S T R E N G T H• T H A T • C O N N E C T S
2020
ANNUAL REP ORT
FOR STOCKHOLDERS
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
800-749-7113
AUDITORS
BKD, L.L.P.
P.O. Box 1190
Springfield, MO 65801-1190
MAILING ADDRESS
P.O. Box 9009
Springfield, MO 65808
DIVIDEND REINVESTMENT
For details on the automatic reinvestment of
dividends in common stock of the Company, call
Computershare at 800-368-5948,
(outside of the U.S. 781-575-4223), or visit
computershare.com.
FORM 10-K
The Annual Report on Form 10-K filed with the
Securities and Exchange Commission may be
obtained from the Company’s website at
GreatSouthernBank.com, the SEC website or
without charge by request to:
Kelly Polonus
Great Southern Bancorp, Inc.
P.O. Box 9009
Springfield, MO 65808
INVESTOR RELATIONS
Kelly Polonus
Great Southern Bank
P.O. Box 9009
Springfield, MO 65808
LEGAL COUNSEL
Silver, Freedman, Taff and Tiernan, L.L.P.
3299 K St., N.W., Suite 100
Washington, DC 20007
Carnahan, Evans, Cantwell & Brown, P.C.
P.O. Box 10009
Springfield, MO 65808
TRANSFER AGENT AND REGISTRAR
Computershare
Shareholder correspondence:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight correspondence:
Computershare
462 S. 4th St., Suite 1600
Louisville, KY 40202
800-368-5948
781-575-4223 outside of the U.S.
Hearing Impaired # TDD: 800-952-9245
Questions and inquires via our website
computershare.com
32nd Annual Meeting of Stockholders
MAY 12, 2021
Virtual Meeting – 10 am CDT
Corporate Profile
Great Southern Bank was founded in 1923 with a $5,000
investment, four employees and 936 customers. Today, it has
grown to $5.5 billion in total assets, with nearly 1,200 dedicated
associates serving 141,000 households.
Headquartered in Springfield, Mo., the Company operates 101
offices in 11 states, including 94 retail banking centers in Missouri,
Arkansas, Iowa, Kansas, Nebraska and Minnesota, six commercial
loan offices in Dallas, Texas, Tulsa, Oklahoma, Chicago, Illinois,
Omaha, Nebraska, Atlanta, Georgia, and Denver, Colorado, and
one home loan office in Springfield, Missouri. 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, Online Banking, Mobile
Banking, an ATM or by telephone.
Stock Information
The Company’s common stock is listed on the NASDAQ Global
Select Market under the symbol “GSBC.”
As of December 31, 2020, there were 13,752,605 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, 2020 was $48.90.
High/Low Stock Price
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
High
Low
$63. 55 $32. 23
46. 35 32. 62
41. 42 34. 32
50. 72 35. 79
2019
High
Low
$57. 95 $45. 44
60. 92 52. 24
60. 94 54. 33
64. 48 54. 87
2018
High
Low
$53. 05 $48. 10
60. 20 48. 60
61. 65 54. 50
58. 49 43. 30
Regular Dividend Declarations
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
$.34
.34
.34
.34
2019
$.32
.32
.34
.34
2018
$.28
.28
.32
.32
Special Dividend Declarations
First Quarter
2020
$1.00
2019
$.75
2018
----
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
TO OUR
STOCKHOLDERS:
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
is gratifying to see that our hard work and preparedness
pays dividends, especially during the most difficult times.
2
“We’re here for you
and ready to help.”
COVID-19 Response
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
pages of this Annual Report to learn
more.
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
OUR CUSTOMERS: Throughout 2020, we
have been tireless in mobilizing resources to
remained steadfast in following health
meet the basic needs of community members
guidelines, while providing our customers ready
throughout the pandemic. Our support didn’t
access to our products and services. Like most
stop there; all year long we continued to monitor
banks across the country, adoption of our
and respond in the best way we could to the
self-service access channels accelerated greatly
growing local community needs.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
one- to four-family residential loans and
our stockholders, both through dividends and
commercial real estate loans, and came from
opportunistic share repurchases. Great Southern
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
has declared consecutive quarterly cash
dividends since going public in 1989. The
commercial lenders originated more than $1
Company declared four quarterly regular cash
billion in new loans, with 36% of the production
dividends totaling $1.36 per common share in
generated through our six loan production
offices in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team
had record production in 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
The capital position of the Company remains
guarded optimism. The impact of the pandemic
strong, significantly exceeding the thresholds
and its aftermath will be present for the
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
$630 million at the end of 2020. Book value per
get back on course in whatever way we can.
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
Our priorities for 2021 are straightforward and
familiar. We will maintain a sharp focus on
In the banking business, a strong capital base is
developing and expanding customer
vital. Our objective is to actively manage our
relationships, closely manage interest rate risk,
capital position while maintaining sufficient
sustain a strong credit discipline and drive
capacity for organic growth and other corporate
operational efficiencies and continuous
initiatives. It is also a priority to return capital to
improvement throughout our Company. We also
recognize that banking is evolving rapidly,
Company a great place to work and grow
especially with technological advances. Our focus
professionally. For our customers, it is our mission
must stay on being responsive to the
to build winning and lasting relationships by
ever-changing demands and expectations of our
providing the right products and services with
customers. In addition, we are also dedicated to
preferred access channels. For our many
inspire and develop our talent pool to ensure
communities, we strive to support causes and
that we have our next generation of bankers
address needs to help them be even better
ready to lead the Company in years to come.
places to live and work. And finally, for our
In 2021, we will have two key executive
management team members entering retirement.
stockholders, we desire to provide a superior
long-term return on investment in our Company.
Both announced their retirements at least a year
Finally, thank you to our Board of Directors for
in advance to promote an orderly leadership
their guidance and support during 2020 and as
transition. Successors were identified internally
we move ahead. We value the diversity of talent,
for both of these management positions.
knowledge and experience that each Board
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thank you for your support of Great Southern.
Thomason, Chief Information Officer, plans to
We invite your feedback at any time.
member brings to our Company.
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
Sincerely yours,
that time period, the Company has grown from
William V. Turner
Joseph W. Turner
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
pages of this Annual Report to learn
is gratifying to see that our hard work and preparedness
more.
pays dividends, especially during the most difficult times.
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
OUR MISSION
Building winning
relationships with our
customers, associates,
stockholders and
communities.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
OUR CUSTOMERS: Throughout 2020, we
remained steadfast in following health
guidelines, while providing our customers ready
access to our products and services. Like most
banks across the country, adoption of our
self-service access channels accelerated greatly
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
3
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
have been tireless in mobilizing resources to
meet the basic needs of community members
throughout the pandemic. Our support didn’t
stop there; all year long we continued to monitor
and respond in the best way we could to the
growing local community needs.
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
Doing
what’s right
Teamwork
OUR CORE
VALUES
Mutual
Respect
Uncompromising
ethical standards
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
one- to four-family residential loans and
our stockholders, both through dividends and
commercial real estate loans, and came from
opportunistic share repurchases. Great Southern
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
has declared consecutive quarterly cash
dividends since going public in 1989. The
commercial lenders originated more than $1
Company declared four quarterly regular cash
billion in new loans, with 36% of the production
dividends totaling $1.36 per common share in
generated through our six loan production
offices in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team
had record production in 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
The capital position of the Company remains
guarded optimism. The impact of the pandemic
strong, significantly exceeding the thresholds
and its aftermath will be present for the
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
$630 million at the end of 2020. Book value per
get back on course in whatever way we can.
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
Our priorities for 2021 are straightforward and
familiar. We will maintain a sharp focus on
In the banking business, a strong capital base is
developing and expanding customer
vital. Our objective is to actively manage our
relationships, closely manage interest rate risk,
capital position while maintaining sufficient
sustain a strong credit discipline and drive
capacity for organic growth and other corporate
operational efficiencies and continuous
initiatives. It is also a priority to return capital to
improvement throughout our Company. We also
recognize that banking is evolving rapidly,
Company a great place to work and grow
especially with technological advances. Our focus
professionally. For our customers, it is our mission
must stay on being responsive to the
to build winning and lasting relationships by
ever-changing demands and expectations of our
providing the right products and services with
customers. In addition, we are also dedicated to
preferred access channels. For our many
inspire and develop our talent pool to ensure
communities, we strive to support causes and
that we have our next generation of bankers
address needs to help them be even better
ready to lead the Company in years to come.
places to live and work. And finally, for our
In 2021, we will have two key executive
management team members entering retirement.
stockholders, we desire to provide a superior
long-term return on investment in our Company.
Both announced their retirements at least a year
Finally, thank you to our Board of Directors for
in advance to promote an orderly leadership
their guidance and support during 2020 and as
transition. Successors were identified internally
we move ahead. We value the diversity of talent,
for both of these management positions.
knowledge and experience that each Board
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thank you for your support of Great Southern.
Thomason, Chief Information Officer, plans to
We invite your feedback at any time.
member brings to our Company.
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
Sincerely yours,
that time period, the Company has grown from
William V. Turner
Joseph W. Turner
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
pages of this Annual Report to learn
is gratifying to see that our hard work and preparedness
more.
pays dividends, especially during the most difficult times.
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
OUR CUSTOMERS: Throughout 2020, we
have been tireless in mobilizing resources to
remained steadfast in following health
meet the basic needs of community members
guidelines, while providing our customers ready
throughout the pandemic. Our support didn’t
access to our products and services. Like most
stop there; all year long we continued to monitor
banks across the country, adoption of our
and respond in the best way we could to the
self-service access channels accelerated greatly
growing local community needs.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
Total Assets
$5.53
BILLION
Total Deposits
$4.52
BILLION
Total Loans
$4.30
BILLION
0
$1B
$2B
$3B
$4B
$5B
TOTAL RETURN
5 YEAR CUMULATIVE
$125.65
Great Southern Bancorp Inc
NASDAQ Financial 100 Index
NASDAQ Composite Index
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
250
200
150
100
2015
2016
2017
2018
2019
2020
4
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
The graph at left 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, 2015, through December 31,
2020. The graph assumes that $100 was invested in
GSBC Stock on December 31, 2015 and that all
dividends were reinvested.
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
one- to four-family residential loans and
our stockholders, both through dividends and
commercial real estate loans, and came from
opportunistic share repurchases. Great Southern
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
has declared consecutive quarterly cash
dividends since going public in 1989. The
commercial lenders originated more than $1
Company declared four quarterly regular cash
billion in new loans, with 36% of the production
dividends totaling $1.36 per common share in
generated through our six loan production
offices in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team
had record production in 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
The capital position of the Company remains
guarded optimism. The impact of the pandemic
strong, significantly exceeding the thresholds
and its aftermath will be present for the
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
$630 million at the end of 2020. Book value per
get back on course in whatever way we can.
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
Our priorities for 2021 are straightforward and
familiar. We will maintain a sharp focus on
In the banking business, a strong capital base is
developing and expanding customer
vital. Our objective is to actively manage our
relationships, closely manage interest rate risk,
capital position while maintaining sufficient
sustain a strong credit discipline and drive
capacity for organic growth and other corporate
operational efficiencies and continuous
initiatives. It is also a priority to return capital to
improvement throughout our Company. We also
recognize that banking is evolving rapidly,
Company a great place to work and grow
especially with technological advances. Our focus
professionally. For our customers, it is our mission
must stay on being responsive to the
to build winning and lasting relationships by
ever-changing demands and expectations of our
providing the right products and services with
customers. In addition, we are also dedicated to
preferred access channels. For our many
inspire and develop our talent pool to ensure
communities, we strive to support causes and
that we have our next generation of bankers
address needs to help them be even better
ready to lead the Company in years to come.
places to live and work. And finally, for our
In 2021, we will have two key executive
management team members entering retirement.
stockholders, we desire to provide a superior
long-term return on investment in our Company.
Both announced their retirements at least a year
Finally, thank you to our Board of Directors for
in advance to promote an orderly leadership
their guidance and support during 2020 and as
transition. Successors were identified internally
we move ahead. We value the diversity of talent,
for both of these management positions.
knowledge and experience that each Board
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thank you for your support of Great Southern.
Thomason, Chief Information Officer, plans to
We invite your feedback at any time.
member brings to our Company.
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
Sincerely yours,
that time period, the Company has grown from
William V. Turner
Joseph W. Turner
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
pages of this Annual Report to learn
is gratifying to see that our hard work and preparedness
more.
pays dividends, especially during the most difficult times.
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
OUR CUSTOMERS: Throughout 2020, we
have been tireless in mobilizing resources to
remained steadfast in following health
meet the basic needs of community members
guidelines, while providing our customers ready
throughout the pandemic. Our support didn’t
access to our products and services. Like most
stop there; all year long we continued to monitor
banks across the country, adoption of our
and respond in the best way we could to the
self-service access channels accelerated greatly
growing local community needs.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
Book Value
Per Common
Share
2020
$45.79
$42.29
$37.59
$33.48
$30.77
2016
2017
2018
2019
2020
2020
Total
Net Income
$59.31
MILLION
70
60
50
40
30
20
10
2016
2017
2018
2019
0
2020
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
5
one- to four-family residential loans and
our stockholders, both through dividends and
commercial real estate loans, and came from
opportunistic share repurchases. Great Southern
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
has declared consecutive quarterly cash
dividends since going public in 1989. The
commercial lenders originated more than $1
Company declared four quarterly regular cash
billion in new loans, with 36% of the production
dividends totaling $1.36 per common share in
generated through our six loan production
offices in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team
had record production in 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
The capital position of the Company remains
guarded optimism. The impact of the pandemic
strong, significantly exceeding the thresholds
and its aftermath will be present for the
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
$630 million at the end of 2020. Book value per
get back on course in whatever way we can.
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
Our priorities for 2021 are straightforward and
familiar. We will maintain a sharp focus on
In the banking business, a strong capital base is
developing and expanding customer
vital. Our objective is to actively manage our
relationships, closely manage interest rate risk,
capital position while maintaining sufficient
sustain a strong credit discipline and drive
capacity for organic growth and other corporate
operational efficiencies and continuous
initiatives. It is also a priority to return capital to
improvement throughout our Company. We also
recognize that banking is evolving rapidly,
Company a great place to work and grow
especially with technological advances. Our focus
professionally. For our customers, it is our mission
must stay on being responsive to the
to build winning and lasting relationships by
ever-changing demands and expectations of our
providing the right products and services with
customers. In addition, we are also dedicated to
preferred access channels. For our many
inspire and develop our talent pool to ensure
communities, we strive to support causes and
that we have our next generation of bankers
address needs to help them be even better
ready to lead the Company in years to come.
places to live and work. And finally, for our
In 2021, we will have two key executive
management team members entering retirement.
stockholders, we desire to provide a superior
long-term return on investment in our Company.
Both announced their retirements at least a year
Finally, thank you to our Board of Directors for
in advance to promote an orderly leadership
their guidance and support during 2020 and as
transition. Successors were identified internally
we move ahead. We value the diversity of talent,
for both of these management positions.
knowledge and experience that each Board
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thank you for your support of Great Southern.
Thomason, Chief Information Officer, plans to
We invite your feedback at any time.
member brings to our Company.
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
Sincerely yours,
that time period, the Company has grown from
William V. Turner
Joseph W. Turner
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
pages of this Annual Report to learn
is gratifying to see that our hard work and preparedness
more.
pays dividends, especially during the most difficult times.
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
OUR CUSTOMERS: Throughout 2020, we
have been tireless in mobilizing resources to
remained steadfast in following health
meet the basic needs of community members
guidelines, while providing our customers ready
throughout the pandemic. Our support didn’t
access to our products and services. Like most
stop there; all year long we continued to monitor
banks across the country, adoption of our
and respond in the best way we could to the
self-service access channels accelerated greatly
growing local community needs.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
one- to four-family residential loans and
commercial real estate loans, and came from
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
commercial lenders originated more than $1
billion in new loans, with 36% 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 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
The capital position of the Company remains
strong, significantly exceeding the thresholds
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
$630 million at the end of 2020. Book value per
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
In the banking business, a strong capital base is
vital. 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, both through dividends and
opportunistic share repurchases. Great Southern
has declared consecutive quarterly cash
dividends since going public in 1989. The
Company declared four quarterly regular cash
dividends totaling $1.36 per common share in
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
guarded optimism. The impact of the pandemic
and its aftermath will be present for the
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
get back on course in whatever way we can.
Our priorities for 2021 are straightforward and
familiar. 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. We also
6
recognize that banking is evolving rapidly,
Company a great place to work and grow
especially with technological advances. Our focus
professionally. For our customers, it is our mission
must stay on being responsive to the
to build winning and lasting relationships by
ever-changing demands and expectations of our
providing the right products and services with
customers. In addition, we are also dedicated to
preferred access channels. For our many
inspire and develop our talent pool to ensure
communities, we strive to support causes and
that we have our next generation of bankers
address needs to help them be even better
ready to lead the Company in years to come.
places to live and work. And finally, for our
In 2021, we will have two key executive
management team members entering retirement.
stockholders, we desire to provide a superior
long-term return on investment in our Company.
Both announced their retirements at least a year
Finally, thank you to our Board of Directors for
in advance to promote an orderly leadership
their guidance and support during 2020 and as
transition. Successors were identified internally
we move ahead. We value the diversity of talent,
for both of these management positions.
knowledge and experience that each Board
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thank you for your support of Great Southern.
Thomason, Chief Information Officer, plans to
We invite your feedback at any time.
member brings to our Company.
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
Sincerely yours,
that time period, the Company has grown from
William V. Turner
Joseph W. Turner
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
We will never forget the year 2020. The COVID-19
pandemic, as well as social and political unrest, created
unprecedented challenges, uncertainty and pain for all of
us, in one degree or another. It was a very difficult period in
our country’s history and our hearts go out to those directly
affected.
While 2020 did pose unique and daunting challenges,
we’re extremely proud of how our Company and our team
of associates responded to the health crisis in our
communities. As has always been the case during our
nearly 100 years in business, our Company was a source of
strength for our associates, customers, stockholders and
communities during the last year.
During difficult times, we rely heavily on our Company’s
many strengths - our dedicated and talented team of
associates, our strong financial foundation, our corporate
culture centered on integrity and service excellence, our
risk mitigation strategies, and our “make it happen”
attitude. We continually work on building and nurturing
these strengths as a foundation for our long-term success. It
pages of this Annual Report to learn
is gratifying to see that our hard work and preparedness
more.
pays dividends, especially during the most difficult times.
As the pandemic began to unfold in
early 2020, we quickly saw the need
to connect with our associates,
customers and communities on an
even deeper level. “We’re here for
you” was a resounding message
that we sent to offer assurance and
support throughout the year. We
made it widely known that our top
priorities were (and still are) to
ensure the health and well-being of
our associates, provide safe and
uninterrupted service for our
customers, and support the
communities in which we live and
serve. Below is just a brief summary
of our COVID-19 response; we
invite you to read the following
OUR ASSOCIATES: We are
continually amazed by the loyalty
and capability of our associates –
our most valuable asset. Their
resilience, flexibility and compassion
are appreciated and so evident
each and every day. Understanding
that this was an uncertain and
difficult time for our associates and
Business Administration’s Paycheck Protection
Program (PPP), providing emergency financial
support using federally-guaranteed loans, up to
100% of which may be forgiven by the federal
government.
OUR COMMUNITIES: Every year, we are
committed to give back to our local communities
to help make them better places to live, work
and do business. With the unprecedented events
in 2020, we significantly increased our
community support to address the critical needs
caused by the pandemic. Early on, we committed
$300,000 to address food insecurity and other
critical health and human service needs in all of
our markets across the 11-state franchise. These
funds were distributed to Feeding America Food
Banks and local United Way organizations, which
Diversity, Equity and Inclusion
In the midst of the pandemic, our country
experienced great social and civil unrest. We
watched the scenes of protest, high emotion,
and chaos play out in cities across our country as
a result of racial injustice and systemic inequities.
OUR CUSTOMERS: Throughout 2020, we
have been tireless in mobilizing resources to
remained steadfast in following health
meet the basic needs of community members
guidelines, while providing our customers ready
throughout the pandemic. Our support didn’t
access to our products and services. Like most
stop there; all year long we continued to monitor
banks across the country, adoption of our
and respond in the best way we could to the
self-service access channels accelerated greatly
growing local community needs.
their families, we offered support in several ways,
including increased benefits and sick time,
special bonuses, and mental health support. We
also took great care in making the work
environment as safe as possible by strict
adherence to dynamic CDC guidelines and
governmental directives.
during the pandemic. Many of our customers
found themselves staying home and looking for
ways to manage their finances online and as
contact free as possible. For our customers who
had already discovered digital banking, it
reinforced just how convenient these channels
can be. For the many customers that tried it for
the first time out of necessity, they quickly
experienced the ease and simplicity of these
access channels, available for them 24 hours a
day.
Some of our customers, unfortunately, faced
financial hardships. We actively worked with
them by offering temporary loan payment relief
options and depository fee waivers. The federal
government’s CARES Act stimulus package
brought relief for our retail customers and many
of our small business customers. Millions of
dollars in stimulus checks were deposited into
customer accounts and we made certain that
these deposits were accessible right away. Our
associates took great pride in assisting our small
business customers gain access to the Small
We add our voice to the chorus of
many who are saying that things
must change, and that it is
everyone’s responsibility to play a
part.
We recognize in the scope of things
we’re a small company with a small
voice, but we firmly believe that we
can be a part of the solution. We
commit that we will do all we can to
support diverse communities and
foster a company culture that
deeply values and respects
diversity, equity and inclusion. Our
commitment was underscored by
our donations totaling $150,000 to
support diversity causes that
promote equality and inclusion and
to support rebuilding efforts in our
communities impacted by riots and
violence. We stand united with our
associates, customers and
communities for a better and more
just tomorrow.
2020 Financial Results
Our hard work and discipline in
dealing with the pandemic, while
also conducting normal banking
activities, ultimately resulted in a
strong financial performance in
2020. In summary, earnings for the
year ended December 31, 2020,
were $59.3 million, or $4.21 per
diluted common share. Return on
average common equity was 9.53%,
return on average assets was 1.11%, and net
interest margin was 3.49%.
You can find details of our financial results in the
following pages of this Annual Report. Of note,
when comparing 2020 results to 2019, it is
helpful to recall that in 2019 we achieved the
highest net income and earnings per share in the
history of our Company.
Net Interest Income/Margin
As the COVID virus was spreading in the winter
of 2020, the Federal Reserve dramatically cut its
benchmark interest rate, totaling 150 basis
points. Since the Federal Reserve’s rate cuts, the
Company’s yield on loans and other earning
assets has declined more rapidly than its rate
paid on deposits. As a result, we experienced a
small decrease in net interest income in 2020.
Net interest income, our primary source of
income, decreased $3.3 million to $177.1 million
compared to 2019.
Lending Activity
Overall loan growth was relatively strong in
2020, amidst the pandemic, competition,
intermittent slower deal flow and loan pay-offs,
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 $202.0 million, or 4.1%, from the end
of 2019. Decreases, which were anticipated, in
the consumer auto loan portfolio (down about
$66 million), in construction loans (down about
$73 million) and the FDIC-acquired loan
portfolios (down about $29 million) acted as
headwinds to our overall loan growth.
Outstanding net loan receivable balances
increased $142.8 million, from over $4.2 billion
at December 31, 2019, to $4.3 billion at
December 31, 2020. We ended 2020 with a
strong loan pipeline across the franchise.
Total loan production occurred across several
loan types, primarily in multi-family loans,
commercial business loans (primarily PPP loans),
one- to four-family residential loans and
our stockholders, both through dividends and
commercial real estate loans, and came from
opportunistic share repurchases. Great Southern
most of Great Southern’s primary lending
locations. For the fifth year in a row, our
has declared consecutive quarterly cash
dividends since going public in 1989. The
commercial lenders originated more than $1
Company declared four quarterly regular cash
billion in new loans, with 36% of the production
dividends totaling $1.36 per common share in
generated through our six loan production
offices in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team
had record production in 2020, driven by
historically low interest rates. Some of these
residential loans were retained in the Company’s
loan portfolio and some were sold in the
secondary market.
Asset and Credit Quality
Through the end of 2020, our credit quality
metrics strengthened. At December 31, 2020,
non-performing assets were $3.8 million, a
decrease of $4.4 million from the end of 2019.
Total net charge-offs were $422,000, (0.01%), for
the full year of 2020. Pandemic-related loan
modifications totaled $251 million at the end of
the year, down from over $1 billion at the end of
June 2020. We are mindful of the uncertain
economic conditions as we move forward, and
we continue to monitor our allowance for loan
losses, which increased by more than $15 million
in 2020. Our underwriting criteria remains
conservative and we strive to grow the loan
portfolio one quality relationship at a time.
Capital
2020, and declared a special cash dividend of
$1.00 per common share in January 2020.
In October 2020, the Board of Directors
authorized the repurchase of up to one million
additional shares of the Company’s common
stock and took effect after the Company
completed the repurchase of the shares
remaining under the 2018 stock repurchase
program. During the year ended December 31,
2020, the Company
repurchased 529,883
shares of its common
stock at an average
price of $41.71.
2021
Strength that
Connects
As we look to 2021 and beyond, we will capitalize
on our strengths and be ready for the challenges
and opportunities that will likely come our way.
With the promise of widespread distribution of
the COVID-19 vaccine and expected continued
economic recovery, we look to 2021 with
The capital position of the Company remains
guarded optimism. The impact of the pandemic
strong, significantly exceeding the thresholds
and its aftermath will be present for the
established by regulators to be considered
“well-capitalized.” Total stockholders’ equity
grew from $603 million at the end of 2019 to
foreseeable future. We anticipate that this will be
a rebuilding year for many of our customers and
communities, and we will be there to help them
$630 million at the end of 2020. Book value per
get back on course in whatever way we can.
share increased by 8.3%, from $42.29 to $45.79
during the same time period.
Our priorities for 2021 are straightforward and
familiar. We will maintain a sharp focus on
In the banking business, a strong capital base is
developing and expanding customer
vital. Our objective is to actively manage our
relationships, closely manage interest rate risk,
capital position while maintaining sufficient
sustain a strong credit discipline and drive
capacity for organic growth and other corporate
operational efficiencies and continuous
initiatives. It is also a priority to return capital to
improvement throughout our Company. We also
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, we desire to provide a superior
long-term return on investment in our Company.
Finally, thank you to our Board of Directors for
their guidance and support during 2020 and as
we move ahead. 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
recognize that banking is evolving rapidly,
especially with technological advances. Our focus
must stay on being responsive to the
ever-changing demands and expectations of our
customers. In addition, we are also dedicated to
inspire and develop our talent pool to ensure
that we have our next generation of bankers
ready to lead the Company in years to come.
In 2021, we will have two key executive
management team members entering retirement.
Both announced their retirements at least a year
in advance to promote an orderly leadership
transition. Successors were identified internally
for both of these management positions.
Doug Marrs, Chief Operations Officer and Board
Secretary, intends to retire in July 2021. Lin
Thomason, Chief Information Officer, plans to
retire at the end of 2021. Doug and Lin, who
both have banking careers spanning more than
40 years, have been integral in Great Southern’s
growth and success for the last 25 years. During
that time period, the Company has grown from
$700 million in assets with operations primarily in
the southwest Missouri region, to $5.5 billion in
assets and offices in 11 states at the end of 2020.
Sadly, in April 2020, we lost a past long-time
Great Southern Board member, William “Bill”
Barclay. Bill was first elected a Director of Great
Southern in 1975 and of the Holding Company in
1989, when the Company went public. He retired
from the Holding Company Board in 2017. Bill
was a successful owner and operator of multiple
businesses until his retirement in 2004. His long
history of entrepreneurship and managerial
knowledge were particularly valuable to the
Board. He is greatly missed and will always be
remembered for his delightful personality, humor
and devotion to his family.
In closing, we believe that we are well positioned
for a successful 2021 and beyond. We will
continue to build on our strengths that enable us
to meaningfully connect with all of our
constituencies. 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
7
THE POWER OF
CONNECTION
A COMPREHENSIVE COVID-19 RESPONSE
The year 2020 underscored the importance of
connection – connection with family, friends,
coworkers, and even strangers. We adapted how
we lived and worked, and we relied on
technology more than ever before to remain
connected with one another. At Great Southern,
the strong connections we’ve established with
our customers, associates, and communities
helped us understand the unique needs facing
these groups – and through our ongoing
commitment to a longer-view strategy, our
Company’s strength enabled us to provide
needed support in an unprecedented time.
At the onset of the pandemic, the well-being of
our customers, associates, and communities was
our top priority. As an essential industry, it was
critical that we proactively communicated
information with our customers. Through emails,
advertisements, and social media posts, we
reaffirmed our commitment that customers would
have uninterrupted access to their banking
services, be it through our convenient digital
banking services or in person at our banking
centers, and notified them about new scams and
fraud related to the pandemic.
Our Customers
Our banking centers were outfitted with
protective barriers at the teller line and masks
were available at the entrance for our customers
to wear. When the decision was made that our
banking center lobbies would be temporarily
available by appointment only to follow social
distancing protocols, we expanded the banking
services offered in our drive-thrus and promoted
our Online and Mobile Banking channels. As the
economic impact became clear, customers who
were financially challenged because of the
pandemic were eligible for loan payment relief
options, temporary monthly fee waivers, and fee
refunds. The dedication of our banking center
associates offered reassurance that Great
Southern Bank was open for business and ready
to assist our customers.
Protecting
our
associates
Work from home
Bonuses
TOGETHER
we helped keep everyone
safe and secure.
Protective
measures
Expanded
services
Proactive
communications
8
Taking care
of our
customers
Payment relief
Fee waivers
Our Associates
To promote social distancing throughout our
offices, associates who could complete their
duties from home were provided the necessary
equipment to do so, and we divided our on-site
teams between multiple offices to mitigate
potential spread of the virus. While
work-from-home options aren’t the norm at our
Company, we continue to see great success. The
dedication of our associates, those in the office
and working from home, has ensured it is
business as usual at Great Southern. To maintain
a connection with our associates working off-site,
we launched a new internally-developed
Intranet with enhanced features,
including the ability to host a new
video communication channel
where we can share Company
updates and other engaging
content in video format. Associates
were encouraged to stay home when
feeling ill, and we ensured each of them had
access to paid sick leave and would receive full
pay while they recovered should they contract
the virus. With uncertainty and concern
surrounding the pandemic, we enhanced mental
health benefits for our associates and their
dependent family members at no cost. As a
token of our appreciation and to help with the
financial hardships created by the pandemic, we
awarded two special bonuses to all full- and
part-time associates. To date, no Great Southern
associate has lost employment as a result of the
impact of the pandemic.
Our Communities
When the pandemic’s toll on local economies was
quickly realized, we committed a $300,000
donation to address food insecurity and health
and human services needs across our footprint;
$200,000 went to regional organizations that touch
all of our markets, such as Feeding America and
the United Way, and $100,000 was distributed
locally to grassroots organizations based on
recommendations from our regional Community
Matters Teams. Each holiday season, we donate
funds in honor of our customers to reduce food
insecurity, and this year was no exception. As the
need for food banks was greater than in years
past, we increased our annual food bank donation
and dispersed these funds throughout our
footprint. As our associates were unable to
volunteer with organizations as they traditionally
would, many sewed masks to donate throughout
their community, purchased lunches for local
hospital staff, assembled back-to-school packs for
elementary students, provided food and hygiene
kits to neighbors in need, and so much more. Our
Community Matters initiative is stronger today
because our associates were dedicated to seeking
out new ways to continue making an impact!
The year 2020 underscored the importance of
banking services or in person at our banking
connection – connection with family, friends,
centers, and notified them about new scams and
coworkers, and even strangers. We adapted how
fraud related to the pandemic.
we lived and worked, and we relied on
technology more than ever before to remain
connected with one another. At Great Southern,
the strong connections we’ve established with
our customers, associates, and communities
helped us understand the unique needs facing
these groups – and through our ongoing
commitment to a longer-view strategy, our
Company’s strength enabled us to provide
needed support in an unprecedented time.
At the onset of the pandemic, the well-being of
our customers, associates, and communities was
our top priority. As an essential industry, it was
critical that we proactively communicated
information with our customers. Through emails,
advertisements, and social media posts, we
reaffirmed our commitment that customers would
have uninterrupted access to their banking
services, be it through our convenient digital
Our Customers
Our banking centers were outfitted with
protective barriers at the teller line and masks
were available at the entrance for our customers
to wear. When the decision was made that our
banking center lobbies would be temporarily
available by appointment only to follow social
distancing protocols, we expanded the banking
services offered in our drive-thrus and promoted
our Online and Mobile Banking channels. As the
economic impact became clear, customers who
were financially challenged because of the
pandemic were eligible for loan payment relief
options, temporary monthly fee waivers, and fee
refunds. The dedication of our banking center
associates offered reassurance that Great
Southern Bank was open for business and ready
to assist our customers.
Our Associates
To promote social distancing throughout our
offices, associates who could complete their
duties from home were provided the necessary
equipment to do so, and we divided our on-site
teams between multiple offices to mitigate
potential spread of the virus. While
work-from-home options aren’t the norm at our
Company, we continue to see great success. The
dedication of our associates, those in the office
and working from home, has ensured it is
business as usual at Great Southern. To maintain
a connection with our associates working off-site,
we launched a new internally-developed
Intranet with enhanced features,
including the ability to host a new
video communication channel
where we can share Company
updates and other engaging
content in video format. Associates
were encouraged to stay home when
feeling ill, and we ensured each of them had
access to paid sick leave and would receive full
pay while they recovered should they contract
the virus. With uncertainty and concern
surrounding the pandemic, we enhanced mental
health benefits for our associates and their
dependent family members at no cost. As a
token of our appreciation and to help with the
financial hardships created by the pandemic, we
awarded two special bonuses to all full- and
part-time associates. To date, no Great Southern
associate has lost employment as a result of the
impact of the pandemic.
Supporting our
communities
Our Communities
When the pandemic’s toll on local economies was
quickly realized, we committed a $300,000
donation to address food insecurity and health
and human services needs across our footprint;
$200,000 went to regional organizations that touch
all of our markets, such as Feeding America and
the United Way, and $100,000 was distributed
locally to grassroots organizations based on
recommendations from our regional Community
Matters Teams. Each holiday season, we donate
funds in honor of our customers to reduce food
insecurity, and this year was no exception. As the
need for food banks was greater than in years
past, we increased our annual food bank donation
and dispersed these funds throughout our
footprint. As our associates were unable to
volunteer with organizations as they traditionally
would, many sewed masks to donate throughout
their community, purchased lunches for local
hospital staff, assembled back-to-school packs for
elementary students, provided food and hygiene
kits to neighbors in need, and so much more. Our
Community Matters initiative is stronger today
because our associates were dedicated to seeking
out new ways to continue making an impact!
9
IMPROVING WHERE
WE CONNECT
NEW GROUND FOR OUR
BANKING CENTERS
The strong bonds our banking center associates
have established with our customers help us
understand their financial needs and goals. The
decision to limit our banking center lobbies by
appointment was a first in our history, but the
well-being of our customers and associates was,
and remains, our first priority. We recognized that
these necessary limitations would come with the
risk of temporarily limiting our face-to-face
interactions with some customers. With the
additional services we offered in our drive-thrus
and by phone, we maintained close relationships
and continued to meet the needs of our
customers. Many of our banking center
associates proactively reached out to our
customers to offer assistance, ensuring they knew
we were here to help.
Overall, the year was a success operationally.
Total customer deposits grew by more than 23%
and transaction volume remained steady
throughout the year.
In April, we were notified by Hy-Vee that the
space two of our Iowa banking centers occupied
inside their grocery stores was needed for
upcoming remodels, and our leases for these
locations would end. We provided notice to all
customers and formally consolidated these
locations in July. All associates from these
locations were transferred to positions at one of
our three other area banking centers.
Upon the completion of the remodel at our
downtown Parsons, Kansas, banking center,
which included the construction of a new
drive-thru, we consolidated our separate
drive-thru location and now operate one
full-service banking center.
Quad Cities
Iowa
Minnesota
NW
Arkansas
Des Moines/
Central Iowa
Sioux City
Metro
All other
Kansas
All other
Missouri
DEPOSITS
by Region
$4.5 billion
As of December 31, 2020
Kansas City
Metro
St. Louis
Metro
Springfield
Designs for the Future
As part of the ongoing evaluation of our Banking
Center Network, we formed a partnership with a
strategic consultant focused on optimizing
financial institutions and their physical locations
for the future. The Branch Refresh Program is a
multi-phase approach that includes an in-depth
market analysis of demographics, trends,
competitors, an audit and grading of our existing
locations, and more.
We are currently constructing our first updated
banking center in Joplin, Missouri. In addition to
the Joplin office, we have tentatively selected
other offices in our metropolitan markets for
future enhancements, which will be completed in
a phased approach. We’re anxious to introduce
this new in-person banking experience to our
customers later in 2021.
10
DIGITAL BANKING GROWTH
While the personal connections forged in our banking
centers are immutable, the valuable role of digital banking
in such a digital age is clear. Adoption of our digital banking
services increased throughout the year. Many customers
enrolled in Online Banking for the first time, downloaded
and began using our Mobile Banking app, enrolled in
Mobile Check Deposit, Bill Pay, Text Banking, and Send
Money. For our customers, especially those most vulnerable
to the coronavirus, digital options allowed them to remain
connected to their bank and conduct their business safely
from home.
ASKING WHAT OUR
CUSTOMERS THINK
Digital Banking:
Jan-Dec 2020
Active Users
Growth up nearly
58%
from 2019
Mobile Check
Deposit
Active Users
UP
24%
Our customer experience initiative educates us on how we
can best serve our customers. Through short surveys
following various interactions with our bank, customers can
share candid feedback that helps us identify inefficiencies
and opportunities to make changes that will enhance their
banking experience.
Text Banking
Active Users
UP
17%
As confirmation that the service we
provide in person, online, and by
phone is meeting customer
expectations, we were notified
that Great Southern Bank was
ranked by our customers and
recognized as the sixth best
bank in the U.S. on Forbes’
annual list of World’s Best Banks.
This prestigious award is presented
by Forbes and Statista Inc., the
world-leading statistics portal and
industry ranking provider, and was very meaningful as it was
a result of our customers’ feedback. More than 450 banks
around the world are featured on the list, and the study
involved 40,000 bank customers from 23 countries.
11
Monthly Online
& Mobile
Banking Log-ins
2+ million
New Online
Banking Users
4,600+
LENDING STRENGTH
& SUPPORT
CONTINUING OUR SOLID
COMMERCIAL SUCCESS
Our commercial lending team had a successful year despite
the challenges the pandemic presented, a testament to
their expertise and dedication. They produced more than
$1.2 billion in new loans – the fifth year in a row exceeding
$1 billion in production. Our loan portfolio is diversified by
type and region, and 2020 production was strongest in the
commercial real estate, single-family, and multi-family real
estate areas.
The long-standing commitment of the Bank’s Loan
Committee to preserve a strong credit discipline was a
source of strength this past year; our classified problem
assets are at their lowest levels in our history, and credit
quality metrics of our loan portfolio remain strong.
Financing
Affordable
Independence
Legends of Blaine
One of the many projects we financed was Legends of
Blaine, an independent living apartment complex for seniors
in Blaine, Minnesota. Legends of Blaine features 192 units
and is a low-to-moderate-income housing tax credit
development that participates in an affordable housing
program, ensuring households meeting certain
requirements can afford beautiful and safe housing.
Opening to residents in spring 2020, the demand for
affordable housing was so great that nearly all 192 units
were rented within the first five months.
12
2020
Mortgages
$542
MILLION
500
400
300
200
100
2017 2018 2019 2020
A RECORD FOR
RESIDENTIAL
LENDING
We all spent a great deal of time at
home in 2020. For many, home
became their workplace, their
spouse’s workplace, and their
children’s school. The need for
home office space was more
important than ever before, and
those living in multi-family dwellings
sought out the additional space and
comfort a single-family home could
offer. Throughout our 98-year
history, we have taken great pride in
helping families purchase homes
and establish roots in our
communities, and 2020 was our
most successful year to date. Driven
by historically low mortgage interest
rates, our residential lending team
achieved a record year of
production, originating
approximately 2,200 home purchase
and refinance loans totaling more
than $542 million. Production in
2020 grew by 72% compared to the
previous year.
STEPPING UP FOR
SMALL BUSINESSES
Helping to Protect Jobs
Following the passage of the CARES Act stimulus bill in
March, which established the Paycheck Protection Program
(PPP), we assisted Great Southern small business customers
obtain these lifeline loans. The severity of the economic
impact precipitated overwhelming interest and demand for
the loan program. Various departments around the
Company worked together to assist with entering data and
submitting PPP applications, and together we helped more
than 1,600 Great Southern small business customers secure
loans totaling approximately $120 million. These loans
provided the financial resources these businesses needed
to maintain employment for more than 16,000 employees.
In December, more than $284 billion in additional funding
was appropriated to the PPP. We began accepting
applications in January 2021 and are working diligently to
again assist qualified business customers obtain these
necessary funds.
$120 Million
in PPP Loans
1,600+ Business
customers
16,000+ jobs
13
Reliable Guidance
and Long-term
Support
Michelle Billionis is one of the many
business customers we were proud
to help secure a PPP loan. Michelle
is the owner of The Coffee Ethic, the
first specialty coffee shop in
Springfield, Missouri, and a
long-time Great Southern customer
– Michelle and her co-founders
partnered with Great Southern for
the initial financing of their business
in 2007. To limit the financial impact
as pandemic-related restrictions
caused indoor seating to
temporarily disappear, Michelle
pivoted her operations. She
launched a mobile app that offered
customers to-go and delivery orders
for their coffee and reached out to
her Great Southern banker for
guidance and information on how to
secure a PPP loan. This loan was
instrumental in helping The Coffee
Ethic retain key employees and
provided additional financial
support to ensure Springfield’s first
specialty coffee shop will continue
serving the highest quality coffee for
many years ahead.
CONNECTING
IN WAYS THAT MATTER
EXPANDING OUR EFFORTS
Supporting the communities we serve is at the heart of who
we are. We’ve long understood that our Company can only
be as strong as the communities we serve, and we
established our Community Matters initiative in 2014 to
address the needs of our communities and do our part to
make them better, more prosperous places to live, work,
and do business.
Our regional Community Matters
Teams are instrumental in targeting
support to meet the unique needs
of their area and fulfilling our
Community Matters program on a
local level. These teams are
comprised of leaders with diverse
perspectives and experience who are
experts in building strong community
partnerships and encouraging their employees to be active
in civic and local nonprofit activities.
Diversity, Equity, and Inclusion
Great Southern has a history of supporting diverse
communities, organizations, and events in our markets. In
response to the tragic events that occurred last summer, we
saw an opportunity to strengthen our existing efforts in
combating racial injustice and systemic inequities. Over the
summer, we committed an additional $150,000 to support
nonprofit organizations that promote equality and inclusion
in our communities and to support rebuilding efforts in our
communities impacted by riots and violence. We again
empowered our regional Community Matters Teams to
recommend local, nonprofit organizations that would have
the biggest impact.
As part of our ongoing commitment, updated diversity
training was added as an annual requirement for all
associates, and additional training for those in management
positions covered unconscious bias when interviewing and
hiring applicants.
14
Banking Career
Scholarship
In our commitment to
improving diversity,
we identified an
opportunity to enhance
the mix of individuals in the
workforce. Matt Snyder, Great
Southern’s Chief Human Resources
Officer, worked with the associate
dean of Missouri State University’s
College of Business to better
understand representation within
the finance and accounting
programs.
We learned of an opportunity to
develop a scholarship through
Missouri State University that would
encourage individuals in
marginalized groups, such as
minorities, females, veterans, and
individuals with disabilities, to enroll
in degree programs that would
prepare them for careers and
enhance representation in banking
and commercial lending. Beginning
in fall 2021, students can apply for
the scholarship. The first recipient
will be selected in spring 2022, and
one student will receive at least
$1,000 per year. As applicants from
Great Southern markets will be
given preferential consideration for
the scholarship, we hope this effort
is just the beginning to increase
diversity in this field of study and, in
turn, increase future candidates for
career opportunities with our
Company.
Financial Education
A tenet of our Community Matters initiative is to
teach. As understanding and managing money is
the key to financial stability, we have a
responsibility to educate our customers so they
are best prepared to take charge of their
finances. We regularly support organizations
focused on providing financial education in our
communities and participate in annual
educational efforts like the American Bankers
Association’s Teach Children to Save and Get
Smart About Credit at local schools.
Through our ongoing customer experience
initiative, Experience Matters, we’ve learned that
our customers, especially those in younger
generations, look to their financial institution to
provide them with a meaningful financial
education. To meet this need, we have partnered
with EVERFI, a leader in online consumer financial
education, to develop the Great Southern
Financial Education Center. Great Southern
customers and associates now have access
directly through our website to customized,
interactive modules designed to connect them
with personalized, digital financial education at
no cost.
Customizable
Online
Resource
Avi Suri
2021 Recipient
The Bill and Ann Turner Distinguished
Community Service Award
Passion to Serve Others
Each year, we honor and recognize an outstanding
Great Southern associate who demonstrated
excellence in volunteer service to their community.
The Bill and Ann Turner Distinguished Community
Service Award exemplifies the community
leadership, civic engagement, and spirit of giving
of our Chairman, Bill Turner, and his late wife, Ann.
Avi Suri, Banking Center Manager in Cottleville,
Missouri, was awarded the 2021 Community
Service Award. A volunteer for many causes, Avi’s
dedication comes from the heart. Those who know
her are inspired by her desire to help and her
ability to lead and motivate others to get involved.
The COVID-19 pandemic created a strain on many
nonprofits; fundraising events were suddenly
canceled while the demand for their
much-needed services significantly increased. Avi
quickly jumped in to help however she could.
Through her involvement with Sikhs of St. Louis
COVID-19 Emergency Relief Service Volunteer
Group, Avi helped prepare meals at home, collect
and package personal care items, and deliver
items to families and first responders in need
throughout the St. Louis region.
Avi's selfless actions in the community align with
the spirit of our Community Matters program and
the integrity of the Bill and Ann Turner
Distinguished Community Service Award. Her
passion for giving so much of her time and energy,
especially during such a difficult year, is inspiring.
15
Great Southern Bancorp, Inc.
DIRECTORS
Left to right:
Earl A. Steinert, Jr. Board Member; Co-owner, EAS Investment Enterprises, Inc.; CPA
Kevin R. Ausburn Board Member; Chairman and CEO, SMC Packaging Group
Julie Turner Brown Board Member; Shareholder, Carnahan, Evans, Cantwell & Brown, P.C.
Larry D. Frazier Board Member; Retired – Springfield, Mo.
William V. Turner Chairman of the Board
Joseph W. Turner President and Chief Executive Officer
Debra Mallonee (Shantz) Hart Board Member; Attorney; Owner, Housing Plus, LLC
and Sustainable Housing Solutions
Douglas M. Pitt Board Member; Business Owner and Care To Learn Founder
Thomas J. Carlson Board Member; President, Mid America Management, Inc.
16
Great Southern
LEADERSHIP TEAM
Front row, left to right
Back row, left to right
Kelly Polonus Chief Communications and
Marketing Officer
John Bugh Chief Lending Officer
Tammy Baurichter Controller
Debbie Flowers Director of Credit Risk
Administration
Matt Snyder Chief Human Resources Officer
Bryan Tiede Chief Risk Officer
Kris Conley Chief Retail Banking Officer
Doug Marrs Chief Operations Officer
Joseph W. Turner President and Chief
Executive Officer
Rex Copeland Chief Financial Officer
Lin Thomason Chief Information Officer
Kevin Baker Chief Credit Officer
17
Selected Financial Data
The tables on pages 18, 19 and 20 set forth selected consolidated financial information and other financial data
of the Company. The summary statement of financial condition information and statement of income information
are derived from our consolidated financial statements, which have been audited by BKD, LLP. See Item 6.
"Selected Financial Data," Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” and Item 8. “Financial Statements and Supplementary Information” in the Company's Annual
Report on Form 10-K. Results for past periods are not necessarily indicative of results that may be expected for
any future period.
Summary Statement of
Financial Condition
Information:
Assets
Loans receivable, net
Allowance for loan losses
Available-for-sale securities
Other real estate and
repossessions, net
Deposits
Total borrowings 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
2020
2019
2018
2017
2016
December 31,
(DOLLARS IN THOUSANDS)
$5,526,420
4,314,584
55,743
414,933
$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
1,877
4,516,903
5,525
3,960,106
8,440
3,725,007
22,002
3,597,144
32,658
3,677,230
339,863
412,374
397,594
324,097
416,786
629,741
629,741
4,399,259
5,323,426
4,330,271
622,437
229,470
94
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
18
Summary Statement of Income Information:
Interest income:
Loans
Investment securities and other
Interest expense:
Deposits
Federal Home Loan Bank advances
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Subordinated notes
Net interest income
Provision for loan losses
For the Year Ended December 31,
2020
2019
2018
2017
2016
(In Thousands)
$ 204,964 $ 223,047
$ 198,226
$ 176,654 $ 178,883
12,739
11,947
7,723
6,407
6,292
217,703
234,994
205,949
183,061
185,175
32,431
45,570
27,957
—
675
628
6,831
—
3,985
3,635
1,019
4,378
765
953
4,097
40,565
54,602
37,757
20,595
1,516
747
949
4,098
27,905
17,387
1,214
1,137
803
1,578
22,119
177,138
180,392
168,192
155,156
163,056
15,871
6,150
7,150
9,100
9,281
Net interest income after provision for loan losses
161,267
174,242
161,042
146,056
153,775
Noninterest income:
Commissions
Service charges, debit card 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
892
889
1,137
18,684
20,898
21,695
8,089
2,607
1,788
1,041
21,628
3,150
78
(62 )
2
—
1,419
1,432
1,622
2,231
Gain (loss) on derivative interest rate products
(264 )
(104 )
Gain recognized on sale of business units
Gain on termination of loss sharing agreements
Amortization of income/expense related to business acquisition
—
—
—
—
—
—
25
7,414
—
—
Other income
6,152
5,297
2,535
28
—
7,705
(486 )
3,230
1,097
21,666
3,941
2,873
1,747
66
—
(584 )
(6,351 )
4,055
Noninterest expense:
Salaries and employee benefits
Net occupancy and equipment 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
35,050
30,957
36,218
38,527
28,510
70,810
27,582
63,224
26,217
60,215
25,628
60,034
24,613
60,377
26,077
3,069
2,405
2,631
1,016
3,794
2,378
2,023
80
1,154
6,283
3,198
2,015
2,808
1,077
3,580
2,624
2,184
365
1,190
6,656
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
123,225
115,138
115,310
114,261
120,427
Income before income taxes
Provision for income taxes
73,092
13,779
90,061
16,449
81,950
14,841
70,322
18,758
61,858
16,516
Net income and net income available to common shareholders $ 59,313 $ 73,612
$ 67,109
$ 51,564 $ 45,342
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
At or For the Year Ended December 31,
2020
2019
2018
2017
2016
(Number of shares in thousands)
$ 4.22
4.21
2.36
45.79
14,043
13,753
14,104
1.11 %
9.53
0.66
2.31
3.23
3.08
3.49
58.07
1.66
56.06
$ 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
1.52 %
1.49 %
1.16 %
1.04 %
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
1.32 %
0.09
1,831.86
0.01
0.07
0.07
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
95.52 %
105.13 %
107.13 %
103.82 %
102.70 %
132.49
127.50
126.47
123.74
121.33
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
11.7 %
11.3
11.8 %
11.9
11.1 %
11.2
10.2 %
10.5
9.5 %
9.2
12.7
17.2
10.9
12.2
13.7
14.9
11.8
13.7
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
(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
2020
Financial Information
CONTENTS
22 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
62 Report of Independent Registered Public Accounting Firm
65 Consolidated Statements of Financial Condition
67 Consolidated Statements of Income
69 Consolidated Statements of Comprehensive Income
70 Consolidated Statements of Stockholders’ Equity
72 Consolidated Statements of Cash Flows
74 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 “may,”
“might,” “could,” “should,” "will likely result," "are expected to," "will continue," "is anticipated," “believe,” "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. Forward-looking statements also include, but are not limited to, statements regarding plans, objectives,
expectations or consequences of announced transactions, known trends and statements about future performance, operations, products
and services of the Company. The Company’s ability to predict results or the actual effects of future plans or strategies is inherently
uncertain, and the Company’s actual results could differ materially from those contained in the forward-looking statements. The novel
coronavirus disease, or COVID-19, pandemic is adversely affecting the Company, its customers, counterparties, employees, and third-
party service providers, and the ultimate extent of the impacts on the Company’s business, financial position, results of operations,
liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases
in unemployment rates, or turbulence in domestic or global financial markets could adversely affect the Company’s revenues and the
values of its assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price
volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to, COVID-19,
could affect the Company in substantial and unpredictable ways.
Other factors that could cause or contribute to such differences include, but are not limited to: (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) the
ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace; (ix) 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; (x) legislative or regulatory changes that adversely
affect the Company's business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 and its implementing regulations, the overdraft protection regulations and customers' responses thereto and the Tax Cut and Jobs
Act; (xi) changes in accounting policies and practices or accounting standards, including Accounting Standards Update 2016-13,
Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected
Credit Loss model, which, upon adoption, resulted in an increase in the Company’s allowance for credit losses; (xii) monetary and
fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial
services industry; (xiii) 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; (xiv) costs and effects of litigation, including settlements and
judgments; (xv) competition; (xvi) uncertainty regarding the future of LIBOR; and (xvii) natural disasters, war, terrorist activities or
civil unrest and their effects on economic and business environments in which the Company operates. 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.
221
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.
For additional discussion of the allowance for loan losses, see "Item 1. Business - Allowances for Losses on Loans and Foreclosed
Assets" in the Company’s 2020 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. 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.
On January 1, 2021, the Company adopted 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.
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,
2020, 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, 2020, 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, 2020, the amortizable intangible assets consisted of core deposit intangibles of $1.5 million, including $1.3
million related to the Fifth Third Bank transaction in January 2016, $200,000 related to the Valley Bank transaction in June 2014 and
$31,000 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.
232
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, 2020. While management believes no impairment existed at December 31, 2020,
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 credit 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 an economic downturn.
Unemployment rose from 4.7% in November 2007 to peak at 10.0% in October 2009. Since that time, economic conditions improved
considerably, as indicated by higher consumer confidence levels, increased economic activity and low unemployment levels. The
economy continued to operate at historically strong levels until the impact of the COVID-19 pandemic began to take its toll in the first
quarter of 2020. The economy plunged into a recession in the first quarter of 2020, as efforts to contain the spread of COVID-19
forced all but essential business activity, or any work that could not be done from home, to stop, closing factories, restaurants,
entertainment and sports venues, retail shops, personal services locations, and more.
The CARES Act, enacted in March 2020, injected approximately $3 trillion into the economy through direct payments to individuals
and grants to small businesses designed to keep employees on their payrolls and fuel a bounce-back in economic activity. Also, as the
crisis unfolded, the Federal Reserve acted decisively, employing a wide arsenal of tools including slashing its benchmark interest rate
to zero and ensuring credit availability to businesses, households, and municipal governments.
To help our customers navigate through the pandemic, we offered Paycheck Protection Program (PPP) loans and short-term
modifications to loan terms. PPP loans and modifications were made in accordance with guidance from banking regulatory authorities.
These modifications did not result in the loans being classified as troubled debt restructurings. Severely impacted industries in our
loan portfolio include retail, hotel and restaurants.
More than 22 million jobs were lost nationally in March and April 2020, as firms closed their doors or reduced their operations,
sending employees home on furlough or layoffs. At home, with uncertain incomes and limited buying opportunities, consumer
spending plummeted. As a result, gross domestic product (GDP), the broadest measure of the nation's economic output, plunged.
Improvements in consumer spending, the GDP and employment have since occurred. Around 56% of those jobs lost in early 2020
have come back, with a return to full employment anticipated by the end of 2022.
While the U.S. economic recovery began with a robust rebound from the pandemic-induced recession, challenges remain with
millions still out of work and many businesses still closed or operating under reduced hours or capacity. Social distancing measures
continue to restrict economic activity, and intermittent closures and re-openings have dampened household and business sentiment.
The Federal Reserve continues to maintain a highly accommodative monetary policy by maintaining short-term rates firmly at the zero
lower bound and purchasing Treasury and agency mortgage-backed securities to keep long-term interest rates low. With consumer
interest rates at record lows and with 30-year fixed-rate mortgages below 3%, the housing market has boomed. Home sales have been
above their pre-pandemic levels, and construction activity has picked up in response. The Federal Reserve’s quantitative easing is
expected to begin tapering in 2022, while the zero-interest-rate policy will likely remain in place until the economy is near full
employment and inflation is firmly above the Federal Reserve’s 2% inflation target, which is not expected until early 2023.
Under the Biden administration and new Congress, additional fiscal stimulus packages are expected for 2021. The “American Rescue
Plan” is an economic relief measure in the $1.9 trillion range with an emphasis on vaccination and individual and small business
relief. Later in 2021, the “Build Back Better” recovery package, with an emphasis on infrastructure, research and development,
education and green energy transition, is expected to be pursued. Increases in corporate and individual tax rates may be used to fund
these initiatives.
3
24
In December 2020, employment declined by approximately 140,000 jobs from the previous month and the unemployment rate was
unchanged from November 2020 at 6.7%, but down from 7.9% in September 2020. The decline in payroll employment reflects an
increase in COVID cases and efforts to contain the pandemic. In December 2020, job losses in leisure and hospitality as well as
private education were partially offset by gains in professional and business services, retail trade, and construction. Employment in
leisure and hospitality declined by 498,000, with three-quarters of the decrease in food services and drinking establishments. Since
February 2020, employment in leisure and hospitality is down by 3.9 million, or 23.2%. Retail trade added 121,000 jobs in December
2020 with nearly half of the growth occurring in general merchandise stores, while professional and business services added 161,000
jobs. In December 2020, both the national unemployment rate (6.7%) and the number of unemployed persons (10.7 million) were
unchanged from November 2020. Although both measures are much lower than their April 2020 highs, they are nearly twice their pre-
pandemic levels in February 2020 (3.5% and 5.7 million, respectively). Unemployment rates will likely continue to be volatile and
dependent upon the containment of the COVID-19 pandemic.
In December 2020, the U.S. labor force participation rate (the share of working-age Americans employed or actively looking for a job)
stood at 61.7%, a decrease from 63.1% at the end of 2019. The participation rate, along with full employment, is projected to return to
pre-pandemic levels by the end of 2022.
The unemployment rate for the Midwest, where the Company conducts most of its business, decreased from 7.2% in September 2020
to 5.7% in December 2020. Unemployment rates for December 2020 were: Arkansas at 4.2%, Colorado at 8.4%, Georgia at 5.6%,
Illinois at 7.6%, Iowa at 3.1%, Kansas at 3.8%, Minnesota at 4.4%, Missouri at 5.8%, Nebraska at 3.0%, Oklahoma at 5.3%, and
Texas at 7.2%. Of the metropolitan areas in which the Company does business, the largest unemployment increases occurred in the
Dallas and Chicago areas with an increase in the unemployment rate by 3.4% and 5.2% from December 2019, respectively, and
ending with a rate in December 2020 of 6.3% and 8.1% respectively. While all but two of the Company’s metropolitan areas had an
increase in unemployment due to the ongoing pandemic, the remaining areas are below the national unemployment rate of 6.7%.
Housing
Sales of newly built single-family homes for December 2020 were at a seasonally adjusted annual rate of 842,000 according to U.S.
Census Bureau and the Department of Housing and Urban Development estimates. This is 1.6% below the revised November 2020
rate of 829,000 but is 15.2% above the December 2019 estimate of 731,000. The median sales price of new houses sold in December
2020 was $355,900, up slightly from $331,400 in December 2019. The December 2020 average sales price of $394,900 was up
slightly from $384,500 a year earlier. The inventory of new homes for sale at the end of December 2020 would support 4.3 months’
supply at the then-current sales rate, down from 5.7 months’ supply in December 2019.
Existing-home sales rose in December 2020, with home sales reaching their highest level since 2006, according to the National
Association of Realtors (NAR). Total existing-home sales completed transactions that include single-family homes, townhomes,
condominiums and co-ops, increased 0.7% from November 2020 to a seasonally adjusted annual rate of 6.76 million units in
December 2020. Sales in total rose 22.2% from a year ago (5.53 million units in December 2019). The median existing home price for
all housing types in December 2020 was $309,800, up 12.9% from December 2019 at $274,500, as prices increased in every region.
December’s national price increase marked the 106th consecutive month of year-over-year gains. Median home prices increased at
double-digit rates in each of the four major regions from one year ago. Existing home sales in the Midwest were unchanged compared
to the previous month, recording an annual rate of 1.59 million units in December 2020, but up 26.2% from a year earlier. The median
price in the Midwest was $235,700, a 13.7% increase from a year ago. First-time buyers accounted for 31% of sales in December
2020, unchanged from December 2019, but down from 32% in November 2020.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.68% in December
2020, down from 2.77% in November 2020. The average commitment rate for all of 2020 was 3.11%, down from 3.94% for 2019.
The COVID-19 pandemic upended the U.S. apartment sector in 2020 with the pandemic resulting in changing attitudes regarding
working from home and living in densely populated environments. Renters have sought more space and affordability; i.e. rents for
two-bedroom units have held up better, while studios and downtown units have experienced the worst declines. An estimated 50,000
downtown units likely went unfilled in 2020, and vacancies for downtown product in some areas topped 10% by the end of 2020.
Leasing of suburban product powered the demand with renters choosing to move to the suburbs, where they could find more space at
lower rents. CoStar estimates 2020 demand in line with the past three years even with new deliveries setting a record at more than
420,000 units opened in 2020. Absorption surged in the third quarter of 2020, a sign that the weak second quarter absorption was the
result of lockdown restrictions rather than a reduction in underlying demand for housing. Rents ended the year essentially flat year-
over-year, but with important differences across markets and product types. Rents for downtown product ended the year down 7%
from the pre-COVID peak while rents in the suburbs rose about 1% over the course of the year. Economic stimulus packages and
eviction leniency periods continue to bolster the apartment industry, while unemployment levels will continue to determine the long-
term outlook for apartment demand.
254
In December 2020, national apartment vacancy rates had increased slightly to 6.9% from 6.4% as of December 2019. Our market
areas reflected the following vacancy levels in December 2020: Springfield at 4.1%, St. Louis at 8.6%, Kansas City at 8.5%,
Minneapolis at 6.8%, Tulsa at 7.7%, Dallas-Fort Worth at 8.8%, Chicago at 8.3%, Atlanta at 8.4%, and Denver at 8.0%.
Commercial Real Estate Other Than Housing
Even before the disruption caused by the COVID-19 pandemic, the trend of slowing growth in the office industry was expected to
continue in 2020 and linger through 2021. The office demand declines that characterized much of 2020 have carried into 2021. Office-
using employment remained nearly one million jobs lower than the peak level from the first quarter of 2020. While absorption
decreases slowed a bit at year-end, the US office sector recorded about 75 million square feet of negative demand in 2020. As the
pandemic continues to flare in areas, many companies have extended work-from-home protocols to the middle of 2021 or beyond,
reversing much of the limited space utilization momentum. There will likely not be a significant increase in physical occupancy until
vaccines become accessible to the general population on a large scale. Baseline forecasts call for office-using employment totals to
return to pre-pandemic levels by the end of 2022, and continue to moderately accelerate from there. As of December 2020, national
office vacancy rates had increased slightly to 11.5% while our market areas reflected the following vacancy levels: Springfield at
3.4%, St. Louis at 7.7%, Kansas City at 8.7%, Minneapolis at 8.9%, Tulsa at 11.2%, Dallas-Fort Worth at 17.4%, Chicago at 13.5%,
Atlanta at 13.3% and Denver at 13.0%.
The gradual reopening of the economy and the relaxation of social distancing restrictions has modestly lifted consumer attitudes, and
confidence and sentiment metrics showed hints of stabilization. However, infection rates remain high and vaccine distribution has
been challenging, threatening the path to stability and recovery while adding uncertainty to retailers who were already experiencing
reduced revenues and limited liquidity. As a result, tenant and landlord sentiment remains on fragile footing, and negative net
absorption continues to increase as retailers and restaurants shutter their businesses under unprecedented financial stress. The wave of
retail bankruptcies is expected to continue, with bankruptcies and store closures particularly concentrated throughout the apparel and
department store subtypes. On the other hand, despite the tumultuous COVID-stricken backdrop and the many headwinds forcing the
rapid evolution and adaptation of retailers across the country, the retail sector continues to exhibit areas of resilience and perseverant
activity. Not all retailers are in distress, and aggregate leasing trends demonstrate plenty of pockets of strength. Discounters such as
Dollar General, Dollar Tree, TJ Maxx, and Ross Dress for Less; general merchandisers such as Target and Walmart; pharmacies such
as Walgreens; pet stores; grocery stores; and home improvement/tool retailers have been among the most active businesses since the
pandemic hit. Though these essential-oriented tenant types remain a positive source of demand, their strength likely won't be enough
to offset weakness in other segments. Vacancy has risen alongside swelling negative net absorption, and occupancy is poised to erode
further. Even landlords with fully occupied buildings are struggling, as many tenants have found it difficult to make rent, seeking rent
deferral, rent amendments, or rent modifications. The rise in vacancies has not been uniform across subtypes, and malls have been
disproportionately impacted by space give-backs and retailer closures. The vacancy rate in malls rose most significantly throughout
2020, expanding by nearly 70 basis points. Overall, aggregate rent growth dipped into negative territory for the first time since 2012,
registering at -0.7% year-over-year in the fourth quarter of 2020. With store closures mounting and negative net absorption expected
to persist throughout at least the next year, rent growth is poised to deteriorate further across all forecast scenarios and subtypes.
Single-tenant, essential-oriented properties occupied by banks, pharmacies, and grocery stores continue to trade even amidst a broader
lull in investment activity, emphasizing the degree to which strip centers and grocery-anchored centers with more essential tenant-mix
will likely capture investor attention leading out of the pandemic.
As of December 2020, national retail vacancy rates stayed the same as the previous month at 5.1% while our market areas reflected
the following vacancy levels: Springfield at 3.8%, St. Louis at 4.9%, Kansas City at 5.9%, Minneapolis at 3.8%, Tulsa at 4.2%,
Dallas-Fort Worth at 6.1%, Chicago at 6.3%, Atlanta at 5.4% and Denver at 5.3%.
The unprecedented rise in online shopping and quick delivery demands brought on by the pandemic have propelled industrial demand
to all-time highs. Leasing activity improved throughout the 2020 fourth quarter, led primarily by commitments from Amazon, power-
grocers Walmart and Target, but also smaller healthcare and medical-oriented supply.
Despite the improvement in leasing velocity, U.S. economic growth faces headwinds as a result of the COVID-19 pandemic, including
dampened aggregate demand and reduced export growth. Both will adversely impact the warehouse sector. Disrupted and curtailed
supply chains also are problematic for port markets and distribution players. Meanwhile, labor shortages arising from mandatory
construction suspensions place further pressure on industrial operators, distributors, and manufacturers.
Net absorption accordingly cooled to its lowest level since 2012, which lifted vacancy to 5.5% and caused rent growth to dip below
4% for the first time since 2013. Persistent demand from e-commerce and third-party logistics companies continues to drive demand.
Other retailers and manufacturers are expected to remain cautious amid heightened uncertainty brought on by the COVID-19
pandemic. As of the end of December 2020, national industrial vacancy rates decreased slightly to 5.6%, while our market areas
reflected the following vacancy levels: Springfield at 2.7%, St. Louis at 5.3%, Kansas City at 4.6%, Minneapolis at 4.0%, Tulsa at
3.7%, Dallas-Fort Worth at 7.1%, Chicago at 6.2%, Atlanta at 5.7% and Denver at 6.2%.
26265
Sales activity, occupancy, absorption and rental income levels of commercial real estate properties located throughout the Company’s
market areas will be impacted from the pandemic but to what degree the sector suffers is yet unknown. The extent of the impact will
be highly dependent on containment of the virus. In the meantime, continued economic stimulus, relief and recovery, should do much
to bring the economy back to pre-pandemic economic and employment levels.
While the severity and extent of the coronavirus on the global, national and regional economies is still uncertain, any long-term impact
on the performance of the financial sector remains indeterminable. Our management will continue to monitor regional, national, and
global economic indicators such as unemployment, GDP, housing starts and prices, commercial real estate occupancy, absorption and
rental rates, as these could significantly affect customers in each of our market areas.
COVID-19 Impact to Our Business and Response
Great Southern is actively monitoring and responding to the effects of the rapidly-changing COVID-19 pandemic. As always, the
health, safety and well-being of our customers, associates and communities are the Company’s top priorities. Centers for Disease
Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are being closely followed to
make informed operational decisions. A summary of the Company’s major COVID-19 responses and actions are highlighted below.
Great Southern Associates: During this unprecedented time, the Company is working diligently with its nearly 1,200 associates to
enforce CDC-advised health, hygiene and social distancing practices. A significant number of non-frontline associates continue to
work from home. Teams in nearly every operational department have been split, with part of each team working at an off-site disaster
recovery facility to promote social distancing and to avoid service disruptions. To date, there have been no service disruptions or
reductions in staffing.
Paid time off and other benefits were enhanced and implemented to support Great Southern associates. Part-time associates were
awarded paid sick benefits for the first time. Any full-time or part-time associate will receive full pay if placed under a restrictive
quarantine due to COVID-19 infection or direct exposure to an infected individual. The Company’s Employee Assistance Program
(EAP) was enhanced at no cost to associates and family members seeking counseling services for mental health and emotional support
needs.
As a token of appreciation for our employees’ dedication and to help support some of the needs of our associates, in March 2020 and
again in August 2020, the Company rewarded all full-time and part-time associates with special pre-tax bonuses of $1,000 and $600,
respectively. These two bonus payments and related benefit expenses totaled $2.2 million during 2020.
Great Southern Communities: Throughout 2020, we have continued to support local COVID-19 relief efforts through contributions to
food banks, local United Way agencies and other nonprofit organizations to address food insecurity and support critical health and
human services. Many of our employees also volunteer their time to serve various agencies and charitable organizations in their
communities.
Great Southern Customers: Taking care of customers and providing uninterrupted access to services are essential. As always,
customers can conduct their banking business using the banking center network, online and mobile banking services, ATMs,
Telephone Banking, and online account opening services. As health conditions in local markets dictate, Great Southern banking
center lobbies may be open following strict social distancing guidance from the CDC and local government officials. If our banking
center lobbies are closed, drive-thru service and in-person service by appointment will be available.
As a resource to customers, a COVID-19 information center has been made available on the Company’s website,
www.GreatSouthernBank.com. General information about the Company’s pandemic response, how to receive assistance, and how to
avoid COVID-19 scams and fraud are included.
Impacts to Our Business Going Forward: The magnitude of the impact on the Company of the COVID-19 pandemic is not yet fully
known, and will depend on the length and severity of the economic downturn brought on by the pandemic. The Company expects that
the COVID-19 pandemic will continue to impact our business in one or more of the following ways, among others. Each of these
factors could, individually or collectively, result in reduced net income in future periods.
Consistently low market interest rates for a significant period of time may have a negative impact on our variable rate loans
Certain fees for deposit and loan products may be waived or reduced
Point-of-sale fee income may decline due to a decrease in spending by our debit card customers as they deal with state and
local government requirements and other restrictions and may be adversely affected by reductions in their personal income
and job losses
6
27
Non-interest expenses may increase as we continue to deal with the effects of the COVID-19 pandemic, including cleaning
costs, supplies, equipment and other items
Banking center lobbies have been closed at various times, and may close for extended periods until the pandemic situation
improves
Additional loan modifications may occur and borrowers may default on their loans, which may necessitate further increases
to the allowance for credit losses
The contraction in economic activity may reduce demand for our loans and for our other products and services
Paycheck Protection Program Loans
Great Southern is actively participating in the PPP through the Small Business Administration (SBA). The PPP has been met with
very high demand throughout the country, resulting in a second round of funding through an amendment to the CARES Act. The first
round of the PPP ran from March to August 2020, with Great Southern originating approximately 1,600 PPP loans totaling
approximately $121 million. Great Southern has received $4.7 million in fees from the SBA for originating these loans based on the
amount of each loan. The fees, net of origination costs, have been deferred in accordance with standard accounting practices and will
be accreted to interest income on loans over the contractual life of each loan. These loans generally have a contractual maturity of two
years from origination date, but may be repaid or forgiven (by the SBA) sooner. During the fourth quarter of 2020, the Company
began assisting first-round PPP borrowers with the SBA loan forgiveness process, contingent on each borrower’s eligibility. If these
loans are repaid or forgiven prior to their contractual maturity date, the remaining deferred fee for such loan will be accreted to interest
income on loans immediately. We expect a high percentage of these remaining net deferred fees will accrete to interest income in the
first half of 2021.
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act authorized the reopening of the
PPP for eligible first-draw and second-draw borrowers through March 31, 2021. The window opened on January 19, 2021, to begin
taking PPP applications. First draw PPP loans are for those borrowers who did not receive a PPP loan before August 8, 2020. Second
draw PPP loans are for eligible small businesses, with 300 employees or less, that previously received a first draw PPP loan and will
use or have used the full amount only for authorized uses, and that can demonstrate at least a 25% reduction in gross receipts between
comparable quarters in 2019 and 2020. The maximum amount of a second draw PPP loan is $2 million. The Company has originated
approximately $45 million of additional PPP loans during this reopening period.
287
Loan Modifications
At December 31, 2020, we had remaining 65 modified commercial loans with an aggregate principal balance outstanding of $233
million and 581 modified consumer and mortgage loans with an aggregate principal balance outstanding of $18 million. The loan
modifications are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory
agencies, the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB); therefore, they are
not considered troubled debt restructurings. A portion of the loans modified at December 31, 2020 may be further modified, and new
loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation), the federal banking regulatory
agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods. At
December 31, 2020, the modified loans were in the following categories (dollars in millions):
# of
Loans
Modified
$ of
Loans
Modified
Interest
Only
3
Months
Interest
Only
4-6
Months
Interest
Only
7-12
Months
Full
Payment
Deferral
Combined
Interest
Only and
Payment
Deferral
Weighted
Average
Loan to
Value
10 $
10
4
2
4
7
93.5 $
40.1
24.1
21.6
12.3
11.1
14
6
8
65
59
522
581
10.2
10.0
9.7
232.6
11.5
6.7
18.2
— $
3.0
7.6
—
11.3
—
0.7
0.4
—
23.0
0.2
—
0.2
8.4 $
1.1
10.8
—
—
—
3.3
0.2
—
23.8
0.2
—
0.2
24.1 $
29.3
5.7
—
1.0
0.2
5.6
3.2
3.3
72.4
—
—
—
— $
—
—
—
—
—
0.1
—
1.1
1.2
10.8
6.7
17.5
61%
60%
69%
61%
57%
63%
49%
72%
70%
61.0
6.7
—
21.6
—
10.9
0.5
6.2
5.3
112.2
0.3
—
0.3
Collateral Type
Hotel/Motel
Retail
Multifamily
Healthcare
Land
Restaurants
Commercial
Business
Office
Warehouse/Other
Total Commercial
Residential
Mortgage
Consumer
Total Consumer
Total
646 $
250.8 $
23.2 $
24.0 $
72.4 $
18.7 $
112.5
At June 30, 2020, we had modified 431 commercial loans with an aggregate principal balance outstanding of $931 million and 1,702
consumer and mortgage loans with an aggregate principal balance outstanding of $80 million. This represented the largest number and
amount of modified loans at any quarter end during 2020. During the remainder of 2020, the majority of these modified loans
completed the modification period and returned to their normal payment schedule. In addition, there were principal payments and
loan payoffs which reduced the outstanding balance of these loans.
The Company has escalated monitoring activities related to the modified loans and has also increased review and monitoring activities
for certain sectors of the loan portfolio which may be currently most impacted by the COVID-19 pandemic. The retail portfolio had
an outstanding balance of $355 million at December 31, 2020, which was 10% of the total loan portfolio. It is a very granular
portfolio, with an average loan size of $1.7 million. Most loans are under $5 million, with 26% of the outstanding balance of the retail
portfolio represented by loans in excess of $10 million. At December 31, 2020, the weighted average loan-to-value ratio of this
portfolio was 62%.
The hotel/motel portfolio had an outstanding balance of $242 million at December 31, 2020, which was 7% of the total loan portfolio.
The average loan size is $4.9 million, with the 20 largest loans comprising approximately 91% of the portfolio. These properties are
well-diversified geographically, mainly throughout the Midwest, with most being limited-service properties. Approximately 86% of
the portfolio operates under the flag of major hotel chains. At December 31, 2020, the weighted average loan-to-value ratio of this
portfolio was 59%.
The restaurant portfolio had an outstanding balance of $72 million at December 31, 2020, which was 2% of the total loan portfolio. It
is a very granular portfolio, with the majority of the restaurants operating in Missouri, Illinois, Iowa and Minnesota. The majority of
these loans are to franchisees of top-tier quick service brands with national scale that have had the ability to stay open with delivery
and drive-through service throughout the course of the pandemic. At December 31, 2020, the weighted average loan-to-value ratio of
this portfolio was 58%.
298
Total loans outstanding (excluding FDIC-assisted acquired loans, net of discount) in the following categories at December 31, 2020,
were as follows (dollars in millions):
Outstanding
Balance of
Loans of This
Collateral
Type
Percentage of
Loans Modified
To Total Loans
of This
Collateral Type
Percentage
of Loans
Modified To
Total Loans
Percentage
of Loans of
This Collateral
Type to
Total Loans
Weighted
Average Loan to
Value of Loans
in This
Collateral Type
Collateral Type
Hotel/Motel
Retail
Multifamily
Healthcare
Land
Restaurants
Commercial Business(1)
Office
Warehouse/Other
Total Commercial
Residential Mortgage
Consumer
Total Consumer
$
241.5
355.1
999.4
281.5
58.9
72.0
258.5
270.3
299.1
2,836.3
602.6
241.1
843.7
Total
$
3,680.0
39%
11%
2%
8%
21%
15%
4%
4%
3%
8%
2%
3%
2%
7%
3%
1%
1%
1%
<1%
<1%
<1%
<1%
<1%
6%
<1%
<1%
<1%
7%
7%
10%
27%
8%
1%
2%
7%
7%
8%
77%
16%
7%
23%
100%
59%
62%
61%
58%
65%
58%
52%
59%
72%
(1) The Commercial Business outstanding loan balance excludes PPP loans of $95.3 million.
General
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend primar ily on its
net interest income, as well as provisions for loan losses and the level of non-interest income and non-interest expense. Net interest
income is the difference between the interest income the Bank earns on its loans and investment portfolios, and the interest it pays on
interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the
relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When
interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest
income.
In the year ended December 31, 2020, Great Southern's total assets increased $511.3 million, or 10.2%, from $5.02 billion at
December 31, 2019, to $5.53 billion at December 31, 2020. Full details of the current year changes in total assets are provid ed below,
under “Comparison of Financial Condition at December 31, 2020 and December 31, 2019.”
Loans. In the year ended December 31, 2020, Great Southern's net loans increased $142.8 million, or 3.4%, from $4.15 billion at
December 31, 2019, to $4.30 billion at December 31, 2020. Excluding FDIC-assisted acquired loans and mortgage loans held for sale,
total gross loans increased $202.0 million, or 4.1%, from December 31, 2019 to December 31, 2020. This increase was primarily in
commercial real estate loans, owner occupied one- to four-family residential loans, commercial business 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 $28.6 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 2020 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 other residential (multi-family) real estate loans, one- to four-family
residential 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 locations where it has loan production offices, including 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 analysi s and
repayment ability. It has been, and continues to be, Great Southern's practice to verify information from potential borrowers regarding
309
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 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 reduce 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, 2020 and 2019, 88.2% and 87.2%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2020 and 2019, commercial real estate and commercial construction
loans were 47.8% and 47.6% 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 t o the Bank
because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At December 31,
2020 and 2019, loans made in the Springfield, Mo. metropolitan statistical area (Springfield MSA) were 8% 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. At December 31, 2020 and 2019, loans made in the St. Louis, Mo. metropolitan
statistical area (St. Louis MSA) were 19% and 17% 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
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 2020 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 49% as of December 31,
2020. 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, 2020,
approximately 83% mature within the next 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, 2020, our interest rate risk models indicated a one-year interest rate earnings sensitivity position that is moderately
positive in an increasing rate environment. For further discussion of our interest rate sensitivity gap and the processes used to manage
our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to
Us Associated with Interest Rate Changes.” For discussion of the risk factors associated with interest rate changes, see “Item 1A. Risk
Factors – Risks Relating to the Company and the Bank – Risks Relating to Market Interest Rates – We may be adversely affected by
interest rate changes” in the Company’s 2020 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, 2020 and 2019, none of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100%
at origination. At both December 31, 2020 and 2019, an estimated 0.6% of total non-owner occupied one- to four-family residential
loans had loan-to-value ratios above 100% at origination.
At December 31, 2020, troubled debt restructurings totaled $3.3 million, or 0.08% of total loans, up $1.4 million from $1.9 million, or
0.05% of total loans, at December 31, 2019. 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 intend ed to
maximize collection. For troubled debt restructurings occurring during the year ended December 31, 2020, five loans totaling
$107,000 were restructured into multiple new loans. For troubled debt restructurings occurring during the year ended Decembe r 31,
3110
2019, five loans totaling $34,000 were restructured into multiple new loans. For further information on troubled debt restructurings,
see Note 3 of the accompanying audited financial statements. In accordance with the CARES Act and guidance from the banking
regulatory agencies, we made certain short-term modifications to loan terms to help our customers navigate through the current
pandemic situation. Although loan modifications were made, they did not result in these loans being classified as troubled debt
restructurings, potential problem loans or non-performing loans. As of December 31, 2020, $232.6 million of commercial loans and
$18.2 million of residential and consumer loans were subject to such modifications. If more severe lengthier negative impacts of the
COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies
and individuals to completely recover financially, this could result in longer-term modifications, which may be deemed to be troubled
debt restructurings, additional potential problem loans and/or additional non-performing loans.
Loans that were acquired through FDIC-assisted transactions, which are accounted for in pools, were 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 decreased from previous
estimates, then a determination was 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). 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, 2020, 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, 2020, available-for-sale securities increased $40.7 million, or 10.9%,
from $374.2 million at December 31, 2019, to $414.9 million at December 31, 2020. 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, 2020, total deposit balances increased $556.8
million, or 14.1%. Transaction account balances increased $887.1 million and retail certificates of deposit decreased $117.4 million
compared to December 31, 2019. The increase in transaction accounts were primarily a result of increased customers in the CDARS
reciprocal program, money market deposit accounts, and certain NOW account types. Retail certificates of deposit decreased due to a
decrease in retail certificates generated through the banking center network, partially offset by increases in time deposits generated
through internet channels. Brokered deposits, including CDARS program purchased funds, were $158.7 million at December 31,
2020, a decrease of $213.0 million from $371.7 million at December 31, 2019. The brokered deposits were allowed to mature without
replacement as other deposit categories increased.
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 attract more deposits 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 FHLBa nk
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 a bility 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.
Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with
customers increased $80.0 million from $84.2 million at December 31, 2019 to $164.2 million at December 31, 2020. These balances
fluctuate over time based on customer demand for this product. A large portion of this increase is related to two customers who
placed additional funds in these account types.
32
11
Federal Home Loan Bank Advances and Short Term Borrowings. The Company’s FHLBank term advances were $-0- at both
December 31, 2020 and December 31, 2019. At December 31, 2020, there were no borrowings from the FHLBank. At December 31,
2019, 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 decreased $226.7 million from $228.2 million at December 31, 2019 to
$1.5 million at December 31, 2020. The short term borrowings included no overnight FHLBank borrowings at December 31, 2020
and $196.0 million at December 31, 2019. The Company utilizes both overnight borrowings and short-term FHLBank advances
depending on relative interest rates.
Subordinated notes. Subordinated notes increased $74.1 million from $74.3 million at December 31, 2019 to $148.4 million
at December 31, 2020. The Company issued $75.0 million of subordinated notes in June 2020, receiving net proceeds of $73.5
million.
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%. In response to the COVID-19 pandemic, the FRB decreased
interest rates on two occasions in March 2020, a 0.50% decrease on March 3 and a 1.00% decrease on March 16. At December 31,
2020, the Federal Funds rate stood at 0.25%. A substantial portion of Great Southern’s loan portfolio ($2.00 billion at December 31,
2020) 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, 2020. Of these loans, $1.99 billion had interest rate floors. Great Southern also has a portfolio of loans ($261 million
at December 31, 2020) 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 again very low, there may also be a negative
impact on the Company's net interest income due to the Company's inability to significantly lower its funding costs in the current
competitive rate environment, although interest rates on assets may decline further. Conversely, interest rate increases would normally
result in increased interest rates on our LIBOR-based and prime-based loans. As of December 31, 2020, 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. In a situation
where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net interest margin decrease
may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in LIBOR interest rates. In the
subsequent months we expect that the net interest margin would stabilize and begin to improve, as renewal interest rates on maturing
time deposits are expected to decrease compared to the current rates paid on those products. During 2020, we did experience some
compression of our net interest margin percentage due to 2.25% of Federal Fund rate cuts during the nine month period of July 2019
through March 2020. Margin compression primarily resulted from changes in the asset mix, mainly the addition of lower-yielding
asset and the issuance of subordinated notes during 2020. 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.”
3312
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. 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, 2020 and 2019.”
Business Initiatives
The Company implemented several business and operational initiatives in 2020.
For most of 2020 and continuing in 2021, Great Southern has actively monitored and responded to the effects of the evolving COVID-
19 pandemic. As always, the health, safety and well-being of our customers, associates and communities while maintaining
uninterrupted service are the Company’s top priorities. Please see the “COVID-19 Impact to Our Business and Response” section of
this report for further information, including the Company’s participation in the SBA’s PPP.
The Company’s 94 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, in 2020, the Company engaged a third-party vendor to analyze all banking center
facilities and the in-branch customer experience to ensure that this physical access channel is efficiently evolving to the changing
landscape.
Several banking center changes were initiated in 2020:
In July 2020, the Great Southern banking centers located inside the Hy-Vee stores at 2900 Devils Glen Rd in Bettendorf, Iowa,
and 2351 W. Locust St. in Davenport, Iowa, were closed due to store infrastructure changes by the landlord. The Company
currently operates three banking centers in the Quad Cities market area – two in Davenport and one in Bettendorf.
In August 2020, remodeling of the downtown office at 1900 Main in Parsons, Kansas, was completed, which included the
addition of drive-thru banking lanes. With this completion, the nearby drive-thru facility was consolidated into the downtown
office, leaving one location serving the Parsons market.
In the Joplin, Missouri, market, the Company purchased a banking facility in the fourth quarter of 2019 vacated by another
financial institution, which included a contractual black-out period ending in April 2021. A third party vendor has been engaged
by the Company to redesign this facility as a “bank of the future” prototype to incorporate evolving customer preferences.
Variations of this prototype design may be utilized in other select banking centers in the Company’s footprint in the future. The
Company expects the new office in Joplin to be completed in the third quarter of 2021, whereupon the nearby leased banking
center at 1710 E. 32nd Street will be consolidated into this new office. There are two banking centers currently serving the Joplin
market.
Other corporate initiatives occurred in 2020:
In June 2020, the Company further enhanced its regulatory capital position with the issuance of $75.0 million of 5.50% fixed-to-
floating rate subordinated notes due June 15, 2030, which count as Tier 2 Capital in the calculation of the Total Capital Ratio. The
Notes were sold at par, resulting in net proceeds, after underwriting discounts, commissions and related expenses, of
approximately $73.5 million. The Company intends to use the net proceeds of the offering for general corporate purposes,
which may include repayment or redemption of outstanding indebtedness, the payment of dividends, providing capital to
support its organic growth or growth through strategic acquisitions, capital expenditures, financing investments,
repurchasing shares of its common stock and for investments in the Bank as regulatory capital.
On October 21, 2020, the Company’s Board of Directors authorized management to repurchase up to one million additional
shares of the Company’s common stock under a program of open market purchases or privately negotiated transactions. The
program does not have an expiration date, and took effect after the Company completed the repurchase of the shares remaining
under the 2018 stock repurchase program. During the year ended December 31, 2020, the Company repurchased 529,883 shares
of its common stock at an average price of $41.71.
The Company announced the retirement intentions of two executive management team members. Both announced their
retirements at least a year in advance to ensure an orderly leadership transition. Successors have been identified for both of these
management positions.
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Douglas Marrs, Vice President and Chief Operations Officer of the Bank and Assistant Secretary of the Company, intends to
retire in June 2021. He is primarily responsible for general bank operations and facilities management. With a career spanning
more than 40 years in the banking industry, Mr. Marrs joined Great Southern in 1996.
Linton J. Thomason, Vice President and Chief Information Officer, intends to retire at the end of 2021. He is responsible for
information services and technology. With more than 40 years in the banking industry, Mr. Thomason joined Great Southern in
1997.
Messrs. Marrs and Thomason have been integral in the Bank’s growth and success for the last two decades. During that time
period, the Bank has grown from approximately $700 million in assets with operations primarily in the southwest Missouri
region, to approximately $5.5 billion in assets and offices in 11 states, as of December 31, 2020.
Great Southern Bank was recognized as part of Forbes’ annual list of the World’s Best Banks 2020. Great Southern was ranked as
the sixth best bank in the United States. The World’s Best Banks list is comprised of the financial institutions that differentiate
their services and build trustworthy relationships with their customers. 450 banks around the world are featured on the list, which
was announced online on May 14, 2020, and can currently be viewed on the Forbes website. The study involved 40,000 bank
customers from 23 countries to rate banks they are involved with on general satisfaction and key attributes like trust, fees, digital
services and financial advice.
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 more recently enacted
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
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.
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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 was 9.0%. In April 2020, pursuant to the CARES Act, the federal
bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to
community banking organizations. Under the interim final rules, the Community Bank Leverage Ratio requirement is a minimum of
8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Company and the Bank have
chosen to not utilize the new Community Bank Leverage Ratio due to the Company’s size and complexity, including its commercial
real estate and construction lending concentrations and significant off-balance sheet funding commitments.
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.
Recent Accounting Pronouncements
See Note 1 to the accompanying audited financial statements for a description of recent accounting pronouncements including the
respective dates of adoption and expected effects on the Company’s financial position and results of operations.
Comparison of Financial Condition at December 31, 2020 and December 31, 2019
During the year ended December 31, 2020, total assets increased by $511.3 million to $5.53 billion. The increase was primarily
attributable to increases in loans receivable and cash and cash equivalents.
Cash and cash equivalents were $563.7 million at December 31, 2020, an increase of $343.5 million, or 156.1%, from $220.2 million
at December 31, 2019. During 2020, the increase was primarily related to excess funds held at the Federal Reserve Bank after
repayment of FHLBank overnight borrowings. The additional funds were primarily the result of increases in deposits.
The Company’s available for sale securities increased $40.7 million, or 10.9%, compared to December 31, 2019. 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% of total assets at both December 31,
2020 and 2019, respectively.
Net loans increased $142.8 million from December 31, 2019, to $4.30 billion at December 31, 2020. Excluding FDIC-assisted
acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) increased $202.0
million, or 4.1%, from December 31, 2019 to December 31, 2020. Increases primarily occurred in commercial real estate loans, other
residential (multi-family) loans, one- to four-family residential mortgage loans and commercial business loans. Outstanding and
undisbursed balances of commercial real estate loans increased $59.5 million, or 4.0%, one- to four-family residential loans increased
$77.6 million, or 15.3%, and other residential (multi-family) loans increased $155.1 million, or 17.9%. Partially offsetting the
increases in these loans were a reduction of $72.8 million, or 5.2%, in construction loans, a decrease of $65.7 million, or 43.3%, in
consumer auto loans and a decrease of $28.6 million, or 22.5%, in the FDIC-assisted acquired loan portfolios.
Other real estate owned and repossessions were $1.9 million at December 31, 2020, a decrease of $3.6 million, or 66.0%, from $5.5
million at December 31, 2019. 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 $484.7 million from $4.41 billion at December 31, 2019 to $4.90 billion at December 31, 2020. The increase
was primarily attributable to an increase in deposits, subordinated notes and securities sold under reverse repurchase agreements,
partially offset by decreases in short-term borrowings.
Total deposits increased $556.8 million, or 14.1%, from $3.96 billion at December 31, 2019 to $4.52 billion at December 31,
2020. Transaction account balances increased $887.1 million compared to December 31, 2019. Non-interest-bearing checking
account balances increased $297.7 million and interest-bearing transaction accounts increased $589.4 million. The increase in
transaction accounts were primarily a result of increased customers in the CDARS reciprocal program, money market deposit
accounts, and certain NOW account types. Customer retail certificates initiated through our banking center network decreased by
$186.1 million during the year ended December 31, 2020. Brokered deposits, including CDARS program purchased funds, were
$158.7 million at December 31, 2020, a decrease of $213.0 million from $371.7 million at December 31, 2019. In 2020, the brokered
3615
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 was 9.0%. In April 2020, pursuant to the CARES Act, the federal
bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to
community banking organizations. Under the interim final rules, the Community Bank Leverage Ratio requirement is a minimum of
8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Company and the Bank have
chosen to not utilize the new Community Bank Leverage Ratio due to the Company’s size and complexity, including its commercial
real estate and construction lending concentrations and significant off-balance sheet funding commitments.
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.
Recent Accounting Pronouncements
See Note 1 to the accompanying audited financial statements for a description of recent accounting pronouncements including the
respective dates of adoption and expected effects on the Company’s financial position and results of operations.
Comparison of Financial Condition at December 31, 2020 and December 31, 2019
During the year ended December 31, 2020, total assets increased by $511.3 million to $5.53 billion. The increase was primarily
attributable to increases in loans receivable and cash and cash equivalents.
Cash and cash equivalents were $563.7 million at December 31, 2020, an increase of $343.5 million, or 156.1%, from $220.2 million
at December 31, 2019. During 2020, the increase was primarily related to excess funds held at the Federal Reserve Bank after
repayment of FHLBank overnight borrowings. The additional funds were primarily the result of increases in deposits.
The Company’s available for sale securities increased $40.7 million, or 10.9%, compared to December 31, 2019. 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% of total assets at both December 31,
2020 and 2019, respectively.
Net loans increased $142.8 million from December 31, 2019, to $4.30 billion at December 31, 2020. Excluding FDIC-assisted
acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) increased $202.0
million, or 4.1%, from December 31, 2019 to December 31, 2020. Increases primarily occurred in commercial real estate loans, other
residential (multi-family) loans, one- to four-family residential mortgage loans and commercial business loans. Outstanding and
undisbursed balances of commercial real estate loans increased $59.5 million, or 4.0%, one- to four-family residential loans increased
$77.6 million, or 15.3%, and other residential (multi-family) loans increased $155.1 million, or 17.9%. Partially offsetting the
increases in these loans were a reduction of $72.8 million, or 5.2%, in construction loans, a decrease of $65.7 million, or 43.3%, in
consumer auto loans and a decrease of $28.6 million, or 22.5%, in the FDIC-assisted acquired loan portfolios.
Other real estate owned and repossessions were $1.9 million at December 31, 2020, a decrease of $3.6 million, or 66.0%, from $5.5
million at December 31, 2019. 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 $484.7 million from $4.41 billion at December 31, 2019 to $4.90 billion at December 31, 2020. The increase
was primarily attributable to an increase in deposits, subordinated notes and securities sold under reverse repurchase agreements,
partially offset by decreases in short-term borrowings.
Total deposits increased $556.8 million, or 14.1%, from $3.96 billion at December 31, 2019 to $4.52 billion at December 31,
2020. Transaction account balances increased $887.1 million compared to December 31, 2019. Non-interest-bearing checking
account balances increased $297.7 million and interest-bearing transaction accounts increased $589.4 million. The increase in
transaction accounts were primarily a result of increased customers in the CDARS reciprocal program, money market deposit
accounts, and certain NOW account types. Customer retail certificates initiated through our banking center network decreased by
$186.1 million during the year ended December 31, 2020. Brokered deposits, including CDARS program purchased funds, were
$158.7 million at December 31, 2020, a decrease of $213.0 million from $371.7 million at December 31, 2019. In 2020, the brokered
deposits were allowed to mature without replacement as other deposit categories increased.
The Company’s Federal Home Loan Bank advances were $-0- at both December 31, 2020 and 2019. At December 31, 2020, there
were no borrowings from the FHLBank. At December 31, 2019, 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.
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Short term borrowings and other interest-bearing liabilities decreased $226.7 million from $228.2 million at December 31, 2019 to
$1.5 million at December 31, 2020. The short term borrowings included no overnight FHLBank borrowings at December 31, 2020
and $196.0 million at December 31, 2019.
Securities sold under reverse repurchase agreements with customers increased $80.0 million, or 95.1%, from $84.2 million at
December 31, 2019 to $164.2 million at December 31, 2020. These balances fluctuate over time based on customer demand for this
product.
Total stockholders' equity increased $26.6 million, from $603.1 million at December 31, 2019 to $629.7 million at December 31,
2020. The Company recorded net income of $59.3 million for the year ended December 31, 2020. Accumulated other comprehensive
income increased $20.9 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 $1.8 million due to stock option exercises. Dividends declared on
common stock, which decreased total stockholders’ equity, were $33.3 million. Total stockholders’ equity also decreased $22.1
million due to repurchases of the Company’s common stock.
Results of Operations and Comparison for the Years Ended December 31, 2020 and 2019
General
Net income decreased $14.3 million, or 19.4%, during the year ended December 31, 2020, compared to the year ended December 31,
2019. Net income was $59.3 million for the year ended December 31, 2020 compared to $73.6 million for the year ended December
31, 2019. This decrease was due to an increase in provision for loan losses of $9.7 million, or 158.1%, an increase in non-interest
expenses of $8.1 million, or 7.0%, and a decrease in net interest income of $3.3 million, or 1.8%, partially offset by an increase in
non-interest income of $4.1 million, or 13.2%, and a decrease in provision for income taxes of $2.7 million, or 16.2%. Net income
available to common shareholders was $59.3 million for the year ended December 31, 2020 compared to $73.6 million for the year
ended December 31, 2019.
Total Interest Income
Total interest income decreased $17.3 million, or 7.4%, during the year ended December 31, 2020 compared to the year ended
December 31, 2019. The decrease was due to an $18.1 million, or 8.1%, decrease in interest income on loans, offset by a $792,000, or
6.6%, increase in interest income on investment securities and other interest-earning assets. Interest income on loans decreased in
2020 compared to 2019 due to lower average rates of interest, partially offset by higher average balances of loans. Interest income
from investment securities and other interest-earning assets increased during 2020 compared to 2019 due to higher average balances of
investments and other interest-earning assets, partially offset by lower average rates of interest.
Interest Income – Loans
During the year ended December 31, 2020 compared to the year ended December 31, 2019, interest income on loans decreased due to
lower average interest rates, partially offset by higher average balances. Interest income decreased $30.6 million as the result of lower
average interest rates on loans. The average yield on loans decreased from 5.37% during the year ended December 31, 2019 to 4.66%
during the year ended December 31, 2020. Offsetting this decrease was an increase of $12.5 million in interest income as a result of
higher average loan balances, which increased from $4.16 billion during the year ended December 31, 2019, to $4.40 billion during
the year ended December 31, 2020. The decreased yields in most loan categories was primarily a result of decreased LIBOR and
Federal Funds interest rates. In 2020, the Company also originated $121 million of PPP loans, which have a much lower yield
compared to the overall loan portfolio.
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, 2020 and 2019, the adjustments increased interest income and pre-tax income by $5.6 million
and $7.4 million, respectively.
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16
As of December 31, 2020, the remaining accretable yield adjustment that will affect interest income was $2.0 million. Of the
remaining adjustments affecting interest income, we expect to recognize $1.5 million of interest income during 2021. We adopted the
new accounting standard related to accounting for credit losses as of January 1, 2021. With the adoption of this standard, there is no
reclassification of discounts from non-accretable to accretable subsequent to December 31, 2020. All adjustments made prior to
December 31, 2020 will continue to be accreted to interest income. Apart from the yield accretion, the average yield on loans was
4.53% during the year ended December 31, 2020, compared to 5.19% during the year ended December 31, 2019, as a result of lower
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 was $400 million with a termination date of October 6,
2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal
to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred
monthly. To the extent that the fixed rate of interest exceeded one-month USD-LIBOR, the Company received net interest settlements
which were recorded as loan interest income. If USD-LIBOR exceeded the fixed rate of interest in future periods, the Company was
required to pay net settlements to the counterparty and recorded those net payments as a reduction of interest income on loans.
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.
This $45.9 million, less the accrued interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’
equity as Accumulated Other Comprehensive Income and a portion of it will be accreted to interest income on loans 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. The Company recorded loan interest income of
$7.7 million and $3.1 million during the years ending December 31, 2020 and 2019, respectively, related to this interest rate swap.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments increased $2.2 million in the year ended December 31, 2020 compared to the year ended December
31, 2019. Interest income increased $2.9 million as a result of an increase in average balances from $326.5 million during the year
ended December 31, 2019, to $426.4 million during the year ended December 31, 2020. Interest income decreased $715,000 due to a
decrease in average interest rates from 3.08% during the year ended December 31, 2019 to 2.88% during the year ended December 31,
2020, due to lower market rates of interest on investment securities purchased during 2020 compared to securities already in the
portfolio. In addition, some securities with higher yields matured or were called prior to their maturity dates.
Interest income on other interest-earning assets decreased $1.4 million in the year ended December 31, 2020 compared to the year
ended December 31, 2019. Interest income decreased $2.7 million due to a decrease in average interest rates from 2.14% during the
year ended December 31, 2019, to 0.19% during the year ended December 31, 2020. Market interest rates earned on balances held at
the Federal Reserve Bank were significantly lower in 2020 due to significant reductions in the federal funds rate of interest. Interest
income increased $1.3 million as a result of an increase in average balances from $87.8 million during the year ended December 31,
2019, to $246.1 million during the year ended December 31, 2020. Average balances increased due to higher balances held at the
Federal Reserve Bank due to increases in customer deposit balances.
Total Interest Expense
Total interest expense decreased $14.0 million, or 25.7%, during the year ended December 31, 2020, when compared with the year
ended December 31, 2019, due to a decrease in interest expense on deposits of $13.1 million, or 28.8%, a decrease in interest expense
on short-term borrowings and repurchase agreements of $3.0 million, or 81.4%, and a decrease in interest expense on subordinated
debentures issued to capital trust of $391,000, or 38.4%. Partially offsetting these decreases, interest expense on subordinated notes
increased $2.5 million, or 56.0%, due to additional subordinated notes issued in 2020.
Interest Expense - Deposits
Interest on demand deposits decreased $2.5 million due to a decrease in average rates from 0.53% during the year ended December 31,
2019, to 0.38% during the year ended December 31, 2020. Partially offsetting that decrease, interest on demand deposits increased
$1.7 million due to an increase in average balances from $1.51 billion in the year ended December 31, 2019, to $1.87 billion in the
year ended December 31, 2020. The decrease in average interest rates of interest-bearing demand deposits was primarily a result of
decreased market interest rates on these types of accounts. Demand deposit balances increased substantially during the COVID-19
pandemic in 2020. Both business and personal deposit balances increased during the year.
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38
Interest expense on time deposits decreased $10.6 million as a result of a decrease in average rates of interest from 2.19% during the
year ended December 31, 2019, to 1.55% during the year ended December 31, 2020. In addition, interest expense on time deposits
decreased $1.7 million due to a decrease in average balances of time deposits from $1.72 billion during the year ended December 31,
2019, to $1.64 billion during the year ended December 31, 2020. 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 lower
rate of interest due to market interest rate decreases during 2020. Time deposit balances decreased due to maturity of retail and
brokered time deposits during 2020. Due to the significant increases in non-time deposits, it was not necessary to replace the brokered
deposits.
Interest Expense - FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures
Issued to Capital Trust and Subordinated Notes
FHLBank term advances were not utilized during the years ended December 31, 2020 and 2019. The Company had a higher amount
of overnight borrowings from the FHLBank in 2020, as discussed below.
Interest expense on short-term borrowings and repurchase agreements decreased $2.1 million due to average rates that decreased from
1.40% in the year ended December 31, 2019, to 0.37% in the year ended December 31, 2020. The decrease was due to decreases in
market interest rates and a change in the mix of funding during the period, with more overnight borrowings from the FHLBank in
2019 than 2020. In addition to this decrease, interest expense on short-term borrowings and repurchase agreements decreased
$845,000 due to a decrease in average balances from $260.0 million during the year ended December 31, 2019, to $183.5 million
during the year ended December 31, 2020. The decrease in average balances was due to fewer overnight borrowings from the
FHLBank in 2020.
During the year ended December 31, 2020, compared to the year ended December 31, 2019, interest expense on subordinated
debentures issued to capital trusts decreased $391,000 due to lower average interest rates. The average interest rate was 3.95% in
2019, compared to 2.44% in 2020. The interest rate on subordinated debentures is a floating rate indexed to the three-month LIBOR
interest rate. There was no change in the average balance of the subordinated debentures between 2020 and 2019.
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. In June 2020, the Company issued $75.0 million of 5.50% fixed-to-floating rate subordinated notes due June 15,
2030. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of
approximately $73.5 million. In both cases, the 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 subordinated notes
increased $2.4 million due to an increase in average balances from $74.1 million during the year ended December 31, 2019 to $115.3
million during the year ended December 31, 2020. Interest expense on the subordinated notes increased $9,000 due to average rates
that increased from 5.91% in the year ended December 31, 2019, to 5.92% in the year ended December 31, 2020.
Net Interest Income
Net interest income for the year ended December 31, 2020 decreased $3.3 million, or 1.8%, to $177.1 million, compared to $180.4
million for the year ended December 31, 2019. Net interest margin was 3.49% for the year ended December 31, 2020, compared to
3.95% for the year ended December 31, 2019, a decrease of 46 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 3 of the
accompanying audited financial statements. The positive impact of these changes on the years ended December 31, 2020 and 2019
were increases in interest income of $5.6 million and $7.4 million, respectively, and increases in net interest margin of 11 basis points
and 16 basis points, respectively. Excluding the positive impact of the additional yield accretion, net interest margin decreased 41
basis points during the year ended December 31, 2020. The decrease in net interest margin was due to significantly declining market
interest rates, a change in asset mix with increases in lower-yielding investments and cash equivalents and the issuance of additional
subordinated notes in 2020.
The Company's overall interest rate spread decreased 39 basis points, or 10.7%, from 3.62% during the year ended December 31,
2019, to 3.23% during the year ended December 31, 2020. The decrease was due to an 85 basis point decrease in the weighted average
yield on interest-earning assets, partially offset by a 46 basis point decrease in the weighted average rate paid on interest-bearing
liabilities. In comparing the two years, the yield on loans decreased 71 basis points, the yield on investment securities decreased 20
basis points and the yield on other interest-earning assets decreased 195 basis points. The rate paid on deposits decreased 48 basis
points, the rate paid on subordinated debentures issued to capital trust decreased 151 basis points, the rate paid on short-term
borrowings decreased 103 basis points, and the rate paid on subordinated notes increased one basis point.
3918
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
In the first quarter of 2020, pursuant to the CARES Act and guidance from the SEC and FASB, we elected to delay adoption of the
new accounting standard (CECL) related to accounting for credit losses. Our financial statements for the year ended December 31,
2020, are prepared under the existing incurred loss methodology standard for accounting for loan losses.
Management records a provision for loan losses in an amount it believes is 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.
Worsening economic conditions from the COVID-19 pandemic, 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, 2020 increased $9.7 million, to $15.9 million, compared with $6.2
million for the year ended December 31, 2019. At December 31, 2020 and December 31, 2019, the allowance for loan losses was
$55.7 million and $40.3 million, respectively. Total net charge-offs were $422,000 and $4.3 million for the years ended December 31,
2020 and 2019, respectively. During the year ended December 31, 2020, a substantial portion of net charge-offs were in the consumer
category. The Company experienced net recoveries in some of the other loan categories. 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 $66 million in the year
ended December 31, 2020. At December 31, 2020, indirect automobile loans totaled approximately $48 million. We expect this total
balance will be largely paid off in the next year. General market conditions and unique circumstances related to individual borrowers
and projects contributed to the level of provisions and charge-offs. In 2020, due to the COVID-19 pandemic and its effects on the
overall economy and unemployment, the Company increased its provisions for loan losses and increased its allowance for loan losses,
even though actual realized net charge-offs were very low. 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 FDIC-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 have been systematically reviewed by the
Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in
determining risk of loss are similar to those used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most
focus being placed on those loan pools which include larger loan relationships and those loan pools which exhibit higher risk
characteristics. Review of the acquired loan portfolio also includes a review of financial information, collateral valuations and
customer interaction to determine if additional reserves are warranted.
The Bank’s allowance for loan losses as a percentage of total loans, excluding FDIC-assisted acquired loans, was 1.32% and 1.00% at
December 31, 2020 and 2019, respectively. Management considers the allowance for loan losses adequate to cover losses inherent in
the Bank’s loan portfolio at December 31, 2020, based on recent reviews of the Bank’s loan portfolio and current economic
conditions. If current economic conditions were to last longer than anticipated or deteriorate further or management’s assessment of
the loan portfolio were to change, additional loan loss provisions could be required, thereby adversely affecting the Company’s future
results of operations and financial condition.
Effective January 1, 2021, we adopted the CECL accounting standard. 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
19
40
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 were 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, 2020, were $3.8 million, a decrease of $4.4
million from $8.2 million at December 31, 2019. Non-performing assets, excluding all FDIC-assisted acquired assets, as a percentage
of total assets were 0.07% at December 31, 2020, compared to 0.16% at December 31, 2019.
Compared to December 31, 2019, non-performing loans decreased $1.5 million to $3.0 million at December 31, 2020, and foreclosed
assets decreased $2.9 million to $777,000 at December 31, 2020. Non-performing one-to four-family residential loans comprised $1.6
million, or 51.6%, of the total non-performing loans at December 31, 2020. Non-performing consumer loans comprised $771,000, or
25.3%, of the total non-performing loans at December 31, 2020. Non-performing commercial real estate loans comprised $587,000,
or 19.3%, of total non-performing loans at December 31, 2020. Non-performing commercial business loans comprised $114,000, or
3.8%, of total non-performing loans at December 31, 2020.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2020, 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
$
— $
—
—
—
— $
—
—
—
— $
—
—
—
— $
—
—
—
— $
—
—
—
— $
—
—
—
— $
—
—
—
—
—
—
—
1,477
—
632
1,235
1,175
1,366
—
107
—
496
(283)
—
(94)
—
(39)
(304)
—
—
—
(113)
(134)
—
—
—
(96)
(29)
—
—
—
(193)
(522)
—
(58)
(1,121)
(459)
1,571
—
587
114
771
One- to four-family
construction
Subdivision construction
Land development
Commercial construction
One- to four-family
residential
Other residential
Commercial real estate
Other commercial
Consumer
Total
$ 4,519 $ 1,969 $ (416) $ (417) $ (230) $ (222) $ (2,160) $ 3,043
At December 31, 2020, the non-performing one- to four-family residential category included 23 loans, nine of which were added
during 2020. The largest relationship in this category was added in 2020 totaling $274,000, or 17.5% of the total category, which is
collateralized by a residential home in the Kansas City, Mo. area. Subsequent to December 31, 2020 this loan was paid off. The non-
performing consumer category included 65 loans, 24 of which were added during 2020, and the majority of which are indirect and
used automobile loans. The non-performing commercial real estate category included two loans. One loan was added and then
removed from non-performing during 2020 after completing six consecutive months of timely payments. The largest relationship in
this category was added in 2019 totaling $495,000, or 84.4% of the total category, and was collateralized by a multi-tenant building in
Arkansas. The non-performing commercial business category included two loans, neither of which was added during 2020. The
largest relationship in this category was added in 2018, and totaled $75,000, or 65.6% of the total category. The previous la rgest
relationship in this category of $1.1 million paid off during 2020.
In the table above, loans that were modified under the guidance provided by the CARES Act are not non-performing loans as they are
current under their modified terms. For additional information about these loan modifications, see the “Loan Modifications” section
of this report.
4120
Other Real Estate Owned and Repossessions. Of the total $1.9 million of other real estate owned and repossessions at December 31,
2020, $446,000 represents the fair value of foreclosed and repossessed assets related to loans acquired in FDIC-assisted transactions
and $654,000 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, 2020, was as follows:
Beginning
Balance,
January 1
Additions
ORE and
Repossession
Sales
Capitalized
Costs
ORE and
Repossession
Write-Downs
Ending
Balance,
December 31
(In Thousands)
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
$
— $
689
1,816
—
601
—
—
—
545
— $
—
—
—
134
—
—
—
1,144
— $
(464)
(715)
—
(624)
—
—
—
(1,536)
— $
126
—
—
—
—
—
—
—
— $
(88)
(851)
—
—
—
—
—
—
Total
$
3,651 $
1,278 $
(3,339) $
126 $
(939) $
—
263
250
—
111
—
—
—
153
777
At December 31, 2020, the land development category of foreclosed assets consisted of one property in the Camdenton, Mo. area and
had a balance of $250,000 after a valuation write-down and price reduction. During 2020, two of the three properties in the land
development category were sold. The subdivision construction category of foreclosed1.1 assets consisted of one property in the
Branson, Mo. area that had a balance of $263,000 after a valuation write-down. The one- to four-family category of foreclosed assets
consisted of one property in western Missouri, which was added during 2020 with a balance of $111,000. 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 Company experienced increased levels of delinquencies and repossessions in indirect and used automobile
loans throughout 2016 and 2017. The level of delinquencies and repossessions in indirect and used automobile loans decreased in
2018 through 2020.
Potential Problem Loans. Potential problem loans decreased $58,000 during the year ended December 31, 2020, from $4.4 million at
December 31, 2019 to $4.3 million at December 31, 2020. This decrease was primarily due to $1.7 million in payments on potential
problem loans, $124,000 in loan charge offs, and $123,000 in loans removed from potential problems and transferred to the non-
performing category. Partially offsetting this decrease was the addition of $2.0 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, 2020, 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
— $
—
—
—
791
—
3,078
—
512
— $
24
—
—
304
—
1,081
—
572
— $
—
—
—
—
—
—
—
(34)
(In Thousands)
— $
—
—
—
(83)
—
—
—
(40)
— $
—
—
—
—
—
—
—
(70)
$
—
—
—
—
$
—
(3)
—
—
—
—
—
—
(124)
(149)
—
(1,308)
—
(228)
Total
$
4,381 $
1,981 $
(34) $
(123) $
(70) $
(124) $
(1,688) $
—
21
—
—
863
—
2,851
—
588
4,323
4221
At December 31, 2020, the commercial real estate category of potential problem loans included three loans, two of which were added
during 2020. The largest relationship in this category (added during 2018), totaling $1.8 million, or 62.3% of the total category, is
collateralized by a mixed use commercial retail building. Payments were current on this relationship at December 31, 2020. One
relationship, which totaled $1.2 million and was outstanding at December 31, 2019, paid off in 2020. The one- to four-family
residential category of potential problem loans included 18 loans, five of which were added during 2020. The consumer categor y of
potential problem loans included 52 loans, 38 of which were added during 2020, and the majority of which were indirect and used
automobile loans.
Loans Classified “Watch”
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. During 2020, loans
classified as “Watch” increased $27.4 million, from $37.4 million at December 31, 2019 to $64.8 million at December 31, 2020. This
increase was primarily due to the addition of two unrelated loan relationships involving eight total loans. One relationship totaled
$14.3 million and was collateralized by a shopping center project. The other relationship totaled $11.9 million and was collateralized
by multiple indoor recreational facilities. See Note 3 of the accompanying audited financial statements for further discussion of the
Company’s loan grading system.
Non-Interest Income
Non-interest income for the year ended December 31, 2020 was $35.1 million compared with $31.0 million for the year ended
December 31, 2019. The increase of $4.1 million, or 13.2%, was primarily as a result of the following items:
Net gains on loan sales: Net gains on loan sales increased $5.5 million compared to the prior year. The increase was due to an
increase in originations of fixed-rate loans during 2020 compared to 2019. Fixed rate single-family mortgage loans originated are
generally subsequently sold in the secondary market.
Other income: Other income increased $855,000 compared to the prior year. In 2020, the Company recognized approximately
$734,000 of additional fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with
loan customers and swap counterparties when compared to 2019. The Company also recognized approximately $784,000 in income
related to scheduled payments and exit fees of certain tax credit partnerships during 2020, compared to $525,000 during 2019. In
2019, the Company recognized gains totaling $677,000 from the sale of, or recovery of, receivables and assets that were acquired
several years prior in FDIC-assisted transactions, with no similar sales or recoveries in the current year.
Service charges, debit card and ATM fees: Service charges, debit card and ATM fees decreased $2.2 million compared to the prior
year. This decrease was primarily due to a decrease in overdraft and insufficient funds fees on customer accounts. This was due to
both a reduction in usage by customers and a decision near the end of the first quarter of 2020 to waive (through August 31, 2020)
certain fees for customers in response to the COVID-19 pandemic. The effects of that decision were felt during the second and third
quarters of 2020. In addition, the Company recorded less in debit card and ATM fees due to a reduction in debit card and ATM usage.
Also during 2020, $200,000 in additional expenses were netted against ATM fee income due to the conversion to a new debit card
processing system.
Non-Interest Expense
Total non-interest expense increased $8.1 million, or 7.0%, from $115.1 million in the year ended December 31, 2019, to $123.2
million in the year ended December 31, 2020. The Company’s efficiency ratio for the year ended December 31, 2020 was 58.07%, an
increase from 54.48% for 2019. The higher efficiency ratio in 2020 was primarily due to an increase in non-interest expense, partially
offset by an increase in total revenue. In the year ended December 31, 2020, the Company’s efficiency ratio was negatively impacted
by an increase in salaries and employee benefits expense and positively impacted by an increase in income related to loan sales. 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. The Company’s ratio of non-
interest expense to average assets was 2.31% for the year ended December 31, 2020 compared to 2.37% for the year ended December
31, 2019. This decrease was primarily due to an increase in average assets. Average assets for the year ended December 31, 2020,
increased $468.4 million, or 9.6%, from the year ended December 31, 2019, primarily due to increases in loans receivable and cas h
and cash equivalents.
4322
The following were key items related to the increase in non-interest expense for the year ended December 31, 2020 as compared to the
year ended December 31, 2019:
Salaries and employee benefits: Salaries and employee benefits increased $7.6 million in the year ended December 31, 2020
compared to the prior year. The increase was primarily due to annual employee compensation merit increases and increased incentives
in lending, including mortgage lending activities as noted above, and operations areas. Total salaries and benefits expense in the
mortgage lending area increased $2.4 million compared to the previous year. Additionally, in March 2020, the Company approved a
special cash bonus to all employees totaling $1.1 million in response to the COVID-19 pandemic. In August 2020, the Company paid
a second special cash bonus to all employees totaling $1.1 million in response to the pandemic.
Net occupancy expense: Net occupancy expense increased $1.4 million in the year ended December 31, 2020 compared to the year
ended December 31, 2019. This was primarily related to increased depreciation on new ATM/ITMs and ATM operating software
upgrades implemented during the fourth quarter of 2019. Also included in net occupancy expense for 2020 were COVID-19-related
expenses for various items such as cleaning services, equipment, costs to set up remote work sites and other items.
Insurance: Insurance expense increased $390,000 in 2020 compared to the prior year. This increase was primarily due to an increase
in FDIC deposit insurance premiums. In 2019, the Bank had 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 cause no premium to be due for the last six months of
2019.
Partnership tax credit: Partnership tax credit expense decreased $285,000 in the year ended December 31, 2020 compared to 2019.
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 2020 and so the final amortization of the investment in those credits also
ended in 2020.
Provision for Income Taxes
For the years ended December 31, 2020 and 2019, the Company's effective tax rate was 18.9% and 18.3%, 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's effective income tax rate is currently
generally expected to remain below the statutory rate due primarily the factors noted above. The Company currently expects its
effective tax rate (combined federal and state) will be approximately 18.5% to 19.5% in future periods.
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
$6.6 million, $4.0 million and $3.5 million for 2020, 2019 and 2018, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
4423
Dec. 31,
2020(2)
Yield/
Rate
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Year Ended
December 31, 2018
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)
3.62 % $
4.18
4.14
4.34
3.89
5.14
4.43
652,096
930,529
1,526,618
665,546
325,397
283,678
15,395
$ 29,099
43,902 4.72
69,437 4.55
32,443 4.87
14,070 4.32
15,184 5.35
829 5.38
4.46 % $ 532,051
812,412
1,443,435
706,581
258,606
387,854
14,841
$
27,450
43,931 5.41
74,256 5.14
41,767 5.91
13,234 5.12
21,511 5.55
898 6.05
5.16 % $ 449,917
761,115
1,325,398
569,570
285,125
499,131
20,563
$ 22,924
5.10 %
38,863 5.11
64,605 4.87
31,198 5.48
14,104 4.95
25,250 5.06
1,282 6.23
Total loans receivable
4.29
4,399,259
204,964 4.66
4,155,780
223,047 5.37
3,910,819
198,226 5.07
Investment securities (1)
Other interest-earning assets
2.98
0.25
426,383
246,110
12,262 2.88
477 0.19
326,450
87,767
10,066 3.08
1,881 2.14
201,330
104,220
5,835 2.90
1,888 1.81
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
3.80
5,071,752
217,703 4.29
4,569,997
234,994 5.14
4,216,369
205,949 4.88
93,832
157,842
$ 5,323,426
92,315
192,695
$ 4,855,007
97,796
189,161
$ 4,503,326
0.22
1.00
0.53
$ 1,867,166
1,636,205
3,503,371
7,096 0.38
25,335 1.55
32,431 0.93
$ 1,507,518
1,716,786
3,224,304
7,971 0.53
37,599 2.19
45,570 1.41
$ 1,531,375
1,375,508
2,906,883
5,982 0.39
21,975 1.60
27,957 0.96
0.02
1.81
5.84
—
183,498
675 0.37
260,024
3,635 1.40
137,257
765 0.56
25,774
115,335
—
628 2.44
6,831 5.92
— —
25,774
74,070
—
1,019 3.95
4,378 5.91
— —
25,774
73,772
190,245
953 3.70
4,097 5.55
3,985 2.09
0.72
3,827,978
40,565 1.06
3,584,172
54,602 1.52
3,333,931
37,757 1.13
826,900
46,111
4,700,989
622,437
665,606
33,592
4,283,370
571,637
649,357
21,530
4,004,818
498,508
$ 5,323,426
$ 4,855,007
$ 4,503,326
3.08 %
$ 177,138 3.23 %
3.49 %
Net interest income:
Interest rate spread
Net interest margin*
Average interest-earning
assets to average interest-
bearing liabilities
* Defined as the Company's net interest income divided by total interest-earning assets.
(1) Of the total average balance of investment securities, average tax-exempt investment securities were $55.9 million, $41.7 million and $53.6 million for 2020, 2019
and 2018, respectively. In addition, average tax-exempt industrial revenue bonds were $20.0 million, $20.8 million and $24.8 million in 2020, 2019 and 2018,
respectively. Interest income on tax-exempt assets included in this table was $2.2 million, $2.4 million and $3.1 million for 2020, 2019 and 2018, respectively.
Interest income net of disallowed interest expense related to tax-exempt assets was $2.0 million, $2.2 million and $2.9 million for 2020, 2019 and 2018,
respectively.
$ 180,392 3.62 %
3.95 %
$ 168,192 3.75 %
3.99 %
127.5 %
132.5 %
126.5 %
(2) The yield/rate on loans at December 31, 2020 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 2020 results of operations.
4524
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, 2020 vs.
December 31, 2019
Year Ended
December 31, 2019 vs.
December 31, 2018
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
(In Thousands)
Interest-earning assets:
Loans receivable
Investment securities
Other interest-earning assets
Total interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
Short-term borrowings, repurchase
agreements and other interest-bearing
liabilities
Subordinated debentures issued
to capital trust
Subordinated notes
FHLBank advances
Total interest-bearing liabilities
Net interest income
$
(30,621 ) $
(715 )
(2,745 )
(34,081 )
12,538 $
2,911
1,341
16,790
(18,083 ) $
2,196
(1,404 )
(17,291 )
12,028 $
395
51
12,474
12,793 $
3,836
(58 )
16,571
(2,531 )
(10,571 )
(13,102 )
1,656
(1,693 )
(37 )
(875 )
(12,264 )
(13,139 )
2,081
9,362
11,443
)
(92
6,262
6,170
(2,115 )
(845 )
(2,960 )
1,802
1,068
(391 )
9
—
(15,599 )
(18,482 ) $
$
—
2,444
—
1,562
15,228 $
(391 )
2,453
—
(14,037 )
(3,254 ) $
66
276
—
13,587
(1,113 ) $
—
5
(3,985 )
3,258
13,313 $
24,821
4,231
(7 )
29,045
1,989
15,624
17,613
2,870
66
281
(3,985 )
16,845
12,200
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 availa ble 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
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
4625
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. 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.
As noted previously, 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 received a fixed rate of interest of 3.018% and paid a floating rate
of interest equal to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the
counterparty also occurred monthly. The floating rate of interest was 1.710% at December 31, 2019. Therefore, at that time, the
Company received net interest settlements which were recorded as loan interest income, to the extent that the fixed rate of interest
exceeded one-month USD-LIBOR. If USD-LIBOR had exceeded the fixed rate of interest, the Company was required to pay net
settlements to the counterparty and 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.
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.
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.
4726
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 Structured 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 year, 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.
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.
4827
Provision for Loan Losses and Allowance for Loan Losses
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 $109 million. We expect this total balance will be largely paid off in the next year. 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.
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.
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.
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 Charge-Offs Payments
Ending
Balance,
December 31
(In Thousands)
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
$ —
—
49
—
2,664
—
334
1,437
1,816
$ —
—
3,769
—
1,719
—
4,075
64
1,862
$ —
—
—
—
—
—
(118)
—
—
$ —
—
—
—
(87)
—
—
—
(166)
$ —
—
(3,498)
—
(1,831)
—
(2,900)
—
(287)
$ —
—
(220)
—
(490)
—
—
(116)
(1,153)
$
—
— $ —
—
—
(100)
—
(596)
—
(759)
(150)
(799)
—
1,379
—
632
1,235
1,273
Total
$ 6,300
$ 11,489
$ (118)
$ (253)
$ (8,516)
$ (1,979)
$ (2,404) $ 4,519
28
49
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.
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
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
$
— $
1,092
3,191
—
269
—
—
—
928
— $
—
3,498
—
1,867
—
2,900
—
4,003
— $
(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.
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
5029
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
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
— $
—
—
—
1,044
—
2,053
—
206
— $
—
—
—
104
—
1,931
37
467
— $
—
—
—
(30 )
—
(124 )
—
—
— $
—
—
—
(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 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 than was recognized in the prior
year as a result of the new debit card contracts. 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.
Net 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 are 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.
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 per transaction.
5130
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 had 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.
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.
Provision for Income Taxes
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.
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
5231
Company's management of the ability to generate liquidity primarily through liability funding, management believes that the
Company's management of the ability to generate liquidity primarily through liability funding, management believes that the
Company's management of the ability to generate liquidity primarily through liability funding, management believes that 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
Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At
Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At
Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At
December 31, 2020, the Company had commitments of approximately $132.5 million to fund loan originations, $1.18 billion of
December 31, 2020, the Company had commitments of approximately $132.5 million to fund loan originations, $1.18 billion of
December 31, 2020, the Company had commitments of approximately $132.5 million to fund loan originations, $1.18 billion of
December 31, 2020, the Company had commitments of approximately $132.5 million to fund loan originations, $1.18 billion of
unused lines of credit and unadvanced loans, and $16.1 million of outstanding letters of credit.
unused lines of credit and unadvanced loans, and $16.1 million of outstanding letters of credit.
unused lines of credit and unadvanced loans, and $16.1 million of outstanding letters of credit.
unused lines of credit and unadvanced loans, and $16.1 million of outstanding letters of credit.
December
December
December
December
2020
2020
2020
2020
December
December
December
December
2019
2019
2019
2019
December
December
December
December
2018
2018
2018
2018
December
December
December
December
2017
2017
2017
2017
December
December
December
December
2016
2016
2016
2016
Closed non-construction loans with unused
Closed non-construction loans with unused
Closed non-construction loans with unused
Closed non-construction loans with unused
available lines
available lines
available lines
available lines
Secured by real estate (one- to four-family)
Secured by real estate (one- to four-family)
Secured by real estate (one- to four-family)
Secured by real estate (one- to four-family)
Secured by real estate (not one- to four-family)
Secured by real estate (not one- to four-family)
Secured by real estate (not one- to four-family)
Secured by real estate (not one- to four-family)
Not secured by real estate - commercial business
Not secured by real estate - commercial business
Not secured by real estate - commercial business
Not secured by real estate - commercial business
$
$
$
$
Closed construction loans with unused
Closed construction loans with unused
Closed construction loans with unused
Closed construction loans with unused
available lines
available lines
available lines
available lines
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Loan commitments not closed
Loan commitments not closed
Loan commitments not closed
Loan commitments not closed
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Secured by real estate (not one-to four-family)
Not secured by real estate - commercial business
Not secured by real estate - commercial business
Not secured by real estate - commercial business
Not secured by real estate - commercial business
164,480 $
164,480 $
164,480 $
164,480 $
22,273
22,273
77,411
77,411
22,273
77,411
22,273
77,411
155,831 $
155,831 $
19,512
19,512
83,782
83,782
155,831 $
155,831 $
19,512
83,782
19,512
83,782
150,948 $
11,063
11,063
87,480
87,480
11,063
87,480
11,063
87,480
150,948 $
150,948 $
150,948 $
133,587 $
10,836
10,836
113,317
113,317
10,836
113,317
10,836
113,317
133,587 $
133,587 $
133,587 $
42,162
823,106
42,162
42,162
823,106
823,106
42,162
823,106
48,213
798,810
48,213
48,213
798,810
798,810
48,213
798,810
37,162
906,006
37,162
37,162
906,006
906,006
37,162
906,006
20,919
718,277
20,919
20,919
718,277
718,277
20,919
718,277
123,433
26,062
79,937
123,433
123,433
26,062
26,062
79,937
79,937
123,433
26,062
79,937
10,017
542,326
10,017
10,017
542,326
542,326
10,017
542,326
85,917
85,917
85,917
85,917
45,860
45,860
45,860
45,860
699
699
699
699
69,295
69,295
69,295
69,295
92,434
92,434
92,434
92,434
—
—
—
—
24,253
24,253
24,253
24,253
104,871
104,871
104,871
104,871
405
405
405
405
23,340
23,340
23,340
23,340
156,658
156,658
156,658
156,658
4,870
4,870
4,870
4,870
15,884
15,884
15,884
15,884
119,126
119,126
119,126
119,126
7,022
7,022
7,022
7,022
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2020. 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.
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2020. Additional information regarding these contractual obligations is discussed further in Notes 6, 8, 9, 10, 11, 12, 13 and 18 of the
2020. 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.
accompanying audited financial statements.
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2020. 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.
$
$
$
1,261,908 $
$
1,261,908 $
1,261,908 $
1,261,908 $
1,267,877 $
1,267,877 $
1,267,877 $
1,267,877 $
1,322,188 $
1,322,188 $
1,322,188 $
1,322,188 $
1,181,804 $
1,181,804 $
1,181,804 $
1,181,804 $
923,807
923,807
923,807
923,807
One Year or
One Year or
One Year or
Less
Less
Less
One Year or
Less
Payments Due In:
Payments Due In:
Payments Due In:
Payments Due In:
Over One to
Five
Years
(In Thousands)
(In Thousands)
Over One to
Over One to
Over One to
Five
Five
Five
Years
Years
Years
(In Thousands)
(In Thousands)
Over Five
Over Five
Over Five
Over Five
Years
Years
Years
Years
Total
Total
Total
Total
Deposits without a stated maturity
Deposits without a stated maturity
Deposits without a stated maturity
Deposits without a stated maturity
Time and brokered certificates of deposit
Time and brokered certificates of deposit
Time and brokered certificates of deposit
Time and brokered certificates of deposit
Short-term borrowings
Short-term borrowings
Short-term borrowings
Short-term borrowings
Subordinated debentures
Subordinated debentures
Subordinated debentures
Subordinated debentures
Subordinated notes
Subordinated notes
Subordinated notes
Subordinated notes
Operating leases
Operating leases
Operating leases
Operating leases
Dividends declared but not paid
Dividends declared but not paid
Dividends declared but not paid
Dividends declared but not paid
$
$
$
$
$
$
$
$
$
$
$
3,126,111
3,126,111
3,126,111
3,126,111
1,087,279
1,087,279
1,087,279
1,087,279
165,692
165,692
165,692
165,692
—
—
—
—
—
—
—
—
1,119
1,119
1,119
1,119
4,676
4,676
4,676
4,676
4,384,877
4,384,877
4,384,877
4,384,877
$
$
$
$
$
— $
— $
— $
— $
— $
302,600
302,600
302,600
302,600
—
—
—
—
—
—
—
—
—
—
—
—
4,188
4,188
4,188
4,188
—
—
—
—
— $
— $
— $
913
913
913
913
—
—
—
—
25,774
25,774
25,774
25,774
148,397
148,397
148,397
148,397
4,926
4,926
4,926
4,926
—
—
—
—
3,126,111
3,126,111
3,126,111
3,126,111
1,390,792
1,390,792
1,390,792
1,390,792
165,692
165,692
165,692
165,692
25,774
25,774
25,774
25,774
148,397
148,397
148,397
148,397
10,233
10,233
10,233
10,233
4,676
4,676
4,676
4,676
306,788 $
306,788 $
306,788 $
306,788 $
180,010 $
180,010 $
180,010 $
180,010 $
4,871,675
4,871,675
4,871,675
4,871,675
The Company's primary sources of funds are customer deposits, short term borrowings at the FHLBank, other borrowings, loan
The Company's primary sources of funds are customer deposits, short term borrowings at the FHLBank, other borrowings, loan
The Company's primary sources of funds are customer deposits, short term borrowings at the FHLBank, other borrowings, loan
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.
repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities, and funds provided from operations.
repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities, and funds provided from operations.
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
The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from
The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from
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
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
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
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.
appropriate, supplements deposits with less expensive alternative sources of funds.
appropriate, supplements deposits with less expensive alternative sources of funds.
appropriate, supplements deposits with less expensive alternative sources of funds.
At December 31, 2020 and 2019, the Company had these available secured lines and on-balance sheet liquidity:
At December 31, 2020 and 2019, the Company had these available secured lines and on-balance sheet liquidity:
At December 31, 2020 and 2019, the Company had these available secured lines and on-balance sheet liquidity:
At December 31, 2020 and 2019, the Company had these available secured lines and on-balance sheet liquidity:
Federal Home Loan Bank line
Federal Home Loan Bank line
Federal Home Loan Bank line
Federal Home Loan Bank line
Federal Reserve Bank line
Federal Reserve Bank line
Federal Reserve Bank line
Federal Reserve Bank line
Interest-Bearing and Non-Interest-Bearing Deposits
Interest-Bearing and Non-Interest-Bearing Deposits
Interest-Bearing and Non-Interest-Bearing Deposits
Interest-Bearing and Non-Interest-Bearing Deposits
Unpledged Securities
Unpledged Securities
Unpledged Securities
Unpledged Securities
December 31, 2020
December 31, 2020
December 31, 2020
December 31, 2020
$1,069.3 million
$1,069.3 million
$1,069.3 million
$1,069.3 million
436.4 million
436.4 million
436.4 million
436.4 million
563.7 million
563.7 million
563.7 million
563.7 million
195.1 million
195.1 million
195.1 million
195.1 million
December 31, 2019
December 31, 2019
December 31, 2019
December 31, 2019
$867.1 million
$867.1 million
$867.1 million
$867.1 million
367.8 million
367.8 million
367.8 million
367.8 million
220.2 million
220.2 million
220.2 million
220.2 million
228.5 million
228.5 million
228.5 million
228.5 million
Statements of Cash Flows. During the years ended December 31, 2020, 2019 and 2018, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
Statements of Cash Flows. During the years ended December 31, 2020, 2019 and 2018, the Company had positive cash flows from
Statements of Cash Flows. During the years ended December 31, 2020, 2019 and 2018, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
Statements of Cash Flows. During the years ended December 31, 2020, 2019 and 2018, the Company had positive cash flows from
operating activities. The Company experienced negative cash flows from investing activities during the years ended December 31,
32
32
5332
32
2020, 2019 and 2018. The Company experienced positive cash flows from financing activities during the years ended December 31,
2020, 2019 and 2018.
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 and the amortization of deferred loan origination fees and discounts (premiums) on
loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. Net income adjusted for non-
cash and non-operating items and the origination and sale of loans held-for-sale were the primary sources of cash flows from operating
activities. Operating activities provided cash flows of $46.0 million, $86.4 million and $94.2 million during the years ended December
31, 2020, 2019 and 2018, respectively.
During the years ended December 31, 2020, 2019 and 2018, investing activities used cash of $131.3 million, $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 cash received for the termination of interest rate derivatives (2020) and the
sales of investment securities (2019).
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, proceeds from the
issuance of subordinated notes, purchases of the Company’s common stock and dividend payments to stockholders. Financing
activities provided cash flows of $428.9 million, $226.1 million and $247.6 million during the years ended December 31, 2020, 2019
and 2018, respectively, primarily due to increases in customer deposit balances, net increases or decreases in various borrowings and
proceeds from the issuance of subordinated notes, partially offset by dividend payments to stockholders and purchases of the
Company’s common stock.
Capital Resources
Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory
requirements, as well as to explore ways to increase capital either by retained earnings or other means.
As of December 31, 2020, total stockholders’ equity and common stockholders’ equity were each $629.7 million, or 11.4% of total
assets, equivalent to a book value of $45.79 per common share. 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. At
December 31, 2020, the Company’s tangible common equity to tangible assets ratio was 11.3%, compared to 11.9% at December 31,
2019. Included in stockholders’ equity at December 31, 2020 and 2019, were unrealized gains (net of taxes) on the Company’s
available-for-sale investment securities totaling $23.3 million and $9.0 million, respectively. This increase in unrealized gains
primarily resulted from lower market interest rates, which increased the fair value of the investment securities.
Also included in stockholders’ equity at December 31, 2020, were realized gains (net of taxes) on the Company’s cash flow hedge
(interest rate swap), which was terminated in March 2020, totaling $29.9 million. This amount, plus associated deferred taxes, is
expected to be accreted to interest income over the remaining term of the original interest rate swap contract, which was to end in
October 2025. At December 31, 2020, the remaining pre-tax amount to be recorded in interest income was $38.7 million. The net
effect on total stockholders’ equity over time will be no impact as the reduction of this realized gain will be offset by an increase in
retained earnings (as the interest income flows through pre-tax income).
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, 2020,
the Bank's common equity Tier 1 capital ratio was 13.7%, its Tier 1 capital ratio was 13.7%, its total capital ratio was 14.9% and its
Tier 1 leverage ratio was 11.8%. As a result, as of December 31, 2020, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. 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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2020, the Company's common equity Tier 1 capital ratio was 12.2%, its Tier 1 capital ratio was 12.7%, its total capital
ratio was 17.2% and its Tier 1 leverage ratio was 10.9%. To be considered well capitalized, a bank holding company must have a Tier
1 risk-based capital ratio of at least 6.00% and a total risk-based capital ratio of at least 10.00%. As of December 31, 2020, the
5433
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2019, 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.
Dividends. During the year ended December 31, 2020, the Company declared common stock cash dividends of $2.36 per share
(56.1% of net income per common share) and paid common stock cash dividends of $2.36 per share. This included a special cash
dividend of $1.00 per common share declared in January 2020. 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. This included a special cash dividend of $0.75 per common share declared in January 2019. 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, 2020, was paid to stockholders in January 2021.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the
years ended December 31, 2020 and 2019, the Company repurchased 529,883 shares of its common stock at an average price of
$41.71 per share and 16,040 shares of its common stock at an average price of $52.93 per share, respectively. During the years ended
December 31, 2020 and 2019, the Company issued 21,436 shares of stock at an average price of $30.81 per share and 125,894 shares
of stock at an average price of $33.03 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 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.
5534
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2019, 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.
Dividends. During the year ended December 31, 2020, the Company declared common stock cash dividends of $2.36 per share
(56.1% of net income per common share) and paid common stock cash dividends of $2.36 per share. This included a special cash
dividend of $1.00 per common share declared in January 2020. 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. This included a special cash dividend of $0.75 per common share declared in January 2019. 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, 2020, was paid to stockholders in January 2021.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the
years ended December 31, 2020 and 2019, the Company repurchased 529,883 shares of its common stock at an average price of
$41.71 per share and 16,040 shares of its common stock at an average price of $52.93 per share, respectively. During the years ended
December 31, 2020 and 2019, the Company issued 21,436 shares of stock at an average price of $30.81 per share and 125,894 shares
of stock at an average price of $33.03 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 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,
2020
December 31,
December 31,
December 31,
December 31,
2019
2018
(Dollars in thousands)
2017
2016
$
$
$
$
629,741
6,944
622,797
5,526,420
6,944
5,519,476
$
$
$
$
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
11.28 %
11.88 %
11.20 %
10.46 %
9.20 %
34
56
35
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management and Market Risk
A principal operating objective of the Company is to produce stable earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates. The Company has sought to reduce its exposure to adverse changes in interest
rates by attempting to achieve a closer match between the periods in which its interest-bearing liabilities and interest-earning assets
can be expected to reprice through the origination of adjustable-rate mortgages and loans with shorter terms to maturity and the
purchase of other shorter term interest-earning assets.
Our Risk When Interest Rates Change
The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market
interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by
changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates
and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
How We Measure the Risk to Us Associated with Interest Rate Changes
In an attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor Great Southern's
interest rate risk. In monitoring interest rate risk, we regularly analyze and manage assets and liabilities based on their payment
streams and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates.
The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be
sustained despite fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or
the interest rate repricing "gap," provides an indication of the extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-
rate sensitive liabilities repricing during the same period, and is considered negative when the amount of interest-rate sensitive
liabilities exceeds the amount of interest-rate sensitive assets during the same period. Generally, during a period of rising interest rates,
a negative gap within shorter repricing periods would adversely affect net interest income, while a positive gap within shorter
repricing periods would result in an increase in net interest income. During a period of falling interest rates, the opposite would be
true. As of December 31, 2020, 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. In a situation where market interest rates decrease significantly in a short period
of time, as they did in March 2020, our net interest margin decrease may be more pronounced in the very near term (first one to three
months), due to fairly rapid decreases in LIBOR interest rates. In the subsequent months we expect that the net interest margin would
stabilize and begin to improve, as renewal interest rates on maturing time deposits are expected to decrease compared to the current
rates paid on those products. Subsequent to December 31, 2020, cumulative time deposit maturities are as follows: within three
months $357 million; within six months $638 million; and within twelve months $1.1 billion. At December 31, 2020, the
weighted average interest rates on these various cumulative maturities were 1.16%, 1.05% and 0.96%, respectively.
–
–
–
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 decreases of 0.25% on each of those occasions.
At December 31, 2019, the Federal Funds rate stood at 1.75%. In response to the COVID-19 pandemic, the FRB decreased interest
rates on two occasions in March 2020, a 0.50% decrease on March 3rd and a 1.00% decrease on March 16th. At December 31, 2020,
the Federal Funds rate stood at 0.25%. A substantial portion of Great Southern’s loan portfolio ($2.00 billion at December 31, 2020)
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, 2020. Of these loans, $1.99 billion had interest rate floors. Great Southern also has a portfolio of loans ($261 millio n at
December 31, 2020) tied to a "prime rate" of interest and will adjust immediately with changes to the “prime rate” of interest. During
2020, we experienced some compression of our net interest margin due to 2.25% of Federal Fund rate cuts over that time period .
Margin compression primarily resulted from generally slower changing average interest rates on deposits and borrowings and lower
yields on loans and other interest-earning assets. LIBOR interest rates decreased further in April and May of 2020, putting pressure
on loan yields during most of 2020, and strong pricing competition for loans and deposits remains in most of our markets.
5736
Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge
the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on
the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be
material, in the Bank's interest rate risk.
In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great
Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and
repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of
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 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 was $400 million with a contractual termination date of
October 6, 2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of
interest equal to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty
also occurred monthly. Due to lower market interest rates, the Company received net interest settlements which were recorded as loan
interest income. If USD-LIBOR exceeded the fixed rate of interest, the Company was 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 was 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.
37
58
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 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,
2020. 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 and
other interest earning assets
Weighted average rate
$
$
$
$
December 31,
2021
2022
2023
2024
2025
Thereafter
Total
(Dollars In Thousands)
December 31,
2020
Fair Value
471,326
0.25 %
7,617
$
5.14 %
—
—
776
$
5.38 %
—
—
13,303
$
3.16 %
—
—
4,331
$
2.24 %
740,267
$ 578,284
$ 380,420
$ 169,349
$ 142,650
677,774 $ 2,688,744
3.64 %
3.52 %
3.73 %
3.83 %
421,704
$ 314,222
$ 250,818
$ 150,372
$ 295,582
262,074 $ 1,694,772
4.38 %
3.90 %
4.89 %
5.09 %
—
—
7,530
$
2.74 %
$
3.32 %
$
4.57 %
— $
—
381,376 $
2.92 %
3.26 %
4.90 %
471,326
414,933
$
0.25 %
$
2.98 %
$
3.53 %
$
4.54 %
471,326
414,933
2,683,999
1,706,622
—
—
—
—
—
—
—
—
$
—
—
9,806 $
1.88 %
9,806
$
1.88 %
9,806
Total financial assets
$
1,640,914
$ 893,282
$ 644,541
$ 324,052
$ 445,762
$ 1,331,030 $ 5,279,581
1,087,279
$ 189,664
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
$
$
$
$
0.96 %
2,141,313
0.22 %
984,798
—
165,692
0.02 %
—
—
—
—
$
1.15 %
—
—
—
—
—
—
—
—
—
—
73,346
$
1.03 %
—
—
—
—
—
—
—
—
—
—
25,847
$
1.36 %
—
—
—
—
—
—
—
—
—
—
13,743
$
0.98 %
—
—
—
—
—
—
—
—
—
—
$
$
913 $ 1,390,792
1.83 %
$
1.00 %
$
0.22 %
$
984,798
—
165,692
— $ 2,141,313
—
— $
—
— $
—
150,000 $
5.84 %
25,774 $
1.81 %
$
0.02 %
$
5.84 %
$
1.81 %
150,000
25,774
1,397,475
2,141,313
984,798
165,692
157,032
25,774
Total financial liabilities
$
4,379,082
$ 189,664
$
73,346
$
25,847
$
13,743
$
176,687 $ 4,858,369
_______________
(1)
Available-for-sale debt securities include approximately $346.6 million of mortgage-backed securities and collateralized mortgage obligations which pay
interest and principal monthly to the Company. Of this total, $19.9 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.
5938
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 and
other interest earning assets
Weighted average rate
$
$
December 31,
2021
2022
2023
2024
2025
Thereafter
Total
(Dollars In Thousands)
December 31,
2020
Fair Value
$
$
—
—
—
—
471,326
0.25 %
7,617 $
5.14 %
$ 2,287,220 $
3.51 %
—
—
7,530 $
2.74 %
50,747 $
3.53 %
421,704 $ 314,222 $ 250,818 $ 150,372 $ 295,582 $
4.57 %
776 $ 13,303 $
3.16 %
5.38 %
22,245 $ 18,577 $
4.26 %
—
—
4,331 $
2.24 %
22,684 $
4.41 %
4.38 %
3.90 %
3.98 %
4.89 %
5.09 %
— $
—
381,376 $
2.92 %
287,271 $
3.47 %
262,074 $
4.90 %
471,326 $
0.25 %
414,933 $
2.98 %
2,688,744 $
3.53 %
1,694,772 $
4.54 %
471,326
414,933
2,683,999
1,706,622
9,806
1.88 %
—
—
—
—
—
—
—
—
— $
—
9,806 $
1.88 %
9,806
Total financial assets
$ 3,197,673 $ 337,243 $ 282,698 $ 177,387 $ 353,859 $
930,721 $
5,279,581
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
0.94 %
$ 2,141,313
0.22 %
—
—
165,692
$ 1,154,678 $ 175,913 $ 30,898 $
1.70 %
—
—
—
—
—
—
—
—
—
—
1.16 %
—
—
—
—
—
—
—
—
—
—
0.02 %
—
—
25,774
1.81 %
$
$
14,647 $
2.14 %
—
—
—
—
—
—
—
—
—
—
13,743 $
0.98 %
—
—
— $
—
—
—
— $
—
—
—
913 $
1.83 %
— $
—
984,798 $
—
— $
—
150,000 $
5.84 %
— $
—
1,390,792 $
1.00 %
2,141,313 $
0.22 %
984,798 $
—
165,692 $
0.02 %
150,000 $
5.84 %
25,774 $
1.81 %
1,397,475
2,141,313
984,798
165,692
157,032
25,774
Total financial liabilities
$ 3,487,457 $ 175,913 $ 30,898 $
14,647 $
13,743 $ 1,135,711 $
4,858,369
Periodic repricing GAP
$
(272,833 ) $ 161,330 $ 234,849 $ 162,740 $ 340,116 $
(204,990 ) $
421,212
Cumulative repricing GAP
$
(272,833 ) $ (111,503 ) $ 123,346 $ 286,086 $ 626,202 $
421,212
_______________
(1) Available-for-sale debt securities include approximately $346.6 million of mortgage-backed securities which pay interest and principal monthly to the Company.
Of this total, $19.9 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.
6039
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2020 and 2019
61
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. (the “Company”) as of December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020,
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, 2020, based on Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 5, 2021,
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.
62
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Page 2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the
financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
As more fully described in Note 1 and Note 3 to the Company’s consolidated financial statements, the
allowance for loan losses represents estimated incurred losses on loans. The allowance for loan losses is
based on three primary components: (1) estimates of incurred losses that may exist in various segments of
performing loans based upon historical net loss experience; (2) specifically identified losses in individually
analyzed credits; and (3) qualitative factors that address estimates of incurred losses not fully identified by
historical net loss experience. Estimates of incurred losses are influenced by historical net losses
experienced by the Company for loans of comparable creditworthiness and structure. Qualitative factors
such as changes in economic conditions, concentrations of risk, and changes in portfolio risk resulting from
regulatory changes are considered in the determining the adequacy of the level of the allowance for loan
losses. The Company discloses that this determination involves a high degree of judgement and complexity
and is inherently subjective.
We identified the valuation of the allowance for loan losses as a critical audit matter. Auditing the allowance
for loan losses involves a high degree of subjectivity in evaluating management’s estimates, such as
evaluating management’s assessment of economic conditions and other qualitative or environmental factors,
evaluating the adequacy of specifically identified losses on impaired loans, and assessing the appropriateness
of loan credit ratings.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls, including those related to technology,
over the allowance for loan losses including data completeness and accuracy, classifications of loans
by loan segment, verification of historical net loss data, and calculated net loss rates, the
establishment of qualitative adjustments, credit ratings, and risk classification of loans and
establishment of specific reserves on impaired loans and management’s review and disclosure
controls over the allowance for credit losses;
Testing of completeness and accuracy of the information utilized in the allowance for loan losses;
Testing the mathematical accuracy of the calculation of the allowance for loan losses;
Evaluating the qualitative adjustments, including assessing the basis for the adjustments and the
reasonableness of the significant assumptions;
63
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Page 3
Testing the loan review function and evaluating the accuracy of loan credit ratings;
Evaluating the reasonableness of specific allowances on impaired loans;
Evaluating the overall reasonableness of assumptions used by management considering the past
performance of the Company and evaluating trends identified within peer groups;
Evaluating the disclosures in the consolidated financial statements.
BKD, LLP
We have served as the Company’s auditor since 1975.
Springfield, Missouri
March 5, 2021
64
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2020 and 2019
(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
2020
2019
$
92,403
$
99,299
471,326
120,856
563,729
220,155
414,933
374,175
17,780
9,242
Loans receivable, net of allowance for loan losses of $55,743 and $40,294 at
December 31, 2020 and 2019, respectively
4,296,804
4,153,982
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 and other interest earning assets
Current and deferred income taxes
12,793
58,889
1,877
13,530
74,984
5,525
139,170
141,908
6,944
9,806
3,695
8,098
13,473
—
Total assets
$
5,526,420
$
5,015,072
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
65
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2020 and 2019
(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
2020
2019
$
4,516,903
164,174
1,518
25,774
148,397
2,594
7,536
29,783
—
$
3,960,106
84,167
228,157
25,774
74,276
4,250
7,484
24,904
2,888
Total liabilities
4,896,679
4,412,006
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2020 and 2019 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2020 – 13,752,605 shares,
2019 – 14,261,052 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes
of $15,699 and $9,525 at December 31, 2020 and 2019, respectively
Total stockholders’ equity
—
—
138
35,004
541,448
53,151
629,741
—
—
143
33,510
537,167
32,246
603,066
Total liabilities and stockholders’ equity
$
5,526,420
$
5,015,072
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
2
66
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2020, 2019 and 2018
(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, debit card 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
Other income
Noninterest Expense
Salaries and employee benefits
Net occupancy and equipment 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
2020
2019
2018
$
$
204,964
12,739
217,703
$
223,047
11,947
234,994
198,226
7,723
205,949
32,431
—
675
628
6,831
40,565
177,138
15,871
161,267
892
18,684
8,089
78
1,419
(264)
—
6,152
35,050
70,810
27,582
3,069
2,405
2,631
1,016
3,794
2,378
2,023
80
1,154
6,283
123,225
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
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
3
67
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2020, 2019 and 2018
(In Thousands, Except Per Share Data)
2020
2019
2018
Income Before Income Taxes
$
73,092 $
90,061 $
81,950
Provision for Income Taxes
13,779
16,449
14,841
Net Income and Net Income Available to
Common Shareholders
Earnings Per Common Share
Basic
Diluted
$
$
$
59,313 $
73,612 $
67,109
4.22 $
5.18 $
4.21 $
5.14 $
4.75
4.71
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
4
68
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
Net Income
$
59,313
$
73,612
$
67,109
2020
2019
2018
Unrealized appreciation (depreciation) on available-for-
sale securities, net of taxes (credit) of $4,215, $2,574
and $(353) for 2020, 2019 and 2018, respectively
Less: reclassification adjustment for losses (gains)
included in net income, net of taxes (credit) of $18,
$(14) and $0 for 2020, 2019 and 2018, respectively
Amortization of realized gain on termination of cash
flow hedge, net of taxes (credit) of $(1,541), $0 and
$0, for 2020, 2019, and 2018, respectively
Change in fair value of cash flow hedge, net of taxes of
$3,519, $4,093 and $2,761 for 2020, 2019 and 2018,
respectively
Other comprehensive income
14,274
8,714
(1,229)
(60)
(5,223)
11,914
20,905
48
—
(2)
—
13,857
22,619
9,345
8,114
Comprehensive Income
$
80,218
$
96,231
$
75,223
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
5
69
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2020, 2019 and 2018
(In Thousands, Except Per Share Data)
Common
Stock
Balance, January 1,2018
$
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
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
Reclassification of treasury stock per Maryland law
Balance, December 31, 2019
Net income
Stock issued under Stock Option Plan
Common dividends declared, $2.36 per share
Purchase of the Company’s common stock
Other comprehensive gain
Reclassification of treasury stock per Maryland law
Balance, December 31, 2020
$
141
—
—
—
—
—
—
1
142
—
—
—
—
—
1
143
—
—
—
—
—
(5)
138
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
70
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
$
$
$
28,203
—
1,918
—
—
—
—
—
30,121
—
3,389
—
—
—
—
33,510
—
1,494
—
—
—
—
442,077
67,109
—
(16,966)
—
(272)
—
139
492,087
73,612
—
(29,373)
—
—
841
537,167
59,313
—
(33,253)
—
—
(21,779)
$
1,241
—
—
—
—
272
8,114
—
9,627
—
—
—
—
22,619
—
32,246
—
—
—
—
20,905
—
$
—
—
1,043
—
(903)
—
—
(140)
—
—
1,691
—
(849)
—
(842)
—
—
320
—
(22,104)
—
21,784
471,662
67,109
2,961
(16,966)
(903)
—
8,114
—
531,977
73,612
5,080
(29,373)
(849)
22,619
—
603,066
59,313
1,814
(33,253)
(22,104)
20,905
—
$
35,004
$
541,448
$
53,151
$
—
$
629,741
See Notes to Consolidated Financial Statements
6
71
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(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 (gain) on sale of premises and equipment
Loss on sale/write-down of other real estate and
repossessions
Gain on sale of business units
Accretion of deferred income, premiums, discounts
and other
Loss (gain) on derivative interest rate products
Deferred income taxes
Changes in
Interest receivable
Prepaid expenses and other assets
Accrued expenses and other liabilities
Income taxes refundable/payable
2020
2019
2018
$
59,313
317,173
(316,125)
$
73,612
131,014
(135,937)
$
67,109
92,422
(83,806)
10,007
2,075
1,153
15,871
(8,089)
(78)
(37)
840
—
(6,147)
264
(11,480)
362
(17,163)
(612)
(1,279)
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
Net cash provided by operating activities
46,048
86,419
94,195
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
7
72
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
Investing Activities
Net change in loans
Purchase of loans
Cash paid for sale of business units
Cash received for termination of interest rate derivative
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
2020
2019
2018
$
$
(62,493)
(92,099)
—
45,864
(8,224)
781
4,096
(126)
—
19,236
76,248
(118,296)
3,667
$
(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)
Net cash used in investing activities
(131,346)
(295,149)
(381,323)
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
(330,306)
887,114
—
—
129,748
105,400
—
—
(146,632)
52
14,346
2,392
242,955
(53,956)
2,621,500
(2,749,000)
200,843
(227)
Proceeds from issuance of subordinated notes
Purchase of the company’s common stock
Dividends paid
Stock options exercised
73,513
(22,104)
(33,426)
661
—
(849)
(29,052)
4,158
—
(903)
(15,819)
2,224
Net cash provided by financing activities
428,872
226,143
247,617
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
343,574
220,155
17,413
(39,511)
202,742
242,253
Cash and Cash Equivalents, End of Year
$
563,729
$
220,155
$
202,742
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
8
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, Colo., 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.
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.
74
9
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but
which may be sold in the future, are carried at fair value. Unrealized gains and losses are recorded, net of related
income tax effects, in other comprehensive income.
Held-to-maturity securities, which include any security for which the Company has the positive intent and ability
to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of
discounts.
Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized
gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined
on the specific-identification method.
For debt securities with fair value below carrying value when the Company does not intend to sell a debt security,
and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it
recognizes the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings
and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an
OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI is amortized
prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of
the security.
The Company’s consolidated statements of income reflect the full impairment (that is, the difference between the
security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more
likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale
and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not
will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in
earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss
component recognized in earnings is identified as the amount of principal cash flows not expected to be received
over the remaining term of the security based on cash flow projections.
For equity securities, if any, when the Company has decided to sell an impaired available-for-sale security and the
Company does not expect the fair value of the security to fully recover before the expected time of sale, the
security is deemed OTTI in the period in which the decision to sell is made. The Company recognizes an
impairment loss when the impairment is deemed other-than-temporary even if a decision to sell has not been
made.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair
value in the aggregate. Write-downs to fair value are recognized as a charge to earnings at the time the decline in
value occurs. Nonbinding forward commitments to sell individual mortgage loans are generally obtained to
reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Gains and
losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to
ensure the ultimate sale of such mortgage loans are recognized as income or expense when the loans are sold or
when it becomes evident that the commitment will not be used.
Loans Originated by the Company
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest
income is reported on the interest method and includes amortization of net deferred loan fees and costs over the
75
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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.
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.
76
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Loans Acquired in Business Combinations
Loans acquired in business combinations under ASC Topic 805, Business Combinations, require the use of the
acquisition 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
impairments through the allowance for loan losses.
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
77
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, 2020, 2019 and 2018.
Goodwill and Intangible Assets
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. The
annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its
carrying amount and an impairment charge is recognized for the amount by which the carrying amount exceeds
the reporting unit’s fair value. The Company still may perform the qualitative assessment for a reporting unit to
determine if the qualitative impairment test is necessary.
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
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2020
2019
(In Thousands)
$
5,396 $
5,396
31
200
1,317
1,548
153
600
1,949
2,702
$
6,944 $
8,098
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.
78
13
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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.
Earnings per common share (EPS) were computed as follows:
2020
2018
2019
(In Thousands, Except Per Share Data)
Net income and net income available to common shareholders
$
59,313
$
73,612
$
67,109
Average common shares outstanding
14,043
14,201
14,132
Average common share stock options outstanding
61
129
128
Average diluted common shares
14,104
14,330
14,260
Earnings per common share – basic
Earnings per common share – diluted
$
$
4.22
4.21
$
$
5.18
5.14
$
$
4.75
4.71
Options outstanding at December 31, 2020, 2019 and 2018, to purchase 758,901, 201,400 and 424,833 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, 2020, 2019 and 2018, 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,
2020, 2019 and 2018, share-based compensation expense totaling $1.2 million, $922,000 and $737,000,
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, 2020 and 2019, cash equivalents consisted of interest-bearing deposits in other financial institutions.
79
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
At December 31, 2020, nearly all of the interest-bearing deposits were uninsured with nearly all of these balances held
at the Federal Home Loan Bank or the Federal Reserve Bank.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (FASB ASC 740,
Income Taxes). The income tax accounting guidance results in two components of income tax expense: current
and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying
the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net
deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets
and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred
tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be
realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50
percent; the terms examined and upon examination also include resolution of the related appeals or litigation
processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers
the facts, circumstances and information available at the reporting date and is subject to management’s judgment.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more
likely than not that some portion or all of a deferred tax asset will not be realized. At December 31, 2020 and
2019, 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. During the
COVID-19 pandemic, the Federal Reserve Bank has reduced all banks’ reserve requirements to $-0- until further
notice. There was no reserve required at December 31, 2020, compared to $69.4 million at December 31, 2019.
80
15
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (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 was set to
be effective for the Company on January 1, 2020. During March 2020, pursuant to the Coronavirus Aid, Relief,
and Economic Security Act (“CARES Act”) and guidance from the Securities and Exchange Commission (the
“SEC”) and the Financial Accounting Standards Board (the “FASB”), we elected to delay adoption of the new
accounting standard related to accounting for credit losses (“CECL”). In December 2020, additional legislation
was enacted that amended certain provisions of the CARES Act. One of the provisions that was affected by this
new legislation allowed for the election to further delay the adoption of the CECL accounting standard to January
1, 2022. An adoption date of January 1, 2021, was also an acceptable option and we elected January 1, 2021 as
our adoption date for the CECL standard. As a result, our 2020 financial statements are prepared under the
existing incurred loss methodology standard for accounting for loan losses.
The adoption of the CECL model during the first quarter of 2021 requires 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
initial adoption, we increased the balance of our allowance for credit losses by approximately $12 million and
create a liability for potential losses related to the unfunded portion of our loans and commitments by
approximately $8 million. The after-tax effect of these adjustments is expected to result in a decrease in our
retained earnings of approximately $13 million. These estimates are subject to change as material assumptions
are refined and model validations are completed as we finalize our first quarter 2021 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 are required for annual or any interim goodwill impairment tests
in fiscal years beginning after December 15, 2019. The impact of adopting this new guidance during the quarter
ended March 31, 2020 did not have a material impact on the Company’s consolidated financial statements. During
2020, the Company performed its annual review of goodwill and intangibles, including consideration of the
circumstances brought about by the COVID-19 pandemic and its effect on the valuation of the Company and
other bank holding companies. The Company concluded that no impairment of its goodwill and intangible assets
had occurred in 2020.
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 during the quarter ended March 31, 2020 did not have a material
impact on the Company’s consolidated financial statements.
81
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. ASU 2020-04 provides relief for companies preparing for
discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark
interest rate referenced in a variety of agreements that are used by numerous entities. After 2021, certain LIBOR
rates may no longer be published. As a result, LIBOR could be discontinued as a reference rate. Other interest
rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and
exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main
provisions for contract modifications include optional relief by allowing the modification as a continuation of the
existing contract without additional analysis and other optional expedients regarding embedded features. Optional
expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated
benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash
flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be
available for a limited time (generally through December 31, 2022). The application of ASU 2020-04 has not had,
and is not expected to have, a material impact on the Company’s consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. ASU 2021-01
clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge
accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the
expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to
tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was
effective upon issuance and generally can be applied through December 31, 2022. ASU 2021-01 has not had, and
is not expected to have, a material impact on the Company’s consolidated financial statements.
Note 2:
Investments in Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
December 31, 2020
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
(In Thousands)
Agency mortgage-backed securities
Agency collateralized mortgage obligations
States and political subdivisions securities
Small Business Administration securities
$
151,106
168,472
45,196
20,033
$
$
19,665
8,524
2,135
1,014
$
831
375
6
—
169,940
176,621
47,325
21,047
$
384,807
$
31,338
$
1,212
$
414,933
December 31, 2019
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
(In Thousands)
Agency mortgage-backed securities
Agency collateralized mortgage obligations
States and political subdivisions securities
Small Business Administration securities
$
156,591
149,980
33,757
22,132
$
$
8,716
2,891
1,368
—
$
265
921
—
74
165,042
151,950
35,125
22,058
$
362,460
$
12,975
$
1,260
$
374,175
17
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
At December 31, 2020, the Company’s agency mortgage-backed securities portfolio consisted of FNMA
securities totaling $156.6 million, FHLMC securities totaling $10.3 million and GNMA securities totaling $3.0
million. At December 31, 2020, agency collateralized mortgage obligations consisted of GNMA securities
totaling $105.8 million, FNMA securities totaling $52.9 million, and FHLMC securities totaling $17.9 million.
At December 31, 2020, all of the Company’s $169.9 million agency mortgage-backed securities had fixed rates of
interest. At December 31, 2020, $156.8 million of the Company’s agency collateralized mortgage obligations had
fixed rates of interest and $19.8 million had variable rates of interest.
The amortized cost and fair value of available-for-sale securities at December 31, 2020, 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.
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
$
—
8,672
36,524
339,611
$
—
9,251
38,074
367,608
$
384,807
$
414,933
There were no securities classified as held to maturity at December 31, 2020 or December 31, 2019.
The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2020 and
2019:
2020
2019
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In Thousands)
Public deposits
Collateralized borrowing accounts
Other
$
5,674
188,309
6,413
$
$
5,962
201,818
6,819
8,578
122,771
7,021
$
8,913
129,643
7,107
$
200,396
$
214,599
$
138,370
$
145,663
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, 2020 and 2019, was approximately $24.2
million and $116.2 million, respectively, which is approximately 5.8% and 31.1% 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.
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, 2020 and 2019:
83
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
Small Business
Administration securities
States and political
subdivisions securities
Less than 12 Months
Fair
Value
Unrealized
Losses
2020
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
10,279
$
(831)
$
—
$
—
$
10,279
$
(831)
12,727
(375)
—
1,164
—
(6)
—
—
—
—
—
—
12,727
(375)
—
1,164
—
(6)
$
24,170
$
(1,212)
$
—
$
—
$
24,170
$
(1,212)
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
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)
69,372
(921)
Administration securities
22,058
States and political
subdivisions securities
—
(74)
—
—
—
—
—
—
—
69,372
22,058
—
(921)
(74)
—
$
91,430
$
(995)
$
24,762
$
(265)
$ 116,192
$
(1,260)
Other-than-Temporary Impairment
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for
beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting
guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment
guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity
securities. For securities where the security is a beneficial interest in securitized financial assets, the Company
uses the beneficial interests in securitized financial asset impairment model. For securities where the security is
not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities
impairment model. The Company does not currently have securities within the scope of this guidance for
beneficial interests in securitized financial assets.
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether an other-than-temporary impairment has occurred. The Company considers the length of time a security
has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of
the security, the type of security and other factors. If certain criteria are met, the Company performs additional
84
19
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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 2020, 2019 and 2018, no securities were determined to have impairment that had become other-than-
temporary.
Credit Losses Recognized on Investments
During 2020, 2019 and 2018, 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, 2020 and 2019, included:
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
Loans acquired and accounted for under ASC 310-30,
net of discounts
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
2020
2019
(In Thousands)
$
42,793
30,894
54,010
1,212,837
470,436
114,569
1,553,677
1,021,145
370,898
14,003
86,173
40,762
114,689
$
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
98,643
5,225,529
(863,722)
(55,743)
(9,260)
4,296,804
$
127,206
5,052,046
(850,666)
(40,294)
(7,104)
4,153,982
$
85
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Classes of loans by aging were as follows:
December 31, 2020
30-59 Days 60-89 Days
Past Due Past Due Past Due
Over 90
Days
Total Past
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
1,365
—
20
—
1,379
—
—
—
—
—
364
443
153
$
$
—
—
—
—
—
—
—
—
$
1,365
—
20
—
$
41,428 $
30,894
53,990
1,212,837
42,793 $
30,894
54,010
1,212,837
113
1,502
2,994
467,442
470,436
—
79
—
—
—
119
7
111
69
587
—
114
—
169
94
508
69
666
—
114
—
652
544
772
114,500
1,553,011
1,021,145
370,784
14,003
85,521
40,218
113,917
114,569
1,553,677
1,021,145
370,898
14,003
86,173
40,762
114,689
1,662
5,386
641
1,070
3,843
6,886
6,146
13,342
92,497
5,212,187
98,643
5,225,529
1,662
641
3,843
6,146
92,497
98,643
Total
$
3,724
$
429
$ 3,043
$
7,196
$ 5,119,690 $ 5,126,886 $
86
21
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
December 31, 2019
30-59 Days 60-89 Days Days
Past Due Past Due Past Due
Total Past
Due
Over 90
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
$
$
—
—
—
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 $
87
22
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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,
2020
2019
(In Thousands)
$
—
—
—
—
1,502
69
587
—
114
—
169
94
508
—
—
—
—
1,198
181
632
—
1,235
—
558
198
517
Total
$
3,043
$
4,519
88
23
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended
December 31, 2020, 2019 and 2018, 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, 2020, 2019, and 2018, respectively:
December 31, 2020
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, 2020
$
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
4,339
$
5,153
$
24,334
$
3,076
$
1,355
$
2,037
$
40,294
84
(70)
183
4,042
—
180
9,343
(43)
73
242
(1)
204
914
(28)
149
1,246
(3,152)
2,083
15,871
(3,294)
2,872
December 31, 2020
$
4,536
$
9,375
$ 33,707
$
3,521
$
2,390
$
2,214
$
55,743
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
$
$
90
$
—
$
445
$
—
4,382
$
9,282
$
32,937
$
3,378
$
$
14
$
164
$
713
2,331
$
2,040
$
54,350
64
$
93
$
325
$
143
$
45
$
10
$
680
Loans
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310-30
$
3,546
$
—
$
3,438
$
—
$
167
$
1,897
$
9,048
$
655,146
$1,021,145
$ 1,550,239
$ 1,266,847
$
384,734
$
239,727
$ 5,117,838
$
57,113
$
6,150
$
24,613
$
2,551
$
2,549
$
5,667
$
98,643
89
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
$
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
3,122
$
4,713
$
19,803
$
3,105
$
1,568
$
6,098
$ 38,409
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
December 31, 2019
$
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
90
25
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
$
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
2,108
$
2,839
$
18,639
$
1,767
$
3,581
$
7,558
$ 36,492
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
December 31, 2018
$
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
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in
Note 3 as follows:
•
•
•
•
•
•
The one- to four-family residential and construction segment includes the one- to four-family residential
construction, subdivision construction, owner occupied one- to four-family residential and non-owner
occupied one- to four-family residential classes.
The other residential segment corresponds to the other residential class.
The commercial real estate segment includes the commercial real estate and industrial revenue bonds
classes.
The commercial construction segment includes the land development and commercial construction classes.
The commercial business segment corresponds to the commercial business class.
The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes.
The weighted average interest rate on loans receivable at December 31, 2020 and 2019, was 4.29% and 4.97%,
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, 2020, was $462.7 million, consisting of
$308.4 million of commercial loan participations sold to other financial institutions and $154.3 million of residential
mortgage loans sold. 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
26
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
million of residential mortgage loans sold. In addition, available lines of credit on these loans were $46.1 million
and $102.1 million at December 31, 2020 and 2019, 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,
2020, 2019 and 2018:
December 31, 2020
Year Ended
December 31, 2020
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
$
$
—
20
—
—
$
—
20
—
—
3,457
69
3,438
—
166
—
865
403
630
3,776
106
3,472
—
551
—
964
552
668
—
—
—
—
90
—
445
—
14
—
140
19
5
$
—
115
—
—
2,999
309
3,736
—
800
—
932
298
550
Total
$
9,048
$
10,109
$
713
$
9,739
$
—
3
—
—
169
18
135
—
34
—
91
47
36
533
92
27
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
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
93
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
At December 31, 2020, $4.8 million of impaired loans had specific valuation allowances totaling $713,000. 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. For
impaired loans which were non-accruing, interest of approximately $579,000, $761,000 and $1.0 million would
have been recognized on an accrual basis during the years ended December 31, 2020, 2019 and 2018,
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, 2020, 2019 and 2018
by type of modification:
2020
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Residential one-to-four family
Commercial real estate
Commercial business
Consumer
$
$
—
—
—
—
—
$
$
1,030
559
22
1,951
3,562
$
$
1,030
559
22
1,967
3,578
—
—
—
16
16
$
$
2019
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Consumer
$
$
—
—
$
$
136
136
$
$
—
—
$
$
136
136
2018
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Residential one-to-four family
Construction and land development
Commercial construction
Consumer
$
$
1,348
—
—
—
1,348
$
$
—
31
—
535
566
$
$
—
—
106
—
106
$
$
1,348
31
106
535
2,020
At December 31, 2020, the Company had $3.3 million of loans that were modified in troubled debt restructurings
and impaired, as follows: $20,000 of construction and land development loans, $1.9 million of single family
residential mortgage loans, $646,000 of commercial real estate loans, $127,000 of commercial business loans and
$629,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2020, $2.4 million were
accruing interest and $1.6 million were classified as substandard using the Company’s internal grading system
94
29
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, 2020. 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, 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. During the
year ended December 31, 2020, borrowers with loans designated as troubled debt restructurings totaling $372,000,
all of which consisted of residential one-to-four family loans, met the criteria for placement back on accrual status.
This criteria generally includes a minimum of six months of consistent and timely payment performance under
original or modified terms.
At December 31, 2020, the Company had remaining 65 modified commercial loans with an aggregate principal
balance outstanding of $233 million and 581 modified consumer and mortgage loans with an aggregate principal
balance outstanding of $18 million. The loan modifications are within the guidance provided by the CARES Act
(and its amending legislation), the federal banking regulatory agencies, the Securities and Exchange Commission
and the Financial Accounting Standards Board; therefore, they are not considered troubled debt restructurings.
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, 2020 and 2019 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.
95
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The loan grading system is presented by loan class below:
Satisfactory
Watch
December 31, 2020
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
$
41,428
30,874
54,010
1,212,837
467,855
114,176
1,498,031
1,017,648
363,681
14,003
85,657
40,514
114,049
$
$
1,365
—
—
—
216
324
52,208
3,497
7,102
—
5
2
39
98,633
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
20
—
—
— $
—
—
—
1,212,837
Total
42,793
30,894
54,010
2,365
69
3,438
—
115
—
511
246
601
—
—
—
—
—
—
—
—
—
470,436
114,569
1,553,677
1,021,145
370,898
14,003
86,173
40,762
114,689
10
—
98,643
Total
$ 5,153,396
$
64,758
$
—
$
7,375
$
— $ 5,225,529
96
31
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
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, 2020 and 2019, loans outstanding to these directors and executive officers, and their related interests, are
summarized as follows:
2020
2019
(In Thousands)
Balance, beginning of year
New loans
Payments
Balance, end of year
$
$
15,240
901
(2,673)
$
29,017
15,062
(28,839)
13,468
$
15,240
97
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 4:
FDIC-Acquired Loans and Loss Sharing Agreements
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
related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great
Southern Bank and the FDIC. Based upon the acquisition date fair values of the net assets acquired, no goodwill
was recorded.
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 related loss sharing agreement was terminated early, effective April 26,
2016, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of
the net assets acquired, no goodwill was recorded.
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 related loss sharing agreement was terminated early, effective April 26,
2016, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of
the net assets acquired, no goodwill was recorded.
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 related loss sharing agreement was terminated early,
effective June 9, 2017, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition
date fair values of the net assets acquired, no goodwill was recorded.
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.
98
33
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at
December 31, 2020 and December 31, 2019.
TeamBank
Vantus
Bank
Sun
Security
Bank
(In Thousands)
InterBank
Valley Bank
$
5,393
$
8,052
$ 13,395
$ 44,215
$ 31,515
(97)
(35)
(180)
(1,079)
(612)
(5,266)
30
$
(8,004)
13
(13,111)
104
$
$
(42,057)
1,079
$
(30,204)
$ 699
$
7,304
$
9,899
$ 17,906
$ 60,430
$ 41,032
(159)
(89)
(374)
(5,143)
(1,803)
(7,118)
27
$
(9,797)
13
(17,392)
140
$
$
(54,442)
845
$
(38,452)
$ 777
December 31, 2020
Gross loans receivable
Balance of accretable discount due
to change in expected losses
Net carrying value of loans
receivable
Expected loss remaining
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
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. Improvements in expected cash flows related to the acquired loan
portfolios have resulted in adjustments to the accretable yield to be spread over the estimated remaining lives of
the loans on a level-yield basis. The amounts of these adjustments during the years ended December 31, 2020,
2019, and 2018 were as follows:
99
34
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Year Ended December 31,
2020
2019
2018
(In Thousands)
Increase in accretable yield due to increased
cash flow expectations
$
—
$
12,323
$
5,202
The adjustments, along with those made in previous years, impacted the Company’s Consolidated Statements of
Income as follows:
Year Ended December 31,
2020
2019
2018
(In Thousands)
Interest income and net impact to pre-tax income
$
5,574
$
7,431
$
5,134
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).
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, 2020, the remaining accretable yield
adjustment that will affect interest income was $2.0 million. Of the remaining adjustments affecting interest
income, we expect to recognize $1.5 million of interest income during 2021. As of January 1, 2021, we have
adopted the new accounting standard related to accounting for credit losses. With the adoption of this standard,
there will be no further reclassification of discounts from non-accretable to accretable subsequent to December 31,
2020. All adjustments made prior to January 1, 2021 will continue to be accreted to interest income.
100
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Changes in the accretable yield for acquired loan pools were as follows for the years ended December 31, 2020,
2019 and 2018:
Balance, January 1, 2018
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2018
Accretion
Reclassification from nonaccretable
difference(1)
Balance, December 31, 2019
Accretion
Reclassification from nonaccretable
difference(1)
TeamBank
Vantus Bank Security Bank
(In Thousands)
InterBank Valley Bank
Sun
$
2,071
(1,042)
$
1,850
(1,196)
$
2,901
(1,667)
$
5,074
$
(8,349)
2,695
(3,892)
327
1,356
(955)
756
1,157
(479)
198
778
1,432
(1,006)
697
1,123
(831)
451
743
1,008
2,242
(1,562)
1,268
1,948
(1,046)
8,269
4,260
4,994
(8,798)
3,063
(4,302)
12,081
5,817
8,277
(6,791)
4,578
(3,005)
493
2,219
2,764
$
1,395
$
3,705
$
4,337
Balance, December 31, 2020
$
876
$
(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, 2020, totaling $198,000, $451,000, $493,000, $2.2 million and $2.8 million,
respectively; 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; and 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.
101
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 5: Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2020 and 2019, 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
Foreclosed assets related to FDIC acquisitions, net of discounts
Foreclosed assets held for sale and repossessions, net
Other real estate owned not acquired through foreclosure
$
2020
2019
(In Thousands)
$
—
263
250
—
111
—
—
—
153
777
446
1,223
654
—
689
1,816
—
601
—
—
—
545
3,651
1,003
4,654
871
Other real estate owned and repossessions
$
1,877
$
5,525
At December 31, 2020, other real estate owned not acquired through foreclosure included seven properties all of
which were branch locations that were closed and held for sale. During the year ended December 31, 2020, one
former branch location was added to this category for $80,000 and was under contract at December 31, 2020. The
sale was completed in February 2021, resulting in a small gain. During the year ended December 31, 2020,
valuation write-downs of $286,000 were recorded on branch locations that were closed and held for sale.
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, 2020, residential mortgage loans totaling $602,000 were in the process of foreclosure, $518,000
of which were acquired loans related to FDIC-assisted transactions. 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 related to
FDIC-assisted transactions.
102
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Expenses applicable to other real estate owned and repossessions for the years ended December 31, 2020, 2019
and 2018, included the following:
2020
2019
(In Thousands)
2018
Net gains on sales of other real estate owned
and repossessions
Valuation write-downs
Operating expenses, net of rental income
$
$
(480)
1,320
1,183
$
(750)
926
2,008
(2,522)
3,897
3,544
$
2,023
$
2,184
$
4,919
Note 6: Premises and Equipment
Major classifications of premises and equipment at December 31, 2020 and 2019, stated at cost, were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Operating leases right of use asset
Less accumulated depreciation
2020
2019
(In Thousands)
$
$
40,652
100,187
59,226
8,536
208,601
69,431
40,632
96,959
56,986
8,668
203,245
61,337
$
139,170
$
141,908
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 15 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 as of January 1, 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, 2020, the lease right of use
asset value was $8.5 million and the corresponding lease liability was $8.7 million. 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
103
38
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
use of hindsight, a practical expedient which permits the use of information available after lease inception to
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 $275,000 and $286,000 for the years ended December 31, 2020 and December 31, 2019,
respectively.
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 0.8 years to 17.9 years with
a weighted-average lease term of 8.3 years. The weighted-average discount rate was 3.24%.
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, 2020 December 31, 2019
(In Thousands)
$
$
8,536
8,661
$
$
8,668
8,747
$
1,572
$
1,460
$
1,526
$
1,381
$
972
$
9,538
104
39
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
For the years ended December 31, 2020 and 2019, lease expense was $1.6 million and $1.5 million, respectively.
At December 31, 2020, future expected lease payments for leases with terms exceeding one year were as follows
(in thousands):
2021
2022
2023
2024
2025
Thereafter
Future lease payments expected
Less interest portion of lease payments
$
1,119
1,116
1,088
1,005
979
4,926
10,233
(1,572)
Lease liability
$
8,661
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, 2020 and 2019, income recognized from these
lease agreements was $1.2 million and $1.1 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, 2020 the Company had 16 such investments, with a net carrying value of
$20.4 million. At December 31, 2019 the Company had 15 such investments, with a net carrying value of $22.8
million. Due to the Company’s inability to exercise any significant influence over any of the investments in
Affordable Housing Partnerships, they all are accounted for using the proportional amortization method. Each of
the partnerships must meet the regulatory requirements for affordable housing for a minimum 15-year compliance
period to fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the credits
may be denied for any period in which the projects are not in compliance and a portion of the credits previously
taken may be subject to recapture with interest.
The remaining federal affordable housing tax credits to be utilized through 2030 were $22.1 million as of
December 31, 2020, 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 $20.4
million, assuming all projects currently under construction are completed and funded as planned. The Company’s
usage of federal affordable housing tax credits approximated $6.6 million, $8.0 million and $6.6 million during
2020, 2019 and 2018, respectively. Investment amortization amounted to $5.5 million, $5.8 million and $5.0
million for the years ended December 31, 2020, 2019 and 2018, 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, 2020 the Company had one such
investment, with a net carrying value of $567,000. At December 31, 2019, the Company had no such investment.
105
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Due to the Company’s inability to exercise any significant influence over any of the investments in qualified
Community Development Entities, they are all accounted for using the cost method. Each of the partnerships
provides federal New Market Tax Credits over a seven-year credit allowance period. In each of the first three
years, credits totaling five percent of the original investment are allowed on the credit allowance dates and for the
final four years, credits totaling six percent of the original investment are allowed on the credit allowance dates.
Each of the partnerships must be invested in a qualified Community Development Entity on each of the credit
allowance dates during the seven-year period to utilize the tax credits. If the Community Development Entities
cease to qualify during the seven-year period, the credits may be denied for any credit allowance date and a
portion of the credits previously taken may be subject to recapture with interest. The investments in the
Community Development Entities cannot be redeemed before the end of the seven-year period.
The Company’s usage of federal New Market Tax Credits approximated $100,000, $480,000 and $480,000 during
2020, 2019 and 2018, respectively. Investment amortization amounted to $80,000, $365,000 and $575,000 for the
years ended December 31, 2020, 2019 and 2018, 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. At December 31, 2020 the Company had one such investments, with a
net carrying value of $863,000. 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, 2020 and 2019, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2020
2019
(In Thousands, Except
Interest Rates)
—
$
984,798
$
687,068
0.22% and 0.55%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% and above
2,141,313
3,126,111
803,737
425,061
143,417
18,148
429
1,390,792
1,551,929
2,238,997
122,649
523,816
1,053,914
19,849
881
1,721,109
$
4,516,903
$
3,960,106
106
41
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The weighted average interest rate on certificates of deposit was 1.00% and 2.09% at December 31, 2020 and
2019, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than $250,000
was approximately $123.1 million and $153.1 million at December 31, 2020 and 2019, respectively. The
aggregate amount of certificates of deposit originated by the Bank in denominations greater than $100,000 was
approximately $762.9 million and $830.8 million at December 31, 2020 and 2019, respectively. The Bank
utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was
approximately $158.7 million and $371.7 million at December 31, 2020 and 2019, respectively.
At December 31, 2020, scheduled maturities of certificates of deposit were as follows:
2021
2022
2023
2024
2025
Thereafter
Retail
Brokered
(In Thousands)
Total
$
$
995,934
175,913
30,898
14,647
13,743
913
91,345
13,751
42,448
11,200
—
—
$
1,087,279
189,664
73,346
25,847
13,743
913
$
1,232,048
$
158,744
$
1,390,792
A summary of interest expense on deposits for the years ended December 31, 2020, 2019 and 2018, is as follows:
2020
2019
(In Thousands)
2018
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
7,096
25,453
(118)
$
7,971
37,723
(124)
5,982
22,149
(174)
$
32,431
$
45,570
$
27,957
Note 9: Advances From Federal Home Loan Bank
At December 31, 2020 and 2019, there were no outstanding term advances from the Federal Home Loan Bank of
Des Moines. At December 31, 2019, 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 other pledges, liens and
encumbrances as collateral for outstanding advances. No investment securities were specifically pledged as
collateral for advances at December 31, 2020 and 2019. Loans with carrying values of approximately $1.63
billion and $1.60 billion were pledged as collateral for outstanding advances at December 31, 2020 and 2019,
respectively. The Bank had potentially available $1.07 billion remaining on its line of credit under a borrowing
arrangement with the FHLB of Des Moines at December 31, 2020.
107
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2020 and 2019, are summarized as follows:
2020
2019
(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
$
$
1,518
—
—
164,174
1,267
30,890
196,000
84,167
$
165,692
$
312,324
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 consisted 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 0.02% and 1.25% at December 31, 2020 and 2019,
respectively. Short-term borrowings averaged approximately $183.5 million and $260.0 million for the years
ended December 31, 2020 and 2019, respectively. The maximum amounts outstanding at any month end were
$318.7 million and $346.9 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, 2020 and 2019:
2020
Overnight and
Continuous
2019
Overnight and
Continuous
(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC
$ 164,174
$ 84,167
Note 11: Federal Reserve Bank Borrowings
At December 31, 2020 and 2019, the Bank had $436.4 million and $367.8 million, respectively, available under a
line-of-credit borrowing arrangement with the Federal Reserve Bank. The line is secured primarily by consumer
and commercial loans. There were no amounts borrowed under this arrangement at December 31, 2020 or 2019.
108
43
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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 1.81% and 3.51% at December 31, 2020 and 2019, respectively.
At December 31, 2020 and 2019, subordinated debentures issued to capital trusts are summarized as follows:
Subordinated debentures
$
25,774
$
25,774
2020
2019
(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 of approximately $1.5 million were
deferred and are being amortized over the expected life of the notes, which is five years.
On June 10, 2020, the Company completed the public offering and sale of $75.0 million of its subordinated notes.
The notes are due June 15, 2030, and have a fixed interest rate of 5.50% until June 15, 2025, at which time the
rate becomes floating at a rate expected to be equal to three-month term Secured Overnight Financing Rate
(SOFR) plus 5.325%. The Company may call the notes at par beginning on June 15, 2025, 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 of approximately $1.5 million were deferred and are being amortized over the expected life of
the notes, which is five years.
Amortization of the debt issuance costs during the years ended December 31, 2020 and 2019, totaled $608,000
and $434,000, respectively, and is included in interest expense on subordinated notes in the consolidated
statements of income, resulting in an imputed interest rate of 5.84% and 5.89%, respectively.
At December 31, 2020 and 2019, subordinated notes are summarized as follows:
2020
2019
(In Thousands)
Subordinated notes
Less: unamortized debt issuance costs
$
$
150,000
1,603
148,397
$
$
75,000
724
74,276
44
109
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 14: Income Taxes
The Company files a consolidated federal income tax return. As of December 31, 2020 and 2019, 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, 2020 and 2019,
respectively.
During the years ended December 31, 2020, 2019 and 2018, the provision for income taxes included these
components:
2020
2019
(In Thousands)
2018
Taxes currently payable
Deferred income taxes (benefit)
Income taxes
$
$
25,259
(11,480)
$
15,375
1,074
$
19,291
(4,450)
13,779
$
16,449
$
14,841
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
Income recognized for tax in excess of book
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
Prepaid expenses
Unrealized gain on available-for-sale securities
Unrealized gain on cash flow derivatives
Other
December 31,
2020
2019
(In Thousands)
$
12,711
142
894
131
114
8,830
11
885
1,532
25,250
$
9,188
161
821
185
50
—
732
509
2,540
14,186
(5,988)
(368)
(898)
(6,869)
(8,830)
(258)
(23,211)
(5,986)
(817)
(891)
(2,671)
(6,853)
(233)
(17,451)
Net deferred tax asset (liability)
$
2,039
$
(3,265)
110
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax
rates were as follows:
Tax at statutory rate
Nontaxable interest and dividends
Tax credits
State taxes
Other
2020
2019
2018
21.0%
(0.5)
(3.8)
1.4
0.8
18.9%
21.0%
(0.5)
(3.6)
1.3
0.1
18.3%
21.0%
(0.8)
(3.4)
1.1
0.2
18.1%
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, 2016 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:
Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted
unadjusted prices in active markets for identical assets that the Company has the ability to access at the
measurement date. An active market for the asset is a market in which transactions for the asset or
liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from sources independent of the
reporting entity including quoted prices for similar assets, quoted prices for securities in inactive markets
and inputs derived principally from or corroborated by observable market data by correlation or other
means.
Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source independent of the
reporting entity or the reporting entity's own assumptions that are supported by little or no market activity
or observable inputs.
111
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Financial instruments are broken down 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, 2020 and 2019:
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, 2020
Agency mortgage-backed securities
Agency collateralized mortgage obligations
States and political subdivisions securities
Small Business Administration securities
Interest rate derivative asset
Interest rate derivative liability
December 31, 2019
Agency mortgage-backed securities
Agency collateralized mortgage obligations
States and political subdivisions securities
Small Business Administration securities
Interest rate derivative asset
Interest rate derivative liability
$
$
169,940
176,621
47,325
21,047
5,062
(5,454)
165,042
151,950
35,125
22,058
31,476
(1,547)
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
169,940
176,621
47,325
21,047
5,062
(5,454)
165,042
151,950
35,125
22,058
31,476
(1,547)
$
$
—
—
—
—
—
—
—
—
—
—
—
—
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, 2020 and
2019, 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, 2020.
112
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, 2020 or 2019. 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, 2020 or 2019.
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, 2020 and
2019:
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, 2020
Impaired loans
Foreclosed assets held for sale
December 31, 2019
Impaired loans
Foreclosed assets held for sale
(In Thousands)
$
$
$
$
1,759
945
635
1,112
$
$
$
$
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
1,759
945
635
1,112
Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring
basis and recognized in the accompanying statements of financial condition, as well as the general classification
of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy,
the process used to develop the reported fair value is described below.
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of mortgage
loans held for sale is based on what secondary markets are currently offering for portfolios with similar
characteristics. As such, the Company classifies mortgage loans held for sale as Nonrecurring Level 2. Write-
48
113
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, 2020 and 2019, 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, 2020 and 2019, 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, 2020 and 2019, 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.
Cash and Cash Equivalents and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
114
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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.
115
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
December 31, 2020
December 31, 2019
Carrying
Amount
Fair
Value
Carrying
Hierarchy
Level
Amount
(Dollars in Thousands)
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 and
other assets
$
563,729
17,780
$ 563,729
17,780
4,296,804
12,793
4,303,909
12,793
9,806
9,806
Financial liabilities
Deposits
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
4,516,903
165,692
25,774
148,397
2,594
4,523,586
165,692
25,774
157,032
2,594
Unrecognized financial instruments
(net of contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
—
84
—
—
84
—
1
2
3
3
3
3
3
3
2
3
3
3
3
$ 220,155
9,242
$ 220,155
9,242
4,153,982
13,530
4,129,984
13,530
13,473
13,473
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
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. 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.
116
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
As part of the Valley Bank FDIC-assisted acquisition, the Company acquired certain 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. The notional amount of the two remaining Valley swaps was $584,000 at
December 31, 2020. At December 31, 2020, excluding the Valley Bank swaps, the Company had 19 interest rate
swaps totaling $142.8 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, 2020, the Company
had four participation loans purchased totaling $27.7 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, 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. During the years ended December 31, 2020, 2019 and 2018, the Company recognized net gains
(losses) of $(264,000), $(104,000) and $25,000, 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 was $400 million with a termination date of October 6, 2025. Under the terms of the swap, the
Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal to one-month USD-
LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred
monthly. To the extent that the fixed rate of interest exceeded one-month USD-LIBOR, the Company received net
interest settlements which were recorded as loan interest income. If USD-LIBOR exceeded the fixed rate of
interest in future periods, the Company was required to pay net settlements to the counterparty and recorded those
net payments as a reduction of interest income on loans. The Company recorded interest income of $7.7 million
and $3.1 million on this interest rate swap during the years ended December 31, 2020 and 2019, 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,
2020 and 2019, the Company recognized no noninterest income related to changes in the fair value of this
derivative.
On March 2, 2020, the Company and its swap counterparty mutually agreed to terminate the swap, effective on
that date. 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, was reflected in the Company’s stockholders’ equity as Accumulated Other
Comprehensive Income and a portion of it is being accreted to interest income on loans monthly through the
original contractual termination date of October 6, 2025. This has the effect of reducing Accumulated Other
Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period. In each
quarterly period, commencing with the quarter ended June 30, 2020, until the original contract termination date,
the Company expects to record loan interest income related to this swap transaction of approximately $2.0
million, based on the termination value of the swap.
117
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The table below presents the fair value of the Company’s derivative financial instruments as well as their
classification on the Consolidated Statements of Financial Condition:
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2020
2019
(In Thousands)
Prepaid expenses and other assets
$
—
$
30,056
$
—
$
30,056
Derivatives designated as
hedging instruments
Interest rate swap
Total derivatives designated
as hedging instruments
Derivatives not designated
as hedging instruments
Derivative Assets
Interest rate products
Prepaid expenses and other assets
$
5,062
$
1,420
Total derivatives not
designated as hedging
instruments
Derivative Liabilities
Interest rate products
Total derivatives not
designated as hedging
instruments
$
5,062
$
1,420
Accrued expenses and other liabilities
$
5,454
$
1,547
$
5,454
$
1,547
The following table presents the effect of cash flow hedge accounting on the statements of comprehensive
income:
Cash Flow Hedges
2020
Amount of Gain
Recognized in AOCI
Year Ended December 31
2019
(In Thousands)
2018
Interest rate swap, net of income taxes
$
6,691
$
13,857
$
9,345
118
53
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The following table presents the effect of cash flow hedge accounting on the statements of operations:
Cash Flow Hedges
2020
Year Ended December 31
2019
2018
Interest
Income
Interest
Expense
Interest
Income
(In Thousands)
Interest
Expense
Interest
Income
Interest
Expense
Interest rate swap, net of income taxes
$ 7,676 $ — $ 3,082 $ — $ 673 $ —
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, 2020, 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 $391,000. Additionally,
the Company’s activity with two 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
$5.3 million to the derivative counterparties to satisfy the loan level agreements. If the Company had breached
any of these provisions at December 31, 2020 or December 31, 2019, it could have been required to settle its
obligations under the agreements at the termination value. 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. At December 31, 2019, other interest-bearing
liabilities consisted 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. Effective March 2, 2020, the Company and its swap
counterparty mutually agreed to terminate the Company’s interest rate swap, eliminating the cash collateral held.
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.
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Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
At December 31, 2020 and 2019, the Bank had outstanding commitments to originate loans and fund commercial
construction loans aggregating approximately $46.6 million and $92.4 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 $85.9 million and $69.3 million at December 31, 2020
and 2019, 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 $16.1 million and $26.3
million at December 31, 2020 and 2019, respectively, with no letters of credit having terms over five years.
Lines of Credit
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without
being drawn upon, the total unused lines do not necessarily represent future cash requirements. The Bank
evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real
estate and residential real estate. The Bank uses the same credit policies in granting lines of credit as it does for
on-balance-sheet instruments.
At December 31, 2020, the Bank had granted unused lines of credit to borrowers aggregating approximately $1.0
billion and $164.5 million for commercial lines and open-end consumer lines, respectively. 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.
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 $804.1 million and $725.0 million at December 31, 2020 and 2019, 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.
120
55
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
2020
2019
(In Thousands)
2018
$ 1,707
625
80
4,676
$ 12,729
1,340
1,135
4,849
$ 12,044
2,578
—
4,528
42,221
18,755
53,922
5,719
37,091
2,569
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, 2020, 2019 and 2018, were approximately $2.1 million, $1.8 million and $1.3
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, 2020 and 2019, was 92.5% and 93.7%,
respectively. The funded status was calculated by taking the market value of plan assets, which reflected
contributions received through June 30, 2020 and 2019, 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, 2020, 2019 and 2018, were
approximately $1.6 million, $1.4 million and $1.4 million, respectively.
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, 2020, 31,591 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, 2020, 384,866 options were outstanding under the 2013 Plan.
121
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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, 2020, 554,650 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.
The table below summarizes transactions under the Company’s stock compensation plans, all of which related to
stock options granted under such plans:
Available to
Grant
Shares Under
Option
Weighted
Average
Exercise Price
Balance, January 1, 2018
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)
Balance, December 31, 2019
Granted from 2018 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
77,512
(1,000 )
—
13,773
(90,285 )
—
800,000
(185,750 )
600
614,850
(186,400 )
—
—
8,450
436,900
(196,350 )
—
—
4,800
682,799 $
1,000
(81,940 )
(13,773 )
—
588,086
—
185,750
(600 )
773,236
186,400
(125,894 )
(17,424 )
(8,450 )
807,868
196,350
(21,436 )
(6,875 )
(4,800 )
Balance, December 31, 2020
245,350
971,107 $
38.860
52.500
27.597
45.692
55.297
55.000
43.886
60.086
33.031
44.163
55.000
49.139
41.740
33.805
38.849
57.513
48.079
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
122
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
compensation expense based on the estimated number of stock options for which service is expected to be
rendered. The Company’s historical forfeitures of its share-based awards have not been material.
The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing
model with the following assumptions for the years ended December 31, 2020, 2019 and 2018:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2020
$ 1.36
0.35%
5 years
29.32%
$ 7.30
2019
$ 1.36
1.59%
5 years
25.15%
$ 11.20
2018
$ 1.27
2.86%
5 years
17.61%
$ 8.30
Expected volatilities are based on the historical volatility of the Company’s stock, based on the monthly closing stock
price. The expected life 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, 2020:
Options outstanding, January 1, 2020
Granted
Exercised
Forfeited
Options outstanding, December 31, 2020
Options exercisable, December 31, 2020
Weighted
Average
Exercise
Price
$
49.139
41.740
30.805
46.523
48.079
42.583
Weighted
Average
Remaining
Contractual
Term
7.54 years
7.23 years
4.95 years
Options
807,868
196,350
(21,436)
(11,675)
971,107
363,695
For the years ended December 31, 2020, 2019 and 2018, options granted were 196,350, 186,400, and 186,750,
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, 2020, 2019
and 2018, was $371,000, $3.1 million and $2.2 million, respectively. Cash received from the exercise of options
for the years ended December 31, 2020, 2019 and 2018, was $661,000, $4.2 million and $2.2 million,
respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $257,000, $2.7
million and $1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total intrin sic
value of options outstanding at December 31, 2020, 2019 and 2018, was $4.5 million, $11.5 million and $4.7
million, respectively. The total intrinsic value of options exercisable at December 31, 2020, 2019 and 2018, was
$2.9 million, $6.6 million and $3.9 million, respectively.
123
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
The following table presents the activity related to nonvested options under all plans for the year ended December
31, 2020.
Nonvested options, January 1, 2020
Granted
Vested this period
Nonvested options forfeited
Weighted
Average
Exercise
Price
54.610
$
41.740
50.441
54.655
Options
552,377
196,350
(134,140)
(7,175)
Nonvested options, December 31, 2020
607,412
51.370
Weighted
Average
Grant Date
Fair Value
$
9.509
7.296
8.662
9.501
8.981
At December 31, 2020, there was $4.6 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 2025,
with the majority of this expense recognized in 2021 and 2022.
The following table further summarizes information about stock options outstanding at December 31, 2020:
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
64,043
62,056
282,357
204,251
358,400
2.16 years
3.62 years
8.56 years
6.11 years
8.35 years
$25.598
33.001
41.613
51.656
57.762
64,043
61,181
59,816
133,496
45,159
$25.598
32.921
41.335
51.415
55.306
971,107
7.23 years
48.079
363,695
42.583
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. 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.
124
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 22: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’ equity, are as
follows:
2020
2019
(In Thousands)
Net unrealized gain on available-for-sale securities
$
30,126
$
11,715
Net unrealized gain on derivatives used for cash flow hedges
Tax effect
38,724
68,850
30,056
41,771
(15,699)
(9,525)
Net-of-tax amount
$
53,151
$
32,246
Amounts reclassified from AOCI and the affected line items in the statements of income during the years ended
December 31, 2020, 2019 and 2018, were as follows:
Amounts Reclassified
from AOCI
2019
(In Thousands)
2020
2018
Affected Line Item in the
Statements of Income
Unrealized gains/(losses) on
available-for-sale securities
$
78 $
(62) $
2
Net realized gains on available-for-sale
securities (total reclassified amount
before tax)
Change in fair value of cash
flow hedge
Income taxes
6,764
(1,559)
—
14
Amortization of realized gain on
—
termination of cash flow hedge (total
reclassification amount before tax)
— Tax (expense) benefit
Total reclassifications out of AOCI
$
5,283 $
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.
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, 2020) 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
125
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
believes, as of December 31, 2020, that the Bank met all capital adequacy requirements to which it was then
subject.
As of December 31, 2020, 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, 2020, 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, 2020 and 2019, 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 capital rules
include a capital conservation buffer, under which a banking organization must have Common Equity Tier 1
capital 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.
126
61
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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.
To Be Well
For Capital
Capitalized Under
Prompt Corrective
Adequacy Purposes Action Provisions
Ratio
Amount Ratio Amount Ratio Amount
Actual
(Dollars In Thousands)
As of December 31, 2020
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 800,388 17.2% $ 373,132 8.0%
$ 694,047 14.9% $ 373,058 8.0% $
N/A
466,322
N/A
10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 594,645 12.7% $ 279,849 6.0%
$ 638,304 13.7% $ 279,793 6.0% $
N/A
373,058
N/A
8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 594,645 10.9% $ 217,223 4.0%
$ 638,304 11.8% $ 217,170 4.0% $
N/A
271,463
N/A
5.0%
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2019
Total capital
$ 569,645 12.2% $ 209,887 4.5%
$ 638,304 13.7% $ 209,845 4.5% $
N/A
303,109
N/A
6.5%
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% $ 279,290 6.0%
$ 609,986 13.1% $ 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% $ 198,320 4.0%
$ 609,986 12.3% $ 198,010 4.0% $
N/A
247,512
N/A
5.0%
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 557,791 12.0% $ 209,468 4.5%
$ 609,986 13.1% $ 209,428 4.5% $
N/A
302,507
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.
127
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Note 25: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the years 2020, 2019 and 2018:
2020
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
$ 57,474
12,536
3,871
—
7,367
30,815
2,751
14,868
1.04
$ 54,011
10,556
6,000
78
8,261
29,349
3,164
13,203
0.93
$ 53,599
9,431
4,500
—
9,466
31,988
3,692
13,454
0.96
$ 52,619
8,042
1,500
—
9,956
31,073
4,172
17,788
1.28
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
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
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)
$ 46,882
7,444
1,950
—
6,935
28,312
2,645
13,466
0.95
128
$ 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
63
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
December 31, 2020, 2019 and 2018
Note 26: Condensed Parent Company Statements
Note 26: Condensed Parent Company Statements
The condensed statements of financial condition at December 31, 2020 and 2019, and statements of income,
The condensed statements of financial condition at December 31, 2020 and 2019, and statements of income,
comprehensive income and cash flows for the years ended December 31, 2020, 2019 and 2018, for the parent
comprehensive income and cash flows for the years ended December 31, 2020, 2019 and 2018, for the parent
company, Great Southern Bancorp, Inc., were as follows:
company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Statements of Financial Condition
Assets
Assets
Cash
Cash
Investment in subsidiary bank
Investment in subsidiary bank
Deferred and accrued income taxes
Deferred and accrued income taxes
Prepaid expenses and other assets
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated debentures issued to capital trust
Subordinated notes
Subordinated notes
Common stock
Common stock
Additional paid-in capital
Additional paid-in capital
Retained earnings
Retained earnings
Accumulated other comprehensive income
Accumulated other comprehensive income
2020
2020
December 31,
December 31,
(In Thousands)
(In Thousands)
2019
2019
$
$
$
$
$
$
$
$
111,250
111,250
698,398
698,398
157
157
883
883
810,688
810,688
6,776
6,776
25,774
25,774
148,397
148,397
138
138
35,004
35,004
541,448
541,448
53,151
53,151
810,688
810,688
$
$
$
$
$
$
$
$
58,726
58,726
650,329
650,329
111
111
868
868
710,034
710,034
6,918
6,918
25,774
25,774
74,276
74,276
143
143
33,510
33,510
537,167
537,167
32,246
32,246
710,034
710,034
129
64
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Statements of Income
Income
Dividends from subsidiary bank
Other 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
Statements of Income
subsidiaries
Income
Dividends from subsidiary bank
Net income
Other 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
2020
2019
(In Thousands)
2018
$
$
40,000
5
—
40,005
2,197
7,459
9,656
30,349
(1,800)
32,000
—
(23)
31,977
2,044
5,397
7,441
24,536
(1,381)
34,000
—
—
34,000
1,793
5,050
6,843
27,157
(1,204)
2020
32,149
25,917
2019
(In Thousands)
2018
28,361
$
$
27,164
59,313
40,000
5
—
40,005
2,197
7,459
9,656
30,349
(1,800)
47,695
73,612
32,000
—
(23)
31,977
2,044
5,397
7,441
24,536
(1,381)
$
$
38,748
67,109
34,000
—
—
65
34,000
1,793
5,050
6,843
27,157
(1,204)
32,149
25,917
28,361
27,164
47,695
38,748
$
59,313
$
73,612
$
67,109
130
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
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
Return of principal - other investments
Net cash provided by investing activities
Financing Activities
Purchases of the Company’s common stock
Proceeds from issuance of subordinated notes
Dividends paid
Stock options exercised
Net cash provided by (used in) financing activities
Increase in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2020
2019
(In Thousands)
2018
$
59,313
$
73,612
$
67,109
(27,164)
1,153
608
—
(15)
31
(46)
33,880
—
—
(22,104)
73,513
(33,426)
661
18,644
52,524
58,726
$
111,250
$
7,349
$
$
(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
$
$
131
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Statements of Comprehensive Income
2020
2019
(In Thousands)
2018
Net Income
$ 59,313
$
73,612
$
67,109
Comprehensive income of subsidiaries
20,905
22,619
8,114
Comprehensive Income
$
80,218
$
96,231
$
75,223
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 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.
132
67
GreatSouthernBank.com
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001CSN4733 Annual Report