SHAPING OUR FUTURE WITH
2019 Annual Report for Stockholders
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
31st Annual
Meeting
of Stockholders 10 am CDT
MAY 6, 2020
Corporate
Profile
Stock
Information
Great Southern Bank was founded in 1923 with a
$5,000 investment, four employees and 936 customers.
Today, it has grown to $5.0 billion in total assets, with
more than 1,200 dedicated associates serving 151,000
households.
Headquartered in Springfield, Mo., the Company
operates 104 offices in 11 states, including 97 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, 2019, there were 14,261,052 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, 2019 was $63.32.
High/Low Stock Price
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
High
Low
$57. 95 $45. 44
60. 92 52. 24
54. 33
60. 94
54. 87
64. 48
2018
High
Low
$53. 05 $48. 1 0
60. 20
48. 60
61. 65 54. 50
43. 30
58. 49
2017
High
Low
$55. 45 $47. 35
47. 25
55. 1 0
56. 00
47. 50
58. 45 50. 55
Regular Dividend Declarations
2019
$.32
.32
.34
.34
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
$.28
.28
.32
.32
2017
$.22
.24
.24
.24
Special Dividend Declarations
2019
$.75
First Quarter
2018
----
2017
----
To our
Stockholders:
On behalf of our 1,200 associates, we are pleased
to present our 2019 Annual Report, entitled
“Foresight.” One of the most successful investors
of all time, Warren Buffett, once said, “Someone’s
sitting in the shade today because someone
planted a tree long ago.” Foresight and making
decisions for the long term are guiding principles
of how we manage Great Southern. Foresight
gives us increased power to shape our future,
even in the most turbulent of times, and enables
us to take advantage of opportunities that may
come our way. It is not easy and requires visionary
thinking and planning, a sharp focus, patience,
and, many times, fortitude. Our Company’s
historical performance reflects the power of this
guiding principle and it will continue to guide us as
we move ahead and engage in practices that we
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
believe will drive sustainability, long-term growth
and profitability.
In 2019, we celebrated our 30th year as a public
company. We look back over these three decades
with a sense of pride about our Company’s
long-term performance and our past and current
associates, whose steadfast dedication to our
customers and communities made it all possible.
We can see the power of foresight by our
Company’s track record over the last 30 years –
growing assets from less than $500 million and
operating almost entirely in southwest Missouri in
1989 to $5 billion in assets and expanding our
footprint to 11 states at the end of 2019. From a
stockholder perspective, each share of GSBC
stock purchased at $9 per share in the 1989 initial
public offering now has a value of approximately
$760 per share (on a split-adjusted basis), based
on the closing stock price of $63.32 on December
31, 2019. Including dividends, this represents a
total return of 18,619% (source: S&P Global Market
Intelligence).
Many of our accomplishments in 2019 reflect our
long view philosophy and we believe the actions
we take today will pay dividends in the years to
come. We hope you find our Annual Report
insightful and informative and share in our vision
to make Great Southern an even better company
for those we serve.
2
2019 IN
REVIEW
In 2019, we achieved the highest annual net
income and earnings per share in the history of
our Company, underscoring the hard work and
commitment of our associates. Our record
earnings were driven by loan growth, increased
net interest income, solid credit quality and
well-contained expenses. You can find details of
our financial performance in this Annual Report.
In summary, earnings for the year ended
December 31, 2019, were $73.6 million, or $5.14
per diluted common share. Return on average
common equity was 12.88%, return on average
assets was 1.52%, and net interest margin was
3.95%. Total stockholders’ equity was
$603.1 million, or 12.0% of assets, equivalent to a
book value of $42.29 per common share. Book
value increased by $4.70, or 12.5%, from the end
of 2018 to the end of 2019.
Active Capital Management
The capital position of the Company remains
strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Tangible common equity
increased by 13.8% from the end of 2018, pushing
the tangible common equity to tangible assets
ratio (a common capital metric) to 11.9% at the end
of 2019, a strong level by industry standards(1).
In the banking business, a strong capital base is
paramount. Our objective is to actively manage
our capital position while maintaining sufficient
capacity for organic growth and other corporate
initiatives. It is also a priority to return capital to our
stockholders. We are proud that Great Southern
has declared consecutive quarterly cash dividends
since going public in 1989. In 2019, we declared
quarterly cash dividends totaling $1.32 per
common share. With our very strong capital levels,
we have also recently had the opportunity to
declare special cash dividends. The Company
declared a special cash dividend of $0.75 per
common share in January 2019, and declared
another special cash dividend of $1.00 per
common share in January 2020.
Solid Lending Activity
Overall loan growth was solid in 2019, amidst
strong market competition and intermittent signs
of slower deal flow, especially in the commercial
lending sector. Total gross loan balances,
including the undisbursed portion of loans but
excluding the FDIC-assisted acquired loans and
mortgage loans held for sale, increased
$99.2 million, or 2.1%, from the end of 2018.
Decreases, which were anticipated, in the
consumer auto loan portfolio (down about
$101.7 million) and the FDIC-acquired loan
portfolios (down about $40.4 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $165.0 million, from just less than
$4.0 billion at December 31, 2018, to more than
$4.1 billion at December 31, 2019. We ended 2019
with a strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily commercial real estate loans,
owner-occupied one- to four-family residential
mortgage loans and multi-family loans, and came
from most of Great Southern’s primary lending
locations. For the fourth year in a row, our
commercial lenders originated more than $1 billion
in new loans, with 35% of the production
generated through our six loan production offices
in Atlanta, Chicago, Dallas, Denver, Omaha and
Tulsa. Our Residential Lending team had record
production in 2019, driven by hiring additional
veteran loan originators and a low interest rate
environment. Some of these residential loans
were retained in the Company’s loan portfolio and
some were sold in the secondary market.
3
Steadfast Credit Quality
Despite intense competition and some signs of a
slowing marketplace, our loan growth was not
achieved by succumbing to pricing pressures or
loosening underwriting standards. Our loan
underwriting remains conservative and we strive
to grow the loan portfolio one quality relationship
at a time. During 2019, credit quality metrics
remained strong with historically low levels of
non-performing assets. At December 31, 2019,
non-performing assets, excluding FDIC-acquired
non-performing assets, were $8.2 million, a
decrease of $3.6 million from $11.8 million at
December 31, 2018. Non-performing assets as a
percentage of total assets were 0.16% at
December 31, 2019, compared to 0.25% at
December 31, 2018. Total net charge-offs were
$4.3 million during 2019, compared to
$5.2 million during 2018. In 2019, approximately
$2.9 million of the $4.3 million of net charge-offs
were in the consumer auto category. In addition,
two unrelated commercial loan relationships were
responsible for $560,000 of the net charge-off
total in 2019.
Net Interest Margin
Pressure
During 2019, the Federal Reserve’s three cuts to
the federal funds rate and decreases in other
benchmark interest rates led to net interest
margin compression for many banks, including
Great Southern. In addition, strong pricing
competition for loans and deposits continued in
most of our markets. Reported net interest margin
was 3.95% for the year ended December 31,
2019, compared to 3.99% for 2018, a decrease of
four basis points. The Company’s core net
interest margin(2), which excludes the effects of
additional yield accretion on loan pools from
FDIC-assisted transactions, was 3.79% for the
year ended December 31, 2019, compared to
3.87% for 2018, a decrease of eight basis points.
Compression in our margin was caused primarily
by increases in average interest rates on deposits
and other borrowings, partially offset by increases
in the average yield on loans and other
interest-earning assets. Since the Federal
Reserve’s rate cuts in the second half of 2019, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. Strategies to mitigate margin
compression, such as interest rate swaps and
balance sheet mix, are in place and reviewed
continually.
Long-term Business
Initiatives
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 decided 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 was difficult over the last few
years. Our core business of direct consumer
lending through our extensive banking center
network, however, remains an important focus.
To broaden our lending capabilities, during the
third quarter of 2019, a Business Banking initiative
was implemented to increase the Company’s
focus on serving the lending needs of business
owners. The Business Banking group works with
established operating businesses by providing
lines of credit, equipment loans, and commercial
real estate loans, as well as cash management
and depository services.
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
continually analyze our system of banking centers
to measure performance 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. In fact, in the last six years, the Company
has consolidated 34 banking centers – 24 in
Missouri, seven in Iowa, two in Kansas and one in
Arkansas. In 2019, two banking centers were
consolidated into nearby offices – the Fayetteville,
Arkansas, office into the Rogers, Arkansas, office
and the Ames, Iowa, banking center into the North
Ankeny, Iowa, facility.
Enhancing our online channels was also a priority
in 2019. During the first quarter of 2019, we
upgraded the online account opening platform to
provide a faster and easier experience for
customers within and beyond our geographic
footprint. We also committed significant time in
2019 to work on upgrading the retail online
banking platform and mobile banking application
to improve customer functionality and
convenience. The new platform and app are
expected to be available to customers
during 2020.
In 2019, we achieved the highest annual net
declared a special cash dividend of $0.75 per
income and earnings per share in the history of
common share in January 2019, and declared
our Company, underscoring the hard work and
another special cash dividend of $1.00 per
commitment of our associates. Our record
common share in January 2020.
earnings were driven by loan growth, increased
net interest income, solid credit quality and
well-contained expenses. You can find details of
Solid Lending Activity
our financial performance in this Annual Report.
Overall loan growth was solid in 2019, amidst
In summary, earnings for the year ended
December 31, 2019, were $73.6 million, or $5.14
per diluted common share. Return on average
common equity was 12.88%, return on average
assets was 1.52%, and net interest margin was
3.95%. Total stockholders’ equity was
$603.1 million, or 12.0% of assets, equivalent to a
book value of $42.29 per common share. Book
value increased by $4.70, or 12.5%, from the end
of 2018 to the end of 2019.
Active Capital Management
The capital position of the Company remains
strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Tangible common equity
strong market competition and intermittent signs
of slower deal flow, especially in the commercial
lending sector. Total gross loan balances,
including the undisbursed portion of loans but
excluding the FDIC-assisted acquired loans and
mortgage loans held for sale, increased
$99.2 million, or 2.1%, from the end of 2018.
Decreases, which were anticipated, in the
consumer auto loan portfolio (down about
$101.7 million) and the FDIC-acquired loan
portfolios (down about $40.4 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $165.0 million, from just less than
$4.0 billion at December 31, 2018, to more than
$4.1 billion at December 31, 2019. We ended 2019
with a strong loan pipeline across the franchise.
increased by 13.8% from the end of 2018, pushing
Total loan production occurred across several
the tangible common equity to tangible assets
loan types, primarily commercial real estate loans,
ratio (a common capital metric) to 11.9% at the end
owner-occupied one- to four-family residential
of 2019, a strong level by industry standards(1).
mortgage loans and multi-family loans, and came
In the banking business, a strong capital base is
paramount. Our objective is to actively manage
our capital position while maintaining sufficient
capacity for organic growth and other corporate
initiatives. It is also a priority to return capital to our
stockholders. We are proud that Great Southern
has declared consecutive quarterly cash dividends
since going public in 1989. In 2019, we declared
quarterly cash dividends totaling $1.32 per
common share. With our very strong capital levels,
we have also recently had the opportunity to
declare special cash dividends. The Company
from most of Great Southern’s primary lending
locations. For the fourth year in a row, our
commercial lenders originated more than $1 billion
in new loans, with 35% of the production
generated through our six loan production offices
in Atlanta, Chicago, Dallas, Denver, Omaha and
Tulsa. Our Residential Lending team had record
production in 2019, driven by hiring additional
veteran loan originators and a low interest rate
environment. Some of these residential loans
were retained in the Company’s loan portfolio and
some were sold in the secondary market.
2019
Total Assets
$5.02
BILLION
2019
Total Loans
$4.15
BILLION
2019
Total Deposits
$3.96
BILLION
15
16
17
18
19
15
16
17
18
19
15
16
17
18
19
$5B
$4B
$3B
$2B
$1B
0
Steadfast Credit Quality
Despite intense competition and some signs of a
slowing marketplace, our loan growth was not
achieved by succumbing to pricing pressures or
loosening underwriting standards. Our loan
underwriting remains conservative and we strive
to grow the loan portfolio one quality relationship
at a time. During 2019, credit quality metrics
remained strong with historically low levels of
non-performing assets. At December 31, 2019,
non-performing assets, excluding FDIC-acquired
non-performing assets, were $8.2 million, a
decrease of $3.6 million from $11.8 million at
December 31, 2018. Non-performing assets as a
percentage of total assets were 0.16% at
December 31, 2019, compared to 0.25% at
Great Southern Bancorp Inc
NASDAQ Financial
100 Index
NASDAQ Composite Index
Total Return
5 year cumulative*
2019
$179.96
200
150
100
2014
2015
2016
2017
2018
2019
The graph above compares the cumulative total stockholder return on GSBC Common Stock to the cumulative total returns on the
NASDAQ U.S. Stock Index and the NASDAQ Financial Stocks Index for the period December 31, 2014, through December 31, 2019.
The graph assumes that $100 was invested in GSBC Stock on December 31, 2014 and that all dividends were reinvested.
4
December 31, 2018. Total net charge-offs were
$4.3 million during 2019, compared to
$5.2 million during 2018. In 2019, approximately
$2.9 million of the $4.3 million of net charge-offs
were in the consumer auto category. In addition,
two unrelated commercial loan relationships were
responsible for $560,000 of the net charge-off
total in 2019.
Net Interest Margin
Pressure
During 2019, the Federal Reserve’s three cuts to
the federal funds rate and decreases in other
benchmark interest rates led to net interest
margin compression for many banks, including
Great Southern. In addition, strong pricing
competition for loans and deposits continued in
most of our markets. Reported net interest margin
was 3.95% for the year ended December 31,
2019, compared to 3.99% for 2018, a decrease of
four basis points. The Company’s core net
interest margin(2), which excludes the effects of
additional yield accretion on loan pools from
FDIC-assisted transactions, was 3.79% for the
year ended December 31, 2019, compared to
3.87% for 2018, a decrease of eight basis points.
Compression in our margin was caused primarily
by increases in average interest rates on deposits
and other borrowings, partially offset by increases
in the average yield on loans and other
interest-earning assets. Since the Federal
Reserve’s rate cuts in the second half of 2019, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. Strategies to mitigate margin
compression, such as interest rate swaps and
balance sheet mix, are in place and reviewed
continually.
Long-term Business
Initiatives
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 decided 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 was difficult over the last few
years. Our core business of direct consumer
lending through our extensive banking center
network, however, remains an important focus.
To broaden our lending capabilities, during the
third quarter of 2019, a Business Banking initiative
was implemented to increase the Company’s
focus on serving the lending needs of business
owners. The Business Banking group works with
established operating businesses by providing
lines of credit, equipment loans, and commercial
real estate loans, as well as cash management
and depository services.
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
continually analyze our system of banking centers
to measure performance 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. In fact, in the last six years, the Company
has consolidated 34 banking centers – 24 in
Missouri, seven in Iowa, two in Kansas and one in
Arkansas. In 2019, two banking centers were
consolidated into nearby offices – the Fayetteville,
Arkansas, office into the Rogers, Arkansas, office
and the Ames, Iowa, banking center into the North
Ankeny, Iowa, facility.
Enhancing our online channels was also a priority
in 2019. During the first quarter of 2019, we
upgraded the online account opening platform to
provide a faster and easier experience for
customers within and beyond our geographic
footprint. We also committed significant time in
2019 to work on upgrading the retail online
banking platform and mobile banking application
to improve customer functionality and
convenience. The new platform and app are
expected to be available to customers
during 2020.
In 2019, we achieved the highest annual net
declared a special cash dividend of $0.75 per
income and earnings per share in the history of
common share in January 2019, and declared
our Company, underscoring the hard work and
another special cash dividend of $1.00 per
commitment of our associates. Our record
common share in January 2020.
earnings were driven by loan growth, increased
net interest income, solid credit quality and
well-contained expenses. You can find details of
Solid Lending Activity
our financial performance in this Annual Report.
Overall loan growth was solid in 2019, amidst
In summary, earnings for the year ended
December 31, 2019, were $73.6 million, or $5.14
per diluted common share. Return on average
common equity was 12.88%, return on average
assets was 1.52%, and net interest margin was
3.95%. Total stockholders’ equity was
$603.1 million, or 12.0% of assets, equivalent to a
book value of $42.29 per common share. Book
value increased by $4.70, or 12.5%, from the end
of 2018 to the end of 2019.
Active Capital Management
The capital position of the Company remains
strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Tangible common equity
strong market competition and intermittent signs
of slower deal flow, especially in the commercial
lending sector. Total gross loan balances,
including the undisbursed portion of loans but
excluding the FDIC-assisted acquired loans and
mortgage loans held for sale, increased
$99.2 million, or 2.1%, from the end of 2018.
Decreases, which were anticipated, in the
consumer auto loan portfolio (down about
$101.7 million) and the FDIC-acquired loan
portfolios (down about $40.4 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $165.0 million, from just less than
$4.0 billion at December 31, 2018, to more than
$4.1 billion at December 31, 2019. We ended 2019
with a strong loan pipeline across the franchise.
increased by 13.8% from the end of 2018, pushing
Total loan production occurred across several
the tangible common equity to tangible assets
loan types, primarily commercial real estate loans,
ratio (a common capital metric) to 11.9% at the end
owner-occupied one- to four-family residential
of 2019, a strong level by industry standards(1).
mortgage loans and multi-family loans, and came
In the banking business, a strong capital base is
paramount. Our objective is to actively manage
our capital position while maintaining sufficient
capacity for organic growth and other corporate
initiatives. It is also a priority to return capital to our
stockholders. We are proud that Great Southern
has declared consecutive quarterly cash dividends
since going public in 1989. In 2019, we declared
quarterly cash dividends totaling $1.32 per
common share. With our very strong capital levels,
we have also recently had the opportunity to
declare special cash dividends. The Company
from most of Great Southern’s primary lending
locations. For the fourth year in a row, our
commercial lenders originated more than $1 billion
in new loans, with 35% of the production
generated through our six loan production offices
in Atlanta, Chicago, Dallas, Denver, Omaha and
Tulsa. Our Residential Lending team had record
production in 2019, driven by hiring additional
veteran loan originators and a low interest rate
environment. Some of these residential loans
were retained in the Company’s loan portfolio and
some were sold in the secondary market.
Steadfast Credit Quality
Despite intense competition and some signs of a
slowing marketplace, our loan growth was not
achieved by succumbing to pricing pressures or
loosening underwriting standards. Our loan
underwriting remains conservative and we strive
to grow the loan portfolio one quality relationship
at a time. During 2019, credit quality metrics
remained strong with historically low levels of
non-performing assets. At December 31, 2019,
non-performing assets, excluding FDIC-acquired
non-performing assets, were $8.2 million, a
decrease of $3.6 million from $11.8 million at
December 31, 2018. Non-performing assets as a
percentage of total assets were 0.16% at
December 31, 2019, compared to 0.25% at
2019
$73.61
MILLION
Total
Net Income
70
60
50
40
30
20
10
15
16
17
18
0
19
2019
$42.29
Book Value
Per common share
December 31, 2018. Total net charge-offs were
$4.3 million during 2019, compared to
$5.2 million during 2018. In 2019, approximately
$2.9 million of the $4.3 million of net charge-offs
were in the consumer auto category. In addition,
two unrelated commercial loan relationships were
responsible for $560,000 of the net charge-off
total in 2019.
Net Interest Margin
Pressure
During 2019, the Federal Reserve’s three cuts to
the federal funds rate and decreases in other
benchmark interest rates led to net interest
margin compression for many banks, including
Great Southern. In addition, strong pricing
competition for loans and deposits continued in
most of our markets. Reported net interest margin
was 3.95% for the year ended December 31,
2019, compared to 3.99% for 2018, a decrease of
four basis points. The Company’s core net
interest margin(2), which excludes the effects of
additional yield accretion on loan pools from
FDIC-assisted transactions, was 3.79% for the
year ended December 31, 2019, compared to
3.87% for 2018, a decrease of eight basis points.
Compression in our margin was caused primarily
by increases in average interest rates on deposits
and other borrowings, partially offset by increases
in the average yield on loans and other
interest-earning assets. Since the Federal
Reserve’s rate cuts in the second half of 2019, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. Strategies to mitigate margin
compression, such as interest rate swaps and
balance sheet mix, are in place and reviewed
continually.
Long-term Business
Initiatives
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 decided to exit the indirect
automobile lending business, whereby we
provided financing for customers of automobile
5
dealerships. The indirect lending business for us
and many banks was difficult over the last few
years. Our core business of direct consumer
lending through our extensive banking center
network, however, remains an important focus.
To broaden our lending capabilities, during the
third quarter of 2019, a Business Banking initiative
was implemented to increase the Company’s
focus on serving the lending needs of business
owners. The Business Banking group works with
established operating businesses by providing
lines of credit, equipment loans, and commercial
real estate loans, as well as cash management
and depository services.
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
continually analyze our system of banking centers
to measure performance 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. In fact, in the last six years, the Company
has consolidated 34 banking centers – 24 in
Missouri, seven in Iowa, two in Kansas and one in
Arkansas. In 2019, two banking centers were
consolidated into nearby offices – the Fayetteville,
Arkansas, office into the Rogers, Arkansas, office
and the Ames, Iowa, banking center into the North
Ankeny, Iowa, facility.
Enhancing our online channels was also a priority
in 2019. During the first quarter of 2019, we
upgraded the online account opening platform to
provide a faster and easier experience for
customers within and beyond our geographic
footprint. We also committed significant time in
2019 to work on upgrading the retail online
banking platform and mobile banking application
to improve customer functionality and
convenience. The new platform and app are
expected to be available to customers
during 2020.
In 2019, we achieved the highest annual net
declared a special cash dividend of $0.75 per
income and earnings per share in the history of
common share in January 2019, and declared
our Company, underscoring the hard work and
another special cash dividend of $1.00 per
commitment of our associates. Our record
common share in January 2020.
earnings were driven by loan growth, increased
net interest income, solid credit quality and
well-contained expenses. You can find details of
Solid Lending Activity
our financial performance in this Annual Report.
Overall loan growth was solid in 2019, amidst
In summary, earnings for the year ended
December 31, 2019, were $73.6 million, or $5.14
per diluted common share. Return on average
common equity was 12.88%, return on average
assets was 1.52%, and net interest margin was
3.95%. Total stockholders’ equity was
$603.1 million, or 12.0% of assets, equivalent to a
book value of $42.29 per common share. Book
value increased by $4.70, or 12.5%, from the end
of 2018 to the end of 2019.
Active Capital Management
The capital position of the Company remains
strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Tangible common equity
strong market competition and intermittent signs
of slower deal flow, especially in the commercial
lending sector. Total gross loan balances,
including the undisbursed portion of loans but
excluding the FDIC-assisted acquired loans and
mortgage loans held for sale, increased
$99.2 million, or 2.1%, from the end of 2018.
Decreases, which were anticipated, in the
consumer auto loan portfolio (down about
$101.7 million) and the FDIC-acquired loan
portfolios (down about $40.4 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $165.0 million, from just less than
$4.0 billion at December 31, 2018, to more than
$4.1 billion at December 31, 2019. We ended 2019
with a strong loan pipeline across the franchise.
increased by 13.8% from the end of 2018, pushing
Total loan production occurred across several
the tangible common equity to tangible assets
loan types, primarily commercial real estate loans,
ratio (a common capital metric) to 11.9% at the end
owner-occupied one- to four-family residential
of 2019, a strong level by industry standards(1).
mortgage loans and multi-family loans, and came
In the banking business, a strong capital base is
paramount. Our objective is to actively manage
our capital position while maintaining sufficient
capacity for organic growth and other corporate
initiatives. It is also a priority to return capital to our
stockholders. We are proud that Great Southern
has declared consecutive quarterly cash dividends
since going public in 1989. In 2019, we declared
quarterly cash dividends totaling $1.32 per
common share. With our very strong capital levels,
we have also recently had the opportunity to
declare special cash dividends. The Company
from most of Great Southern’s primary lending
locations. For the fourth year in a row, our
commercial lenders originated more than $1 billion
in new loans, with 35% of the production
generated through our six loan production offices
in Atlanta, Chicago, Dallas, Denver, Omaha and
Tulsa. Our Residential Lending team had record
production in 2019, driven by hiring additional
veteran loan originators and a low interest rate
environment. Some of these residential loans
were retained in the Company’s loan portfolio and
some were sold in the secondary market.
Steadfast Credit Quality
Despite intense competition and some signs of a
slowing marketplace, our loan growth was not
achieved by succumbing to pricing pressures or
loosening underwriting standards. Our loan
underwriting remains conservative and we strive
to grow the loan portfolio one quality relationship
at a time. During 2019, credit quality metrics
remained strong with historically low levels of
non-performing assets. At December 31, 2019,
non-performing assets, excluding FDIC-acquired
non-performing assets, were $8.2 million, a
decrease of $3.6 million from $11.8 million at
December 31, 2018. Non-performing assets as a
percentage of total assets were 0.16% at
December 31, 2019, compared to 0.25% at
December 31, 2018. Total net charge-offs were
$4.3 million during 2019, compared to
$5.2 million during 2018. In 2019, approximately
$2.9 million of the $4.3 million of net charge-offs
were in the consumer auto category. In addition,
two unrelated commercial loan relationships were
responsible for $560,000 of the net charge-off
total in 2019.
Net Interest Margin
Pressure
During 2019, the Federal Reserve’s three cuts to
the federal funds rate and decreases in other
benchmark interest rates led to net interest
margin compression for many banks, including
Great Southern. In addition, strong pricing
competition for loans and deposits continued in
most of our markets. Reported net interest margin
was 3.95% for the year ended December 31,
2019, compared to 3.99% for 2018, a decrease of
four basis points. The Company’s core net
interest margin(2), which excludes the effects of
additional yield accretion on loan pools from
FDIC-assisted transactions, was 3.79% for the
year ended December 31, 2019, compared to
3.87% for 2018, a decrease of eight basis points.
Compression in our margin was caused primarily
by increases in average interest rates on deposits
and other borrowings, partially offset by increases
in the average yield on loans and other
interest-earning assets. Since the Federal
Reserve’s rate cuts in the second half of 2019, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. Strategies to mitigate margin
compression, such as interest rate swaps and
balance sheet mix, are in place and reviewed
continually.
Long-term Business
Initiatives
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 decided 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 was difficult over the last few
years. Our core business of direct consumer
lending through our extensive banking center
network, however, remains an important focus.
To broaden our lending capabilities, during the
third quarter of 2019, a Business Banking initiative
was implemented to increase the Company’s
focus on serving the lending needs of business
owners. The Business Banking group works with
established operating businesses by providing
lines of credit, equipment loans, and commercial
real estate loans, as well as cash management
and depository services.
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
continually analyze our system of banking centers
to measure performance 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. In fact, in the last six years, the Company
has consolidated 34 banking centers – 24 in
Missouri, seven in Iowa, two in Kansas and one in
Arkansas. In 2019, two banking centers were
consolidated into nearby offices – the Fayetteville,
Arkansas, office into the Rogers, Arkansas, office
and the Ames, Iowa, banking center into the North
Ankeny, Iowa, facility.
Enhancing our online channels was also a priority
in 2019. During the first quarter of 2019, we
upgraded the online account opening platform to
provide a faster and easier experience for
customers within and beyond our geographic
footprint. We also committed significant time in
2019 to work on upgrading the retail online
banking platform and mobile banking application
to improve customer functionality and
convenience. The new platform and app are
expected to be available to customers
during 2020.
20/20
VISION
As we look to 2020 and beyond, we will capitalize
on our strengths and prepare for the challenges
and opportunities that will likely come our way.
Our priorities for 2020 are straightforward. We will
maintain a sharp focus on developing and
expanding customer relationships, closely manage
interest rate risk, sustain a strong credit discipline
and drive operational efficiencies and continuous
improvement throughout our Company.
Coming off a record year in 2019 provides positive
momentum, but we do not expect 2020 to be
another year of record income. It is unrealistic to
expect that record growth – even any growth – is
going to be possible every single year. There are
too many variables that can affect performance.
We understand that at times we will be able to
grow and expand, and there will be times when,
because of competition and economic conditions,
we will not be able to grow. We’ll do the best we
can every single year in the long-term interests of
the Company and our stockholders. For some
years, that may mean our loan and deposit totals
stay relatively flat. In other years, we may
experience significant growth. Discipline is key.
The current flat-to-inverted yield curve, generally
low interest rates and competitive landscape will
likely present significant obstacles to expanding
our net interest margin in 2020. As stated earlier,
strategies are in place to manage these pressures,
and limit negative impacts on our net interest
margin as much as possible.
Economic and political uncertainty continue to
pose challenges for the banking industry as a
whole. Although the economy remains fairly
strong, it is a dangerous time for banks in the
current economic cycle. Investor expectations
have not fully reset to reflect a slowing economy.
This may cause some banks to feel pressure to
continue to show loan growth similar to previous
periods when the economy was more robust,
6
leading to unsound credit practices. Seeds for
we desire to provide a superior long-term return
future problems are usually sown in times like
on investment in our Company.
these. We will be viligant not to fall into this trap.
We do not intend to stretch for questionable loan
or deposit growth.
Finally, we owe a debt a gratitude to our Board of
Directors for their guidance and support. We value
the diversity of talent, knowledge and experience
As we look ahead, we recognize that banking as
that each Board member brings to our Company.
an industry is evolving rapidly, with continuous
technological advances. We must stay responsive
to continue to meet the demands and
Thank you for your support of Great Southern. We
invite your feedback at any time.
expectations of our customers. In 2020, we will
Sincerely yours,
William V. Turner
Joseph W. Turner
continue to analyze all customer access channels
to ensure that we are properly positioned for both
the current and future generations of customers.
Are we serving customers when, where and how
they prefer? We must make sure that we can
knowledgably answer this question. One way we
are doing this is by our engagement with a
third-party vendor that is reviewing all 97 banking
center facilities, including the in-branch customer
experience, to understand how this physical
access channel needs to efficiently evolve with
customer preferences. We also continue to use
J.D. Power, a leader in consumer satisfaction
research, and other leading customer experience
organizations to help us better understand our
customers’ desires and their perceptions of our
service quality through all of our delivery channels.
We look to 2020 with both optimism and realism.
Foresight and discipline will be fundamental as we
take on whatever challenges and opportunities
that may come our way. As we do this, we pledge
to keep in mind the long-term interests of those
we serve. For our associates, we want to make our
Company a great place to work and grow
professionally. For our customers, it is our mission
to build winning and lasting relationships by
providing the right products and services with
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 finally, for our stockholders,
As we look to 2020 and beyond, we will capitalize
on our strengths and prepare for the challenges
and opportunities that will likely come our way.
Our priorities for 2020 are straightforward. We will
maintain a sharp focus on developing and
expanding customer relationships, closely manage
interest rate risk, sustain a strong credit discipline
and drive operational efficiencies and continuous
improvement throughout our Company.
Coming off a record year in 2019 provides positive
momentum, but we do not expect 2020 to be
another year of record income. It is unrealistic to
expect that record growth – even any growth – is
going to be possible every single year. There are
too many variables that can affect performance.
We understand that at times we will be able to
grow and expand, and there will be times when,
because of competition and economic conditions,
we will not be able to grow. We’ll do the best we
can every single year in the long-term interests of
the Company and our stockholders. For some
years, that may mean our loan and deposit totals
stay relatively flat. In other years, we may
experience significant growth. Discipline is key.
The current flat-to-inverted yield curve, generally
low interest rates and competitive landscape will
likely present significant obstacles to expanding
our net interest margin in 2020. As stated earlier,
strategies are in place to manage these pressures,
and limit negative impacts on our net interest
margin as much as possible.
Economic and political uncertainty continue to
pose challenges for the banking industry as a
whole. Although the economy remains fairly
strong, it is a dangerous time for banks in the
current economic cycle. Investor expectations
have not fully reset to reflect a slowing economy.
This may cause some banks to feel pressure to
continue to show loan growth similar to previous
periods when the economy was more robust,
leading to unsound credit practices. Seeds for
future problems are usually sown in times like
these. We will be viligant not to fall into this trap.
We do not intend to stretch for questionable loan
or deposit growth.
As we look ahead, we recognize that banking as
an industry is evolving rapidly, with continuous
technological advances. We must stay responsive
to continue to meet the demands and
expectations of our customers. In 2020, we will
continue to analyze all customer access channels
to ensure that we are properly positioned for both
the current and future generations of customers.
Are we serving customers when, where and how
they prefer? We must make sure that we can
knowledgably answer this question. One way we
are doing this is by our engagement with a
third-party vendor that is reviewing all 97 banking
center facilities, including the in-branch customer
experience, to understand how this physical
access channel needs to efficiently evolve with
customer preferences. We also continue to use
J.D. Power, a leader in consumer satisfaction
research, and other leading customer experience
organizations to help us better understand our
customers’ desires and their perceptions of our
service quality through all of our delivery channels.
We look to 2020 with both optimism and realism.
Foresight and discipline will be fundamental as we
take on whatever challenges and opportunities
that may come our way. As we do this, we pledge
to keep in mind the long-term interests of those
we serve. For our associates, we want to make our
Company a great place to work and grow
professionally. For our customers, it is our mission
to build winning and lasting relationships by
providing the right products and services with
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 finally, for our stockholders,
7
we desire to provide a superior long-term return
on investment in our Company.
Finally, we owe a debt a gratitude to our Board of
Directors for their guidance and support. We value
the diversity of talent, knowledge and experience
that each Board member brings to our Company.
Thank you for your support of Great Southern. We
invite your feedback at any time.
Sincerely yours,
William V. Turner
Joseph W. Turner
(1) 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.
(2) For additional information, see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results
of Operations – Net Interest Income” in the Company’s
Annual Report on Form 10-K.
seeing
NEW WAYS
to create lending opportunity
The foundation of our lending strategy for many
years has been to grow our portfolio with
high-quality loans. This foundation, paired with
the expertise of our expanding lending team, has
resulted in overall net outstanding loan portfolio
growth of more than 55%, or $1.4 billion, since the
end of 2014. Our steadfast approach to
preserving a strong credit discipline is guided by
the Bank’s Loan Committee, and we continue to
look ahead for future opportunities in all markets,
including potential new markets.
Banking Center Network
Loan Production Office
LOAN PRODUCTION
OFFICES ORIGINATED
35%
of 2019 New Loan
Production
MN
Denver
CO
IA
Chicago
IL
MO
NE
Omaha
KS
OK
Tulsa
AR
TX
Dallas
Atlanta
GA
Success in
COMMERCIAL
Lending
Commercial lending, primarily commercial real
estate, has been our forte for several decades. For
the fourth consecutive year, our commercial
lending team produced more than $1 billion in
loans, 35% of which originated in our stand-alone
commercial loan production offices. In 2019, we
saw solid growth in commercial construction,
commercial real estate, and both multi-family and
single-family real estate.
The stand-alone loan production offices are a
successful business model for our Company, and
they position us to capitalize on opportunities in
attractive markets. The success from these offices
can be directly attributed to the hiring of
experienced lenders with a strong knowledge of
both the commercial lending industry and the
needs of the market. These offices have
augmented our strong lending offices in
Springfield, St. Louis, Kansas City, Minneapolis,
and Des Moines.
Commercial
Business
$271M
Consumer*
$318M
Construction
& Land
Development
$699M
Commercial
Real Estate
$1.5B
Single-Family
Real Estate
$516M
Multi-Family
Real Estate
$812M
LEGACY LOAN
PORTFOLIO
$4.1B
Outstanding balances as of December 31, 2019
*Includes Home Equity Loans of $119M
8
A RECORD YEAR
for Residential Lending
Purchasing a home is often the largest investment
an individual will make; throughout our 97-year
history, we’ve helped countless customers finance
their dream of home ownership. We’re mindful of
the positive impact to the communities we serve
when we help individuals and families purchase
homes and put down roots. In 2019, our
Residential Lending team achieved record
production, originating nearly $314 million in home
loan purchases and refinances.
Strategic marketing campaigns played a part in
this record-making year. In response to online
mortgage lenders, we’ve sought to raise
2019
$313.9
MILLION
in new Residential Loan Production
consumer awareness about our home loan
products, our online home loan application, and
the tailored, one-on-one support provided by our
home loan experts. The success in 2019 was
bolstered by a decrease in home loan rates, which
increased home purchases and refinances, and
the hiring of experienced lenders in key markets.
New Mortgages
& Refinance
Home
Improvement
Loans
Flexible
Products
Financial
Education
Working
with
Partners
OPENING DOORS
in St. Louis
Our Residential Lending team established a new
home loan program for the St. Louis, Missouri,
market during 2019. The Open Door Home Loan
program is designed to assist low-to
moderate-income individuals in specific market
areas, many of whom have difficulty qualifying for
traditional home loan products, whether it is to
purchase a home or make improvements to their
existing home.
With the goal of getting these customers on a
successful path forward, we’re collaborating with
our network of nonprofit community partners to
provide education and resources prior to loan
closing so these borrowers are prepared for home
ownership.
9
NEW TEAM
for Business Banking
Through our Company-wide process improvement
initiative, Process Matters, we identified an
opportunity to better serve the banking needs of
operating business owners. We enhanced our
Business Banking division by establishing a new
team focused on lending opportunities for these
customers. At the helm of the team is Kent
Lammers, a lending veteran with more than 20
years of experience with Great Southern.
Recognizing a unique potential in the Kansas City
market, we also hired two experienced lenders,
both of whom have strong, established
relationships in the market.
Foresight 20/20
As we look forward, the Business Banking lending
team will establish complete banking relationships
with these operating business owners by
collaborating with the Business Banking services
team to offer customized depository and payment
solutions. The increased focus on these customers
will strengthen not only the businesses themselves
and our Bank, but the local communities as well.
using a sharper
FOCUS
to reach and serve
customers
New platform for
ONLINE BANKING
It’s more important than ever that our Bank be
available to customers when, where, and how
they prefer. Generations who have grown up in
the digital age want the option to bank easily from
anywhere.
A
E
R
Email
Website
Social
Media
C H I N G OUR CUSTO
M
Online Banking
E
R
S
Mobile Banking
Text Banking
ATMs
N D I G I T A L SERVIC
E
S
TOUCH
POINTS
TIO
A
C
I
N
U
M
M
Mail
O
C
Call
Center
FACE TO F A C E
M
A
R
K
E
T
I
N
G
Digital &
Online
Print
Radio/TV
Outdoor
Sports
Community
Events
Volunteering
Education
Banking
Centers
10
Optimizing our channels and services as
technology evolves has been an ongoing focus.
Our enhanced online account opening platform,
which we introduced last year, has made it easier
for consumers to begin a relationship with our
Bank. As of February 1, 2020, we’ve opened
nearly 1,100 new accounts online from various
states throughout the country, an impressive
increase compared to years prior. The availability
of our convenient Online and Mobile Banking
services, such as Mobile Check Deposit, has
enabled a new population of potential
customers to bank with us whether or not
there are physical locations in their
local area.
Foresight 20/20
Later this year, we’ll introduce our
updated Online Banking platform
and Mobile Banking app. To
create a seamless experience,
customers will have access to the
same features and services
whether they are using our Online
Banking website or Mobile
Banking app. We’re also providing
more self-service options, which will
make it easier for users to access and
update their information when it’s
convenient.
TARGETING &
OPTIMIZING
our reach and
messages
Consumer
Demographics
Customer
feedback
Consumer
Surveys
Using the data available through
our marketing analysis and
customer feedback platforms,
we continue to focus on fine
tuning our marketing
campaigns and messaging. We
know that each consumer is
unique and their interpretation
of information is based on their
specific needs. As consumers are
presented with marketing
messages through many channels,
be it social media, their email inbox, or
TV/radio, it’s crucial that our marketing
efforts form a personal connection between
them and our Bank.
Customer
Data
Search Engine
Optimization
CLEARER
PICTURE
BETTER
REACH
Focus
Groups
Market
Research
Social Media
Insights
Online Advertising
Analytics
This targeted approach not only increases the
efficacy of our marketing campaigns by
presenting information to the individuals who are
most likely to find it useful and relevant, but also
better utilizes our marketing dollars.
$32.7M
FEB 2020
$28.5M
DEC 2019
$30 M
20 M
10 M
FEB 2019
JUL 2019
TEXAS MONEY MARKET DEPOSITS
As of February 13, 2020.
11
Growing deposits in the
TEXAS MARKET
Using our hyper-targeted approach, we launched
a deposit acquisition campaign in February 2019,
which focused on several metropolitan Texas
markets, including Dallas, Austin, and Houston,
and offered a money market account with an
attractive, competitive rate. Through optimized
marketing both online and by email, we have
opened hundreds of accounts in Texas totaling
more than $32 million in deposits related to this
campaign.
bringing our
VISION
for stronger
communities
to life
A GRAND DAY
for our smaller
communities
In celebration of the global Giving Tuesday
initiative, we hosted ‘A Grand Day to Celebrate’
by donating $25,000 to rural community nonprofit
organizations throughout the Midwest.
Our local banking center managers chose the
recipient organizations based on their firsthand
knowledge of the unique needs of their
communities. We invited our customers and
community members to join us in celebrating and
to learn more about the services and resources
available through these
organizations!
The organizations we
donated to provide
support for families,
children, and senior
citizens with respect to
education, healthcare,
nutrition, shelter, and
much more.
$25,000
=20+
COMMUNITIES
SUPPORTED
ENCOURAGING
start-ups
& small business
The efactory, which provides office space, training
events, business consulting, and more for
start-ups in Springfield, Missouri, named a room at
their facility for Great Southern Bank. This naming
ceremony followed a donation we made to help
fund an expansion of the efactory as well as foster
innovation, support entrepreneurship, and grow
businesses in southwest Missouri.
As a member of the efactory’s Partner Program
over the last five years, we’ve assisted dozens of
client companies through various programs and
services. Our Company, along with four other local
financial institutions, collectively invested
$100,000 in the efactory’s Accelerator Seed
Capital Fund, which is used to invest in start-ups.
We’re very proud to be part of the positive,
long-term economic impact this expansion will
have on the Springfield area in the years ahead!
SUPPORTING
SIOUX CITY
We’re very proud to be a sponsor of the new
Siouxland Expo Center in Sioux City, Iowa. The
Bank pledged $250,000 to the project over the
next ten years. Part of the Riverfront Development
District, the Expo Center is an innovative and
dynamic venue that will provide 80,000 square
feet of flexible spaces for agricultural, recreational,
and community events.
Our local team championed this investment in
Sioux City. Bringing many events to the area will
drive tourism, which will have a positive impact on
the local economy and benefit the entire
community for years to come.
12
MULTIPLYING OUR IMPACT
Last year we introduced a new sports marketing
partnership with St. Louis University Athletics. For
the first time we directly tied our sponsorship to a
community-focused initiative, encouraging
attendance while donating books to a local school.
This program’s success inspired us to do more
with our sports marketing partnerships going
forward.
HEALTHCARE
SPRINGFIELD
CARDINALS
increased
attendance
RONALD
MCDONALD
HOUSE
increased
awareness
FANS &
FAMILIES
more
connected
#ABearyGoodSummer
Through our partnership with the Springfield
Cardinals, we sponsor a co-branded fan giveaway
item each season. For 2019, we selected a toy
bear and quickly began working to involve a
community organization in the giveaway. We
partnered with Ronald McDonald House Charities
of the Ozarks and co-developed a campaign
leading up to the giveaway day at the park. The
campaign, named #ABearyGoodSummer, featured
social media posts that followed the bear through
day-to-day operations at the Ronald McDonald
House. This provided a behind-the-scenes look
into all of the ways they help and support families
in their care. The namesake of the bear, TJ, is a
young man who previously stayed at the Ronald
McDonald House. Over the years, TJ has been
instrumental in raising awareness and funds for
Ronald McDonald House through their annual
Share-A-Heart fundraiser. TJ and his family joined
us at the game to celebrate and he threw out the
first pitch! In addition to the bears given away at
the game, we provided an additional 500 bears for
Ronald McDonald House to give to the children
staying with them through the remainder of 2019.
13
EDUCATION
FANS &
COMMUNITY
more
involved
PROJECT
CLASSROOM
increased
funding
MISSOURI
STATE
ATHLETICS
increased
attendance
Project Classroom
Our longest-running sports marketing partnership
is with Missouri State University. We worked
alongside their team to establish Project
Classroom, an initiative designed to support local
teachers by fulfilling grant requests aimed at
enhancing their students’ education. At the heart
of sporting events is the coming together of
people from the community to support a common
interest, so we wanted to be sure Bears fans had a
participatory role in this initiative. For each men’s
and women’s home basketball game, if fan
attendance reached a predetermined level, we
donated $500 to a grant fund. We then worked
with the Foundation for Springfield Public Schools
to identify teacher grant requests the Foundation
was unable to fulfill through their annual budget.
Great Southern associates, Missouri State
Athletics team members, and Boomer, the
Missouri State University mascot, surprised
several teachers and their students with the funds
needed to purchase equipment, software, and
resources for their classrooms! Through this
partnership, we fulfilled more than $10,000 in
grant requests throughout the 2019-2020
basketball season!
encouraging
ALL EYES
to look for
better solutions
FIGHTING FRAUD
with education
As a financial institution, we have a responsibility
to educate our customers to identify and protect
themselves against fraud, especially those who
are most vulnerable. Our ongoing Fraud Fighting
Friday initiative began as a social media campaign
to educate our customers, including older
Americans, on how to protect their financial assets
from financial scams. To complement the social
media component, we provided formal training for
front-line associates, hosted Fraud Fighting Friday
events at all of our Banking Centers, and
partnered with local senior centers to share fraud
prevention tips.
We submitted an application for the American
Bankers Association Foundation’s Community
Commitment Award in the Protecting Older
Americans category for the initiative. We recently
learned we were selected as a finalist and
received one of four honorable mentions in the
category! The American Bankers Association
received a record number of submissions in 2019
and it was an honor to be recognized as a finalist!
These national awards recognize and promote the
many valuable ways banks of all
sizes contribute to economic
growth, community
development, and enhancing
the quality of life in their
communities.
Continually
improving
OUR TRAINING
for better service
We regularly receive positive customer feedback
regarding interactions with our associates and
take pride in providing excellent customer service
in all of our offices. We attribute these excellent
customer service skills to our internal Training
Department.
Associate training is an investment for the
Company, one that pays dividends in the long
term. Over the last few years, we’ve taken a more
proactive approach to our training efforts. We’ve
coordinated with various departments to identify
specific training needs and opportunities to
enhance our customer experience.
Continuing to improve
CUSTOMER SERVICE
with nCino
nCino, the cloud-based platform we implemented
in 2016 for commercial lending, now has
multi-purpose use for the Company! During late
2019, we replaced the consumer loan platform in
our banking centers with the nCino platform.
We’re also upgrading the online consumer loan
application available on our website through
nCino.
In addition to a streamlined application process,
this platform provides more transparency
between our underwriting and front-line
associates, which enables them to better
communicate with our customers about the status
of their loan application.
14
Setting the
example for
POSITIVE
impact
Our Chairman, Bill Turner, was awarded the
Lifetime Achievement in Business at the
Springfield Business Journal’s 2019 Economic
Impact Awards ceremony. The award recognizes
and honors excellence in business and impact on
the community. Since joining the Company in
Teams lead the way
Our regional Community Matters Teams help us
make the most of our community involvement by
providing leadership and tailoring our efforts to the
unique needs of their communities.
LEAD
Provide guidance
and leadership in
their communities to
promote economic
growth.
DO
Encourage
associates to
volunteer and help
them find
opportunities to
give back.
GIVE
Help guide our
company’s
philanthropic giving to
best meet the needs
in their area.
TEACH
Help associates share
their financial
expertise with seniors,
kids, and small
business owners.
15
1974, Mr. Turner was instrumental in transforming
Great Southern from a small savings and loan
association with $79 million in assets to a leading,
regional financial institution with $5.0 billion in
assets.
While accepting the award, Mr. Turner said, “I’ve
been with Great Southern for 45 years. When I
joined, there were 12 employees. Now, there’s
1,200. Those employees are the people who
earned me this award. They’ve done the work.”
The community-focused mindset of Mr. Turner, and
his wife, Ann, is the foundation and driving force
behind the Bank’s Community Matters program. In
their honor, we established the annual Bill and Ann
Turner Distinguished Community Service Award to
celebrate an outstanding associate for their
dedication to volunteerism in their community.
Dedicated to her
community’s
GROWTH &
SUCCESS
The 2020 Community Service
Award recipient was Terry
Framke, banking center manager in Onawa, Iowa.
Terry takes great pride in her community and is often
referred to as the “heart and soul” of Onawa. As an
active member of the Onawa Chamber of
Commerce, she understands the importance of a
strong local economy and advocates for local
businesses to help them succeed and prosper.
Terry also served as a board member of Burgess
Health Center for 29 years. In addition to providing
valuable guidance, she was instrumental in the
organizations’ capital campaign to complete
necessary hospital renovations. The president of
Burgess Health Center said, “Terry has been tireless
in her support of healthcare in Onawa. She helped
navigate some very troublesome times to establish
the stability we have today. She genuinely cares
about Onawa and its members, and isn’t afraid to
work hard to improve the community.”
The pride Terry has in her community is contagious,
encouraging both her employees and the public to
get involved and help others!
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.
Great Southern LEADERSHIP
Team
Front row, left to right
Back row, left to right
Kelly Polonus Director of Communications
and Marketing
John Bugh Chief Lending Officer
Tammy Baurichter Controller
Debbie Flowers Director of Credit Risk
Administration
Matt Snyder Director of Human Resources
Bryan Tiede Director of Risk Management
Kris Conley Director of Retail Banking
Doug Marrs Director of Operations
Joseph W. Turner President and Chief
Executive Officer
Rex Copeland Chief Financial Officer
Lin Thomason Director of Information
Services
Kevin Baker Chief Credit Officer
16
In 2019 we celebrated our 30th year
on the Nasdaq Exchange.
We would like to thank
all our investors
for their trust in our vision
and support in reaching this
exciting milestone.
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 and other interest-
bearing liabilities
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
2019
2018
2017
2016
2015
December 31,
(DOLLARS IN THOUSANDS)
$5,015,072
4,163,224
40,294
374,175
$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
5,525
3,960,106
8,440
3,725,007
22,002
3,597,144
32,658
3,677,230
31,893
3,268,626
412,374
397,594
324,097
416,786
406,797
603,066
603,066
4,155,780
4,855,007
3,889,910
571,637
228,247
97
531,977
531,977
3,910,819
4,503,326
3,556,240
498,508
227,240
99
471,662
471,662
3,814,560
4,460,196
3,598,579
455,704
230,456
104
429,806
429,806
3,659,360
4,370,793
3,475,887
414,799
231,272
104
398,227
398,227
3,235,787
4,067,399
3,203,262
438,683
217,139
110
18
Summary Statement of Income Information:
Interest income:
Loan
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
For the Year Ended December 31,
2019
2018
2017
2016
2015
(In Thousands)
$ 223,047 $ 198,226 $ 176,654 $ 178,883 $ 177,240
11,947
7,723
6,407
6,292
7,111
234,994
205,949
183,061
185,175
184,351
45,570
—
3,635
1,019
4,378
54,602
27,957
3,985
765
953
4,097
37,757
20,595
17,387
1,516
747
949
4,098
27,905
1,214
1,137
803
1,578
22,119
13,511
1,707
65
714
—
15,997
180,392
168,192
155,156
163,056
168,354
6,150
7,150
9,100
9,281
5,519
Net interest income after provision for loan losses
174,242
161,042
146,056
153,775
162,835
Noninterest income:
Commissions
Service charges and ATM fees
Net realized gains on sales of loans
Net realized gains (losses) on sales of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain recognized on sale of business units
Gain (loss) on termination of loss sharing agreements
Amortization of income/expense related to
business acquisition
Other income
Noninterest expense:
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Advertising
Office supplies and printing
Telephone
Legal, audit and other professional fees
Expense on other real estate and repossessions
Partnership tax credit investment amortization
Acquired deposit intangible asset amortization
Other operating expenses
Income before income taxes
Provision for income taxes
Net income
Preferred stock dividends and discount accretion
889
1,137
20,898
21,695
2,607
(62 )
1,432
(104 )
—
—
—
1,788
2
1,622
25
7,414
—
—
5,297
30,957
2,535
36,218
1,041
21,628
3,150
—
2,231
28
—
7,705
(486 )
3,230
1,097
21,666
3,941
2,873
1,747
66
—
(584 )
(6,351 )
4,055
38,527
28,510
1,136
19,841
3,888
2
2,129
(43 )
—
—
(18,345 )
4,973
13,581
63,224
60,215
26,217
25,628
60,034
24,613
60,377
26,077
58,682
25,985
3,198
2,015
2,808
1,077
3,580
2,624
2,184
365
1,190
6,656
115,138
90,061
16,449
73,612
—
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
115,310
114,261
120,427
114,350
81,950
14,841
67,109
—
70,322
18,758
51,564
—
61,858
16,516
45,342
—
62,066
15,564
46,502
554
Net income available to common shareholders
$ 73,612 $ 67,109 $ 51,564 $ 45,342 $ 45,948
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)
Asset Quality Ratios (8):
Allowance for loan losses/year-end loans
Non-performing assets/year-end loans and foreclosed assets
Allowance for loan losses/non-performing loans
Net charge-offs/average loans
Gross non-performing assets/year end assets
Non-performing loans/year-end loans
Balance Sheet Ratios:
Loans to deposits
Average interest-earning assets as a percentage
of average interest-bearing liabilities
Capital Ratios:
Average common stockholders' equity to average assets
Year-end tangible common stockholders' equity to 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
At or For the Year Ended December 31,
2019
2018
2017
2016
2015
(Number of shares in thousands)
$ 5.18
5.14
2.07
42.29
14,201
14,261
14,330
$ 4.75
4.71
1.20
37.59
14,132
14,151
14,260
$ 3.67
3.64
0.94
33.48
14,032
14,088
14,180
$ 3.26
3.21
0.88
30.77
13,912
13,968
14,141
$ 3.33
3.28
0.86
28.67
13,818
13,888
14,000
1.52 %
1.49 %
1.16 %
1.04 %
1.14 %
12.88
0.64
2.37
3.62
3.28
3.95
54.48
1.73
40.27
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
1.00 %
0.19
891.66
0.10
0.16
0.11
0.98 %
0.29
609.67
0.13
0.25
0.16
1.01 %
0.73
324.23
0.26
0.63
0.30
1.04 %
1.02
265.60
0.29
0.86
0.37
1.20 %
1.28
230.24
0.20
1.07
0.49
105.13 %
107.13 %
103.82 %
102.70 %
102.58 %
127.50
126.47
123.74
121.33
121.60
11.8 %
11.9
11.1 %
11.2
10.2 %
10.5
9.5 %
9.2
9.4 %
9.6
12.5
15.0
11.8
12.0
13.1
14.0
12.3
13.1
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
(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-assisted 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
2019
Financial Information
CONTENTS
22 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
60 Report of Independent Registered Public Accounting Firm
61 Consolidated Statements of Financial Condition
63 Consolidated Statements of Income
65 Consolidated Statements of Comprehensive Income
66 Consolidated Statements of Stockholders’ Equity
68 Consolidated Statements of Cash Flows
70 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) 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; (ii) changes in economic conditions, either nationally or in the Company's market areas; (iii)
fluctuations in interest rates; (iv) 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; (v) the possibility of other-
than-temporary impairments of securities held in the Company's securities portfolio; (vi) the Company's ability to access cost-effective
funding; (vii) fluctuations in real estate values and both residential and commercial real estate market conditions; (viii) demand for
loans and deposits in the Company's market areas; (ix) the potential adverse effects of the coronavirus or any other pandemic on the
ability of the Company's borrowers to satisfy their obligations to the Company, on the demand for the Company's loans or its other
products and services, on other aspects of the Company's business operations and on financial markets and economic growth; (x) the
ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace; (xi) the
possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber-attack or cyber theft, and that
such security measures might not protect against systems failures or interruptions; (xii) legislative or regulatory changes that adversely
affect the Company's business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 and its implementing regulations, the overdraft protection regulations and customers' responses thereto and the Tax Reform
Legislation; (xiii) changes in accounting principles, policies or guidelines; (xiv) monetary and fiscal policies of the Federal Reserve
Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xv) results of
examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among
other things, require the Company to limit its business activities, change its business mix, increase its allowance for loan losses, write-
down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely
affect its liquidity and earnings; (xvi) costs and effects of litigation, including settlements and judgments; and (xvii) competition. The
Company wishes to advise readers that the factors listed above and other risks described from time to time in documents filed or
furnished by the Company with the SEC could affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake -and specifically declines any obligation- to publicly release the result of any revisions which may
be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
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 2019 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.
Beginning in 2020, the Company will adopt the new accounting standard related to the Allowance for Credit Losses. For assets held
at amortized cost basis, this standard eliminates the probable initial recognition threshold in current GAAP and, instead, requires an
entity to reflect its current estimate of all expected credit losses. See Note 1 of the accompanying audited financial statements for
additional information.
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
23
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 continued 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.
As noted above, in 2020, the Company will adopt the new accounting standard related to the Allowance for Credit Losses. The
adoption of this standard will require the Company to reclassify any remaining non-accretable yield adjustment to the Allowance for
Credit Losses. FDIC-assisted acquired loans will still be evaluated in their original pools that were determined at the acquisition date
of the loans. See Note 1 of the accompanying audited financial statements for additional information.
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,
2019, 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, 2019, 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, 2019, the amortizable intangible assets consisted of core deposit intangibles of $2.7 million, including $1.9
million related to the Fifth Third Bank transaction in January 2016, $600,000 related to the Valley Bank transaction in June 2014 and
$153,000 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 the Company's goodwill or other
intangible assets were impaired as of December 31, 2019. While management believes no impairment existed at December 31, 2019,
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.
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In December 2019, the economy marked its 111th straight month of net job gains with 145,000 jobs added. Hiring was below
economists’ estimates of 164,000 added jobs but the national unemployment rate held steady at 3.5%. The rate compares to a 3.9%
rate at December 2018 and is still the lowest rate of unemployed Americans recorded since December 1969. Employment in health
care and in professional and business services continued to trend higher. As of December 2019, the U.S. labor force participation rate
(the share of working-age Americans employed or actively looking for a job) was 63.2% and the employment population ratio was
61.0%, with both ratios unchanged over the past few months. The unemployment rate for the Midwest, where most of the Company’s
business is conducted, remained stable and in-line with the national average at 3.5% in December 2019. Unemployment rates for
December 2019 were: Missouri at 3.3%, Arkansas at 3.6%, Kansas at 3.2%, Iowa at 2.7%, Minnesota at 3.3%, Illinois at 3.7%,
Oklahoma at 3.4%, Texas at 3.5%, Georgia at 3.2% and Colorado at 2.5%. Of the metropolitan areas in which the Company does
business, the St. Louis area had the highest unemployment level at 3.3% as of December 2019 while the unemployment rate for the
Springfield market areas was at 3.2%, below the national average. Metropolitan areas in Iowa, Missouri, Nebraska and Minnesota
continued to boast unemployment levels amongst the lowest in the nation.
Sales of newly built single-family homes fell 0.4% in December 2019. However, 2019 was the strongest year for home sales since
2006. Sales were a seasonally adjusted annual rate of 681,000 according to the U.S. Census Bureau and the Department of Housing
and Urban Development estimates increased 10.3% from the 2018 seasonally adjusted annual rate of 617,000. The median sales price
of new houses sold in December 2019 was $331,400, up slightly from $329,700 a year earlier. The December 2019 average sales
price of $382,300 was down slightly from $384,000 a year ago. The inventory of new homes for sale at the end of December would
support 5.7 months’ supply at the current sales pace, down from 6.6 months’ supply as of December 2018.
According to the National Association of Realtors (NAR), U.S. existing-home sales grew to a seasonally adjusted rate of 5.54 million
in December 2019. Overall sales increased by 10.8% from 5.00 million in December 2018. Sales in the Midwest reflected a 1.6%
decline from November 2019 but an annual gain of 8.9% during 2019. On a full-year basis, total existing-home sales ended at 5.34
million, the same level as in 2018, with sales in the South region (+2.2%) offsetting declines in the West (-1.8%) and Midwest
(-1.6%).
Total housing inventory at the end of December 2019 was at 1.4 million units, down 14.6% from November 2019 and 8.5% from one
year ago (1.53 million units). Unsold inventory totals have dropped for seven consecutive months and are causing home sales declines
due to a lack of inventory. The median existing home price for all housing types in December 2019 was $274,500, up 7.8% from
December 2018. In the Midwest region, existing home sales decreased 1.5% to an annual rate of 1.30 million units. The median price
in the Midwest was $208,500, a 9.2% increase from December 2018.
First-time buyers accounted for 31% of sales in December 2019, down slightly from 32% seen in November 2019 and December
2018. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage increased to 3.72% in
December 2019, down from 3.70% in November 2019. The average commitment rate for all of 2019 was 3.94%, down from 4.54% in
2018. Since the end of 2019, the average commitment rate for this type of loan has declined further.
The other residential (multi-family) sector rebounded in 2017 - 2019, with demand approaching the highest level on record. National
vacancy rates were 6.2% at the end of December 2019, while our market areas reflected the following vacancy levels: Springfield,
Mo. at 4.7%, St. Louis at 9.1%, Kansas City at 7.3%, Minneapolis at 4.6%, Tulsa, Okla. at 8.8%, Dallas-Fort Worth at 8.2% , Chicago
at 6.5%, Atlanta at 8.5% and Denver at 7.9%. Transaction volume has slowed, but pricing has remained on an upward trajectory. Cap
rates are still at low levels. Continued increase in the homeownership rate is the largest risk to the apartment sector. Vacancy rates
have increased somewhat in a few of our markets, partially due to the volume of units coming on-line. Developers continue to favor
more-expensive submarkets. 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 64.2% in 2019. Per information provided by Integra IRR
Viewpoint, the overwhelming majority of other residential (multi-family) markets across the country are deemed to be in expansion
with all of the Company’s market areas in the expansion phase with the exception of Denver and Atlanta - currently in a hyper-supply
phase. Those markets in hyper-supply phase exhibit increasing vacancy rates, moderate/high new construction, low/negative
absorption, moderate/low employment growth and medium/low rental rate growth.
Macroeconomic basics such as low unemployment, expectations of continued job growth and sold economies are considered strong
for the office sector. Per Integra, nationally approximately 63% 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. While most markets are in recovery or expansion, risk is anticipated to increase in the coming years.
The Company’s larger market areas in the suburban office market cycle include; Minneapolis, Dallas-Ft. Worth, and St. Louis. Tulsa,
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Okla., Chicago 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.
The continued rise of e-commerce has disrupted the retail market segment significantly. In the third quarter of 2019, e-commerce
sales accounted for 11.2% of total sales with more than $145 billion in online transactions. E-commerce is projected to grow its share
to 16.2% by 2023, according to industry source eMarketer. This means 55% of all additional retail sales for the next four years will be
internet-based, as opposed to the remaining 45% of growth captured by brick and mortar facilities. Approximately 54% of the retail
sector is in the expansion phase of the market cycle, with another 35% in recovery mode and the remaining 11% in hyper-supply and
recession. The Company’s larger market areas in the retail expansion market segments are: Chicago, Kansas City, Dallas-Ft. Worth,
and St. Louis. Denver and Minneapolis are in the hyper-supply cycle. The Atlanta and Tulsa, Okla. 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 included in the expansion cycle with prospects of continuing good economic growth. Three market areas,
Chicago, Minneapolis 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.
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 terminations of the loss sharing agreements for the TeamBank, Vantus Bank, Sun Security Bank and InterBank transactions have
had 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. After 2017, there are no 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.
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In the year ended December 31, 2019, Great Southern's total assets increased $338.9 million, or 7.2%, from $4.68 billion at December
31, 2018, to $5.02 billion at December 31, 2019. Full details of the current year changes in total assets are provided in the
“Comparison of Financial Condition at December 31, 2019 and December 31, 2018” section.
Loans. In the year ended December 31, 2019, Great Southern's net loans increased $165.0 million, or 4.1%, from $3.99 billion at
December 31, 2018, to $4.15 billion at December 31, 2019. Excluding FDIC-assisted acquired loans and mortgage loans held for sale,
total gross loans increased $99.2 million, or 2.1%, from December 31, 2018 to December 31, 2019. This increase was primarily in
commercial real estate loans, owner occupied one- to four-family residential loans and other residential (multi-family) loans. These
increases were partially offset by decreases in construction loans and consumer auto loans. FDIC-assisted acquired loan portfolios
decreased $40.4 million. 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 2019 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 Atlanta, Chicago, Dallas, Denver, 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
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, 2019 and 2018, 87.2% and 84.4%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2019 and 2018, commercial real estate and commercial construction
loans were 47.6% and 49.7% of the Bank’s total loan portfolio (excluding loans acquired through FDIC-assisted transactions),
respectively. Commercial real estate and commercial construction loans generally afford the Bank an opportunity to increase the yield
on, and the proportion of interest rate sensitive loans in, its portfolio. They do, however, present somewhat greater risk to the Bank
because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At December 31,
2019 and 2018, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 9% and 9% 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, 2019 and 2018, loans made in the St. Louis, Mo. metropolitan statistical area (St. Louis MSA) were
17% 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 other residential (multi-family) loans which are less likely to be impacted by the higher levels of
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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 2019 Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio has been as much as 58% in recent years and was 50% as of December 31,
2019. This was due to customer preference for fixed rate loans during this period of relatively low interest rates. The majority of the
increase in fixed rate loans over the past few years 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, 2019,
approximately 79% 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, 2019, 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 “Risk Factors –
We may be adversely affected by interest rate changes” in the Company’s 2019 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, 2019 and 2018, an estimated 0.0% 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, 2019 and 2018, an estimated 0.6% and 0.9%, respectively, of
total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2019, troubled debt restructurings totaled $1.9 million, or 0.05% of total loans, down $5.0 million from $6.9 million,
or 0.17% of total loans, at December 31, 2018. 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, 2019, five loans totaling $34,000
were restructured into multiple new loans. For troubled debt restructurings occurring during the year ended December 31, 2018, five
loans totaling $31,000 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, 2019, 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, 2019, available-for-sale securities increased $130.2 million, or 53.4%,
from $244.0 million at December 31, 2018, to $374.2 million at December 31, 2019. The increase was primarily due to the purchase
of FNMA and GNMA fixed-rate multi-family mortgage-backed securities and FNMA and GNMA fixed rate collateralized mortgage
obligation 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, 2019, total deposit balances increased $235.1
million, or 6.3%. Transaction account balances increased $105.4 million and retail certificates of deposit increased $84.9 million
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compared to December 31, 2018. The increase in transaction accounts were primarily a result of increases in money market deposit
accounts and certain NOW account types. Retail certificates of deposit increased due to an increase of approximately $127 million in
certificates of deposit opened through the Company’s internet deposit acquisition channels during 2019, partially offset by a decrease
of approximately $49 million in retail certificates generated through our banking centers. 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 2019. Brokered
deposits, including CDARS program purchased funds, were $371.7 million at December 31, 2019, an increase of $44.8 million from
$326.9 million at December 31, 2018.
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.
Federal Home Loan Bank Advances and Short Term Borrowings. The Company’s Federal Home Loan Bank term advances were
$-0- at both December 31, 2019 and December 31, 2018. At December 31, 2019 and 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 $35.5 million from $192.7 million at December 31, 2018 to
$228.2 million at December 31, 2019. The short term borrowings included overnight FHLBank borrowings of $196.0 million at
December 31, 2019 and $178.0 million at December 31, 2018. 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 has been 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 has been on-going and increases in cash flow
expectations have been recognized as increases in accretable yield through interest income. Decreases in cash flow expectations have
been recognized as impairments through the allowance for loan losses.
The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increase of
0.25% on December 16, 2015, the FRB had last changed interest rates on December 16, 2008. This was the first rate increase since
September 29, 2006. The FRB also implemented rate change increases of 0.25% on eight additional occasions beginning December
14, 2016 and through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%. After December 2018, the FRB
paused its rate increases and, in July, September and October 2019, implemented rate change decreases of 0.25% on each of those
occasions. At December 31, 2019, the Federal Funds rate stood at 1.75%. A substantial portion of Great Southern’s loan portfolio
($1.89 billion at December 31, 2019) 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, 2019. Of these loans, $1.71 billion had interest rate floors. Great Southern also has a
portfolio of loans ($210 million at December 31, 2019) tied to a "prime rate" of interest and will adjust immediately with changes to
the "prime rate" of interest. 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 tied to the one-month or three-month LIBOR index and will be subject to
adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts. Interest rate
floors may at least partially mitigate the negative impact of interest rate decreases. 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,
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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, 2019,
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 are expected to 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 significantly 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, on net interest income are expected to be greater in the 12 to 36
months following rate changes. During the latter half of 2019, we did experience some compression of our net interest margin
percentage due to 0.75% of Federal Funds rate cuts over a 12-week period during July through October. Margin compression
primarily resulted from generally unchanged average interest rates on deposits and certain borrowings and lower yields on loans and
other interest-earning assets. LIBOR interest rates have decreased, putting pressure on loan yields, and strong pricing competition for
loans and deposits remains in most of our markets. 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 2017, 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 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, 2019 and 2018.”
Business Initiatives
The Company implemented several business and operational initiatives in 2019.
For the long-term success of the Company, the performance of all business lines is regularly evaluated. From this review, a Business
Banking initiative was implemented in 2019 to increase the Company’s focus on serving the lending needs of business owners. The
Business Banking group works with established operating businesses by providing lines of credit, equipment loans, and commercial
real estate loans, as well as cash management and depository services.
In the first quarter of 2019, the Company exited the indirect automobile lending business, which provided financing for customers of
automobile dealerships. Market forces, including strong rate competition for well qualified borrowers, made indirect lending through
automobile dealerships a significant barrier to efficient and profitable operations over the long term. The Company continues to offer
direct consumer loans as normal through its extensive banking center network.
The Company’s 97 banking centers are also consistently reviewed to measure performance and to ensure responsiveness to changing
customer needs and preferences. As such, the Company may 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 complement to its internal evaluation process, at the end of 2019, the Company engaged a third-party vendor to begin analyzing
all banking center facilities and the in-branch customer experience to ensure that this physical access channel is efficiently evolving to
the changing landscape.
30
Several banking center changes were initiated in 2019. In April 2019, the Company consolidated its Fayetteville, Arkansas, location
into its Rogers, Arkansas, banking center. The Fayetteville office opened in 2014 and did not meet performance expectations. The
Company now operates one banking center in Arkansas.
In September 2019, the Company consolidated its Ames, Iowa, banking center into its North Ankeny, Iowa office. The Company
entered the Ames market with only one banking center through an FDIC-assisted acquisition in 2014. The Ames office building was
sold during the fourth quarter of 2019. The Company now operates 18 banking centers in Iowa.
During the fourth quarter of 2019, several banking center improvement projects began or were already underway. In the Parsons,
Kansas, market, remodeling is proceeding on the downtown office at 1900 Main, which includes the addition of drive-through
banking lanes. Once completed in mid-2020, the nearby drive-through facility will be consolidated into the downtown office, leaving
one office serving the Parsons market.
In the Joplin market, the Company recently purchased a banking facility vacated by another financial institution. This facility is
located in close proximity to other current Great Southern banking centers. After a contractual black-out period that ends in April
2021, the Company expects to consolidate some of these existing operations into the purchased facility, which provides better
customer accessibility.
The two-story office in Rogers, Arkansas is currently being remodeled to move the commercial lending offices from the second floor
to space adjacent to the retail banking center offices on the first floor. The space vacated on the second floor is expected to be leased
to third parties. Four other third-party tenants also lease space in this facility. The banking center at 1701 W. Jackson in Ozark,
Missouri, is also undergoing construction to reconfigure excess space to be leased to third parties.
The Company continues to develop or enhance its technology platforms. During the first quarter of 2019, the Company upgraded its
online account opening platform to provide a faster and easier customer experience. The online platform, available on
GreatSouthernBank.com, allows customers within and beyond the Company’s geographic footprint to conveniently open certain
depository accounts.
The Company’s retail online banking platform and mobile banking application are currently being upgraded to enhance customer
functionality and convenience. The new platform and app are expected to be available to customers during the second quarter of 2020.
A transition to a new debit card payment processing vendor was completed at the end of January 2020. The move to MasterCard as the
payment processing partner allows for more streamlined processing of debit card transactions and the ability to more quickly respond
to advancing technology.
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. In 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 implemented far-reaching changes
across the financial regulatory landscape. Certain aspects of the Dodd-Frank Act have been affected by the recently Economic
Growth Act, as defined and discussed below under “-Economic Growth 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 rules was January 1, 2015, and, for certain provisions, various phase-in periods and
later effective dates apply. The chief features of these 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
31
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 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 revised 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.
Economic Growth Act. In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth
Act”), was enacted to modify or eliminate certain financial reform rules and regulations, including some implemented under the Dodd-
Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends
certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks
with assets of more than $50 billion. Many of these amendments could result in meaningful regulatory changes.
The Economic Growth Act, among other matters, expands the definition of qualified mortgages which 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 “well-capitalized” under the prompt corrective action rules.
Effective January 1, 2020, the Community Bank Leverage Ratio is 9.0%.
In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, 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 Economic Growth Act will ultimately be applied to us or
what specific impact the Economic Growth Act and the forthcoming implementing rules and regulations will have on us.
Recent Accounting Pronouncements
See Note 1 of the accompanying audited financial statements for a description of recent accounting pronouncements including the
respective dates of adoption and expected effects on the Company’s financial position and results of operations.
Comparison of Financial Condition at December 31, 2019 and December 31, 2018
During the year ended December 31, 2019, total assets increased by $338.9 million to $5.02 billion. The increase was primarily
attributable to increases in loans receivable and available-for-sale investment securities.
Cash and cash equivalents were $220.2 million at December 31, 2019, an increase of $17.5 million, or 8.6%, from $202.7 million at
December 31, 2018. During 2019, cash increased primarily due to increases in interest-bearing deposits. This increase in cash was
partially offset by funding the origination of loans and purchase of available for sale securities.
The Company’s available for sale securities increased $130.2 million, or 53.4%, compared to December 31, 2018. The increase was
primarily due to the purchase of FNMA and GNMA fixed-rate multi-family mortgage-backed securities and agency collateralized
mortgage obligation 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 7.5% and 5.2% of total assets at December 31,
2019 and 2018, respectively.
Net loans increased $165.0 million from December 31, 2018, to $4.15 billion at December 31, 2019. Excluding FDIC-assisted
acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) increased $99.2 million,
32
or 2.1%, from December 31, 2018 to December 31, 2019. Increases primarily occurred in commercial real estate loans, other
residential (multi-family) loans and one- to four-family residential mortgage loans. Outstanding and undisbursed balances of
commercial real estate loans increased $122.7 million, or 8.9%, one- to four-family residential loans increased $108.1 million, or
27.1%, and other residential (multi-family) loans increased $81.1 million, or 10.3%. Partially offsetting the increases in these loans
were a reduction of $88.3 million, or 5.9%, in commercial construction loans, a decrease of $101.7 million, or 40.1%, in consumer
auto loans and a decrease of $40.4 million, or 24.1%, in the FDIC-assisted acquired loan portfolios.
Other real estate owned and repossessions were $5.5 million at December 31, 2019, a decrease of $2.9 million, or 34.5%, from $8.4
million at December 31, 2018. The decrease was primarily due to sales of other real estate properties and properties which were not
acquired through foreclosure during the period, and is discussed in more detail in the Non-performing Assets section below.
Total liabilities increased $267.8 million from $4.14 billion at December 31, 2018 to $4.41 billion at December 31, 2019. The increase
was primarily attributable to an increase in deposits and short-term borrowings, partially offset by a decrease in securities sold under
reverse repurchase agreements.
Total deposits increased $235.1 million, or 6.3%, from $3.73 billion at December 31, 2018 to $3.96 billion at December 31,
2019. Customer retail certificates initiated through our banking center network decreased by $49.5 million during the year ended
December 31, 2019 and certificates of deposit opened through the Company's internet deposit acquisition channels increased by
$127.1 million. Brokered deposits, including CDARS program purchased funds, were $371.7 million at December 31, 2019, an
increase of $44.8 million from $326.9 million at December 31, 2018.
The Company’s Federal Home Loan Bank advances were $-0- at both December 31, 2019 and 2018. At both December 31, 2019 and
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 $35.5 million from $192.7 million at December 31, 2018 to
$228.2 million at December 31, 2019. The short term borrowings included overnight FHLBank borrowings of $196.0 million at
December 31, 2019 and $178.0 million at December 31, 2018.
Securities sold under reverse repurchase agreements with customers decreased $21.1 million, or 20.0%, from $105.3 million at
December 31, 2018 to $84.2 million at December 31, 2019. These balances fluctuate over time based on customer demand for this
product.
Total stockholders' equity increased $71.1 million from $532.0 million at December 31, 2018 to $603.1 million at December 31,
2019. The Company recorded net income of $73.6 million for the year ended December 31, 2019. Accumulated other comprehensive
income increased $22.6 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 $5.1 million due to stock option exercises. Dividends declared on
common stock, which decreased total stockholders’ equity, were $29.4 million. Total stockholders’ equity also decreased $849,000
due to repurchases of the Company’s common stock.
Results of Operations and Comparison for the Years Ended December 31, 2019 and 2018
General
Net income increased $6.5 million, or 9.7%, during the year ended December 31, 2019, compared to the year ended December 31,
2018. Net income was $73.6 million for the year ended December 31, 2019 compared to $67.1 million for the year ended December
31, 2018. This increase was due to an increase in net interest income of $12.2 million, or 7.3%, a decrease in provision for loan losses
of $1.0 million, or 14.0%, and a decrease in non-interest expenses of $172,000, or 0.1%, partially offset by a decrease in non-interest
income of $5.3 million, or 14.5%, and an increase in provision for income taxes of $1.6 million, or 10.8%. Net income available to
common shareholders was $73.6 million for the year ended December 31, 2019 compared to $67.1 million for the year ended
December 31, 2018.
Total Interest Income
Total interest income increased $29.0 million, or 14.1%, during the year ended December 31, 2019 compared to the year ended
December 31, 2018. The increase was due to a $24.8 million, or 12.5%, increase in interest income on loans and a $4.2 million, or
33
54.7%, increase in interest income on investment securities and other interest-earning assets. Interest income on loans increased in
2019 compared to 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 2019 compared to 2018 due to higher average rates of interest and higher
average balances.
Interest Income – Loans
During the year ended December 31, 2019 compared to the year ended December 31, 2018, interest income on loans increased due to
higher average interest rates and higher average balances. Interest income increased $12.0 million as the result of higher average
interest rates on loans. The average yield on loans increased from 5.07% during the year ended December 31, 2018 to 5.37% during
the year ended December 31, 2019. Interest income increased $12.8 million as a result of higher average loan balances, which
increased from $3.91 billion during the year ended December 31, 2018, to $4.16 billion during the year ended December 31,
2019. The higher average balances were primarily due to organic loan growth in commercial real estate loans, one- to four- family
residential loans, and other residential (multi-family) loans, partially offset by decreases in consumer loans.
On an on-going basis, the Company has estimated 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 entire amount of the discount adjustment has been and will be accreted to interest income over
time. For the years ended December 31, 2019 and 2018, the adjustments increased interest income and pre-tax income by $7.4 million
and $5.1 million, respectively.
As of December 31, 2019, the remaining accretable yield adjustment that will affect interest income was $7.6 million. Of the
remaining adjustments affecting interest income, we expect to recognize $5.6 million of interest income during 2020. In the first
quarter of 2020, we will adopt the new accounting standard related to accounting for credit losses. With the adoption of this standard,
there will be no more reclassification of discounts from non-accretable to accretable subsequent to December 31, 2019. All
adjustments made prior to December 31, 2019 will continue to be accreted to interest income. Apart from the yield accretion, the
average yield on loans was 5.19% during the year ended December 31, 2019, compared to 4.94% during the year ended December 31,
2018, 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 1.710% as of December 31, 2019. 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 loan interest income of $3.1 million and $673,000 during the years ending December 31, 2019 and 2018,
respectively, related to this interest rate swap.
In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its
contractual maturity. The Company received a payment of $45.9 million from its swap counterparty as a result of this
termination. The termination of this interest rate swap is discussed further in Note 28 of the accompanying audited financial
statements. The Company’s interest rate derivatives and hedging activities are discussed further in Note 16 of the accompanying
audited financial statements.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments increased $4.2 million in the year ended December 31, 2019 compared to the year ended December
31, 2018. Interest income increased $3.8 million as a result of an increase in average balances from $201.3 million during the year
ended December 31, 2018, to $326.5 million during the year ended December 31, 2019. Average balances of securities increased
primarily due to significant purchases of securities in 2019. Interest income increased $395,000 due to an increase in average interest
rates from 2.90% during the year ended December 31, 2018 to 3.08% during the year ended December 31, 2019, due to higher market
rates of interest on investment securities and a decrease in the volume of prepayments on mortgage-backed securities.
34
Interest income on other interest-earning assets decreased $7,000 in the year ended December 31, 2019 compared to the year ended
December 31, 2018. Interest income decreased $58,000 as a result of a decrease in average balances from $104.2 million during the
year ended December 31, 2018, to $87.8 million during the year ended December 31, 2019. Interest income increased $51,000 due to
an increase in average interest rates from 1.81% during the year ended December 31, 2018, to 2.14% during the year ended December
31, 2019, primarily due to higher market rates of interest on other interest-bearing deposits in financial institutions.
Total Interest Expense
Total interest expense increased $16.8 million, or 44.6%, during the year ended December 31, 2019, when compared with the year
ended December 31, 2018, due to an increase in interest expense on deposits of $17.6 million, or 63.0%, an increase in interest
expense on short-term borrowings and repurchase agreements of $2.9 million, or 375.2%, an increase in interest expense on
subordinated notes of $281,000, or 6.9%, and an increase in interest expense on subordinated debentures issued to capital trust of
$66,000, or 6.9%. Partially offsetting these increases, interest expense decreased $4.0 million, or 100%, due to having no FHLB
advances outstanding during the year ended December 31, 2019.
Interest Expense - Deposits
Interest on demand deposits increased $2.1 million due to an increase in average rates from 0.39% during the year ended December
31, 2018, to 0.53% during the year ended December 31, 2019. Partially offsetting that increase, interest on demand deposits decreased
$92,000 due to a decrease in average balances from $1.53 billion in the year ended December 31, 2018, to $1.51 billion in the year
ended December 31, 2019. 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 from December 2016 through the first half of 2019.
Interest expense on time deposits increased $9.4 million as a result of an increase in average rates of interest from 1.60% during the
year ended December 31, 2018, to 2.19% during the year ended December 31, 2019. In addition, interest expense on time deposits
increased $6.3 million due to an increase in average balances of time deposits from $1.38 billion during the year ended December 31,
2018, to $1.72 billion during the year ended December 31, 2019. 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 2018 and the first half of 2019. The increase in average balances of time
deposits was primarily a result of increases in brokered deposits, including CDARS program purchased funds, and increases in
deposits originated through the Company’s internet deposit acquisition channels.
Interest Expense - FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures
Issued to Capital Trust and Subordinated Notes
FHLBank advances were not utilized during the year ended December 31, 2019. The Company had a higher amount of overnight
borrowings from the FHLBank in 2019, as discussed below.
Interest expense on short-term borrowings and repurchase agreements increased $1.8 million due to average rates that increased from
0.56% in the year ended December 31, 2018, to 1.40% in the year ended December 31, 2019. The increase was due to increases in
market interest rates and a change in the mix of funding during the period, with more overnight borrowings from the FHLBank in
2019. In addition to this increase, interest expense on short-term borrowings and repurchase agreements increased $1.1 million due to
an increase in average balances from $137.3 million during the year ended December 31, 2018, to $260.0 million during the year
ended December 31, 2019.
During the year ended December 31, 2019, compared to the year ended December 31, 2018, interest expense on subordinated
debentures issued to capital trusts increased $66,000 due to slightly higher average interest rates. The average interest rate was 3.70%
in 2018, compared to 3.95% in 2019. There was no change in the average balance of the subordinated debentures between 2019 and
2018.
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. These issuance costs are amortized over the expected life of the notes, which is five years from the issuance date, and
therefore impact the overall interest expense on the notes. Interest expense on the subordinated notes increased $276,000 due to
average rates that increased from 5.55% in the year ended December 31, 2018, to 5.91% in the year ended December 31, 2019.
35
Net Interest Income
Net interest income for the year ended December 31, 2019 increased $12.2 million, or 7.3%, to $180.4 million, compared to $168.2
million for the year ended December 31, 2018. Net interest margin was 3.95% for the year ended December 31, 2019, compared to
3.99% in 2018, a decrease of four 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-assisted 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, 2019 and 2018 were increases in interest income
of $7.4 million and $5.1 million, respectively, and increases in net interest margin of 16 basis points and 12 basis points,
respectively. Excluding the positive impact of the additional yield accretion, net interest margin decreased eight basis points during
the year ended December 31, 2019. The decrease in net interest margin is primarily due to an increase in the average interest rates on
interest-bearing demand and time deposits and an increase in the average interest rate on short term borrowings and repurchase
agreements including overnight borrowings from the FHLBank, partially offset by increased yields in most loan categories and higher
overall yields on investments and interest-earning deposits at the Federal Reserve Bank.
The Company's overall interest rate spread decreased 13 basis points, or 3.5%, from 3.75% during the year ended December 31, 2018,
to 3.62% during the year ended December 31, 2019. The decrease was due to a 39 basis point increase in the weighted average rate
paid on interest-bearing liabilities, partially offset by a 26 basis point increase in the weighted average yield on interest-earning assets.
In comparing the two years, the yield on loans increased 30 basis points, the yield on investment securities increased 18 basis points
and the yield on other interest-earning assets increased 33 basis points. The rate paid on deposits increased 45 basis points, the rate
paid on FHLBank advances decreased 209 basis points, the rate paid on subordinated debentures issued to capital trust increased 25
basis points, the rate paid on short-term borrowings increased 84 basis points, and the rate paid on subordinated notes increased 36
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 loan review staff to review the
quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan
portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan
work-outs. Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional
provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
The provision for loan losses for the year ended December 31, 2019 decreased $1.0 million, to $6.2 million, compared with $7.2
million for the year ended December 31, 2018. At December 31, 2019 and December 31, 2018, the allowance for loan losses was
$40.3 million and $38.4 million, respectively. Total net charge-offs were $4.3 million and $5.2 million for the years ended December
31, 2019 and 2018, respectively. During the year ended December 31, 2019, $2.8 million of the $4.3 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. In February 2019, the Company ceased providing indirect lending services
to automobile dealerships. These actions also reduced origination volume and, as such, the outstanding balance of the Company's
automobile loans declined approximately $102 million in the year ended December 31, 2019. At December 31, 2019, indirect
automobile loans totaled approximately $119 million. We expect this total balance will be largely paid off in the next two years.
36
General market conditions and unique circumstances related to individual borrowers and projects contributed to the level of provisions
and charge-offs. Collateral and repayment evaluations of all assets categorized as potential problem loans, non-performing loans or
foreclosed assets were completed with corresponding charge-offs or reserve allocations made 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-assisted acquired loans, was 1.00% and 0.98% at
December 31, 2019 and December 31, 2018, respectively. Management considers the allowance for loan losses adequate to cover
losses inherent in the Bank’s loan portfolio at December 31, 2019, 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.
Effective January 1, 2020, we adopted a new accounting standard, referred to as Current Expected Credit Loss, or CECL. This
accounting standard requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses
expected over the life of certain financial assets. CECL covers a broader range of assets than the current incurred loss method of
recognizing credit losses and generally results in earlier recognition of credit losses.
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, 2019, were $8.2 million, a decrease of $3.6
million from $11.8 million at December 31, 2018. Non-performing assets, excluding all FDIC-assisted acquired assets, as a
percentage of total assets were 0.16% at December 31, 2019, compared to 0.25% at December 31, 2018.
Compared to December 31, 2018, non-performing loans decreased $1.8 million to $4.5 million at December 31, 2019, and foreclosed
assets decreased $1.8 million to $3.7 million at December 31, 2019. Non-performing one-to four-family residential loans comprised
$1.4 million, or 30.5%, of the total $4.5 million of non-performing loans at December 31, 2019. Non-performing consumer loans
comprised $1.3 million, or 28.2%, of the total non-performing loans at December 31, 2019. Non-performing commercial business
loans comprised $1.2 million, or 27.3%, of total non-performing loans at December 31, 2019. Non-performing commercial real estate
loans comprised $632,000, or 14.0%, of total non-performing loans at December 31, 2019.
37
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2019, was as follows:
Beginning
Balance,
January 1
Additions to
Non-
Performing
Removed
from Non-
Performing
Transfers to
Potential
Problem
Loans
Transfers to
Foreclosed
Assets and
Repossessions
(In Thousands)
Charge-
Offs
Payments
Ending
Balance,
December 31
$
One- to four-family
construction
Subdivision construction
Land development
Commercial construction
One- to four-family
residential
Other residential
Commercial real estate
Other commercial
Consumer
— $
—
49
—
2,664
—
334
1,437
1,816
— $
—
3,769
—
1,719
—
4,075
64
1,862
— $
—
—
—
—
—
(118)
—
—
— $
—
—
—
(87)
—
—
—
(166)
— $
—
(3,498)
—
— $
—
(220)
—
(1,831)
—
(2,900)
—
(287)
(490)
—
—
(116)
(1,153)
— $
—
(100)
—
(596)
—
(759)
(150)
(799)
Total
$
6,300 $
11,489 $
(118) $
(253) $
(8,516) $
(1,979) $
(2,404) $
—
—
—
—
1,379
—
632
1,235
1,273
4,519
At December 31, 2019, the non-performing one- to four-family residential category included 23 loans, 13 of which were added during
2019. The largest relationship in this category was added in 2019 totaling $158,000, or 11.5% of the total category, which is
collateralized by a residential home in the St. Louis, Mo. area. The non-performing consumer category included 111 loans, 64 of
which were added during 2019, and the majority of which are indirect used automobile loans. The non-performing commercial
business category included four loans, one of which was added during 2019. The largest relationship in this category was added in
2018, and totaled $1.1 million, or 85.7% of the total category. This relationship is collateralized by an assignment of an interest in a
real estate project. The non-performing commercial real estate category included two loans, one of which was added during 2019.
The largest relationship in this category was added in 2019 totaling $530,000, or 83.9% of the total category, and was collateralized by
a multi-tenant building in Arkansas.
The significant increases and decreases in non-performing loans during 2019 primarily related to one borrower. This relationship
totaled approximately $6.7 million, with collateral consisting of commercial development ground and a single-family property in
central Missouri and agricultural ground in Iowa. The loans in this relationship were all cross-collateralized. This relationship was
represented in the non-performing land development, commercial real estate and one- to four-family categories. During 2019, the
borrower deeded the properties to the Bank in lieu of foreclosure and this relationship was then moved to the Other Real Estate Owned
and Repossessed category. The land development and commercial real estate assets were then sold prior to the end of 2019.
38
Other Real Estate Owned and Repossessions. Of the total $5.5 million of other real estate owned and repossessions at December 31,
2019, $1.0 million represents the fair value of foreclosed and repossessed assets related to loans acquired in FDIC-assisted
transactions and $871,000 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, 2019, was as follows:
Beginning
Balance,
January 1
Additions
ORE and
Repossession
Sales
Capitalized
Costs
ORE and
Repossession
Write-Downs
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
1,092
3,191
—
269
—
—
—
928
— $
—
3,498
—
1,867
—
2,900
—
4,003
(In Thousands)
— $
(337)
(4,196)
—
(1,555)
—
(2,900)
—
(4,386)
— $
101
—
—
20
—
—
—
—
— $
(167)
(677)
—
—
—
—
—
—
Total
$
5,480 $
12,268 $
(13,374) $
121 $
(844) $
—
689
1,816
—
601
—
—
—
545
3,651
Excluding the consumer category, during the year ended December 31, 2019, the Company reduced its foreclosed assets by $9.0
million through asset sales. At December 31, 2019, the land development category of foreclosed assets included three properties, the
largest of which was located in the Branson, Mo. area and had a balance of $768,000, or 42.3% of the total category. Of the total
dollar amount in the land development category of foreclosed assets, 70.3% was located in the Branson, Mo. area, including the
largest property previously mentioned. The subdivision construction category of foreclosed assets included three properties, the
largest of which was located in the Branson, Mo. area and had a balance of $350,000, or 50.8% of the total category. Of the total
dollar amount in the subdivision construction category of foreclosed assets, 90.0% is located in the Branson, Mo. area, including the
largest property previously mentioned. The one- to four-family category of foreclosed assets included two properties, one of which
was added during 2019 with a balance of $291,000. 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 and 2019 compared to 2016 and 2017, though potential
problem loans in this category increased in 2019, as indicated below.
The large additions and sales items in the land development and commercial real estate categories are related to the $6.7 million
relationship discussed above under Non-Performing Loans.
39
Potential Problem Loans. Potential problem loans increased $1.1 million during the year ended December 31, 2019, from $3.3 million
at December 31, 2018 to $4.4 million at December 31, 2019. This increase was primarily due to the addition of $2.5 million of loans
to potential problem loans. Partially offsetting the added loans was $1.1 million in payments on potential problem loans, $154,000 in
loans removed from potential problem loans due to improvements in the credits, and $173,000 in loans transferred to the non-
performing category. Potential problem loans are loans which management has identified through routine internal review procedures
as having possible credit problems that may cause the borrowers difficulty in complying with current repayment terms. These loans
are not reflected in non-performing assets, but are considered in determining the adequacy of the allowance for loan losses. Activity
in the potential problem loans category during the year ended December 31, 2019, was as follows:
Beginning
Balance,
January 1
Additions to
Potential
Problem
Removed
from Potential
Problem
Transfers to
Non-
Performing
Transfers to
Foreclosed
Assets and
Repossessions
Charge-
Offs
Payments
Ending
Balance,
December 31
$
One- to four-family
construction
Subdivision construction
Land development
Commercial construction
One- to four-family
residential
Other residential
Commercial real estate
Other commercial
Consumer
— $
—
—
—
1,044
—
2,053
—
206
— $
—
—
—
104
—
1,931
37
467
— $
—
—
—
(30)
—
(124)
—
—
(In Thousands)
— $
—
—
—
(151)
—
—
—
(22)
$
$
— $
—
—
—
—
—
—
—
(6)
—
—
—
—
—
—
—
(21)
(31)
—
—
—
—
(176)
—
(782)
(16)
(102)
Total
$
3,303 $
2,539 $
(154) $
(173) $
(6) $
(52) $
(1,076) $
—
—
—
—
791
—
3,078
—
512
4,381
At December 31, 2019, the commercial real estate category of potential problem loans included two loans, one of which was added
during 2019. The largest relationship in this category (added during 2018), totaling $1.8 million, or 60.0% of the total category, is
collateralized by a mixed use commercial retail building. The other relationship in the category, which totaled $1.2 million, or 40.0%
of the total category, is collateralized by a commercial retail building. Payments on both loans were current at December 31, 2019.
The one- to four-family residential category of potential problem loans included 16 loans, four of which were added during 2019. The
consumer category of potential problem loans included 55 loans, 45 of which were added during 2019.
Non-Interest Income
Non-interest income for the year ended December 31, 2019 was $31.0 million compared with $36.2 million for the year ended
December 31, 2018. The decrease of $5.2 million, or 14.5%, was primarily as a result of the following items:
Gain on sale of business units: 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.
Other income: Other income increased $2.8 million compared to the year ended December 31, 2018. This increase was primarily due
to gains totaling $677,000 in 2019 from the sale of, or recovery of, receivables and assets that were acquired several years ago in
FDIC-assisted transactions. The Company recognized approximately $1.1 million more in income as a result of the new debit card
contracts than was recognized in the prior year. These contracts became effective at the beginning of 2019. The Company recognized
approximately $787,000 in income related to interest rate swaps in the Company’s back-to-back swap program with loan customers
and swap counterparties in 2019 compared to $50,000 in 2018. The Company also recognized approximately $184,000 in income
related to the exit of certain tax credit partnerships in 2019.
Ne(cid:87) gains on loan sales: Net gains on loan sales increased $819,000 compared to the year ended December 31, 2018. This increase
was primarily due to an increase in originations of fixed-rate loans during 2019 compared to 2018. Fixed rate single-family mortgage
loans originated and generally subsequently sold in the secondary market. In 2019, the Company began originating SBA loans with
the intention of selling the guaranteed portion in the secondary market. During 2019, a gain on sale of $230,000 was recorded related
to the Company's SBA loan sales.
40
Service charges and ATM fees: Service charges and ATM fees decreased $797,000 compared to the year ended December 31,
2018. This decrease was primarily due to a decrease in net ATM transaction fees and a decrease in overdraft and insufficient funds
fees on customer accounts due to decreased levels of such activity. This decrease was partially offset by an increase in point-of-sale
transaction fees due to a higher volume of such transactions in 2019. The decrease in net ATM transaction fees resulted from less
volume of transactions that generate such fee income and increased costs on a temporary basis as we migrate to a new card transation
processor.
Non-Interest Expense
Total non-interest expense decreased $172,000, or 0.1%, from $115.3 million in the year ended December 31, 2018, to $115.1 million
in the year ended December 31, 2019. The Company’s efficiency ratio for the year ended December 31, 2019 was 54.48%, a decrease
from 56.41% for 2018. The improvement in the ratio for 2019 was primarily due to an increase in net interest income, partially offset
by a decrease in non-interest income due to the gain on sale of certain branches and deposits in 2018. In the year ended December 31,
2019, the Company’s efficiency ratio was positively impacted by a decrease in expense on other real estate and repossessions and
negatively impacted by an increase in salaries and employee benefits 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. The Company’s ratio of non-interest expense to average assets was 2.37% for the year ended December 31, 2019
compared to 2.56% for the year ended December 31, 2018. This improvement was primarily due to an increase in average assets.
Average assets for the year ended December 31, 2019, increased $351.7 million, or 7.8%, from the year ended December 31, 2018,
primarily due to increases in loans receivable and investment securities.
The following were key items related to the decrease in non-interest expense for the year ended December 31, 2019 as compared to
the year ended December 31, 2018:
Expense on other real estate and repossessions: Expense on other real estate and repossessions decreased $2.7 million compared to
the year ended December 31, 2018, primarily due to decreased valuation write-downs of certain foreclosed assets of $958,000 during
2019, compared to $3.6 million during 2018. Also, the Company recorded lower levels of expense related to consumer repossessions
during the year ending December 31, 2019.
Legal, audit and other professional fees: Legal, audit and other professional fees decreased $799,000 in the year ended December 31,
2019 compared to 2018. The decrease in 2019 was primarily due to higher fees during 2018 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. During 2019, legal fees decreased as a result of fewer
foreclosures and repossessions during the year.
Insurance: Insurance decreased $659,000 from the year ended December 31, 2018. This decrease was primarily due to a decrease in
FDIC deposit insurance premiums for the final six months of 2019. The Bank has a credit with the FDIC for a portion of premiums
previously paid to the deposit insurance fund. The deposit insurance fund balance was sufficient to result in no premium being due for
the second half of 2019. The Bank’s remaining credit balance should be sufficient to result in no deposit insurance premiums for the
first quarter of 2020, provided the deposit insurance fund balance remains at a sufficient level under the banking regulations.
Acquired deposit intangible asset amortization: Acquired deposit intangible amortization expense decreased $372,000 in the year
ended December 31, 2019 when compared to 2018. The Company generally amortizes its acquired deposit intangibles over a period
of seven years. The amortization of the intangible related to the InterBank acquisition was completed during the first quarter of 2019
and the amortization of the intangible related to the Sun Security Bank acquisition was completed during the third quarter of 2018.
Salaries and employee benefits: Salaries and employee benefits increased $3.0 million from the prior year. This increase was
primarily related to increased incentives in the lending and operations areas, annual compensation merit increases, along with staffing
additions in the lending areas, including the new loan production offices in Atlanta and Denver, which opened in late 2018. Mortgage
lending incentives increased due to the much higher volume of loan originations during 2019.
Net occupancy and equipment expense: Net occupancy expense increased $589,000 in the year ended December 31, 2019 compared
to the year ended December 31, 2018. This increase was primarily due to increased depreciation related to new ATM/ITMs purchased
and expenses related to ATM operating software upgrades implemented during 2019.
41
Provision for Income Taxes
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.
For the years ended December 31, 2019 and 2018, the Company's effective tax rate was 18.3% and 18.1%, respectively. These
effective rates were lower than the statutory federal tax rate of 21%, 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 currently expects its effective tax rate
(combined federal and state) to be approximately 17.5% to 18.5% in future periods, mainly as a result of the TCJ Act. The Company's
effective income tax rate is expected to continue to be less than the statutory rate due primarily the factors noted above. 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.
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
$4.0 million, $3.5 million and $2.9 million for 2019, 2018 and 2017, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
42
Dec. 31
2019(2)
Yield/
Rate
Year Ended
December 31, 2019
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars In Thousands)
Interest-earning assets:
Loans receivable:
One- to four-family
residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
4.07 % $
5.00
4.84
5.12
4.89
5.72
4.87
532,051
812,412
1,443,435
706,581
258,606
387,854
14,841
$ 27,450
43,931
74,256
41,767
13,234
21,511
898
5.16 % $ 449,917
761,115
5.41
1,325,398
5.14
569,570
5.91
285,125
5.12
499,131
5.55
20,563
6.05
$
22,924
38,863
64,605
31,198
14,104
25,250
1,282
5.10 % $ 459,227
5.11
706,217
1,240,017
4.87
454,907
5.48
295,379
4.95
632,968
5.06
25,845
6.23
$ 22,102
31,970
54,911
21,099
14,666
30,356
1,550
4.81%
4.53
4.43
4.64
4.97
4.80
6.00
Total loans receivable
4.97
4,155,780
223,047
5.37
3,910,819
198,226
5.07
3,814,560
176,654
4.63
Investment securities (1)
Other interest-earning assets
3.20
1.75
326,450
87,767
10,066
1,881
3.08
2.14
201,330
104,220
5,835
1,888
2.90
1.81
207,803
121,604
5,195
1,212
2.50
1.00
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
4.74
4,569,997
234,994
5.14
4,216,369
205,949
4.88
4,143,967
183,061
4.42
92,315
192,695
$ 4,855,007
97,796
189,161
$ 4,503,326
103,505
212,724
$ 4,460,196
0.55
2.09
1.36
$ 1,507,518
1,716,786
3,224,304
7,971
37,599
45,570
0.53
2.19
1.41
$ 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
15,897
20,595
0.30
1.12
0.69
1.25
3.51
5.89
—
260,024
3,635
1.40
137,257
765
0.56
186,364
747
0.40
25,774
74,070
—
1,019
4,378
—
3.95
5.91
—
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
1,516
3.68
5.57
1.62
1.46
3,584,172
54,602
1.52
3,333,931
37,757
1.13
3,348,839
27,905
0.83
665,606
33,592
4,283,370
571,637
$ 4,855,007
649,357
21,530
4,004,818
498,508
$ 4,503,326
629,015
26,638
4,004,492
455,704
$ 4,460,196
3.28 %
$ 180,392
3.62 %
3.95 %
$ 168,192 3.75 %
3.99 %
$ 155,156 3.59 %
3.74 %
127.5%
126.5 %
123.7 %
* 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 $41.7 million, $53.6 million and $61.5 million for 2019,
2018 and 2017, respectively. In addition, average tax-exempt industrial revenue bonds were $20.8 million, $24.8 million and $28.6 million in 2019, 2018 and
2017, respectively. Interest income on tax-exempt assets included in this table was $2.4 million, $3.1 million and $3.3 million for 2019, 2018 and 2017,
respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $2.2 million, $2.9 million and $3.1 million for 2019, 2018 and
2017, respectively.
(2) The yield/rate on loans at December 31, 2019 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 2019 results of operations.
43
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, 2019 vs.
December 31, 2018
Year Ended
December 31, 2018 vs.
December 31, 2017
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
$
12,028 $
395
51
12,474
12,793 $
3,836
(58 )
16,571
24,821 $
4,231
(7 )
29,045
17,025 $
796
819
18,640
4,547 $
(156 )
(143 )
4,248
2,081
9,362
11,443
(92 )
6,262
6,170
1,989
15,624
17,613
1,355
6,500
7,855
1,802
1,068
2,870
55
(71 )
(422 )
(493 )
(37 )
66
276
—
13,587
(1,113 ) $
$
—
5
(3,985 )
3,258
13,313 $
66
281
(3,985 )
16,845
12,200 $
4
(1)
544
8,457
10,183 $
—
—
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
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
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
44
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.
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
45
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 Structured 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
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-assisted 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.
46
Provision for Loan Losses and Allowance for Loan Losses
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. In February 2019, the Company ceased 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.
The Bank’s allowance for loan losses as a percentage of total loans, excluding FDIC-assisted acquired loans, was 0.98% and 1.01% at
December 31, 2018 and December 31, 2017, respectively.
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.
47
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2018, was as follows:
Beginning
Balance,
January 1
Additions
Removed
from Non-
Performing
Transfers to
Potential
Problem
Loans
Transfers to
Foreclosed
Assets
(In Thousands)
Charge-
Offs
Payments
Ending
Balance,
December 31
One- to four-family construction $
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
— $
98
—
—
2,728
1,877
1,226
2,063
3,263
— $
—
49
—
975
3
157
2,321
2,725
— $
—
—
—
(81)
—
—
—
(7)
— $
—
—
—
(67)
—
—
—
(461)
— $
—
—
—
(467)
(1,601)
(894)
—
(790)
— $
(3)
—
—
(30)
(279)
(101)
(1,024)
(1,884)
— $
(95)
—
—
(394)
—
(54)
(1,923)
(1,030)
—
—
49
—
2,664
—
334
1,437
1,816
Total
$
11,255 $
6,230 $
(88) $
(528) $
(3,752) $
(3,321) $
(3,496) $
6,300
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
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
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
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
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
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
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.
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
Additions
Proceeds
from Sales
Capitalized
Costs
(In Thousands)
ORE Expense
Write-Downs
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
5,413
7,229
—
112
140
1,694
—
1,987
— $
—
20
—
820
1,601
894
—
7,711
— $
(2,402)
(2,837)
—
(663)
(1,884)
(1,932)
—
(8,770)
— $
—
—
—
—
143
10
—
—
— $
(1,919)
(1,721)
—
—
—
(166)
—
—
Total
$
16,575 $
11,046 $
(18,488) $
153 $
(3,806) $
—
1,092
3,191
—
269
—
—
—
928
5,480
48
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
Additions
Proceeds
from Sales
Capitalized
Costs
ORE Expense
Write-Downs
(In Thousands)
Ending
Balance,
December 31
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
5,413
7,729
—
112
140
1,194
—
1,987
— $
—
20
—
820
1,601
894
—
7,711
— $
(2,402)
(2,837)
—
(663)
(1,884)
(1,932)
—
(8,770)
— $
—
—
—
—
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% was 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.
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
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. Potential problem loans are loans which management has identified through routine internal review procedures as having
possible credit problems that may cause the borrowers difficulty in complying with current repayment terms. These loans are not
reflected in non-performing assets, but are considered in determining the adequacy of the allowance for loan losses. Activity in the
potential problem loans category during the year ended December 31, 2018, was as follows:
49
Beginning
Balance,
January 1 Additions
Removed
from
Potential
Problem
Transfers
to Non-
Performing
Transfers to
Foreclosed
Assets
(In Thousands)
Charge-
Offs
Payments
Ending
Balance,
December 31
$
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
— $
—
4
—
1,122
—
5,759
503
549
— $
—
—
—
122
—
2,180
—
455
— $
—
(3)
—
—
—
(4,709)
(59)
(497)
— $
—
—
—
—
—
—
(407)
(82)
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
(30)
— $
—
(1)
—
(200)
—
(1,177)
(37)
(189)
Total
$
7,937 $
2,757 $
(5,268) $
(489) $
— $
(30) $
(1,604) $
—
—
—
—
1,044
—
2,053
—
206
3,303
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
mixed use commercial retail building. One relationship previously in this category consisted 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
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 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.
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
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
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.
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
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.
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.
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
50
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 2018.
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.
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 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).
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,
51
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.
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, 2019, the Company had commitments of approximately $161.7 million to fund loan originations, $1.31 billion of
unused lines of credit and unadvanced loans, and $26.3 million of outstanding letters of credit.
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2019. Additional information regarding these contractual obligations is discussed further in Notes 6, 8, 9, 10, 11, 12, 13 and 18 of the
accompanying audited financial statements.
One Year or
Less
Payments Due In:
Over One to
Five
Years
(In Thousands)
Over Five
Years
Deposits without a stated maturity
Time and brokered certificates of deposit
Short-term borrowings
Subordinated debentures
Subordinated notes
Operating leases
Dividends declared but not paid
$
2,238,997 $
1,383,992
312,324
—
—
1,132
4,849
—
336,288
—
—
—
4,377
—
$
— $
829
—
25,774
74,276
5,186
—
Total
2,238,997
1,721,109
312,324
25,774
74,276
10,695
4,849
$
3,941,294 $
340,665
$
106,065 $
4,388,024
The Company's primary sources of funds are customer deposits, short term borrowings at the FHLBank, 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, 2019 and 2018, 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, 2019
$867.1 million
367.8 million
220.2 million
228.5 million
December 31, 2018
$666.8 million
460.7 million
202.7 million
87.1 million
Statements of Cash Flows. During the years ended December 31, 2019, 2018 and 2017, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
2019 and 2018 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, 2019 and 2018 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
52
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 $86.4
million, $94.2 million and $62.8 million during the years ended December 31, 2019, 2018 and 2017, respectively.
During the years ended December 31, 2019 and 2018, investing activities used cash of $295.1 million and $381.3 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 (2019). 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.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are primarily due to
changes in deposits after interest credited, changes in FHLBank advances, changes in short-term borrowings, and dividend payments
to stockholders. Financing activities provided cash flows of $226.1 million and $247.6 million during the years ended December 31,
2019 and 2018, respectively, primarily due to increases in customer deposit balances and net increases or decreases in various
borrowings, 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 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, 2019, total stockholders’ equity and common stockholders’ equity were each $603.1 million, or 12.0% of total
assets, equivalent to a book value of $42.29 per common share. 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. At
December 31, 2019, the Company’s tangible common equity to tangible assets ratio was 11.9%, compared to 11.2% at December 31,
2018. Included in stockholders’ equity at December 31, 2019 and 2018, were unrealized gains (net of taxes) on the Company’s
available-for-sale investment securities and cash flow hedges (interest rate swap) totaling $32.2 million and $9.6 million,
respectively. This increase in unrealized gains primarily resulted from lower market interest rates which increased the fair value of the
derivatives and investment securities.
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, 2019,
the Bank's common equity Tier 1 capital ratio was 13.1%, its Tier 1 capital ratio was 13.1%, its total capital ratio was 14.0% and its
Tier 1 leverage ratio was 12.3%. As a result, as of December 31, 2019, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. 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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2019, the Company's common equity Tier 1 capital ratio was 12.0%, its Tier 1 capital ratio was 12.5%, its total capital
ratio was 15.0% and its Tier 1 leverage ratio was 11.8%. 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, 2019, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2018, 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 on January 1, 2016 when a
53
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.
Dividends. During the year ended December 31, 2019, the Company declared common stock cash dividends of $2.07 per share
(40.3% of net income per common share) and paid common stock cash dividends of $2.05 per share. 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. The Board of Directors meets regularly to consider the level and the
timing of dividend payments. The $0.34 per share dividend declared but unpaid as of December 31, 2019, was paid to stockholders in
January 2020.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the
years ended December 31, 2019 and 2018, the Company repurchased 16,040 shares of its common stock at an average price of $52.93
per share and 17,542 shares of its common stock at an average price of $51.52 per share, respectively. During the years ended
December 31, 2019 and 2018, the Company issued 125,894 shares of stock at an average price of $33.03 per share and 81,207 shares
of stock at an average price of $27.60 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.
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 the ratio of tangible common equity
to tangible assets.
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,
2019
December 31,
December 31,
December 31,
December 31,
2018
2017
(Dollars in thousands)
2016
2015
$
$
$
$
603,066
8,098
594,968
5,015,072
8,098
5,006,974
$
$
$
$
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
11.88 %
11.20 %
10.46 %
9.20 %
9.58 %
54
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, 2019, 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 significantly 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, on net interest income are expected to
be greater in the 12 to 36 months following rate changes.
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 also implemented rate increases of 0.25% on eight additional occasions beginning December 14, 2016 and
through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%. After December 31, 2018, the FRB paused its
rate increases and, in July, September and October 2019, implemented rate change decreases of 0.25% on each of those occasions. At
December 31, 2019, the Federal Funds rate stood at 1.75%. A substantial portion of Great Southern's loan portfolio ($1.89 billion at
December 31, 2019) 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, 2019. Of these loans, $1.71 billion as of December 31, 2019 had interest rate floors. Great Southern also has
a portfolio of loans ($210 million at December 31, 2019) 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.
55
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
Directors sets the asset and liability policies of Great Southern which are implemented by the Asset and Liability Committee. The
Asset and Liability Committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior
management. The purpose of the Asset and Liability Committee is to communicate, coordinate and control asset/liability management
consistent with Great Southern's business plan and board-approved policies. The Asset and Liability Committee establishes and
monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and
liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital
adequacy, growth, risk and profitability goals. The Asset and Liability Committee meets on a monthly basis to review, among other
things, economic conditions and interest rate outlook, current and projected liquidity needs and capital positions and anticipated
changes in the volume and mix of assets and liabilities. At each meeting, the Asset and Liability Committee recommends appropriate
strategy changes based on this review. The Chief Financial Officer or his designee is responsible for reviewing and reporting on the
effects of the policy implementations and strategies to the Board of Directors at their monthly meetings.
In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital
targets, Great Southern has focused its strategies on originating adjustable rate loans or loans with fixed rates that mature in less than
five years, and managing its deposits and borrowings to establish stable relationships with both retail customers and wholesale funding
sources.
At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market
conditions and competitive factors, we may determine to increase our interest rate risk position somewhat in order to maintain or
increase our net interest margin.
The Asset and Liability Committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate
environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's
existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in
net interest income and market value of portfolio equity that are authorized by the Board of Directors of Great Southern.
In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to
time to assist in its interest rate risk management. In 2011, the Company began executing interest rate swaps with commercial
banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by
offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure
resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting
requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. These
interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest
rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in
order to minimize its net risk exposure resulting from such transactions.
In 2013, the Company entered into 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 1.71% as of December 31, 2019. The Company receives 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 is required to pay net settlements to
the counterparty and 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.
56
In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its
contractual maturity. The Company received a payment of $45.9 million from its swap counterparty as a result of this
termination. The termination of this interest rate swap is discussed further in Note 28 of the accompanying audited financial
statements.
The Company’s interest rate derivatives and hedging activities are discussed further in Note 16 of the accompanying audited financial
statements.
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2019. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
Maturities
Financial Assets:
Interest bearing deposits
Weighted average rate
Available-for-sale debt
securities(1)
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock
Weighted average rate
$
$
$
$
December 31,
2020
2021
2022
2023
2024
Thereafter
Total
(Dollars In Thousands)
December 31,
2019
Fair Value
120,856
1.75%
—
—
—
—
—
—
—
—
— $
—
120,856 $
1.75 %
17,669
$
5.26%
5,956
$
4.89 %
790
$
5.32%
537,982
$ 564,379
$ 363,777
4.85%
4.81 %
4.75%
338,899
$ 345,292
$ 261,295
4.57%
—
—
4.86 %
—
—
5.43%
—
—
4.73 %
13,371 $
3.12 %
796 $
3.78 %
$ 307,267 $ 139,603 $
4..57 %
$ 239,456 $ 163,812 $
5.27 %
— $
—
5.47 %
—
—
3.87%
335,593 $
3.00%
374,175 $
3.15 %
606,150 $ 2,519,158 $
4.56 %
352,079 $ 1,700,833 $
5.09 %
13,473 $
4.71 %
5.21%
13,473 $
4.71%
Total financial assets
$
1,015,406
$ 915,627
$ 625,862
$ 560,094 $ 304,211 $
1,307,295 $ 4,728,495
1,383,992
$ 185,122
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
$
$
$
$
2.07%
1,551,929
0.55%
687,068
—
312,324
1.25%
—
—
—
—
$
2.35 %
—
—
—
—
—
—
—
—
—
—
67,592
$
2.18%
—
—
—
—
—
—
—
—
—
—
60,210 $
2.07 %
—
—
—
—
—
—
—
—
—
—
23,364 $
2.21 %
—
—
—
—
—
—
— $
—
— $
—
829 $ 1,721,109 $
2.09 %
1.92%
— $ 1,551,929 $
0.55 %
—
687,068 $
— $
—
—
312,324 $
— $
1.25 %
—
75,000 $
$
5.89 %
5.89%
25,774 $
25,774 $
3.51 %
3.51%
75,000
Total financial liabilities
$
3,935,313
$ 185,122
$
67,592
$
60,210 $
23,364 $
101,603 $ 4,373,204
_______________
(1)
Available-for-sale debt securities include approximately $317.0 million of mortgage-backed securities and collateralized mortgage obligations which pay
interest and principal monthly to the Company. Of this total, $20.7 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.
57
120,856
374,175
2,467,618
1,662,366
13,473
1,724,878
1,551,929
687,068
312,324
76,875
25,774
Repricing
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
December 31,
December 31,
2019
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
(Dollars In Thousands)
$
120,856
1.75%
—
—
—
—
—
—
—
—
— $
—
120,856 $
1.75 %
120,856
$
17,669
$ 2,183,580
$
5.26%
$
4.67%
$
4.57%
$
$
13,473
4.71%
5,956 $
4.89 %
53,020 $
4.21 %
8,300 $
2.44%
16,472 $
3.95%
26,566
$
2.54%
$
4.27%
31,366
4.86 %
—
—
5.43%
—
—
5.47%
—
—
796 $
3.78%
26,266 $
4.21%
$ 163,812 $
5.27%
—
—
3.70%
314,888 $
3.06%
374,175 $
3.15 %
208,454 $ 2,519,158 $
4.56 %
352,079 $ 1,700,833 $
5.09 %
13,473 $
4.71 %
5.27%
— $
—
374,175
2,467,618
1,662,366
13,473
338,899
345,292 $ 261,295 $ 239,456
Total financial assets
$ 2,674,477
$
404,268 $ 286,067 $ 297,388
$ 190,874 $
875,421 $ 4,728,495
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing
demand(2)
Weighted average rate
Short-term borrowings
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
$ 1,451,391
$
2.01%
$ 1,551,929
0.55%
185,122 $
2.35 %
—
—
53,841 $
2.24%
—
—
17,762
$
2.29%
—
—
12,164 $
2.41%
—
—
829 $ 1,721,109 $
2.09 %
1.92%
— $ 1,551,929 $
0.55 %
—
1,724,878
1,551,929
—
—
312,324
1.25%
—
—
25,774
3.51%
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
— $
—
—
—
687,068 $
—
— $
—
75,000 $
5.89%
— $
—
687,068 $
—
312,324 $
1.25 %
75,000 $
5.89 %
25,774 $
3.51 %
687,068
312,324
76,875
25,774
Total financial liabilities
$ 3,341,418
$
185,122 $
53,841 $
17,762
$
12,164 $
762,897 $ 4,373,204
Periodic repricing GAP
Cumulative repricing GAP
$
$
(666,941)
$
219,146 $ 232,226 $ 279,626
$ 178,710 $
112,524 $
355,291
(666,941)
$
(447,795 ) $ (215,569) $
64,057
$ 242,767 $
355,291
_______________
(1) Available-for-sale debt securities include approximately $317.0 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $20.7 million represents securities that have variable rates of interest after a fixed interest period. These securities will experience rate changes at
varying times over the next ten years. This table does not show the effect of these monthly repayments of principal or rate changes.
(2) Non-interest-bearing demand deposits are included in this table in the column labeled "Thereafter" since there is no interest rate related to these liabilities and
therefore there is nothing to reprice.
58
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2019 and 2018
59
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. (the “Company”) as of December 31, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019,
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, 2019,
based on Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 6, 2020 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
BKD, LLP
We have served as the Company’s auditor since 1975.
Springfield, Missouri
March 6, 2020
60
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2019 and 2018
(In Thousands, Except Per Share Data)
Assets
Cash
Interest-bearing deposits in other financial institutions
Cash and cash equivalents
Available-for-sale securities
Mortgage loans held for sale
2019
2018
$
99,299
$
110,108
120,856
92,634
220,155
202,742
374,175
243,968
9,242
1,650
Loans receivable, net of allowance for loan losses of $40,294 and $38,409 at
December 31, 2019 and 2018, respectively
4,153,982
3,989,001
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
13,530
74,984
5,525
13,448
55,336
8,440
141,908
132,424
8,098
9,288
13,473
12,438
—
7,465
Total assets
$
5,015,072
$
4,676,200
See Notes to Consolidated Financial Statements
61
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2019 and 2018
(In Thousands, Except Per Share Data)
Liabilities and Stockholders’ Equity
Liabilities
Deposits
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
Current and deferred income taxes
2019
2018
$
$
3,960,106
84,167
228,157
25,774
74,276
4,250
7,484
24,904
3,725,007
105,253
192,725
25,774
73,842
3,570
5,092
12,960
2,888 —
Total liabilities
4,412,006
4,144,223
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2019 and 2018 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2019 – 14,261,052 shares, 2018 –
14,151,198 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes of $9,525
and $2,844 at December 31, 2019 and 2018, respectively
Total stockholders’ equity
—
—
143
33,510
537,167
32,246
603,066
—
—
142
30,121
492,087
9,627
531,977
Total liabilities and stockholders’ equity
$
5,015,072
$
4,676,200
See Notes to Consolidated Financial Statements
2
62
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2019, 2018 and 2017
(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 (losses) on sales of available-for-sale
securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain on sale of business units
Gain 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
2019
2018
2017
$
$
223,047
11,947
234,994
$
198,226
7,723
205,949
176,654
6,407
183,061
45,570
—
3,635
1,019
4,378
54,602
180,392
6,150
174,242
889
20,898
2,607
(62)
1,432
(104)
—
—
—
5,297
30,957
63,224
26,217
3,198
2,015
2,808
1,077
3,580
2,624
2,184
365
1,190
6,656
115,138
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
See Notes to Consolidated Financial Statements
3
63
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2019, 2018 and 2017
(In Thousands, Except Per Share Data)
2019
2018
2017
Income Before Income Taxes
$
90,061 $
81,950 $
70,322
Provision for Income Taxes
16,449
14,841
18,758
Net Income and Net Income Available to
Common Shareholders
Earnings Per Common Share
Basic
Diluted
$
$
$
73,612 $
67,109 $
51,564
5.18 $
4.75 $
5.14 $
4.71 $
3.67
3.64
See Notes to Consolidated Financial Statements
4
64
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
Net Income
$
73,612
$
67,109
$
51,564
2019
2018
2017
Unrealized appreciation (depreciation) on available-for-
sale securities, net of taxes (credit) of $2,574, $(353)
and $(272) for 2019, 2018 and 2017, respectively
Less: reclassification adjustment for losses (gains)
included in net income, net of taxes (credit) of $14, $0
and $0 for 2019, 2018 and 2017, respectively
Change in fair value of cash flow hedge, net of taxes of
$4,093, $2,761 and $93 for 2019, 2018 and 2017,
respectively
Other comprehensive income (loss)
8,714
(1,229)
(478)
48
(2)
—
13,857
22,619
9,345
8,114
161
(317)
Comprehensive Income
$
96,231
$
75,223
$
51,247
See Notes to Consolidated Financial Statements
5
65
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2019, 2018 and 2017
(In Thousands, Except Per Share Data)
Common
Stock
Balance, January 1, 2017
Net income
Stock issued under Stock Option Plan
Common dividends declared, $0.94 per share
Other comprehensive gain (loss)
Reclassification of treasury stock per Maryland law
$
Balance, December 31, 2017
Net income
Stock issued under Stock Option Plan
Common dividends declared, $1.20 per share
Purchase of the Company’s common stock
Reclassification of stranded tax effects resulting from change in Federal
income tax rate
Other comprehensive gain (loss)
Reclassification of treasury stock per Maryland law
Balance, December 31, 2018
Net income
Stock issued under Stock Option Plan
Common dividends declared, $2.07 per share
Purchase of the Company’s common stock
Other comprehensive gain (loss)
Reclassification of treasury stock per Maryland law
Balance, December 31, 2019
$
140
—
—
—
—
1
141
—
—
—
—
—
—
1
142
—
—
—
—
—
1
143
See Notes to Consolidated Financial Statements
66
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
$
$
25,942
—
2,261
—
—
—
28,203
—
1,918
—
—
—
—
—
30,121
—
3,389
—
—
—
—
402,166
51,564
—
(13,202)
—
1,549
442,077
67,109
—
(16,966)
—
(272)
—
139
492,087
73,612
—
(29,373)
—
—
841
$
1,558 $
—
—
—
(317)
—
1,241
—
—
—
—
272
8,114
—
9,627
—
—
—
—
22,619
—
$
—
—
1,550
—
—
(1,550)
—
—
1,043
—
(903)
—
—
(140)
—
—
1,691
—
(849)
—
(842)
429,806
51,564
3,811
(13,202)
(317)
—
471,662
67,109
2,961
(16,966)
(903)
—
8,114
—
531,977
73,612
5,080
(29,373)
(849)
22,619
—
$
33,510
$
537,167
$
32,246 $
—
$
603,066
67
6
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
Operating Activities
Net income
Proceeds from sales of loans held for sale
Originations of loans held for sale
Items not requiring (providing) cash
Depreciation
Amortization
Compensation expense for stock option grants
Provision for loan losses
Net gains on loan sales
Net realized (gains) losses on available-for-sale
securities
Loss on sale of premises and equipment
(Gain) loss on sale/write-down of other real estate
and repossessions
Gain on sale of business units
Gain realized on termination of loss sharing agreements
Accretion of deferred income, premiums, discounts
and other
(Gain) loss on derivative interest rate products
Deferred income taxes
Changes in
Interest receivable
Prepaid expenses and other assets
Accrued expenses and other liabilities
Income taxes refundable/payable
2019
2018
2017
$
73,612
131,014
(135,937)
$
67,109
92,422
(83,806)
$
51,564
138,659
(126,215)
9,557
2,068
922
6,150
(2,607)
62
77
316
—
—
(3,899)
104
1,074
(82)
(1,336)
2,725
2,599
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
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)
Net cash provided by operating activities
86,419
94,195
62,817
See Notes to Consolidated Financial Statements
7
68
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
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
2019
2018
2017
$
(81,320)
(97,162)
—
—
(11,789)
204
15,244
(121)
—
53,695
34,769
(207,634)
(1,035)
$
$
(147,945)
(128,038)
—
(50,356)
(9,317)
2,328
20,426
(153)
130
502
25,734
(93,378)
(1,256)
136,596
(133,018)
16,246
—
(7,404)
565
33,640
(117)
117
—
36,754
(3,852)
1,852
Net cash provided by (used in) investing activities
(295,149)
(381,323)
81,379
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
Advances from (to) borrowers for taxes and insurance
Purchase of the Company’s common stock
Dividends paid
Stock options exercised
129,748
105,400
—
—
14,346
2,392
(849)
(29,052)
4,158
242,955
(53,956)
2,621,500
(2,749,000)
200,843
(227)
(903)
(15,819)
2,224
(114,714)
34,796
1,420,500
(1,324,435)
(188,888)
676
—
(12,894)
3,247
Net cash provided by (used in) financing activities
226,143
247,617
(181,712)
Increase (Decrease) in Cash and Cash Equivalents
17,413
(39,511)
(37,516)
Cash and Cash Equivalents, Beginning of Year
202,742
242,253
279,769
Cash and Cash Equivalents, End of Year
$
220,155
$
202,742
$
242,253
See Notes to Consolidated Financial Statements
8
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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 Atlanta, Ga., Chicago, Ill., Dallas, Texas,
Denver, Co., Omaha, Neb. and Tulsa, Okla. 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 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. 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.
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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.
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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
uncollectability 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 collectability 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.
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.
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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. Subsequent to acquisition date, the Company has
estimated 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 have been recognized as increases to the accretable yield while decreases have been recognized as
increases to the accretable yield while decreases have been recognized as impairments through the allowance for
loan losses.
FDIC Indemnification Asset
Through two FDIC-assisted transactions during 2009, one during 2011 and one during 2012, the Bank acquired
certain loans and foreclosed assets which were covered under loss sharing agreements with the FDIC. These
agreements committed the FDIC to reimburse the Bank for a portion of realized losses on these covered
assets. Therefore, as of the dates of acquisitions, the Company calculated the amount of such reimbursements it
expected to receive from the FDIC using the present value of anticipated cash flows from the covered assets based
on the credit adjustments estimated for each pool of loans and the estimated losses on foreclosed assets. In
accordance with FASB ASC 805, each FDIC Indemnification Asset was initially recorded at its fair value, and
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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.
Material lease obligations consist of leases for various loan offices and banking centers, all of which are
categorized as “operating leases.” Under current accounting guidance, lessees are required to recognize a lease
liability and a right-of-use asset for these leases. This right-of-use asset is included in Premises and Equipment.
Long-Lived Asset Impairment
The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or
circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for
recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual
disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an
impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair
value.
No asset impairment was recognized during the years ended December 31, 2019, 2018 and 2017. At December
31, 2019, the remaining valuation allowance related to various properties was $220,000.
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Goodwill and Intangible Assets
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A
qualitative assessment is performed to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If,
based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying
value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its
carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair
value. Subsequent increases in goodwill fair value are not recognized in the financial statements.
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
InterBank
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2019
2018
(In Thousands)
$
5,396 $
5,396
—
153
600
1,949
2,702
36
275
1,000
2,581
3,892
$
8,098 $
9,288
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.
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Earnings per common share (EPS) were computed as follows:
2019
2017
2018
(In Thousands, Except Per Share Data)
Net income and net income available to common
shareholders
$
73,612
$
67,109
$
51,564
Average common shares outstanding
14,201
14,132
14,032
Average common share stock options outstanding
129
128
148
Average diluted common shares
14,330
14,260
14,180
Earnings per common share – basic
Earnings per common share – diluted
$
$
5.18
5.14
$
$
4.75
4.71
$
$
3.67
3.64
Options outstanding at December 31, 2019, 2018 and 2017, to purchase 201,400, 424,833 and 253,711 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, 2019, 2018 and 2017, respectively.
Stock Compensation Plans
The Company has stock-based employee compensation plans, which are described more fully in Note 20. 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,
2019, 2018 and 2017, share-based compensation expense totaling $922,000, $737,000 and $564,000, 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, 2019 and 2018, cash equivalents consisted of interest-bearing deposits in other financial institutions.
At December 31, 2019, 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.
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019 and
2018, 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 16.
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, 2019 and 2018, respectively, was $69.4 million and $62.6 million.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 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 are required to recognize a lease liability and a
right-of-use asset for all leases. The Update became effective for the Company on January 1, 2019. Adoption of
the standard required 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 occurred 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 $9.5 million based on the lease portfolio at
that time. 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
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
of lease expense occurred in the year ended December 31, 2019. The Company’s lease activities are discussed
further in Note 6.
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. The Update became effective for the Company on
January 1, 2020. The Company applied the amendments in this update on a modified retrospective basis, through
a cumulative-effect adjustment to retained earnings in the first quarter of 2020. The adoption of the CECL model
required us to recognize a one-time cumulative adjustment to our allowance for loan losses and a liability for
potential losses related to the unfunded portion of our loans and commitments in order to fully transition from the
incurred loss model to the CECL model. Upon adoption, we expect to increase the balance of our allowance for
credit losses in a range of $11 million to $14 million and created a liability for potential losses related to the
unfunded portion of our loans and commitments in a range of $7 million to $10 million. The after-tax effect of
this is expected to result in a decrease in our retained earnings of $14 million to $18 million. These estimates are
subject to change as material assumptions are refined and model validations are completed as we finalize our first
quarter 2020 financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for
Goodwill Impairment (Topic 350). To simplify the subsequent measurement of goodwill, the amendments
eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test should be
performed by comparing the fair value of a reporting unit with its carrying amount and an impairment charge
should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. An
entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative
impairment test is necessary. The nature of and reason for the change in accounting principle should be disclosed
upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. The impact of adopting this new guidance in 2020 is not
expected to have a material impact on the Company’s consolidated financial statements.
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. The impact of adopting this new guidance in 2020 is not expected to have a material impact on the Company’s
consolidated financial statements.
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
Agency mortgage-backed securities
Agency collateralized mortgage
obligations
States and political subdivisions
Small Business Administration
securities
$
156,591
$
8,716
$
265
$
165,042
149,980
33,757
22,132
2,891
1,368
—
921
—
74
151,950
35,125
22,058
$
362,460
$
12,975
$
1,260
$
374,175
Amortized
Cost
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
Agency mortgage-backed securities
Agency collateralized mortgage
obligations
States and political subdivisions
$
154,557
$
1,272
$
2,571
$
153,258
39,024
50,022
250
1,428
14
—
39,260
51,450
$
243,603
$
2,950
$
2,585
$
243,968
At December 31, 2019, the Company’s agency mortgage-backed securities portfolio consisted of FNMA
securities totaling $147.6 million, FHLMC securities totaling $13.3 million and GNMA securities totaling $4.1
million. At December 31, 2019, agency collateralized mortgage obligations consisted of GNMA securities
totaling $122.7 million, FNMA securities totaling $23.9 million, and FHLMC securities totaling $5.4 million.
At December 31, 2019, $144.3 million of the Company’s agency mortgage-backed securities had fixed rates of
interest and $20.7 million had variable rates of interest. At December 31, 2019, $149.9 million of the Company’s
agency collateralized mortgage obligations had fixed rates of interest and $2.1 million had variable rates of
interest.
The amortized cost and fair value of available-for-sale securities at December 31, 2019, 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.
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Amortized
Cost
Fair
Value
(In Thousands)
After one through five years
After five through ten years
After ten years
Securities not due on a single maturity date
$
—
9,253
24,504
328,703
$
—
9,547
25,578
339,050
$
362,460
$
374,175
There were no securities classified as held to maturity at December 31, 2019 or December 31, 2018.
The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2019 and
2018:
Public deposits
Collateralized borrowing
accounts
Other
2019
2018
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In Thousands)
$
8,578
$
8,913
$
9,482
$
9,802
122,771
7,021
129,643
7,107
148,050
763
146,337
761
$
138,370
$
145,663
$
158,295
$
156,900
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, 2019 and 2018, was approximately $116.2
million and $95.7 million, respectively, which is approximately 31.1% and 39.2% of the Company’s available-
for-sale and held-to-maturity investment portfolio, respectively.
Based on evaluation of available evidence, including recent changes in market interest rates, credit rating
information and information obtained from regulatory filings, management believes the declines in fair value for
these debt securities are temporary.
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2019 and 2018:
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
States and political
subdivisions
Small Business
Less than 12 Months
Fair
Value
Unrealized
Losses
2019
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
—
$
—
$
24,762
$
(265)
$
24,762
$
(265)
Administration securities
22,058
69,372
—
(921)
—
(74)
—
—
—
—
—
—
69,372
(921)
—
22,058
—
(74)
$
91,430
$
(995)
$
24,762
$
(265)
$ 116,192
$
(1,260)
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
States and political
subdivisions
Less than 12 Months
Fair
Value
Unrealized
Losses
2018
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
11,255
$
(82)
$
74,186
$
(2,489)
$
85,441
$
(2,571)
9,725
511
(14)
—
—
—
—
—
9,725
511
(14)
—
$
21,491
$
(96)
$
74,186
$
(2,489)
$
95,677
$
(2,585)
Other-than-Temporary Impairment
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for
beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting
guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment
guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity
securities. For securities where the security is a beneficial interest in securitized financial assets, the Company
uses the beneficial interests in securitized financial asset impairment model. For securities where the security is
not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities
impairment model. The Company does not currently have securities within the scope of this guidance for
beneficial interests in securitized financial assets.
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether an other-than-temporary impairment has occurred. The Company considers the length of time a security
has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of
the security, the type of security and other factors. If certain criteria are met, the Company performs additional
review and evaluation using observable market values or various inputs in economic models to determine if an
unrealized loss is other than temporary. The Company uses quoted market prices for marketable equity securities
and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock
exchange. For non-agency 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 2019, 2018 and 2017, no securities were determined to have impairment that had become other-than-
temporary.
Credit Losses Recognized on Investments
During 2019, 2018 and 2017, there were no debt securities that 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, 2019 and 2018, included:
2019
2018
(In Thousands)
$
33,963
16,088
40,431
1,322,861
387,016
120,343
1,494,172
866,006
313,209
13,189
151,854
46,720
118,988
127,206
5,052,046
(850,666)
(40,294)
(7,104)
4,153,982
$
$
$
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
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
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Classes of loans by aging were as follows:
December 31, 2019
30-59 Days 60-89 Days 90+ Days Total Past
Past Due Past Due Past Due
Due
Total
Loans
Total Loans
> 90 Days Past
Due and
Current Receivable Still Accruing
(In Thousands)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
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
$
$
—
—
—
15,085
$
—
—
27
—
—
—
—
—
$
— $
—
27
15,085
33,963 $
16,088
40,404
1,307,776
33,963 $
16,088
40,431
1,322,861
1,453
152
549
376
60
—
1,101
278
296
1,631
1,198
4,282
382,734
387,016
—
119
—
—
—
259
233
—
181
632
—
1,235
—
558
198
517
333
1,300
376
1,295
—
1,918
709
813
120,010
1,492,872
865,630
311,914
13,189
149,936
46,011
118,175
120,343
1,494,172
866,006
313,209
13,189
151,854
46,720
118,988
2,177
21,527
709
2,978
6,191
10,710
9,077
35,215
118,129
5,016,831
127,206
5,052,046
2,177
709
6,191
9,077
118,129
127,206
Total
$ 19,350
$
2,269
$ 4,519
$ 26,138 $ 4,898,702 $ 4,924,840 $
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
December 31, 2018
30-59 Days 60-89 Days 90+ Days Total Past
Past Due Past Due Past Due
Due
Total Loans
> 90 Days
Past Due and
Current Receivable Still Accruing
Total
Loans
(In Thousands)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
One- to four-family
residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
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
$
$
—
—
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
1,206
3,443
273,423
276,866
144
53
—
54
—
722
181
—
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 $
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Non-accruing 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,
2019
2018
(In Thousands)
$
—
—
—
—
1,198
181
632
—
1,235
—
558
198
517
Total
$
4,519
$
—
49
—
—
1,206
1,458
334
—
1,437
—
1,490
240
86
6,300
85
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended
December 31, 2019, 2018 and 2017, respectively. Also presented are the balance in the allowance for loan losses
and the recorded investment in loans based on portfolio segment and impairment method as of the years ended
December 31, 2019, 2018, and 2017, respectively:
December 31, 2019
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Loan Losses
Balance, January 1, 2019
$
3,122
$
4,713
$
19,803
$
3,105
$
1,568
$
6,098
$ 38,409
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2019
1,625
(534)
126
603
(189)
26
4,651
(144)
24
22
(101)
50
(309)
(371)
467
(442)
(6,723)
3,104
6,150
(8,062)
3,797
$
4,339
$
5,153
$ 24,334
$
3,076
$
1,355
$
2,037
$ 40,294
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
198
$
—
$
517
$
—
3,973
$
5,101
$
23,570
$
2,940
$
$
13
$
201
$
929
1,306
$
1,814
$ 38,704
168
$
52
$
247
$
136
$
36
$
22
$
661
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
2,960
$
—
$
4,020
$
—
$
1,286
$
2,001
$ 10,267
$
554,450
$ 866,006
$ 1,490,152
$ 1,363,292
$
325,112
$
315,561
$4,914,573
$
74,562
$
5,334
$
29,158
$
3,606
$
3,356
$
11,190
$ 127,206
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
December 31, 2018
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Loan Losses
Balance, January 1, 2018
$
2,108
$
2,839
$
18,639
$
1,767
$
3,581
$
7,558
$ 36,492
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2018
742
(62)
334
1,982
(525)
417
1,094
(102)
172
1,031
(87)
394
(1,613)
(1,155)
755
3,914
(9,425)
4,051
7,150
(11,356)
6,123
$
3,122
$
4,713
$
19,803
$
3,105
$
1,568
$
6,098
$ 38,409
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
694
$
—
$
613
$
—
2,392
$
4,681
$
18,958
$
3,029
$
$
309
$
425
$
2,041
1,247
$
5,640
$ 35,947
36
$
32
$
232
$
76
$
12
$
33
$
421
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
6,116
$
—
$
3,501
$
14
$
1,844
$
2,464
$ 13,939
$
433,209
$ 784,894
$ 1,367,934
$ 1,461,644
$
334,214
$
429,766
$4,811,661
$
93,841
$ 12,790
$
33,620
$
4,093
$
4,347
$
18,960
$ 167,651
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
December 31, 2017
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Loan Losses
Balance, January 1, 2017
$
2,322
$
5,486
$
15,938
$
2,284
$
3,015
$
8,355
$ 37,400
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2017
(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
$
3,581
$
7,558
$ 36,492
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
513
$
—
$
599
$
—
1,564
$
2,813
$
17,843
$
1,690
$
$
2,140
$
699
$
3,951
1,369
$
6,802
$ 32,081
31
$
26
$
197
$
77
$
72
$
57
$
460
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
6,950
$
2,907
$
8,315
$
15
$
3,018
$
4,129
$ 25,334
$
341,888
$ 742,738
$ 1,227,014
$ 1,112,308
$
372,192
$
531,820
$4,327,960
$
120,295
$ 14,877
$
39,210
$
3,806
$
5,275
$
26,206
$ 209,669
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in
Note 3 as follows:
(cid:120) The one- to four-family residential and construction segment includes the one- to four-family
residential construction, subdivision construction, owner occupied one- to four-family residential
and non-owner occupied one- to four-family residential classes.
(cid:120) The other residential segment corresponds to the other residential class.
(cid:120) The commercial real estate segment includes the commercial real estate and industrial revenue bonds
classes.
(cid:120) The commercial construction segment includes the land development and commercial construction
classes.
(cid:120) The commercial business segment corresponds to the commercial business class.
(cid:120) The consumer segment includes the consumer auto, consumer other and home equity lines of credit
classes.
The weighted average interest rate on loans receivable at December 31, 2019 and 2018, was 4.97% and 5.16%,
respectively.
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, 2019, was $349.9 million, consisting of
$283.0 million of commercial loan participations sold to other financial institutions and $66.9 million of residential
88
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
mortgage loans sold. 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. In addition, available lines of credit on these loans were $102.1 million
and $121.0 million at December 31, 2019 and 2018, 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,
2019, 2018 and 2017:
December 31, 2019
Year Ended
December 31, 2019
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
$
—
251
—
—
2,300
409
4,020
—
1,286
—
1,117
356
528
$
—
251
—
—
2,423
574
4,049
—
1,771
—
1,334
485
548
—
96
—
—
82
20
517
—
13
—
181
16
4
$
—
277
328
—
2,598
954
4,940
—
1,517
—
1,128
383
362
Total
$
10,267
$
11,435
$
929
$
12,487
$
—
9
101
—
131
43
264
—
81
—
125
48
37
839
89
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
December 31, 2018
Year Ended
December 31, 2018
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
$
—
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
December 31, 2017
Year Ended
December 31, 2017
Average
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Investment
in Impaired
Loans
Interest
Income
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
residential
Non-owner occupied one- to four-family
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
$
$
—
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
90
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
At December 31, 2019, $5.2 million of impaired loans had specific valuation allowances totaling $929,000. 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. For
impaired loans which were non-accruing, interest of approximately $761,000, $1.0 million and $1.2 million would
have been recognized on an accrual basis during the years ended December 31, 2019, 2018 and 2017,
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 the years ended December 31, 2019, 2018 and 2017
by type of modification:
2019
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Consumer
$
$
—
—
$
$
136
136
$
$
—
—
$
$
136
136
2018
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Mortgage loans on real estate:
Residential one-to-four family
Construction and land development
Commercial
Consumer
$
$
1,348
—
—
—
1,348
$
$
—
—
106
—
106
$
$
1,348
31
106
535
2,020
—
31
—
535
566
$
$
2017
Mortgage loans on real estate:
Commercial
Commercial business
Consumer
Interest Only
Term
Combination
(In Thousands)
Total
Modification
$
$
—
—
—
—
$
$
—
16
245
261
$
$
5,759
274
—
6,033
$
$
5,759
290
245
6,294
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
At December 31, 2019, the Company had $1.9 million of loans that were modified in troubled debt restructurings
and impaired, as follows: $251,000 of construction and land development loans, $768,000 of single family
residential mortgage loans, $412,000 of commercial real estate loans, $156,000 of commercial business loans and
$343,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2019, $1.4 million were
accruing interest and $562,000 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, 2019. 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, 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. During the year ended December 31, 2019, borrowers with loans designated as troubled debt
restructurings totaling $63,000, 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, 2019 and 2018 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, 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.
92
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2019
Special
Mention Substandard Doubtful
(In Thousands)
One- to four-family residential
construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to-four-
family residential
Non-owner occupied one- to-
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
Loans acquired and accounted
for under ASC 310-30,
net of discounts
$
$
33,963
16,061
40,431
1,322,861
385,001
119,743
1,458,400
866,006
307,322
13,189
150,874
46,294
118,428
$
—
27
—
—
26
419
32,063
—
4,651
—
47
92
43
127,192
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
—
— $
—
—
—
1,322,861
Total
33,963
16,088
40,431
1,989
181
3,709
—
1,236
—
933
334
517
—
—
—
—
—
—
—
—
—
387,016
120,343
1,494,172
866,006
313,209
13,189
151,854
46,720
118,988
14
—
127,206
Total
$ 5,005,765
$
37,368
$
—
$
8,913
$
— $ 5,052,046
93
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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
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, and their related interests, 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, 2019 and 2018, loans outstanding to these directors and executive officers, and their related interests, are
summarized as follows:
2019
2018
(In Thousands)
Balance, beginning of year
New loans
Payments
Balance, end of year
$
$
29,017
15,062
(28,839)
15,240
$
$
40,041
17,141
(28,165)
29,017
94
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 4:
FDIC-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 2019, 2018 and
2017 was $99,000, $175,000 and $269,000, respectively.
95
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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 2019,
2018 and 2017 was $-0-, $11,000 and $217,000, 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.
96
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at
December 31, 2019 and December 31, 2018.
TeamBank
Vantus
Bank
Sun
Security
Bank
(In Thousands)
InterBank
Valley
Bank
$
7,304 $
9,899 $ 17,906
$ 60,430
$ 41,032
(159)
(89)
(374)
(5,143)
(1,803)
(7,118)
27 $
(9,797)
(17,392)
13 $ 140
(54,442)
$ 845
(38,452)
$ 777
$
$
10,602 $
14,097 $ 21,171
$ 85,205
$ 53,470
(399)
(58)
(342)
(1,695)
(169)
(10,106)
97 $
(13,809) (20,171)
230 $ 658
(74,436)
$ 9,074
(49,124)
$ 4,177
$
December 31, 2019
Gross loans receivable
Balance of accretable discount due
to change in expected losses
Net carrying value of loans
receivable
Expected loss remaining
December 31, 2018
Gross loans receivable
Balance of accretable discount due
to change in expected losses
Net carrying value of loans
receivable
Expected loss remaining
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. On an ongoing basis, the Company has evaluated 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, 2019, 2018 and 2017, improvements
in expected cash flows related to the acquired loan portfolios resulted in adjustments to the accretable yield to be
spread over the estimated remaining lives of the loans on a level-yield basis. The increases in expected cash flows
also reduced the amount of expected reimbursements under the loss sharing agreements, when applicable, until
they were terminated or expired. This resulted in corresponding adjustments during the year ended December 31,
2017, 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:
97
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Year Ended December 31,
2019
2018
2017
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
12,323
$
5,202
$
1,333
The adjustments, along with those made in previous years, impacted the Company’s Consolidated Statements of
Income as follows:
Year Ended December 31,
2019
2018
2017
(In Thousands)
Interest income
Noninterest income
$
$
7,431
—
5,134
—
$
5,014
(634)
Net impact to pre-tax income
$
7,431
$
5,134
$
4,380
On an on-going basis the Company has estimated 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 $12.3 million were
recorded in the year ended December 31, 2019 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, 2019, the remaining accretable yield
adjustment that will affect interest income was $7.6 million. Of the remaining adjustments affecting interest
income, we expect to recognize $5.6 million of interest income during 2020. 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).
During the three months ending March 31, 2020, we will adopt the new accounting standard related to accounting
for credit losses. With the adoption of this standard, there will be no more reclassification of discounts from non-
accretable to accretable subsequent to December 31, 2019. All adjustments made prior to December 31, 2019 will
continue to be accreted to interest income.
98
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Changes in the accretable yield for acquired loan pools were as follows for the years ended December 31, 2019,
2018 and 2017:
Balance, January 1, 2017
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2017
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2018
Accretion
Reclassification from nonaccretable
difference(1)
TeamBank
Vantus Bank Security Bank
(In Thousands)
InterBank Valley Bank
Sun
$
2,477
(1,563)
$
2,547
(1,373)
$
4,277
(2,251)
$
8,512
$
(7,505)
4,797
(5,823)
1,157
2,071
(1,042)
327
1,356
(955)
756
676
1,850
(1,196)
778
1,432
(1,006)
697
875
4,067
3,721
2,901
(1,667)
1,008
2,242
(1,562)
1,268
5,074
(8,349)
2,695
(3,892)
8,269
4,260
4,994
(8,798)
3,063
(4,302)
12,081
5,817
Balance, December 31, 2019
$
1,157
$
1,123
$
1,948
$
8,277
$
4,578
(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, 2019, totaling $667,000, $480,000, $810,000, $3.9 million and $2.5 million,
respectively; 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; and 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.
99
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 5: Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2019 and 2018, 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
$
2019
2018
(In Thousands)
$
—
689
1,816
—
601
—
—
—
545
3,651
—
1,003
4,654
871
—
1,092
3,191
—
269
—
—
—
928
5,480
167
1,234
6,881
1,559
Other real estate owned and repossessions
$
5,525
$
8,440
At December 31, 2019, other real estate owned not acquired through foreclosure included six properties all of
which were branch locations that were closed and held for sale. During the year ended December 31, 2019, one
former branch location was both added to this category and sold at a gain of $115,000, 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, other real estate owned not acquired through foreclosure included nine properties, eight of
which were branch locations that were closed and 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, 2019, residential mortgage loans totaling $1.6 million were in the process of foreclosure, $1.4
million of which were acquired loans. Of the $1.4 million of acquired loans, $738,000 were previously covered
by loss sharing agreements and $689,000 were acquired in the Valley Bank transaction.
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.
100
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Expenses applicable to other real estate owned and repossessions for the years ended December 31, 2019, 2018
and 2017, included the following:
2019
2018
(In Thousands)
2017
Net gains on sales of other real estate owned
and repossessions
Valuation write-downs
Operating expenses, net of rental income
$
$
(750)
926
2,008
$
(2,522)
3,897
3,544
(2,212)
1,585
4,556
$
2,184
$
4,919
$
3,929
Note 6: Premises and Equipment
Major classifications of premises and equipment at December 31, 2019 and 2018, stated at cost, were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Operating leases right of use asset
Less accumulated depreciation
2019
2018
(In Thousands)
$
$
40,632
96,959
56,986
8,668
203,245
61,337
40,508
95,039
54,327
—
189,874
57,450
$
141,908
$
132,424
Leases. The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, using the modified
retrospective transition approach whereby comparative periods were not restated. The Company also elected
certain relief options under the ASU, including the option not to recognize right of use asset and lease liabilities
that arise from short-term leases (leases with terms of twelve months or less). The Company has 17 total lease
agreements in which it is the lessee, with lease terms exceeding twelve months, substantially all of which are for
branch locations and commercial loan production offices. All of our lease agreements where we have offsite
ATMs are for terms not exceeding twelve months. Adoption of this ASU resulted in the Company initially
recognizing a right of use asset and corresponding lease liability of $9.5 million during the three months ended
March 31, 2019. The amount of the right of use asset and corresponding lease liability will fluctuate based on the
Company’s lease terminations, new leases and lease modifications and renewals. As of December 31, 2019, the
lease right of use asset value was $8.7 million and the corresponding lease liability was $8.7 million.
All of our leases are classified as operating leases (as they were prior to January 1, 2019), and therefore were
previously not recognized on the Company’s consolidated statements of financial condition. With the adoption of
ASU 2016-02, these operating leases are now included as a right of use asset in the premises and equipment line
item on the Company’s consolidated statements of financial condition. The corresponding lease liability is
included in the accrued expenses and other liabilities line item on the Company’s consolidated statements of
financial condition. Because these leases are classified as operating leases, the adoption of the new standard did
not have a material effect on lease expense on the Company’s consolidated statements of income.
ASU 2016-02 provides a number of optional practical expedients in transition. The Company has elected the
“package of practical expedients,” which permits the Company not to reassess under the new standard the prior
conclusions about lease identification, lease classification and initial direct costs. The Company also elected the
use of the hindsight, a practical expedient which permits the use of information available after lease inception to
101
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
determine the lease term via the knowledge of renewal options exercised not available as of the lease’s
inception. The practical expedient pertaining to land easements is not applicable to the Company.
ASU 2016-02 also requires certain other accounting elections. The Company elected the short-term lease
recognition exemption for all leases that qualify, meaning those with terms under twelve months. Right of use
assets or lease liabilities are not to be recognized for short-term leases. The Company also elected the practical
expedient to not separate lease and non-lease components for all leases. The Company’s short-term leases related
to offsite ATMs have both fixed and variable lease payment components, based on the number of transactions at
the various ATMs. The variable portion of these lease payments is not material and the total lease expense related
to ATMs was $286,000 for the year ended December 31, 2019.
The calculated amounts of the right of use assets and lease liabilities in the table below are impacted by the length
of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease
agreements often include one or more options to renew extended term in the calculation of the right of use asset
and lease liability. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease at the
Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be
reasonably certain, the Company will include the extended term in the calculation of the right of use asset and
lease liability. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease whenever this
rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing
rate at lease inception over a similar term. The discount rate utilized was the FHLBank borrowing rate for the term
corresponding to the expected term of the lease. The expected lease terms range from 2.3 years to 18.9 years with
a weighted-average lease term of 10.6 years. The weighted-average discount rate was 3.40%.
Statement of Financial Condition
Operating leases right of use asset
Operating leases liability
Statement of Income
Operating lease costs classified as occupancy and equipment expense
(includes short-term lease costs and amortization of right of use
asset)
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right of use assets obtained in exchange for lease obligations:
Operating leases
At or For the
Year Ended
December 31, 2019
(In Thousands)
$
$
8,668
8,747
$
1,460
$
1,381
$
9,538
102
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
For the years ended December 31, 2019 and 2018, lease expense was $1.5 million and $1.2 million, respectively.
At December 31, 2019, future expected lease payments for leases with terms exceeding one year were as follows
(in thousands):
2020
2021
2022
2023
2024
Thereafter
Future lease payments expected
Less interest portion of lease payments
$
1,132
1,148
1,131
1,099
999
5,186
10,695
(1,948)
Lease liability
$
8,747
The Company does not sublease any of its leased facilities; however, it does lease to other third parties portions of
facilities that it owns. In terms of being the lessor in these circumstances, all of these lease agreements are
classified as operating leases. In the years ended December 31, 2019 and 2018, income recognized from these
lessor agreements was $1.1 million and $1.0 million, respectively, and was included in occupancy and equipment
expense.
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, 2019 the Company had 15 such investments, with a net carrying value of
$22.8 million. At December 31, 2018 the Company had 17 such investments, with a net carrying value of $22.9
million. Due to the Company’s inability to exercise any significant influence over any of the investments in
Affordable Housing Partnerships, they all are accounted for using the 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 $25.2 million as of
December 31, 2019, 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 $22.8
million, assuming all projects currently under construction are completed and funded as planned. The Company’s
usage of federal affordable housing tax credits approximated $8.0 million, $6.6 million and $6.6 million during
2019, 2018 and 2017, respectively. Investment amortization amounted to $5.8 million, $5.0 million and $5.2
million for the years ended December 31, 2019, 2018 and 2017, respectively.
Investments in Community Development Entities
The Company has invested in certain limited partnerships that were formed to develop and operate business and
real estate projects located in low-income communities. At December 31, 2019, the Company had no such
investment. At December 31, 2018, the Company had one such investment, with a net carrying value of
$365,000. Due to the Company’s inability to exercise any significant influence over any of the investments in
103
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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 Company’s usage of federal New Market Tax Credits approximated $480,000, $480,000 and $1.2 million
during 2019, 2018 and 2017, respectively. Investment amortization amounted to $365,000, $575,000 and
$930,000 for the years ended December 31, 2019, 2018 and 2017, 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. Previously, the Company utilized these credits in their entirety in the
year the project was placed in service and the impact to the Consolidated Statements of Income has not been
material. In future periods, such partnerships provide federal rehabilitation/historic tax credits over a five-year
credit allowance period.
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.
Note 8: Deposits
Deposits at December 31, 2019 and 2018, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2019
2018
(In Thousands, Except
Interest Rates)
—
$
687,068
$
661,061
1,551,929
2,238,997
122,649
523,816
1,053,914
19,849
881
—
1,721,109
1,472,535
2,133,596
150,656
511,873
857,973
69,793
1,116
—
1,591,411
$
3,960,106
$
3,725,007
0.55% and 0.46%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% and above
104
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The weighted average interest rate on certificates of deposit was 2.09% and 1.98% at December 31, 2019 and
2018, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than $100,000
was approximately $830.8 million and $733.9 million at December 31, 2019 and 2018, respectively. The Bank
utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was
approximately $371.7 million and $326.9 million at December 31, 2019 and 2018, respectively.
At December 31, 2019, scheduled maturities of certificates of deposit were as follows:
2020
2021
2022
2023
2024
Thereafter
Retail
Brokered
(In Thousands)
Total
$
1,079,690
185,122
53,841
17,762
12,164
829
$
304,302
—
13,751
42,448
11,200
—
$
1,383,992
185,122
67,592
60,210
23,364
829
$
1,349,408
$
371,701
$
1,721,109
A summary of interest expense on deposits for the years ended December 31, 2019, 2018 and 2017, is as follows:
2019
2018
(In Thousands)
2017
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
7,971
37,723
(124)
$
5,982
22,149
(174)
4,699
16,009
(113)
$
45,570
$
27,957
$
20,595
Note 9: Advances From Federal Home Loan Bank
At December 31, 2019 and 2018, there were no outstanding term advances from the Federal Home Loan Bank of
Des Moines (FHLBank advances). There were overnight funds from the Federal Home Loan Bank of Des
Moines, which are included below in Note 10.
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, 2019 and 2018. Loans with carrying values of approximately $1.60
billion and $1.36 billion were pledged as collateral for outstanding advances at December 31, 2019 and 2018,
respectively. The Bank had potentially available $867.1 million remaining on its line of credit under a borrowing
arrangement with the FHLB of Des Moines at December 31, 2019.
.
105
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2019 and 2018, are summarized as follows:
2019
2018
(In Thousands)
Notes payable – Community Development Equity Funds
Other interest-bearing liabilities
Overnight borrowings from the Federal Home Loan Bank
Securities sold under reverse repurchase agreements
$
$
1,267
30,890
196,000
84,167
1,625
13,100
178,000
105,253
$
312,324
$
297,978
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, 2019, 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 1.25% and 1.68% at December 31, 2019 and 2018,
respectively. Short-term borrowings averaged approximately $260.0 million and $137.3 million for the years
ended December 31, 2019 and 2018, respectively. The maximum amounts outstanding at any month end were
$346.9 million and $298.0 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, 2019 and 2018:
2019
Overnight and
Continuous
2018
Overnight and
Continuous
(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC
$ 84,167
$ 105,253
Note 11: Federal Reserve Bank Borrowings
At December 31, 2019 and 2018, the Bank had $367.8 million and $460.7 million, respectively, available under a
line-of-credit borrowing arrangement with the Federal Reserve Bank. The line is secured primarily by
commercial loans. There were no amounts borrowed under this arrangement at December 31, 2019 or 2018.
106
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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 3.51% and 4.14% at December 31, 2019 and 2018, respectively.
At December 31, 2019 and 2018, subordinated debentures issued to capital trusts are summarized as follows:
Subordinated debentures
$
25,774
$
25,774
2019
2018
(In Thousands)
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 five years from the
issuance date. Amortization of the debt issuance costs during the years ended December 31, 2019 and 2018,
totaled $434,000 and $154,000, respectively, and is included in interest expense on subordinated notes in the
consolidated statements of income, resulting in an imputed interest rate of 5.89%.
At December 31, 2019 and, 2018, subordinated notes are summarized as follows:
Subordinated notes
Less: unamortized debt issuance costs
Note 14: Income Taxes
2019
2018
(In Thousands)
$
$
75,000
724
74,276
$
$
75,000
1,158
73,842
The Company files a consolidated federal income tax return. As of December 31, 2019 and 2018, 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, 2019 and 2018,
respectively.
107
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
During the years ended December 31, 2019, 2018 and 2017, the provision for income taxes included these
components:
2019
2018
(In Thousands)
2017
Taxes currently payable
Deferred income taxes
Adjustment of deferred tax asset or liability
for enacted changes in tax laws
$
15,375
1,074
—
$
19,291
(4,450)
$
—
9,335
11,528
(2,105)
Income taxes
$
16,449
$
14,841
$
18,758
The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition
were:
Deferred tax assets
Allowance for loan losses
Interest on nonperforming loans
Accrued expenses
Write-down of foreclosed assets
Write-down of fixed assets
Partnership tax credits
Deferred income
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
Unrealized gain on cash flow derivatives
Other
December 31,
2019
2018
(In Thousands)
9,188
161
821
185
50
732
509
2,540
14,186
(5,986)
(817)
—
(891)
(2,671)
(6,853)
(233)
(17,451)
$
8,758
320
726
600
191
—
—
4,031
14,626
(5,409)
(798)
(404)
(569)
(83)
(2,761)
(113)
(10,137)
Net deferred tax asset (liability)
$
(3,265)
$
4,489
108
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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
2019
21.0%
(0.5)
(3.6)
1.3
—
0.1
2018
21.0%
(0.8)
(3.4)
1.1
—
0.2
2017
35.0%
(1.6)
(6.1)
1.1
(0.4)
(1.3)
18.3%
18.1%
26.7%
The Tax Cuts and Jobs Act (“TCJ 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 TCJ Act be accounted for in the period of enactment. The Company recognized the income tax
effects of the TCJ Act in its 2017 financial statements. The TCJ 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 TCJ Act were identified.
The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service
(IRS), except as described here. The Company, through one of its subsidiaries, is a partner in two partnerships
which were under IRS examination for 2006 and 2007. As a result, the Company’s 2006 and subsequent tax years
remained open for examination. The examinations of these partnerships were completed during 2019. The
completion of these examinations did not result in significant changes to the Company’s tax positions. As a
result, federal tax years through December 31, 2015 are now closed.
The Company is currently under State of Missouri income and franchise tax examinations for its 2014 and 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:
(cid:120) Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted unadjusted
prices in active markets for identical assets that the Company has the ability to access at the measurement
date. An active market for the asset is a market in which transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing information on an ongoing basis.
(cid:120) Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from sources 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.
109
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
(cid:120) Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source independent of the
reporting entity or the reporting entity's own assumptions that are supported by little or no market activity
or observable inputs.
Financial instruments are broken down as follows by recurring or nonrecurring measurement status. Recurring
assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements
at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance,
were required to be remeasured at fair value after initial recognition in the financial statements at some time
during the reporting period.
The Company considers transfers between the levels of the hierarchy to be recognized at the end of related
reporting periods.
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, 2019 and 2018:
Fair Value Measurements Using
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
December 31, 2019
Agency mortgage-backed securities
Agency collateralized mortgage
obligations
States and political subdivisions
Small Business Administration
securities
Interest rate derivative asset
Interest rate derivative liability
December 31, 2018
Agency mortgage-backed securities
Agency collateralized mortgage
obligations
States and political subdivisions
Interest rate derivative asset
Interest rate derivative liability
$
165,042
$
—
$
165,042
$
151,950
35,125
22,058
31,476
(1,547)
—
—
—
—
—
151,950
35,125
22,058
31,476
(1,547)
$
153,258
$
—
$
153,258
$
39,260
51,450
12,800
(716)
—
—
—
—
39,260
51,450
12,800
(716)
—
—
—
—
—
—
—
—
—
—
—
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, 2019 and
2018, 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, 2019.
110
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Available-for-Sale Securities
Investment securities available for sale are recorded at fair value on a recurring basis. The fair values used by the
Company are obtained from an independent pricing service, which represent either quoted market prices for the
identical asset or fair values determined by pricing models, or other model-based valuation techniques, that
consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices
from market makers and live trading systems. Recurring Level 1 securities include exchange traded equity
securities. There were no recurring Level 1 securities at December 31, 2019 or 2018. 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, 2019 or 2018.
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, 2019 and
2018:
Fair Value Measurements Using
Quoted
Prices
in Active
Markets
for Identical
Assets
(Level 1)
Fair Value
Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
December 31, 2019
Impaired loans
Foreclosed assets held for sale
December 31, 2018
Impaired loans
Foreclosed assets held for sale
(In Thousands)
$
$
$
$
635
1,112
2,805
1,776
$
$
$
$
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
635
1,112
2,805
1,776
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.
111
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019 and 2018, 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, 2019 and 2018, 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, 2019 and 2018, 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.
112
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Cash and Cash Equivalents and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans and Interest Receivable
The fair value of loans is estimated on an exit price basis incorporating contractual cash flow, prepayments
discount spreads, credit loss and liquidity premiums. Loans with similar characteristics are aggregated for
purposes of the calculations. The carrying amount of accrued interest receivable approximates its fair value.
Deposits and Accrued Interest Payable
The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date,
i.e., their carrying amounts. The fair value of fixed maturity certificates of deposit is estimated using a discounted
cash flow calculation using the average advances yield curve from 11 districts of the FHLB for the as of date.
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.
113
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
December 31, 2019
December 31, 2018
Carrying
Amount
Fair
Value
Hierarchy
Level
(Dollars in Thousands)
Carrying
Amount
Fair
Value
Hierarchy
Level
Financial assets
Cash and cash equivalents
Mortgage loans held for sale
Loans, net of allowance for
loan losses
Accrued interest receivable
Investment in FHLB stock
$ 220,155
9,242
$ 220,155
9,242
4,153,982
13,530
13,473
4,129,984
13,530
13,473
Financial liabilities
Deposits
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
Unrecognized financial
instruments (net of
contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
3,960,106
312,324
25,774
74,276
4,250
3,963,875
312,324
25,774
76,875
4,250
—
109
—
—
109
—
1
2
3
3
3
3
3
3
2
3
3
3
3
$ 202,742
1,650
$ 202,742
1,650
3,989,001
13,448
12,438
3,955,786
13,448
12,438
3,725,007
297,978
25,774
73,842
3,570
3,717,899
297,978
25,774
75,188
3,570
—
146
—
—
146
—
1
2
3
3
3
3
3
3
2
3
3
3
3
Note 16: 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.
114
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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 $689,000 at December 31, 2019. At December 31, 2019,
excluding the Valley Bank swaps, the Company had 19 interest rate swaps totaling $96.0 million in notional
amount with commercial customers, and 19 interest rate swaps with the same notional amount with third parties
related to its program. In addition at December 31, 2019, the Company had five participation loans purchased
totaling $37.4 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. 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 at December 31, 2018, the Company had 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. During the years ended
December 31, 2019, 2018 and 2017, the Company recognized net gains (losses) of $(104,000), $25,000 and
$28,000, 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 1.71% as of December 31, 2019. 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 $3.1 million and $673,000 on this
interest rate swap during the year ended December 31, 2019 and 2018, respectively. 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 each of the years ended December 31, 2019 and 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 year ended December 31, 2017, the Company recognized $-0- in noninterest income related
to changes in the fair value of these derivatives. During the year ended December 31, 2017, the Company
recognized $244,000 in interest expense related to the amortization of the cost of these interest rate caps.
115
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The table below presents the fair value of the Company’s derivative financial instruments as well as their
classification on the Consolidated Statements of Financial Condition:
Derivatives designated as
hedging instruments
Interest rate 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
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2019
2018
(In Thousands)
Prepaid expenses and other assets
$
30,056
$
12,106
$
30,056
$
12,106
Prepaid expenses and other assets
$
1,420
$
694
$
1,420
$
694
Accrued expenses and other liabilities
$
1,547
$
716
$
1,547
$
716
The following table presents the effect of cash flow hedge accounting on the statements of comprehensive
income:
Cash Flow Hedges
2019
Year Ended December 31
Amount of Gain (Loss)
Recognized in AOCI
2018
(In Thousands)
2017
Interest rate swap (2019 and 2018) and
interest rate cap (2017), net of income
taxes
$
13,857
$
9,345
$
161
116
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The following table presents the effect of cash flow hedge accounting on the statements of operations:
Cash Flow Hedges
2019
Year Ended December 31
2018
2017
Interest
Income
Interest
Expense
Interest
Income
(In Thousands)
Interest
Expense
Interest
Income
Interest
Expense
Interest rate swap (2019 and 2018) and
interest rate cap (2017), net of income
taxes
$ 3,082 $ — $ 673 $ — $ — $ 244
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.
At December 31, 2019, the termination value of derivatives with our derivative dealer counterparties (related to loan
level swaps with commercial lending customers) in a net liability position, which included accrued interest but
excluded any adjustment for nonperformance risk, related to these agreements was $1.1 million. In addition, as of
December 31, 2019, 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 $30.1 million. The Company has minimum
collateral posting thresholds with its derivative dealer counterparties. At December 31, 2019, the Company’s activity
with one 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 $30.9 million to
the Company to satisfy the balance sheet hedge agreement. Additionally, the Company’s activity with one of its
derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be
given by the Company) and the Company had posted collateral of $1.1 million to the derivative counterparties to
satisfy the loan level agreements. If the Company had breached any of these provisions at December 31, 2019 or
December 31, 2018, it could have been required to settle its obligations under the agreements at the termination value.
At 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. 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 agreement.
117
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 17: 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, 2019 and 2018, the Bank had outstanding commitments to originate loans and fund commercial
construction loans aggregating approximately $92.4 million and $105.3 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 $69.3 million and $24.3 million at December 31, 2019
and 2018, 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 $26.3 million and $28.9
million at December 31, 2019 and 2018, respectively, with $26.3 million and $28.4 million, respectively, of the
letters of credit having terms up to five years and $-0- and $476,000, respectively, of the letters of credit having
terms over five years. Of the amount having terms over five years, $-0- and $476,000 at December 31, 2019 and
2018, 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 $-0- and $2.1 million at December 31, 2019 and 2018,
respectively, and they expire in less than one year from issuance.
Lines of Credit
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without
being drawn upon, the total unused lines do not necessarily represent future cash requirements. The Bank
evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
118
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019, the Bank had granted unused lines of credit to borrowers aggregating approximately $1.2
billion and $155.8 million for commercial lines and open-end consumer lines, respectively. 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.
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 $725.0 million and $750.3 million at December 31, 2019 and 2018, 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 18: Additional Cash Flow Information
Noncash Investing and Financing Activities
Real estate acquired in settlement of loans
Sale and financing of foreclosed assets
Conversion of premises and equipment
to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
Note 19: Employee Benefits
2019
2018
(In Thousands)
2017
$12,729
1,340
1,135
4,849
$12,044
2,578
—
4,528
$23,780
603
—
3,381
53,922
5,719
37,091
2,569
27,724
17,563
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, 2019, 2018 and 2017, were approximately $1.8 million, $1.3 million and $1.1
million, respectively. The Company’s contributions to the Pentegra DB Plan were not more than 5% of the total
contributions to the plan. The funded status of the plan as of July 1, 2019 and 2018, was 93.7% and 96.3%,
respectively. The funded status was calculated by taking the market value of plan assets, which reflected
contributions received through June 30, 2019 and 2018, respectively, divided by the funding target. No collective
bargaining agreements are in place that require contributions to the Pentegra DB Plan.
The Company has a defined contribution retirement plan covering substantially all employees. The Company
matches 100% of the employee’s contribution on the first 3% of the employee’s compensation and also matches
an additional 50% of the employee’s contribution on the next 2% of the employee’s compensation. Employer
contributions charged to expense for this plan for the years ended December 31, 2019, 2018 and 2017, were
approximately $1.4 million, $1.4 million and $1.3 million, respectively.
119
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 20: 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, 2019, 42,941 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 2013 Plan were not affected. At
December 31, 2019, 401,827 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, 2019, 363,100 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.
120
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The table below summarizes transactions under the Company’s stock compensation plans, all of which related to
stock options granted under such plans:
Balance, January 1, 2017
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)
Balance, December 31, 2018
Granted from 2018 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
Available to
Grant
Shares Under
Option
Weighted
Average
Exercise Price
219,475
(157,800 )
—
—
15,837
77,512
(1,000 )
—
13,773
(90,285 )
—
800,000
(185,750 )
600
614,850
(186,400 )
—
—
8,450
661,203 $
157,800
(119,692 )
(675 )
(15,837 )
682,799
1,000
(81,940 )
(13,773 )
—
588,086
—
185,750
(600 )
773,236
186,400
(125,894 )
(17,424 )
(8,450 )
33.672
52.118
27.352
24.690
41.916
38.860
52.500
27.597
45.692
55.297
55.000
43.886
60.086
33.031
44.163
55.000
Balance, December 31, 2019
436,900
807,868 $
49.139
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.
121
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019, 2018 and 2017:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2019
$ 1.36
1.59%
5 years
25.15%
$ 11.20
2018
$ 1.27
2.86%
5 years
17.61%
$ 8.30
2017
$ 0.95
2.03%
5 years
23.49%
$ 10.04
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, 2019:
Options outstanding, January 1, 2019
Granted
Exercised
Forfeited
Options outstanding, December 31, 2019
Weighted
Average
Exercise
Price
$43.886
60.086
33.031
49.395
49.139
Options
773,236
186,400
(125,894)
(25,874)
807,868
Options exercisable, December 31, 2019
255,491
37.310
Weighted
Average
Remaining
Contractual
Term
7.44 years
7.54 years
5.10 years
For the years ended December 31, 2019, 2018 and 2017, options granted were 186,400, 186,750, and 157,800,
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, 2019, 2018
and 2017, was $3.1 million, $2.2 million and $3.0 million, respectively. Cash received from the exercise of
options for the years ended December 31, 2019, 2018 and 2017, was $4.2 million, $2.3 million and $3.3 million,
respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $2.7 million,
$1.6 million and $2.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The total
intrinsic value of options outstanding at December 31, 2019, 2018 and 2017, was $11.5 million, $4.7 million and
$8.8 million, respectively. The total intrinsic value of options exercisable at December 31, 2019, 2018 and 2017,
was $6.6 million, $3.9 million and $5.7 million, respectively.
122
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
The following table presents the activity related to nonvested options under all plans for the year ended December
31, 2019:
Nonvested options, January 1, 2019
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
$50.023
60.086
44.327
49.998
Options
506,494
186,400
(115,393)
(25,124)
Nonvested options, December 31, 2019
552,377
54.610
Weighted
Average
Grant Date
Fair Value
$ 8.431
11.195
7.744
8.394
9.509
At December 31, 2019, there was $4.7 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 2024,
with the majority of this expense recognized in 2020 and 2021.
The following table further summarizes information about stock options outstanding at December 31, 2019:
Range of
Exercise Prices
Number
Outstanding
Remaining
Contractual
Term
Options Outstanding
Weighted
Average
Weighted
Average
Exercise
Options Exercisable
Weighted
Average
Exercise
Number
Price
Exercisable
Price
$16.810 to 29.640
$32.590 to 38.610
$41.300 to 47.800
$50.710 to 52.500
$55.000 to 60.150
79,493
66,231
90,193
208,851
363,100
3.01 years
4.89 years
6.81 years
7.18 years
9.39 years
$25.408
33.043
41.323
51.656
57.763
79,493
62,606
35,586
77,806
—
$25.408
32.794
41.300
51.280
—
807,868
7.54 years
49.139
255,491
37.310
Note 21: 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.
123
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 22: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’ equity, are as
follows:
2019
2018
(In Thousands)
Net unrealized gain on available-for-sale securities
$
11,715
$
365
Net unrealized gain on derivatives used for cash flow hedges
Tax effect
30,056
41,771
12,106
12,471
(9,525)
(2,844)
Net-of-tax amount
$
32,246
$
9,627
Amounts reclassified from AOCI and the affected line items in the statements of income during the years ended
December 31, 2019, 2018 and 2017, were as follows:
Amounts Reclassified
from AOCI
2018
(In Thousands)
2019
2017
Affected Line Item in the
Statements of Income
Unrealized gains (losses) on
available-for-sale securities
$
(62) $
2 $
—
Net realized gains on available-for-sale
securities (total reclassified amount
before tax)
Income taxes
14
—
— Tax (expense) benefit
Total reclassifications out of
AOCI
$
48 $
2 $
—
Note 23: Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct and material effect on the
Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative
measures of the Company’s and the Bank’s assets, liabilities and certain off-balance-sheet items as calculated
under U.S. GAAP, regulatory reporting practices, and regulatory capital standards. The Company’s and the
Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
124
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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, 2019) 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, 2019, that the Bank met all capital adequacy requirements to which it was then
subject.
As of December 31, 2019, 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, 2019, 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, 2019 and 2018, 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.
125
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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.
Minimum
For Capital
Adequacy Purposes
Amount Ratio Amount
(Dollars In Thousands)
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Actual
Amount Ratio
As of December 31, 2019
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 698,085 15.0% $ 372,387 8.0%
$ 650,280 14.0% $ 372,316 8.0% $
N/A
465,395
N/A
10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 582,791 12.5% $
$ 609,986 13.1% $
279,290 6.0%
279,237 6.0% $
N/A
372,316
N/A
8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 582,791 11.8% $
$ 609,986 12.3% $
198,320 4.0%
198,010 4.0% $
N/A
247,512
N/A
5.0%
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2018
Total capital
$ 557,791 12.0% $
$ 609,986 13.1% $
209,468 4.5%
209,428 4.5% $
N/A
302,507
N/A
6.5%
Great Southern Bancorp, Inc.
Great Southern Bank
$ 651,469 14.4% $ 360,826 8.0%
$ 599,509 13.3% $
360,767 8.0% $
N/A
450,959
N/A
10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 538,060 11.9% $
$ 561,100 12.4% $
270,619 6.0%
270,575 6.0% $
N/A
360,767
N/A
8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 538,060 11.7% $
$ 561,100 12.2% $
184,088 4.0%
184,050 4.0% $
N/A
230,062
N/A
5.0%
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 513,060 11.4% $
$ 561,100 12.4% $
202,965 4.5%
202,931 4.5% $
N/A
293,123
N/A
6.5%
Note 24: 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 the outcome of such litigation will not have a material adverse effect on the Company’s
business, financial condition or results of operations.
126
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 25: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2019, 2018 and 2017:
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 available to common shareholders
Earnings per common share – diluted
2019
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 57,358
12,753
1,950
$ 58,723
13,802
1,600
$ 60,187
14,263
1,950
$ 58,726
13,784
650
10
7,450
28,495
3,998
17,612
1.23
—
7,157
28,383
3,720
18,375
1.28
—
8,655
28,725
4,172
19,732
1.38
(72)
7,695
29,535
4,559
17,893
1.24
2018
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for loan losses
Net realized gains on available-for-sale securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common shareholders
Earnings per common share – diluted
$ 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
$ 56,142
11,585
1,950
—
7,220
28,774
3,765
17,288
1.21
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
2017
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 44,744
6,843
1,950
—
15,800
28,371
7,204
16,176
1.14
$ 46,368
7,087
2,950
—
7,655
28,034
4,289
11,663
0.82
$ 46,536
7,263
1,950
—
7,374
29,283
3,207
12,207
0.86
$ 45,413
6,712
2,250
—
7,698
28,573
4,058
11,518
0.81
127
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Note 26: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2019 and 2018, and statements of income,
comprehensive income and cash flows for the years ended December 31, 2019, 2018 and 2017, for the parent
company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Investment in subsidiary bank
Deferred and accrued income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2019
2018
(In Thousands)
$
$
$
$
58,726
650,329
111
868
56,648
580,016
411
889
710,034
$
637,964
$
6,918
25,774
74,276
143
33,510
537,167
32,246
6,371
25,774
73,842
142
30,121
492,087
9,627
$
710,034
$
637,964
128
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Statements of Income
Income
Dividends from subsidiary bank
Interest and dividend income
Loss on other investments
$
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
2019
2018
(In Thousands)
2017
$
32,000
—
(23)
31,977
2,044
5,397
7,441
$
34,000
—
—
34,000
1,793
5,050
6,843
17,500
48
—
17,548
1,330
5,047
6,377
24,536
(1,381)
27,157
(1,204)
11,171
(1,709)
25,917
28,361
12,880
47,695
38,748
38,684
$
73,612
$
67,109
$
51,564
129
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
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
Amortization of interest rate derivative and
deferred costs on subordinated notes
Loss on other investments
Changes in
Prepaid expenses and other assets
Accounts payable and accrued expenses
Income taxes
Net cash provided by operating activities
Investing Activities
(Investment)/Return of principal - other investments
Net cash provided by investing activities
Financing Activities
Purchases of the Company’s common stock
Dividends paid
Stock options exercised
Net cash used in financing activities
Increase in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2019
2018
(In Thousands)
2017
$
73,612
$
67,109
$
51,564
(47,695)
922
434
23
(3)
226
300
27,819
2
2
(849)
(29,052)
4,158
(25,743)
2,078
56,648
58,726
5,424
(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
$
$
$
$
$
$
130
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
Statements of Comprehensive Income
2019
2018
(In Thousands)
2017
Net Income
$
73,612
$
67,109
$
51,564
Change in fair value of cash flow hedge, net of taxes
of $0, $0 and $93 for 2019, 2018 and
2017, respectively
Comprehensive income (loss) of subsidiaries
—
22,619
—
8,114
161
(478)
Comprehensive Income
$
96,231
$
75,223
$
51,247
Note 27: 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.
Note 28: Subsequent Event – Interest Rate Swap Termination
As discussed in Note 16, in October 2018, the Company entered into an interest rate swap transaction with a
notional amount of $400 million. The swap’s contractual termination date was October 6, 2025.
On March 2, 2020, the Company and its swap counterparty mutually agreed to terminate the swap, effective
immediately. The Company received a payment of $45.9 million, including accrued but unpaid interest, from its
swap counterparty as a result of this termination. This $45.9 million, less the accrued interest portion and net of
deferred income taxes, will be reflected in the Company’s equity as Accumulated Other Comprehensive Income
and a portion of it will be accreted to interest income monthly through the original contractual termination date of
October 6, 2025. This will have the effect of reducing Accumulated Other Comprehensive Income and increasing
Net Interest Income and Retained Earnings over the period.
131
132
GreatSouthernBank.com