unrealized
Fair
Unrealized
Losses
Losses
Value
Value
Losses
Value
2017
2017
2017
12 Months or More
12 Months or More
12 Months or More
Unrealized
Fair
Unrealized
Fair
Fair
Unrealized
Losses
Losses
Value
Losses
Value
Value
(In Thousands)
(In Thousands)
(In Thousands)
Total
Total
Total
Fair
Value
Fair
Fair
Value
Value
Unrealized
Losses
Unrealized
Unrealized
Losses
Losses
$
$
$
33,862
33,862
33,862
$
$
$
(384)
(384)
(384)
$
$
$
55,845
55,845
55,845
$
$
$
(1,254)
(1,254)
(1,254)
$
$
$
89,707
89,707
89,707
$
$
(1,638)
$
(1,638)
(1,638)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
33,862
33,862
33,862
$
$
$
(384)
(384)
(384)
$
$
$
55,845
55,845
55,845
$
$
$
(1,254)
(1,254)
(1,254)
$
$
$
89,707
89,707
89,707
$
$
(1,638)
$
(1,638)
(1,638)
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 guidance for
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for
beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting
beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting
beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting
guidance for investments in debt and equity securities.
guidance for investments in debt and equity securities.
guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment
guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity
guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity
guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity
securities. For securities where the security is a beneficial interest in securitized financial assets, the Company
securities. For securities where the security is a beneficial interest in securitized financial assets, the Company
securities. For securities where the security is a beneficial interest in securitized financial assets, the Company
uses the beneficial interests in securitized financial asset impairment model. For securities where the security is
uses the beneficial interests in securitized financial asset impairment model. For securities where the security is
uses the beneficial interests in securitized financial asset impairment model. For securities where the security is
not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment
not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment
not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment
model. The Company does not currently have securities within the scope of this guidance for beneficial interests
model. The Company does not currently have securities within the scope of this guidance for beneficial interests
model. The Company does not currently have securities within the scope of this guidance for beneficial interests
in securitized financial assets.
in securitized financial assets.
in securitized financial assets.
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether an other-than-temporary impairment has occurred. The Company considers the length of time a security
whether an other-than-temporary impairment has occurred. The Company considers the length of time a security
whether an other-than-temporary impairment has occurred. The Company considers the length of time a security
has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of
has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of
has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of
the security, the type of security and other factors. If certain criteria are met, the Company performs additional
the security, the type of security and other factors. If certain criteria are met, the Company performs additional
the security, the type of security and other factors. If certain criteria are met, the Company performs additional
review and evaluation using observable market values or various inputs in economic models to determine if an
review and evaluation using observable market values or various inputs in economic models to determine if an
review and evaluation using observable market values or various inputs in economic models to determine if an
unrealized loss is other than temporary. The Company uses quoted market prices for marketable equity securities
unrealized loss is other than temporary. The Company uses quoted market prices for marketable equity securities
unrealized loss is other than temporary. The Company uses quoted market prices for marketable equity securities
and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock
and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock
and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock
23
23
23
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
exchange. For nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than
temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that
calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine
the projected collateral loss. The Company also evaluates any current credit enhancement underlying these
securities to determine the impact on cash flows. If the Company determines that a given security position will be
subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.
During 2018, 2017 and 2016, no securities were determined to have impairment that had become other than
temporary.
Credit Losses Recognized on Investments
During 2018, 2017 and 2016, there were no debt securities that have experienced fair value deterioration due to
credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired.
Note 3:
Loans and Allowance for Loan Losses
Classes of loans at December 31, 2018 and 2017, 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
Loans acquired and accounted for under ASC 310-30, net of
discounts
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
2018
2017
(In Thousands)
$
$
26,177
13,844
44,492
1,417,166
276,866
122,438
1,371,435
784,894
322,118
13,940
253,528
57,350
121,352
167,651
4,993,251
(958,441)
(38,409)
(7,400)
3,989,001
$
$
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
209,669
4,562,963
(793,669)
(36,492)
(6,500)
3,726,302
87
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Classes of loans by aging were as follows:
December 31, 2018
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Days
Due
Total
Loans
Total Loans
> 90 Days Past
Due and
Current
Receivable Still Accruing
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
Loans acquired and accounted
for under ASC 310-30, net
of discounts
Less loans acquired and
accounted for under ASC
310-30, net of discounts
(In Thousands)
$
— $
—
13
—
— $
—
—
—
— $
—
49
—
— $
—
62
—
26,177
13,844
44,430
1,417,166
$
26,177
13,844
44,492
1,417,166
$
1,431
1,142
3,940
—
72
3
2,596
691
229
806
144
53
—
54
—
722
181
—
1,206
3,443
273,423
276,866
1,458
334
—
1,437
—
1,490
240
86
2,744
4,327
—
1,563
3
4,808
1,112
315
119,694
1,367,108
784,894
320,555
13,937
248,720
56,238
121,037
122,438
1,371,435
784,894
322,118
13,940
253,528
57,350
121,352
2,195
12,312
1,416
3,376
6,827
13,127
10,438
28,815
157,213
4,964,436
167,651
4,993,251
2,195
1,416
6,827
10,438
157,213
167,651
Total
$
10,117
$
1,960
$
6,300
$ 18,377
$ 4,807,223
$ 4,825,600
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
88
25
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
December 31, 2018, 2017 and 2016
December 31, 2017
December 31, 2017
30-59 Days 60-89 Days Over 90 Total Past
30-59 Days 60-89 Days Over 90 Total Past
Past Due
Past Due
Past Due
Past Due
Days
Days
Due
Due
(In Thousands)
(In Thousands)
Current
Current
Total Loans
Total Loans
> 90 Days
> 90 Days
Total
Loans
Past Due and
Past Due and
Receivable Still Accruing
Receivable Still Accruing
Total
Loans
family residential
One- to four-family
Non-owner occupied one- to
four-family residential
One- to four-family
residential construction
residential construction
Subdivision construction
Subdivision construction
Land development
Land development
Commercial construction
Commercial construction
Owner occupied one- to four-
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Commercial real estate
Other residential
Other residential
Commercial business
Commercial business
Industrial revenue bonds
Industrial revenue bonds
Consumer auto
Consumer auto
Consumer other
Consumer other
Home equity lines of credit
Home equity lines of credit
Loans acquired and
Loans acquired and
accounted for under
accounted for under
ASC 310-30,
ASC 310-30,
net of discounts
net of discounts
Less loans acquired and
Less loans acquired and
accounted for under
accounted for under
ASC 310-30, net of
ASC 310-30, net of
discounts
discounts
$
$
$
$
250
250
—
—
54
54
—
—
— $
— $
—
—
37
37
—
—
— $
— $
98
98
—
—
—
—
250
250
98
98
91
91
—
—
$
$
$
20,543
20,543
17,964
17,964
43,880
43,880
1,068,352
1,068,352
$
20,793 $
20,793 $
18,062
18,062
43,971
43,971
1,068,352
1,068,352
1,927
1,927
71
71
904
904
2,902
2,902
187,613
187,613
190,515
190,515
947
947
8,346
8,346
540
540
2,623
2,623
—
—
5,196
5,196
464
464
58
58
190
190
993
993
353
353
1,282
1,282
—
—
1,230
1,230
64
64
—
—
1,816
1,816
1,226
1,226
1,877
1,877
2,063
2,063
—
—
2,284
2,284
557
557
430
430
2,953
2,953
10,565
10,565
2,770
2,770
5,968
5,968
—
—
8,710
8,710
1,085
1,085
488
488
116,515
116,515
1,224,764
1,224,764
742,875
742,875
347,383
347,383
21,859
21,859
348,432
348,432
62,283
62,283
114,951
114,951
119,468
119,468
1,235,329
1,235,329
745,645
745,645
353,351
353,351
21,859
21,859
357,142
357,142
63,368
63,368
115,439
115,439
—
—
—
—
—
—
—
—
—
—
58
—
—
—
—
12
—
26
58
—
—
—
—
12
—
26
4,449
4,449
24,854
24,854
1,951
6,171
1,951
6,171
10,675
21,930
10,675
21,930
17,075
52,955
17,075
52,955
192,594
192,594
4,510,008
4,510,008
209,669
209,669
4,562,963
4,562,963
272
368
272
368
4,449
4,449
1,951
1,951
10,675
10,675
17,075
17,075
192,594
192,594
209,669
209,669
272
272
Total
Total
$
$
20,405
20,405
$
$
4,220
4,220
$ 11,255
$ 11,255
$ 35,880
$ 35,880
$ 4,317,414
$ 4,317,414
$ 4,353,294
$ 4,353,294
$
$
96
96
89
26
26
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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,
2018
2017
(In Thousands)
$
—
49
—
—
1,206
1,458
334
—
1,437
—
1,490
240
86
—
98
—
—
904
1,758
1,226
1,877
2,063
—
2,272
557
404
Total
$
6,300
$
11,159
90
27
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
December 31, 2018, 2017 and 2016
The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended
The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended
December 31, 2018, 2017 and 2016, respectively. Also presented are the balance in the allowance for loan losses
December 31, 2018, 2017 and 2016, 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
and the recorded investment in loans based on portfolio segment and impairment method as of the years ended
December 31, 2018, 2017, and 2016, respectively:
December 31, 2018, 2017, and 2016, respectively:
December 31, 2018
December 31, 2018
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, 2018
Balance, January 1, 2018
Provision (benefit)
Provision (benefit)
charged to expense
charged to expense
Losses charged off
Recoveries
Losses charged off
Recoveries
Balance,
Balance,
$
$
2,108
2,108
$
$
2,839
2,839
$
$
18,639
18,639
$
$
1,767
1,767
$
$
3,581
3,581
$
$
7,558
7,558
$
$
36,492
36,492
742
742
(62)
(62)
334
334
1,982
1,982
(525)
(525)
417
417
1,094
1,094
(102)
(102)
172
172
1,031
1,031
(87)
(87)
394
394
(1,613)
(1,613)
(1,155)
(1,155)
755
755
3,914
3,914
(9,425)
(9,425)
4,051
4,051
7,150
7,150
(11,356)
(11,356)
6,123
6,123
December 31, 2018
December 31, 2018
$
$
3,122
3,122
$
$
4,713
4,713
$
$
19,803
19,803
$
$
3,105
3,105
$
$
1,568
1,568
$
$
6,098
6,098
$
$
38,409
38,409
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
$
$
694
694
$
$
— $
— $
613
613
$
$
—
—
$
$
309
309
$
$
425
425
$
$
2,041
2,041
$
$
2,392
2,392
$
$
4,681
4,681
$
$
18,958
18,958
$
$
3,029
3,029
$
$
1,247
1,247
$
$
5,640
5,640
$
$
35,947
35,947
$
$
36
36
$
$
32
32
$
$
232
232
$
$
76
76
$
$
12
12
$
$
33
33
$
$
421
421
$
$
6,116
6,116
$
$
— $
— $
3,501
3,501
$
$
14
14
$
$
1,844
1,844
$
$
2,464
2,464
$
$
13,939
13,939
$
$
433,209
433,209
$ 784,894
$ 784,894
$ 1,367,934
$ 1,367,934
$ 1,461,644
$ 1,461,644
$
$
334,214
334,214
$
$
429,766
429,766
$4,811,661
$4,811,661
$
$
93,841
93,841
$
$
12,790
12,790
$
$
33,620
33,620
$
$
4,093
4,093
$
$
4,347
4,347
$
$
18,960
18,960
$ 167,651
$ 167,651
91
28
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
92
29
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
December 31, 2018, 2017 and 2016
December 31, 2016
December 31, 2016
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, 2016
Balance, January 1, 2016
Provision (benefit)
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Losses charged off
Recoveries
charged to expense
$
$
4,900
4,900
$
$
3,190
3,190
$
$
14,738
14,738
$
$
3,019
3,019
$
$
4,203
4,203
$
$
8,099
8,099
$
$
38,149
38,149
(2,407)
(2,407)
(229)
(229)
58
58
2,260
2,260
(16)
(16)
52
52
5,632
(5,653)
1,221
5,632
(5,653)
1,221
(827)
(827)
(31)
(31)
123
123
(926)
(589)
327
(926)
(589)
327
5,549
(8,751)
3,458
5,549
(8,751)
3,458
9,281
9,281
(15,269)
(15,269)
5,239
5,239
Balance,
Balance,
December 31, 2016
December 31, 2016
$
$
2,322
2,322
$
$
5,486
5,486
$
$
15,938
15,938
$
$
2,284
2,284
$
$
3,015
3,015
$
$
8,355
8,355
$
$
37,400
37,400
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
$
$
570
570
$
$
— $
— $
2,209
2,209
$
$
1,291
1,291
$
$
1,295
1,295
$
$
997
997
$
$
6,362
6,362
$
$
1,628
1,628
$
$
5,396
5,396
$
$
13,507
13,507
$
$
953
953
$
$
1,681
1,681
$
$
7,248
7,248
$
$
30,413
30,413
$
$
124
124
$
$
90
90
$
$
222
222
$
$
40
40
$
$
39
39
$
$
110
110
$
$
625
625
$
$
6,015
6,015
$
$
3,812
3,812
$
$
10,507
10,507
$
$
6,023
6,023
$
$
4,539
4,539
$
$
3,385
3,385
$
$
34,281
34,281
$
$
370,172
370,172
$ 659,566
$ 659,566
$ 1,176,399
$ 1,176,399
$
$
825,215
825,215
$
$
369,154
369,154
$
$
669,602
669,602
$4,070,108
$4,070,108
$
$
155,378
155,378
$
$
29,600
29,600
$
$
54,208
54,208
$
$
2,191
2,191
$
$
6,429
6,429
$
$
35,353
35,353
$ 283,159
$ 283,159
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-family
residential construction, subdivision construction, owner occupied one- to four-family residential and
non-owner occupied one- to four-family residential classes.
The other residential segment corresponds to the other residential class.
The commercial real estate segment includes the commercial real estate and industrial revenue bonds
classes.
The commercial construction segment includes the land development and commercial construction
classes.
The commercial business segment corresponds to the commercial business class.
The consumer segment includes the consumer auto, consumer other and home equity lines of credit
classes.
The one- to four-family residential and construction segment includes the one- to four-family
residential construction, subdivision construction, owner occupied one- to four-family residential and
non-owner occupied one- to four-family residential classes.
The other residential segment corresponds to the other residential class.
The commercial real estate segment includes the commercial real estate and industrial revenue bonds
classes.
The commercial construction segment includes the land development and commercial construction
classes.
The commercial business segment corresponds to the commercial business class.
The consumer segment includes the consumer auto, consumer other and home equity lines of credit
classes.
The weighted average interest rate on loans receivable at December 31, 2018 and 2017, was 5.16% and 4.74%,
respectively.
The weighted average interest rate on loans receivable at December 31, 2018 and 2017, was 5.16% and 4.74%,
respectively.
93
30
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Loans serviced for others are not included in the accompanying consolidated statements of financial condition. The
unpaid principal balance of loans serviced for others at December 31, 2018, was $260.2 million, consisting of
$181.5 million of commercial loan participations sold to other financial institutions and $78.7 million of residential
mortgage loans sold. The unpaid principal balance of loans serviced for others at December 31, 2017, was $254.0
million, consisting of $164.8 million of commercial loan participations sold to other financial institutions and $89.2
million of residential mortgage loans sold. In addition, available lines of credit on these loans were $121.0 million
and $37.8 million at December 31, 2018 and 2017, 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,
2018, 2017 and 2016:
December 31, 2018
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2018
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
$
— $
— $
318
14
—
3,576
2,222
3,501
—
1,844
—
1,874
479
111
318
18
—
3,926
2,519
3,665
—
2,207
—
2,114
684
128
—
105
—
—
285
304
613
—
309
—
336
72
17
$
— $
321
14
—
3,406
2,870
6,216
1,026
2,932
—
2,069
738
412
—
17
1
—
197
158
337
20
362
—
167
59
28
Total
$
13,939
$
15,579
$
2,041
$
20,004
$
1,346
94
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
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
95
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
At December 31, 2018, $8.4 million of impaired loans had specific valuation allowances totaling $2.0 million. 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. For
impaired loans which were nonaccruing, interest of approximately $1.0 million, $1.2 million and $1.5 million
would have been recognized on an accrual basis during the years ended December 31, 2018, 2017 and 2016,
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 2018 and 2017 by type of modification:
Mortgage loans on real estate:
Residential one-to-four family
Construction and land development
Commercial
Consumer
Mortgage loans on real estate:
Commercial
Commercial business
Consumer
2018
Interest Only
Term
Combination
(In Thousands)
$
$
$
1,348
—
—
—
— $
31
—
535
1,348
$
566
$
—
—
106
—
106
2017
Interest Only
Term
Combination
(In Thousands)
$
$
—
—
—
—
$
$
— $
16
245
261
$
5,759
274
—
6,033
$
$
$
$
Total
Modification
1,348
31
106
535
2,020
Total
Modification
5,759
290
245
6,294
33
96
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
At December 31, 2018, the Company had $6.9 million of loans that were modified in troubled debt restructurings
and impaired, as follows: $283,000 of construction and land development loans, $3.9 million of single family
residential mortgage loans, $1.3 million of commercial real estate loans, $548,000 of commercial business loans
and $803,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2018, $4.7 million
were accruing interest and $2.5 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, 2018. 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, 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. During the year ended December 31, 2018, borrowers with loans designated
as troubled debt restructurings totaling $87,000, all of which consisted of consumer loans, 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 Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans
as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans classified as watch are
being monitored because of indications of potential weaknesses or deficiencies that may require future
classification as special mention or substandard. Special mention loans possess potential weaknesses that deserve
management’s close attention but do not expose the Bank to a degree of risk that warrants substandard
classification. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss
if certain deficiencies are not corrected. Doubtful loans are those having all the weaknesses inherent to those
classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on
the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans not
meeting any of the criteria previously described are considered satisfactory. The FDIC-assisted acquired loans are
evaluated 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, 2018 and 2017, respectively. See
Note 4 for further discussion of the acquired loan pools and termination of the loss sharing agreements.
The Company evaluates the loan risk internal grading system definitions and allowance for loan loss methodology
on an ongoing basis. The general component of the allowance for loan losses is affected by 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 and internal risk ratings. Management
considers all these factors in determining the adequacy of the 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.
97
34
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2018
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
Loans acquired and accounted
for under ASC 310-30,
net of discounts
$
$
25,803
12,077
39,892
1,417,166
274,661
119,951
1,357,987
784,393
315,518
13,940
251,824
56,859
121,134
374
1,718
4,600
—
43
941
11,061
501
5,163
—
116
157
118
167,632
—
$
— $
—
—
—
— $
49
—
—
2,162
1,546
2,387
—
1,437
—
1,588
334
100
—
—
—
—
—
—
—
—
—
—
26,177
— $
13,844
—
—
44,492
— 1,417,166
—
276,866
—
122,438
— 1,371,435
784,894
—
322,118
—
13,940
—
253,528
—
57,350
—
121,352
—
19
—
167,651
Total
$ 4,958,837
$
24,792
$
— $
9,622
$
— $ 4,993,251
98
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Satisfactory
Watch
December 31, 2017
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
Loans acquired and accounted
for under ASC 310-30,
net of discounts
$
$
20,275
15,602
39,171
1,068,352
188,706
117,103
1,218,431
742,237
344,479
21,859
354,588
62,682
114,860
518
2,362
4,800
—
—
389
9,909
1,532
6,306
—
—
—
—
209,657
—
$
— $
—
—
—
— $
98
—
—
1,809
1,976
6,989
1,876
2,066
—
2,554
686
579
—
—
—
—
—
—
—
—
—
—
20,793
— $
18,062
—
43,971
—
— 1,068,352
—
190,515
—
119,468
— 1,235,329
745,645
—
353,351
500
21,859
—
357,142
—
63,368
—
115,439
—
12
—
209,669
Total
$ 4,518,002
$
25,816
$
— $
18,645
$
500
$ 4,562,963
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, 2018 and 2017, loans
outstanding to these directors and executive officers are summarized as follows:
Balance, beginning of year
New loans
Payments
Balance, end of year
2018
2017
(In Thousands)
$
$
40,041
17,141
(28,165)
29,017
$
$
24,793
19,734
(4,486)
40,041
99
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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. 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. 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 2018, 2017 and
2016 was $175,000, $269,000 and $359,000, respectively.
100
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 2018,
2017 and 2016 was $11,000, $217,000 and $491,000, respectively.
Loss Sharing Agreements
On April 26, 2016, Great Southern Bank executed an agreement with the FDIC to terminate the loss sharing
agreements for 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 termination agreement, assets that were covered by the terminated loss sharing agreements were
reclassified as non-covered assets effective April 26, 2016. 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.
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 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 has 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 are 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, 2018, 2017 and 2016, improvements in expected
38
101
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 and 2016, to the indemnification assets (which during 2017 were reduced to $-0- due to the termination of
the loss sharing agreements). The amounts of these adjustments were as follows:
Year Ended December 31,
2018
2017
2016
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
5,202
$
1,333
$
10,598
Decrease in FDIC indemnification asset
as a result of accretable yield increase
—
—
(2,744)
The adjustments, along with those made in previous years, impacted the Company’s Consolidated Statements of
Income as follows:
Interest income
Noninterest income
Net impact to pre-tax income
Year Ended December 31,
2018
2017
2016
5,134
—
(In Thousands)
$
5,014
(634)
5,134
$
4,380
$
$
$
$
16,393
(7,033)
9,360
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). 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, 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 $5.2 million were recorded in the
year ended December 31, 2018 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 to accretable yield will be recognized generally over the remaining lives of the loan
pools, they will impact future periods as well. As of December 31, 2018, the remaining accretable yield adjustment
that will affect interest income was $2.7 million. Of the remaining adjustments affecting interest income, we
expect to recognize $2.0 million of interest income during 2019. Additional adjustments to accretable yield 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. 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).
102
39
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and 2017. Through December 31,
2018, gross loan balances (due from borrowers) were reduced approximately $425.6 million since the transaction
date because of $293.0 million of repayments by the borrowers, $61.7 million of transfers to foreclosed assets and
$70.9 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.
December 31, 2018
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
$
10,602
$
(399)
(10,106)
Expected loss remaining
$
97
$
—
—
—
—
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
$
103
35
—
(35)
—
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and 2017. Through December 31,
2018, gross loan balances (due from borrowers) were reduced approximately $317.5 million since the transaction
date because of $271.9 million of repayments by the borrowers, $16.7 million of transfers to foreclosed assets and
$28.9 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.
December 31, 2018
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
$
14,097
$
(58)
(13,809)
Expected loss remaining
$
230
$
—
—
—
—
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
$
104
15
—
(15)
—
41
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and 2017. Through
December 31, 2018, gross loan balances (due from borrowers) were reduced approximately $213.3 million since
the transaction date because of $153.9 million of repayments by the borrowers, $28.6 million of transfers to
foreclosed assets and $30.8 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, 2018
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
$
21,171
$
(342)
(20,171)
Expected loss remaining
$
658
$
91
—
(61)
30
December 31, 2017
Loans
Foreclosed
Assets
(In Thousands)
$
26,787
$
306
(494)
(25,348)
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
$
945
$
105
—
(299)
7
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
InterBank Loans and Foreclosed Assets. The following tables present the balances of the acquired loans and
foreclosed assets related to the InterBank transaction at December 31, 2018 and 2017. Through December 31,
2018, gross loan balances (due from borrowers) were reduced approximately $308.2 million since the transaction
date because of $265.8 million of repayments by the borrowers, $20.0 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, 2018
Loans
Foreclosed
Assets
(In Thousands)
$
85,106
$
121
99
(1,695)
(74,436)
—
—
(106)
15
Expected loss remaining
$
9,074
$
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
106
43
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and 2017. Through December 31,
2018, gross loan balances (due from borrowers) were reduced approximately $139.7 million since the transaction
date because of $127.7 million of repayments by the borrowers, $4.0 million of transfers to foreclosed assets and
$8.0 million of charge-offs to customer loan balances. Based upon the collectability analyses performed at the
time of the acquisition, we expected certain levels of foreclosures and charge-offs and actual results have been
better than our expectations. As a result, cash flows expected to be received from the acquired loan pools have
increased, resulting in adjustments that were made to the related accretable yield as described above.
Initial basis, 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, 2018
Loans
Foreclosed
Assets
(In Thousands)
$
53,470
$
1,233
(169)
(49,124)
4,177
$
$
—
(1,233)
—
December 31, 2017
Loans
Foreclosed
Assets
(In Thousands)
$
59,997
$
1,673
11
(411)
—
—
(54,442)
5,155
$
(1,667)
6
$
107
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Changes in the accretable yield for acquired loan pools were as follows for the years ended December 31, 2018,
2017 and 2016:
TeamBank
Vantus Bank
Sun
Security Bank
(In Thousands)
Balance, January 1, 2016
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2016
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2017
Accretion
Reclassification from nonaccretable
difference(1)
$
3,805
(1,834)
$
506
2,477
(1,563)
1,157
2,071
(1,042)
327
3,360
(1,877)
1,064
2,547
(1,373)
676
1,850
(1,196)
778
$
5,924
(3,832)
2,185
4,277
(2,251)
875
2,901
(1,667)
1,008
InterBank
Valley Bank
$
16,347
(13,964)
$
8,316
(11,933)
6,129
8,512
(7,505)
4,067
5,074
(8,349)
8,269
8,414
4,797
(5,823)
3,721
2,695
(3,892)
4,260
Balance, December 31, 2018
$
1,356
$
1,432
$
2,242
$
4,994
$
3,063
(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, 2018, totaling $312,000, $778,000, $756,000, $4.1 million
and $3.5 million, respectively; 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; and 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.
108
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Note 5: Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2018 and 2017, 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
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
Other real estate owned and repossessions
2018
2017
(In Thousands)
—
1,092
3,191
—
269
—
—
—
928
5,480
167
1,234
6,881
1,559
8,440
$
—
5,413
7,229
—
112
140
1,694
—
1,987
16,575
2,133
1,666
20,374
1,628
$
22,002
$
$
At December 31, 2018, other real estate owned not acquired through foreclosure included nine properties, eight 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, 2018, one former branch location was sold at a
loss of $24,000, which is included in the net gains on sales of other real estate owned and repossessions amount in
the table below.
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 net gains on sales of other real estate owned and
repossessions amount in the table below.
At December 31, 2018, residential mortgage loans totaling $1.3 million were in the process of foreclosure, $1.0
million of which were acquired loans. Of the $1.0 million of acquired loans, $873,000 were previously covered by
loss sharing agreements and $171,000 were acquired in the Valley Bank transaction.
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.
109
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Expenses applicable to other real estate owned and repossessions for the years ended December 31, 2018, 2017
and 2016, included the following:
Net gains on sales of other real estate owned
and repossessions
Valuation write-downs
Operating expenses, net of rental income
2018
2017
(In Thousands)
2016
$
$
(2,522)
3,897
3,544
4,919
$
$
(2,212)
1,585
4,556
3,929
$
$
(68)
431
3,748
4,111
Note 6:
Premises and Equipment
Major classifications of premises and equipment at December 31, 2018 and 2017, stated at cost, were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
2018
2017
(In Thousands)
$
40,508
95,039
54,327
189,874
57,450
$
42,312
97,464
53,841
193,617
55,599
$
132,424
$
138,018
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, 2018 the Company had 17 such investments, with a net carrying value of
$22.9 million. At December 31, 2017, the Company had 16 such investments, with a net carrying value of $18.2
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 2029 were $33.1 million as of
December 31, 2018, 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 $29.3
million, assuming all projects currently under construction are completed and funded as planned. The Company’s
usage of federal affordable housing tax credits approximated $6.6 million, $6.6 million and $6.2 million during
2018, 2017 and 2016, respectively. Investment amortization amounted to $5.0 million, $5.2 million and $4.4
million for the years ended December 31, 2018, 2017 and 2016, respectively.
110
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018, the Company had one such
investment, with a net carrying value of $365,000. At December 31, 2017, the Company had two such
investments, with a net carrying value of $940,000. 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 $480,000 as of December 31,
2018. Amortization of the investments in partnerships is expected to be approximately $365,000. The Company’s
usage of federal New Market Tax Credits approximated $480,000, $1.2 million and $2.3 million during 2018,
2017 and 2016, respectively. Investment amortization amounted to $575,000, $930,000 and $1.7 million for the
years ended December 31, 2018, 2017 and 2016, 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.
111
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Note 8: Deposits
Deposits at December 31, 2018 and 2017, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2018
2017
(In Thousands, Except
Interest Rates)
—
$
661,061
$
661,589
0.46% - 0.32%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
1,472,535
2,133,596
150,656
511,873
857,973
69,793
1,116
—
1,591,411
1,565,711
2,227,300
254,502
1,006,373
106,888
701
1,108
272
1,369,844
$
3,725,007
$
3,597,144
The weighted average interest rate on certificates of deposit was 1.98% and 1.24% at December 31, 2018 and
2017, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than $100,000
was approximately $733.9 million and $598.2 million at December 31, 2018 and 2017, respectively. The Bank
utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was
approximately $326.9 million and $260.0 million at December 31, 2018 and 2017, respectively.
At December 31, 2018, scheduled maturities of certificates of deposit were as follows:
2019
2020
2021
2022
2023
Thereafter
Retail
Brokered
(In Thousands)
Total
$
928,900
219,704
73,724
26,012
14,705
1,444
$
286,922
40,000
—
—
—
—
$
1,215,822
259,704
73,724
26,012
14,705
1,444
$
1,264,489
$
326,922
$
1,591,411
112
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
A summary of interest expense on deposits for the years ended December 31, 2018, 2017 and 2016, is as follows:
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
2018
2017
(In Thousands)
2016
$
$
5,982
22,149
(174)
27,957
$
$
4,699
16,009
(113)
20,595
$
$
3,888
13,598
(99)
17,387
Note 9: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 2018 and 2017, consisted of the following:
December 31, 2018
December 31, 2017
Due In
Amount
Weighted
Average
Interest
Rate
Weighted
Average
Interest
Rate
Amount
(In Thousands)
2018
$
—
—%
$
127,500
1.53%
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, 2018 and 2017. Loans with carrying values of approximately $1.36
billion and $1.11 billion were pledged as collateral for outstanding advances at December 31, 2018 and 2017,
respectively. The Bank had potentially available $666.8 million remaining on its line of credit under a borrowing
arrangement with the FHLB of Des Moines at December 31, 2018.
113
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2018 and 2017, are summarized as follows:
Notes payable – Community Development
Equity Funds
Other interest-bearing liabilities
Overnight borrowings from the Federal Home Loan Bank
Securities sold under reverse repurchase agreements
2018
2017
(In Thousands)
$
$
1,625
13,100
178,000
105,253
297,978
$
$
1,604
—
15,000
80,531
97,135
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.
At December 31, 2018, other interest-bearing liabilities consist of cash collateral held by the Company to satisfy
minimum collateral posting thresholds with its derivative dealer counterparties representing the termination value
of derivatives, which at such time were in a net asset position. Under the collateral agreements between the
parties, either party may choose to provide cash or securities to satisfy its collateral requirements.
Short-term borrowings had weighted average interest rates of 1.68% and 0.30% at December 31, 2018 and 2017,
respectively. Short-term borrowings averaged approximately $137.3 million and $186.4 million for the years
ended December 31, 2018 and 2017, respectively. The maximum amounts outstanding at any month end were
$298.0 million and $297.4 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, 2018 and 2017:
2018
Overnight and
Continuous
2017
Overnight and
Continuous
(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC
$
105,253
$
80,531
Note 11: Federal Reserve Bank Borrowings
At December 31, 2018 and 2017, the Bank had $460.7 million and $528.9 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, 2018 or 2017.
114
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 4.14% and 2.98% at December 31, 2018 and 2017, respectively.
At December 31, 2018 and 2017, subordinated debentures issued to capital trusts are summarized as follows:
2018
2017
(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 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, 2018 and 2017, totaled $154,000 and $151,000,
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, 2018 and, 2017, subordinated notes are summarized as follows:
Subordinated notes
Less: unamortized debt issuance costs
Note 14:
Income Taxes
2018
2017
(In Thousands)
$
$
75,000
1,158
73,842
$
$
75,000
1,312
73,688
The Company files a consolidated federal income tax return. As of December 31, 2018 and 2017, 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 at both December 31, 2018 and 2017,
respectively.
115
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
During the years ended December 31, 2018, 2017 and 2016, the provision for income taxes included these
components:
2018
2017
(In Thousands)
2016
Taxes currently payable
Deferred income taxes
Adjustment of deferred tax asset or
liability for enacted changes in
tax laws
Income taxes
$
$
19,291
(4,450)
—
14,841
$
$
9,335
11,528
(2,105)
18,758
$
$
20,137
(3,621)
—
16,516
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
Unrealized gain on cash flow derivatives
Other
$
December 31,
2018
2017
(In Thousands)
8,758
—
320
726
600
191
4,031
14,626
(5,409)
(798)
(404)
(569)
(83)
—
(2,761)
(113)
(10,137)
$
8,154
5,816
288
684
1,694
207
4,725
21,568
(4,483)
(356)
(706)
(775)
(435)
(12,177)
—
(190)
(19,122)
Net deferred tax asset
$
4,489
$
2,446
116
53
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
2018
21.0%
(0.8)
(3.4)
1.1
—
0.2
2017
35.0%
(1.6)
(6.1)
1.1
(0.4)
(1.3)
2016
35.0%
(2.1)
(7.3)
1.1
—
—
18.1%
26.7%
26.7%
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
for tax years beginning on or after 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. The Company recognized the income tax effects of the Tax
Act in its 2017 financial statements. The Tax Act is complex and required significant detailed analysis. During the
preparation of the Company’s 2017 income tax returns in 2018, no additional adjustments related to enactment of
the Tax Act were identified.
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, 2017, and 2018. 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.
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.
117
54
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
• 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, 2018 and 2017:
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, 2018
Agency mortgage-backed securities
Agency collateralized mortgage
obligations
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
December 31, 2017
Agency mortgage-backed securities
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
$
$
153,258
$
39,260
51,450
12,800
(716)
122,533
56,646
981
(1,030)
$
(In Thousands)
—
—
—
—
—
—
—
—
—
$
153,258
$
39,260
51,450
12,800
(716)
122,533
56,646
981
(1,030)
$
$
—
—
—
—
—
—
—
—
—
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, 2018 and
2017, 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, 2018.
118
55
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Available-for-Sale Securities
Investment securities available for sale are recorded at fair value on a recurring basis. The fair values used by the
Company are obtained from an independent pricing service, which represent either quoted market prices for the
identical asset or fair values determined by pricing models, or other model-based valuation techniques, that
consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices
from market makers and live trading systems. Recurring Level 1 securities include exchange traded equity
securities. Recurring Level 2 securities include U.S. government agency securities, mortgage-backed securities,
state and municipal bonds and certain other investments. Inputs used for valuing Level 2 securities include
observable data that may include dealer quotes, benchmark yields, market spreads, live trading levels and market
consensus prepayment speeds, among other things. Additional inputs include indicative values derived from the
independent pricing service’s proprietary computerized models. There were no recurring Level 3 securities at
December 31, 2018 or 2017.
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, 2018 and
2017:
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, 2018
Impaired loans
Foreclosed assets held for sale
December 31, 2017
Impaired loans
Foreclosed assets held for sale
$
$
$
$
2,805
1,776
1,590
1,758
$
$
$
$
(In Thousands)
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
2,805
1,776
1,590
1,758
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.
119
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018 and 2017, 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 more than one year prior to 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, 2018 and 2017, 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, 2018 and 2017, subsequent to their initial transfer to
foreclosed assets.
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.
120
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Cash and Cash Equivalents and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans and Interest Receivable
For 2018, the fair value of loans is estimated on an exit price basis incorporating contractual cash flow,
prepayments discount spreads, credit loss and liquidity premiums. For 2017, 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. For 2018, the fair value of fixed maturity certificates of deposit is estimated using a
discounted cash flow calculation using the average advances yield curve from 11 districts of the FHLB for the as
of date. For 2017, the discounted cash flow calculation applied 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.
121
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
December 31, 2018
December 31, 2017
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
$
202,742
—
1,650
$
202,742
—
1,650
3,989,001
13,448
12,438
3,725,007
—
297,978
25,774
73,842
3,570
3,955,786
13,448
12,438
3,717,899
—
297,978
25,774
75,188
3,570
—
146
—
—
146
—
Note 16: Operating Leases
1
2
2
3
3
3
3
3
3
3
2
3
3
3
3
$
242,253
130
8,203
3,726,302
12,338
11,182
3,597,144
127,500
97,135
25,774
73,688
2,904
$
242,253
131
8,203
3,735,216
12,338
11,182
3,606,400
127,500
97,135
25,774
76,500
2,904
—
85
—
—
85
—
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, 2018, future minimum lease payments were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
$
958
821
648
571
443
837
$
4,278
Rental expense was $816,000, $912,000 and $973,000 for the years ended December 31, 2018, 2017 and 2016,
respectively.
122
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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. Five of the seven acquired loans with interest rate swaps have paid off. The
notional amount of the two remaining Valley swaps was $774,000 at December 31, 2018. At December 31, 2018,
excluding the Valley Bank swaps, the Company had 18 interest rate swaps totaling $78.5 million in notional
amount with commercial customers, and 18 interest rate swaps with the same notional amount with third parties
related to its program. In addition, the Company has three participation loans purchased totaling $31.2 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, 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.
During the years ended December 31, 2018, 2017 and 2016, the Company recognized net gains of $25,000,
$28,000 and $66,000, respectively, in noninterest income related to changes in the fair value of these swaps.
Cash Flow Hedges
Interest Rate Swap. As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows
due to interest rate fluctuations, in October 2018, the Company entered into an interest rate swap transaction as part of
its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the
swap is $400 million with a termination date of October 6, 2025. Under the terms of the swap, the Company will
receive a fixed rate of interest of 3.018% and will pay a floating rate of interest equal to one-month USD-LIBOR.
The floating rate will be reset monthly and net settlements of interest due to/from the counterparty will also occur
monthly. The floating rate of interest was 2.383% as of December 31, 2018. Therefore, in the near term, the
Company will receive net interest settlements which will be recorded as loan interest income, to the extent that the
fixed rate of interest continues to exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest
in future periods, the Company will be required to pay net settlements to the counterparty and will record those net
payments as a reduction of interest income on loans. The Company recorded interest income of $673,000 on this
interest rate swap during the year ended December 31, 2018. The effective portion of the gain or loss on the
60
123
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 affected 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 year ended December 31, 2018, the Company recognized $-0- in noninterest income
related to changes in the fair value of this derivative.
Interest Rate Cap. Previously, 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 terminated in 2015 and one
agreement terminated in 2017. 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 affected 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 and 2016, the Company recognized $-0- in noninterest
income related to changes in the fair value of these derivatives. During the years ended December 31, 2017 and
2016, the Company recognized $244,000 and $225,000, respectively, in interest expense related to the
amortization of the cost of these interest rate caps.
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,
2018
December 31,
2017
(In Thousands)
Derivatives designated as
hedging instruments
Interest rate swap
Total derivatives designated
as hedging instruments
Derivatives not designated
as hedging instruments
Derivative Assets
Derivatives not designated
as hedging instruments
Interest rate products
Total derivatives not
designated as hedging
instruments
Derivative Liabilities
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
124
$
$
$
$
$
$
12,106
12,106
694
694
716
716
$
$
$
$
$
$
—
—
981
981
1,030
1,030
61
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following table presents the effect of cash flow hedge accounting on the statements of comprehensive income:
Cash Flow Hedges
2018
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2017
(In Thousands)
2016
Interest rate swap (2018) and interest rate
cap (2017 and 2016), net of income
taxes
$
9,345
$
161
$
87
The following table presents the effect of cash flow hedge accounting on the statements of operations:
Cash Flow Hedges
2018
Year Ended December 31
2017
2016
Interest
Income
Interest
Expense
Interest
Income
(In Thousands)
Interest
Expense
Interest
Income
Interest
Expense
Interest rate swap (2018) and interest rate
cap (2017 and 2016)
$
673 $
— $
— $
244 $
— $
225
Agreements with Derivative Counterparties
The Company has agreements with its derivative counterparties. If the Company defaults on any of its
indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then
the Company could also be declared in default on its derivative obligations. If the Bank fails to maintain its status
as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company
would be required to settle its obligations under the agreements. Similarly, the Company could be required to
settle its obligations under certain of its agreements if certain regulatory events occurred, such as the issuance of a
formal directive, or if the Company’s credit rating is downgraded below a specified level.
As of December 31, 2018, the termination value of derivatives with our derivative dealer counterparties (related to
loan level swaps with commercial lending customers) in a net asset position, which included accrued interest but
excluded any adjustment for nonperformance risk, related to these agreements was $396,000. In addition, as of
December 31, 2018, the termination value of derivatives with our derivative dealer counterparty (related to the
balance sheet hedge commenced in October 2018) in a net asset position, which included accrued interest but
excluded any adjustment for nonperformance risk, related to these agreements was $12.3 million. The Company has
minimum collateral posting thresholds with its derivative dealer counterparties. At December 31, 2018, the
Company’s activity with certain of its derivative counterparties met the level at which the minimum collateral posting
thresholds take effect (collateral to be received by the Company) and the derivative counterparties had posted
collateral of $704,000 to the Company to satisfy the loan level agreements and collateral of $12.8 million to the
Company to satisfy the balance sheet hedge. As of December 31, 2017, the termination value of derivatives in a net
liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to
these agreements was $336,000. At December 31, 2017, the Company’s activity with its derivative counterparties
met the level at which the minimum collateral posting thresholds take effect and the Company posted $809,000 of
125
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
collateral to satisfy the agreements. If the Company had breached any of these provisions at December 31, 2018 or
December 31, 2017, 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, 2018 and 2017, the Bank had outstanding commitments to originate loans and fund commercial
construction loans aggregating approximately $105.3 million and $164.0 million, respectively. The commitments
extend over varying periods of time with the majority being disbursed within a 30- to 180-day period.
Mortgage loans in the process of origination represent amounts that the Bank plans to fund within a normal period
of 60 to 90 days, many of which are intended for sale to investors in the secondary market. Total mortgage loans
in the process of origination amounted to approximately $24.3 million and $20.8 million at December 31, 2018
and 2017, respectively.
Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance
standby letters of credit are issued to guarantee performance of certain customers under nonfinancial contractual
obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in
extending loans to customers. Fees for letters of credit issued are initially recorded by the Bank as deferred
revenue and are included in earnings at the termination of the respective agreements. Should the Bank be
obligated to perform under the standby letters of credit, the Bank may seek recourse from the customer for
reimbursement of amounts paid.
The Company had total outstanding standby letters of credit amounting to approximately $28.9 million and $20.0
million at December 31, 2018 and 2017, respectively, with $28.4 million and $19.1 million, respectively, of the
letters of credit having terms up to five years and $476,000 and $885,000, respectively, of the letters of credit
having terms over five years. Of the amount having terms over five years, $476,000 and $885,000 at December
31, 2018 and 2017, 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, 2018 and 2017,
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
63
126
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018, the Bank had granted unused lines of credit to borrowers aggregating approximately $1.1
billion and $150.9 million for commercial lines and open-end consumer lines, respectively. 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.
Credit Risk
The Bank grants collateralized commercial, real estate and consumer loans primarily to customers in its market
areas. Although the Bank has a diversified portfolio, loans (excluding those covered by loss sharing agreements)
aggregating approximately $750.3 million and $674.0 million at December 31, 2018 and 2017, 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
2018
2017
(In Thousands)
2016
$12,044
2,578
—
4,528
37,091
2,569
$23,780
603
—
3,381
27,724
17,563
$26,076
3,334
6,985
3,073
20,476
9,554
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, 2018, 2017 and 2016, were approximately $1.3 million, $1.1 million and
$725,000, 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, 2018 and 2017, was 96.3% and 98.2%,
respectively. The funded status was calculated by taking the market value of plan assets, which reflected
contributions received through June 30, 2018 and 2017, respectively, divided by the funding target. No collective
bargaining agreements are in place that require contributions to the Pentegra DB Plan.
127
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018, 2017 and 2016, were
approximately $1.4 million, $1.3 million and $1.2 million, respectively.
Note 21: Stock Compensation Plans
The Company established the 2003 Stock Option and Incentive Plan (the “2003 Plan”) for employees and
directors of the Company and its subsidiaries. Under the plan, stock options or other awards could be granted with
respect to 598,224 shares of common stock. On May 15, 2013, the Company’s stockholders approved the Great
Southern Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). Upon the stockholders’ approval of the
2013 Plan, the Company’s 2003 Plan was frozen. As a result, no new stock options or other awards may be
granted under the 2003 Plan; however, existing outstanding awards under the 2003 Plan were not affected. At
December 31, 2018, 81,023 options were outstanding under the 2003 Plan.
The Company established the 2013 Stock Option and Incentive Plan (the “2013 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 700,000 shares of common stock. On May 9, 2018, the Company’s stockholders approved the Great
Southern Bancorp, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”). Upon the stockholders’ approval of the
2018 Plan, the Company’s 2013 Plan was frozen. As a result, no new stock options or other awards may be
granted under the 2013 Plan; however, existing outstanding awards under the 2003 Plan were not affected. At
December 31, 2018, 507,063 options were outstanding under the 2013 Plan.
The 2018 Plan provides for the grant from time to time to directors, emeritus directors, officers, employees and
advisory directors of stock options, stock appreciation rights, restricted stock, restricted stock units, performance
shares and performance units. The number of shares of Common Stock available for awards under the 2018 Plan
is 800,000 (the “2018 Plan Limit”). Shares utilized for awards other than stock options and stock appreciation
rights will be counted against the 2018 Plan Limit on a 2.5-to-1 basis. At December 31, 2018, 185,150 options
were outstanding under the 2018 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.
128
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The table below summarizes transactions under the Company’s stock compensation plans, all of which related to
stock options granted under such plans:
Available to
Grant
Shares Under
Option
Weighted
Average
Exercise Price
Balance, January 1, 2016
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)
Balance, December 31, 2017
Granted from 2013 Plan
Exercised
Forfeited from 2013 Plan
Termination of 2013 Plan
Available to grant from 2018 Plan
Granted from 2018 Plan
Forfeited from current plan(s)
331,450
(131,000)
—
—
19,025
219,475
(157,800)
—
—
15,837
77,512
(1,000)
—
13,773
(90,285)
—
800,000
(185,750)
600
633,732
131,000
(81,812)
(2,692)
(19,025)
661,203
157,800
(119,692)
(675)
(15,837)
682,799
1,000
(81,940)
(13,773)
—
588,086
—
185,750
(600)
$
31.297
41.228
26.472
22.654
39.123
33.672
52.118
27.352
24.690
41.916
38.860
52.500
27.597
45.692
55.297
55.000
Balance, December 31, 2018
614,850
773,236
$
43.886
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, 2018, 2017 and 2016:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2018
$1.27
2.86%
5 years
17.61%
$8.30
2017
$0.95
2.03%
5 years
23.49%
$10.04
2016
$0.88
1.27%
5 years
22.08%
$6.59
66
129
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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, 2018:
Options outstanding, January 1, 2018
Granted
Exercised
Forfeited
Options outstanding, December 31, 2018
Options exercisable, December 31, 2018
Weighted
Average
Exercise
Price
$38.860
55.282
27.597
46.081
43.886
32.233
Options
682,799
186,750
(81,940)
(14,373)
773,236
266,742
Weighted
Average
Remaining
Contractual
Term
7.38 years
7.44 years
5.15 years
For the years ended December 31, 2018, 2017 and 2016, options granted were 186,750, 157,800, and 131,000,
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, 2018, 2017 and
2016, was $2.2 million, $3.0 million and $1.4 million, respectively. Cash received from the exercise of options for
the years ended December 31, 2018, 2017 and 2016, was $2.3 million, $3.3 million and $2.1 million, respectively.
The actual tax benefit realized for the tax deductions from option exercises totaled $1.6 million, $2.7 million and
$1.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. The total intrinsic value of
options outstanding at December 31, 2018, 2017 and 2016, was $4.7 million, $8.8 million and $13.9 million,
respectively. The total intrinsic value of options exercisable at December 31, 2018, 2017 and 2016, was $3.9
million, $5.7 million and $7.5 million, respectively.
The following table presents the activity related to nonvested options under all plans for the year ended December
31, 2018.
Nonvested options, January 1, 2018
Granted
Vested this period
Nonvested options forfeited
Nonvested options, December 31, 2018
Weighted
Average
Exercise
Price
$44.842
55.282
38.433
46.057
50.023
Weighted
Average
Grant Date
Fair Value
$7.981
8.297
6.398
8.143
8.431
Options
441,937
186,750
(107,895)
(14,298)
506,494
At December 31, 2018, there was $3.8 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 2023,
with the majority of this expense recognized in 2019 and 2020.
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Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following table further summarizes information about stock options outstanding at December 31, 2018:
Range of
Exercise Prices
$16.810 to 29.640
$32.590 to 38.610
$41.300 to 47.800
$50.710 to 52.500
$55.000 to 59.750
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
Number
Outstanding
139,920
97,047
111,436
239,683
185,150
3.89 years
5.87 years
7.80 years
8.11 years
9.88 years
Weighted
Average
Exercise
Price
$25.093
33.038
41.357
51.608
55.298
773,236
7.44 years
43.886
Options Exercisable
Number
Exercisable
139,920
62,291
24,658
39,873
—
266,742
Weighted
Average
Exercise
Price
$25.093
32.819
41.386
50.710
—
32.233
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 gain on derivatives used for cash flow hedges
Tax effect
Net-of-tax amount
2018
2017
(In Thousands)
$
$
365
$
12,106
12,471
(2,844)
1,949
—
1,949
(708)
9,627
$
1,241
131
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Amounts reclassified from AOCI and the affected line items in the statements of income during the years ended
December 31, 2018, 2017 and 2016, were as follows:
Amounts Reclassified
from AOCI
2018
2017
(In Thousands)
2016
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
$
— $
2,873
Net realized gains on available-for-sale
securities (total reclassified amount
before tax)
—
—
(1,043) Tax (expense) benefit
2
$
— $
1,830
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, 2018) 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, 2018, that the Bank met all capital adequacy requirements to which it was then
subject.
As of December 31, 2018, 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, 2018, 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, 2018 and 2017, the Company and the Bank exceeded their
minimum capital requirements then in effect. The entities may not pay dividends which would reduce capital
below the minimum requirements shown above. 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.
132
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
Minimum
For Capital
Adequacy Purposes
Amount
Ratio
(Dollars In Thousands)
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2018
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$651,469
$599,509
14.4%
13.3%
$360,826
$360,767
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$538,060
$561,100
11.9%
12.4%
$270,619
$270,575
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$538,060
$561,100
11.7%
12.2%
$184,088
$184,050
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2017
Total capital
$513,060
$561,100
11.4%
12.4%
$202,965
$202,931
Great Southern Bancorp, Inc.
Great Southern Bank
$597,177
$558,668
14.1%
13.2%
$339,649
$339,575
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$485,685
$522,176
11.4%
12.3%
$254,737
$254,681
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$485,685
$522,176
10.9%
11.7%
$177,881
$177,844
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$460,661
$522,152
10.9%
12.3%
$191,053
$191,011
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
4.5%
4.5%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
4.5%
4.5%
N/A
$450,959
N/A
10.0%
N/A
$360,767
N/A
$230,062
N/A
$293,123
N/A
8.0%
N/A
5.0%
N/A
6.5%
N/A
$424,468
N/A
10.0%
N/A
$339,575
N/A
$222,305
N/A
$275,904
N/A
8.0%
N/A
5.0%
N/A
6.5%
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.
133
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Note 26: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2018, 2017 and 2016:
Interest income
Interest expense
Provision for loan losses
Net realized gains on
available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common
shareholders
Earnings per common share – diluted
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses)
on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income
Net income available to common
shareholders
Earnings per common share – diluted
$
$
2018
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
46,882
7,444
1,950
—
6,935
28,312
2,645
13,466
0.95
$
49,943
8,731
1,950
—
7,459
29,915
2,967
13,839
0.97
$
52,982
9,997
1,300
2
14,604
28,309
5,464
22,516
1.57
2017
Three Months Ended
$
56,142
11,585
1,950
—
7,220
28,774
3,765
17,288
1.21
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
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
134
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) 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
Note 27: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2018 and 2017, and statements of income,
comprehensive income and cash flows for the years ended December 31, 2018, 2017 and 2016, 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
135
December 31,
2018
2017
(In Thousands)
$
$
$
$
$
$
56,648
580,016
411
889
637,964
6,371
25,774
73,842
142
30,121
492,087
9,627
41,977
533,153
133
903
576,166
5,042
25,774
73,688
141
28,203
442,077
1,241
$
637,964
$
576,166
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
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
2018
2017
(In Thousands)
2016
$
34,000
—
$
17,500
48
$
—
—
—
—
34,000
17,548
1,793
5,050
6,843
1,330
5,047
6,377
12,000
—
2,735
2
14,737
1,322
2,381
3,703
27,157
(1,204)
11,171
(1,709)
11,034
(241)
28,361
12,880
11,275
38,748
38,684
34,067
$
67,109
$
51,564
$
45,342
136
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Statements of Cash Flows
Operating Activities
Net income
Items not requiring (providing) cash
Equity in undistributed earnings of subsidiary
Compensation expense for stock option grants
Net realized gains on sales of available-for-sale
securities
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 used in investing activities
Financing Activities
Proceeds from issuance of subordinated notes
Purchases of the Company’s common stock
Dividends paid
Stock options exercised
Net cash provided by (used in) financing
activities
Increase in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2018
2017
(In Thousands)
2016
$
67,109
$
51,564
$
45,342
(38,748)
737
—
154
13
182
(278)
29,169
—
—
—
—
—
(903)
(15,819)
2,224
(14,498)
14,671
41,977
56,648
5,001
(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
74
$
$
$
$
137
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Statements of Comprehensive Income
2018
2017
(In Thousands)
2016
Net Income
$
67,109
$
51,564
$
45,342
Unrealized appreciation on available-for-sale securities,
net of taxes (credit) of $0, $0 and $(90), for 2018,
2017 and 2016, respectively
Reclassification adjustment for gains included in net
income, net of taxes of $0, $0 and $(993), for 2018,
2017 and 2016, respectively
Change in fair value of cash flow hedge, net of taxes
of $0, $93 and $50 for 2018, 2017 and
2016, respectively
—
—
—
Comprehensive income (loss) of subsidiaries
8,114
—
—
161
(478)
(158)
(1,742)
87
(2,293)
Comprehensive Income
$
75,223
$
51,247
$
41,236
Note 28: Sale of Branches and Related Deposits
On July 20, 2018, the Company closed on the sale of four banking centers and related deposits in the Omaha, Neb.,
metropolitan market to Lincoln, Neb.-based West Gate Bank. Pursuant to the purchase and assumption agreement, the
Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate, fixed
assets and ATMs. The Company recorded a pre-tax gain (excluding transaction expenses of $165,000) of $7.4 million
on the sale based on the contractual deposit premium and the sales price of the branch assets.
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75
GreatSouthernBank.com