S
D
L
I
U
B
T
A
H
T
H
T
G
N
E
R
T
S
S
R
E
D
L
O
H
K
C
O
T
S
R
O
F
T
R
O
P
E
R
L
A
U
N
N
A
1
2
0
2
STRENGTH THAT BUILDS | 1
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
800-749-7113
MAILING ADDRESS
P.O. Box 9009
Springfield, MO 65808
DIVIDEND REINVESTMENT
For details on the automatic reinvestment of
dividends in common stock of the Company,
call Computershare at 800-368-5948,
(outside of the U.S. 781-575-4223), or visit
computershare.com.
FORM 10-K
The Annual Report on Form 10-K filed with
the Securities and Exchange Commission may
be obtained from the Company’s website at
GreatSouthernBank.com, the SEC website or
without charge by request to:
Kelly Polonus
Great Southern Bancorp, Inc.
P.O. Box 9009
Springfield, MO 65808
INVESTOR RELATIONS
Kelly Polonus
Great Southern Bank
P.O. Box 9009
Springfield, MO 65808
AUDITORS
BKD, L.L.P.
P.O. Box 1190
Springfield, MO 65801-1190
LEGAL COUNSEL
Silver, Freedman, Taff and Tiernan, L.L.P.
3299 K St., N.W., Suite 100
Washington, DC 20007
Carnahan Evans, 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
33RD ANNUAL MEETING
OF STOCKHOLDERS
MAY 11, 2022 • 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 $5.4 billion in total
assets, with more than 1,100 dedicated associates
serving 137,000 households.
Headquartered in Springfield, Missouri, the Company
operates 101 offices in 12 states, including 93 retail
banking centers in Missouri, Arkansas, Iowa, Kansas,
Nebraska and Minnesota, seven commercial loan
offices in Atlanta, Chicago, Dallas, Denver, Omaha,
Nebraska, Phoenix and Tulsa, 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, Digital 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, 2021, there were 13,128,493
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, 2021 was $59.25.
HIGH/LOW STOCK PRICE
2021 2020 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$60.55 $47.22
58.48
52.81
57.01 49.53
59.90 55.00
High
Low
$63.55 $32.23
32.62
34.32
35.79
46.35
41.42
50.72
REGULAR DIVIDEND DECLARATIONS
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2021
$.34
.34
.36
.36
SPECIAL DIVIDEND DECLARATIONS
First Quarter
2021
----
2020
$.34
.34
.34
.34
2020
$1.00
STRENGTH THAT BUILDS | 3
High
Low
$57.95 $45.44
60.92 52.24
60.94 54.33
64.48 54.87
2019
$.32
.32
.34
.34
2019
$.75
WILLIAM V. TURNER
Chairman of the Board
JOSEPH W. TURNER
President and
Chief Executive Officer
We would also like to thank our Board of Directors for
their leadership and guidance throughout 2021. We
value the diversity of talent, knowledge and experience
that our Board members bring to our Company.
In 2021, the COVID-19 pandemic and its ripple effects
continued to present new and ongoing challenges
to the economy and society, including the “Great
Resignation,” from which we were not immune.
During these difficult times, we relied heavily on our
Company’s many strengths built through the years
- our dedicated and talented team of associates, our
culture of resilience, our pride in service excellence,
our conservative business practices and our strong
financial footing. We continually work on building and
nurturing these strengths as a foundation for our
long-term success. Managing through a pandemic
underscored the significance of doing so.
STRENGTH THAT BUILDS
TO OUR STOCKHOLDERS:
It is our pleasure to share with you the 2021 Great
Southern Annual Report. We begin this letter by
thanking our more than 1,100 associates for their
extraordinary efforts over the past year, and for
everything they do to support our customers, and each
other, every day. Our strong results in 2021 underscore
our associates hard work and commitment.
WILLIAM V. TURNER
Chairman of the Board
JOSEPH W. TURNER
President and
Chief Executive Officer
2021 Results
We’re pleased to report that we ended 2021 in a
strong financial position, providing good momentum
as we enter 2022. You can find details on our financial
results in the following pages of this Annual Report.
In summary, earnings in 2021 were $74.6 million,
or $5.46 per diluted common share, significantly
higher than 2020 earnings of $59.3 million, or $4.21
per diluted common share. The increase in earnings
over 2020 results was primarily driven by negative
provision for credit losses and higher non-interest
income, coupled with continued strong expense
control. Net interest income, our primary source of
income, was $177.9 million for the year 2021, up
modestly from $177.1 million for 2020. Earnings
performance ratios in 2021 were solid with return on
average common equity of 11.89%, return on average
assets of 1.36%, an efficiency ratio of 59.03%.
The Company ended the year with assets of $5.4
billion. Total stockholders’ equity was $617 million,
or 11.3% of total assets, equivalent to a book value
of $46.98 per common share. A key objective for
our Company is to always maintain sufficient capital
to allow for organic growth and other corporate
initiatives. We also look for opportunities to return
capital to our stockholders, both through dividends
and opportunistic share repurchases. During 2021,
the Company declared regular cash dividends of $1.40
per common share. The Company also repurchased
approximately 715,000 shares of stock at an average
price of $54.69 during 2021, in an effort to increase
stockholder value.
During 2021, loan growth was extremely challenging,
despite record-setting loan production. We fought
significant headwinds of loan repayments, including
STRENGTH THAT BUILDS | 5
approximately $169 million of debt forgiveness
of the Small Business Administration-managed
Paycheck Protection Program portfolio. Total gross
loan balances, including the undisbursed portion
of loans but excluding the FDIC-assisted acquired
loans and mortgage loans held for sale, decreased
$2.0 million, or 0.04%, from the end of 2020.
This decrease was primarily in multi-family loans,
commercial real estate loans, commercial business
loans and consumer auto loans. This decrease was
partially offset by increases in construction loans and
single family real estate loans. Outstanding net loan
receivable balances decreased $289 million, from
$4.30 billion at December 31, 2020 to $4.01 billion
at December 31, 2021.
Our loan production (funded and unfunded portions)
totaled nearly $2.3 billion in 2021. Our pipeline of loan
commitments and unfunded loans remained strong
at the end of 2021, increasing by $409 million from
December 31, 2020. For the sixth year in a row, our
commercial lenders originated more than $1 billion
in new loans - $1.6 billion in 2021 - with 39% of the
production generated through our six loan production
offices (LPOs) in Atlanta, Chicago, Dallas, Denver,
Omaha and Tulsa. Our Residential Lending team had
record production in 2021, 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.
Credit quality metrics remained excellent and at
historic levels during 2021. Non-performing assets
to period-end assets were 0.11% at the end of 2021
and we recorded net recoveries during the year of
$116,000.
TOTAL
ASSETS
$5.45
BILLION
BOOK VALUE PER
COMMON SHARE
$46.98
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
TOTAL
DEPOSITS
$4.55
BILLION
TOTAL
LOANS
$4.02
BILLION
0
$1B
$2B
$3B
$4B $5B
TOTAL LOAN
PRODUCTION
$2.26
BILLION
Total deposits increased $35 million from the
end of 2020, which included expected significant
decreases in time deposits, but offset with strong
checking account balance growth. This overall
deposit balance increase in 2021 came off of
2020’s significant COVID-fueled deposit surge of
$557 million, or 15% growth. Our deposit mix is a
source of strength for our Company with checking
and savings accounts representing approximately
79% of the deposit portfolio and retail certificates
of deposit making up about 19%.
Building Bench Strength
Succession planning and grooming our future leaders
is critical to the success of our Company. Succession
planning is all about ensuring that we develop our
“bench” – recruiting and developing the talent that
represents the future – and instilling our associates
with the knowledge, skills and abilities that will
enable them to be successful in their current roles
and be well positioned to take on increasing areas of
responsibility and more challenging positions.
In 2021, our work in this area was exemplified with
the retirements of two key long-term executive
team members, each with more than 20 years
with Great Southern and more than four decades
in the banking industry. Both announced their
retirements at least a year in advance to ensure an
orderly leadership transition. Chief Operating Officer
Doug Marrs retired from the Company in July. His
successor, Mark Maples, is a banking veteran with
39 years of banking experience, 16 years of which
have been with Great Southern. Chief Information
Officer Linton J. Thomason retired at the end of
2021. His successor, Eric Johnson, joined Great
Southern in 2008 and worked for 12 years in
information technology at a regional healthcare
provider before joining the Company.
Doug and Lin played integral roles in the growth
and success of our Company over the last two
decades. We greatly appreciate their commitment
and their effort to leave the Company ready to
build on a solid foundation.
45
40
35
30
70
60
50
40
30
20
10
0
2017
2018
2019
2020
2021
2021 TOTAL
NET INCOME
$74.63
MILLION
2017
2018
2019
2020
2021
Great Southern Bancorp Inc
NASDAQ Composite Index
NASDAQ Financial 100 Index
S&P U.S. BMI Banks –
Midwest Region Index
TOTAL RETURN
5 YEAR CUMUL ATIVE
$126.47
350
300
250
200
150
100
50
0
$1B
$2B
$3B
2016
2017
2018
2019
2020
2021
TOTAL
ASSETS
$5.45
BILLION
BOOK VALUE PER
COMMON SHARE
$46.98
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
TOTAL
DEPOSITS
$4.55
BILLION
TOTAL
LOANS
$4.02
BILLION
0
$1B
$2B
$3B
$4B $5B
TOTAL LOAN
PRODUCTION
$2.26
BILLION
Building Strength –
For Today and Tomorrow
Banking as an industry is rapidly evolving,
with continuous technological advances and
changing customer demands and expectations.
To remain competitive, we consistently analyze
all of our customer access channels and services
to ensure that we are properly positioned
for both the current and next generations of
customers. We also use J.D. Power, a leader
in consumer satisfaction research, and other
leading customer experience organizations to
help us better understand our customers’ desires
and their perceptions of our service quality
through all of our delivery channels.
We continue to believe that banking centers are
an important delivery channel for our customers.
The majority of our customer relationships
begin and are developed in our banking centers.
Our banking centers will evolve in response
to changing customer preferences. Going
forward, we expect our offices to be utilized by
our customers more for advice and help with
complex interactions and less as a primary way
to conduct banking transactions like making a
deposit or cashing a check.
While banking centers are significant in serving
our customers, we also understand this delivery
channel is the most expensive and dynamic.
Great Southern Bancorp Inc
NASDAQ Composite Index
NASDAQ Financial 100 Index
S&P U.S. BMI Banks –
Midwest Region Index
350
300
250
200
150
100
50
0
$1B
$2B
$3B
2016
2017
2018
2019
2020
2021
STRENGTH THAT BUILDS | 7
2017
2018
2019
2020
2021
2021 TOTAL
NET INCOME
$74.63
MILLION
45
40
35
30
70
60
50
40
30
20
10
0
2017
2018
2019
2020
2021
TOTAL RETURN
5 YEAR CUMUL ATIVE
$126.47
The graph at left compares the cumulative total stockholder return on GSBC
Common Stock to the cumulative total returns on the NASDAQ Composite Index,
the NASDAQ Financial 100 Index, and the S&P U.S. BMI Banks – Midwest Region
Index for the period December 31, 2016 through December 31, 2021. The graph
assumes that $100 was invested in GSBC Common Stock and in each of the
indices on December 31, 2016 and that all dividends were reinvested. In future such
graphs, the NASDAQ Financial 100 Index will be replaced with the S&P U.S. BMI
Banks – Midwest Region Index. We believe that the S&P U.S. BMI Banks – Midwest
Region Index provides a more representative comparison, as it comprises only banks
headquartered in the Midwest Region of the U.S., including GSBC. The NASDAQ
Financial 100 Index is a much broader index and includes a number of non-banks.
We regularly evaluate our system of 93 banking centers
to ensure that we are investing our resources where it
makes the most sense. This leads us to rationalizing our
network from time to time, which may include opening,
upgrading or consolidating various offices. Activities
in 2021 included the consolidation of one banking
center into a nearby office in our St. Louis market and
a major renovation of an office in Joplin, Missouri,
which now offers an enhanced and more progressive
customer experience. Another high-performing office
in the Branson Tri-lakes area of southwest Missouri is
scheduled for renovation in 2022.
Our LPO network plays a significant role in developing
the commercial loan portfolio, representing nearly
40% of 2021 commercial lending production. In the
first quarter of 2022, we added a seventh office in
the network with our entry into the Phoenix market.
Entering new markets with LPOs has proven to be a
successful business strategy in serving commercial
loan customers. The key to a successful LPO is that
each office is led by a seasoned commercial lender,
who has years of lending experience in the local
market. These office leaders are usually teamed
with a more junior lender who has several years
of tenure with Great Southern. Loan decisions are
made through a central loan committee to ensure a
consistent credit culture. Additional lending offices in
other markets are being considered as conditions and
opportunities warrant.
In tandem with fine-tuning our physical offices, we
have an intense focus on the digital banking experience
for our customers and the necessity to enhance this
channel frequently to meet customer expectations.
The pandemic helped accelerate an already growing
demand and desire for self-service banking options.
Since the beginning of the pandemic in 2020, many
more of our customers of all ages discovered the
convenience and ease of digital banking services
through our mobile app, with a 20% increase in
downloads and a 31% increase in usage of the app.
To ensure we meet or preferably exceed the
expectations of our customers, it is imperative that
we have a modern and progressive information
technology platform. In 2021, we spent a considerable
amount of time evaluating industry-leading core
banking platforms and other information technology
systems. Ultimately at the end of the year, we made
the decision to replace our current core banking
system and ancillary software with a more modern,
futuristic and long-term solution. In 2022, we will be
heavily focused on getting prepared to convert to our
new platform, expected to occur in the third quarter
of 2023. This upgrade in our operational platform
will help us provide our customers with a superior
banking experience, both in-person and digitally. Our
associates will also benefit with new and advanced
tools and access to more meaningful information to
help our customers.
2022 Priorities
As we look to 2022 and beyond, we will capitalize
on our strengths and prepare for the challenges of
continued economic and political uncertainty. Our
priorities for 2022 are straightforward: maintain a
sharp focus on developing and expanding customer
relationships, closely manage interest rate risk,
sustain a strong credit discipline and drive continuous
improvement throughout our Company.
At the time of this writing, the Federal Open Market
Committee strongly indicated it would likely raise
interest rates multiple times during 2022 in response
to current economic conditions, including high inflation.
and grow professionally, and they, in turn, provide
extraordinary service for those they serve. For our
customers, we want to develop lasting relationships
by providing the right products and services, at a
fair price and delivered how and when they prefer.
For our many communities, we strive to support
causes and address needs to help them be even
better places to live and work, with the understanding
that our Company can only be as strong as the
communities we serve. And, for our stockholders, we
desire to provide a superior long-term return on their
investment in our Company, and we support this
objective by fostering winning relationships with our
associates, customers and communities.
We wish you good health and prosperity in 2022.
Thank you for your support of Great Southern. Your
feedback is welcome at any time.
Respectfully yours,
William V. Turner
Joseph W. Turner
Mitigating the risks of fluctuating interest rates is a
normal function of our asset and liability management;
the uniqueness of current economic conditions makes
it more interesting and challenging. The Company’s
interest rate risk models indicate that, generally, rising
interest rates are expected to have a modestly positive
impact on the Company’s net interest income, while
declining interest rates would have a negative impact on
net interest income. Strategies for rising and falling rate
scenarios are in place and reviewed consistently.
As a bank and public company, we are accustomed
to changing expectations and demands from interest
groups, such as regulators, other governing bodies,
investors and other professional institutions, and we
understand the need for this oversight. Our Board
and management team are increasing our focus on
environmental, social and governance (ESG – also
often referred to as “sustainability”) considerations as
ESG policies and standards emerge. As always, we are
committed to building a diverse, equitable and inclusive
workplace that best represents the communities we
serve. We fully appreciate the benefits of a diverse staff
and are working to address challenges in recruiting
and retention by broadening recruitment efforts,
establishing relationships with student groups and
professional organizations, and providing training on
unconscious bias. Racism and discrimination have no
place in banking or anywhere else.
Finally, as we move forward, we pledge to keep in
mind the long-term interests of all the constituents
we serve. Our long-standing mission is to build
winning relationships with our customers, associates,
stockholders and communities. We believe a winning
relationship means that both parties receive benefit
or value from the relationship. For our associates, we
want to make our Company a great place to work
STRENGTH THAT BUILDS | 9
ST R E N GT H T H AT BU I L DS
CUSTOMER
LOYALTY
Banking Center Network
Banking centers remain a pivotal piece of the
banking experience. While adoption and usage of
our convenient Digital Banking options has grown,
transaction volume in our banking centers remained
steady throughout 2021. Our customers are choosing
to visit a banking center when they need to complete
a transaction or have questions about their accounts;
a testament to the strong relationships our banking
center associates form with customers. Our continued
commitment to providing excellent customer service
and understanding our customers’ financial needs
strengthens loyalty and builds trust.
Branch Refresh Program
We completed the remodel of our banking center
in Joplin, Missouri, the first in our Banking Center
Refresh Program. The new Joplin office officially
opened in September and offers better ease of access
for our customers and features a simplistic, modern
design with ample space for our banking center
associates to collaborate with customers.
We’ve selected our Kimberling City banking center,
located in the Tri-Lakes area of southwest Missouri, as
the next to undergo a refresh. Construction of a new
office is underway and we will introduce the larger and
more accessible banking center to Kimberling City
customers later this year.
Westfall Plaza Consolidation
We evaluate our banking center network on a regular
basis to ensure we are best meeting the needs of
our customers and investing our resources wisely. At
times, based on these evaluations, we must make
the difficult decision to close or consolidate an office.
In later 2021, we consolidated one banking center,
located in the St. Louis area, into a nearby office just
a few miles away.
Customer Experience
Our customer experience program helps us gather
a wealth of service data directly from customers
through short, touchpoint surveys. Analyzing this data
helps us identify trends and hone in on opportunities
for improving the customer experience. We share the
data and collaborate with our various lines of business
to implement improvements.
DIGITAL BANKING
YEAR OVER YEAR NUMBERS
ONLINE BANKING
LOGINS
MOBILE BANKING
LOGINS
MOBILE CHECK
DEPOSIT USERS
17.4%
13.5%
14.4%
With 33,000 survey responses received to date,
more than 91% reflect positive experiences. The
benchmark in measuring customer experience is Net
Promoter Score® (NPS), a reflection of customer
loyalty to a brand. Scores range from -100 to 100,
with -100 representing no customer loyalty and 100
representing strong customer loyalty. Industry average
NPS for financial institutions is 34, our NPS is 70.
We are proud of the success we’ve achieved, and
recognize that the driving force behind that success is
what our associates do each day to care for and help
our customers.
Forbes’ World’s Best Banks List
Further emphasizing
the significance of
customer experience,
Great Southern Bank was
ranked by our customers
and recognized as the
number one bank in the
U.S. on Forbes’ annual
World’s Best Banks list in
2021. We were previously
recognized as the sixth
best bank in the U.S. on the 2020 list. The award is
presented by Forbes and Statista, Inc., the world-
leading statistics portal and industry ranking provider,
and is the direct result of feedback from our customers.
We take great pride in knowing we provide our
customers with a world-class experience at our bank.
Digital Banking Trends
Our Digital Banking services make it easy for our
customers to bank when and where they prefer. We
continue to prioritize providing the banking services
our customers want and need to make their banking
experience smooth. As we shared in last year’s report,
customer adoption and usage of our Digital Banking
services grew during the pandemic, and this trend
continued in 2021. While our customers remain
STRENGTH THAT BUILDS | 11
STRENGTH THAT BUILDS | 11
interested in visiting our banking centers when they
need assistance, they have embraced our convenient
digital services as another option to stay connected
with their finances.
In 2021, we added nearly 3,000 new users to our Online
Banking system and grew active Mobile Banking users
by more than 6,100 – an increase of nearly 14%. Total
annual logins, for both our Online Banking website
and Mobile Banking App, increased by 19% and 16%,
respectively. In total, our customers logged in 53 million
times to check their balance, view transactions, and
access our Digital Banking services such as Mobile
Check Deposit, Bill Pay, and Debit On/Off.
Mobile Check Deposit remains a popular feature
within our Mobile Banking App. We added
approximately 3,700 new users. In total, our
customers processed more than 236,000 Mobile
Check Deposit transactions.
We look forward to offering our customers even more
convenient Digital Banking options and services as we
migrate to our new software provider next year.
DIGITAL BANKING
YEAR OVER YEAR NUMBERS
ONLINE BANKING
LOGINS
MOBILE BANKING
LOGINS
MOBILE CHECK
DEPOSIT USERS
17.4%
13.5%
14.4%
Commercial Lending Project
As a community-minded Company, we’re proud that
several of the developments we finance each year
have positive implications for the communities in
which we serve. One such development, Forest Park
North Apartments, will provide affordable housing
options to families and veterans with disabilities in
Joplin, Missouri.
Featuring a total of 40 units in one, two, and three
bedroom configurations with impressive amenities,
Forest Park North Apartments will fulfill a need for
affordable housing in this community.
ST R E N GT H T H AT BU I L DS
LENDING
SUCCESS
Commercial Lending
Commercial lending is a decades-long area of
expertise for our Bank. In 2021, the commercial
lending team achieved a new record for loan
production, originating more than $1.6 billion in new
loans. It is also the sixth year in a row that production
has exceeded $1 billion. This success is attributable
to our talented lending team, led by market managers
with an average of more than 25 years of lending
experience, and their focus on establishing strong
client relationships across our markets.
Our commercial loan production offices (LPOs)
strategically position us in attractive markets with
unique opportunities focused on commercial real
estate lending. These LPOs are very successful;
accounting for nearly 40% of the Bank’s commercial
loan production in 2021. With the continued success
and cost effectiveness of LPOs, the Bank is expanding
its commercial lending breadth to include Phoenix.
We have hired a local commercial lending expert with
extensive knowledge of the Phoenix market to lead
this new office.
As we look ahead, we will continue to prioritize a
strong credit discipline under the guidance of the
Bank’s Loan Committee, which has kept classified
problem assets at all-time lows and credit quality
metrics strong.
HOME LOAN
PRODUCTION
$23
MILLION
2021
2020
2019
0
$100M $200M $300M $400M $500M
CONSUMER
LENDING
$19
MILLION
2021
2020
2019
0
$25M
$50M
$75M
$100M
New Record Year for
Residential Lending
Fueled by historically low interest rates and a
very competitive purchase market, our residential
lending team achieved a new record year for
production in 2021, originating approximately
2,000 home purchase and refinance loans totaling
more than $565 million – $23 million greater than
2020’s record production.
2021
2020
2019
HOME LOAN
PRODUCTION
$23
MILLION
0
$100M $200M $300M $400M $500M
CONSUMER
LENDING
$19
MILLION
2021
2020
2019
0
$25M
$50M
$75M
$100M
Consumer Lending
Our consumer lending team originated more than
$102 million in new loans, up $19 million compared
to 2020. Consumer lending production was a healthy
mix of automobile loans, personal lines of credit and
loans, and home equity lines of credit (HELOC).
HELOCs saw the largest growth, up 43% from the
year prior, and likely a result of the very competitive
housing market. Rather than selling their current
home and trying to purchase another, some
homeowners opted to use their current home’s equity
to make improvements.
While the majority of consumer loan applications
are submitted from our banking center network,
we are actively updating our online consumer loan
application to make it easy to submit an application
when and where it is convenient for our customers.
We will introduce the updated online consumer loan
application later this year.
STRENGTH THAT BUILDS | 13
STRENGTH THAT BUILDS | 13
ST R E N GT H T H AT BU I L DS
STRONGER
COMMUNITIES
Community Matters
Since we established our Community Matters program
in 2014, our focus has been to address the needs
of each of our communities and make them better,
more prosperous places to live and work. We’ve long
recognized that the strength of our Company correlates
with the strength of the communities we serve.
We want the impact of our Community Matters
program to go beyond making financial donations,
so we encourage our associates, and provide them
with paid time off, to get involved and volunteer with
organizations that align with their passions and help
meet the needs of their communities.
Our regional Community Matters Teams help us
understand the unique needs of our various communities.
These regional teams are comprised of local associates
with diverse perspectives and experiences; and they
are committed to building strong relationships with
community partners to meet area needs.
ASSOCIATE
DONATIONS
ASSOCIATE
VOLUNTEER HOURS
CORPORATE
SPONSORSHIPS
ORGANIZATIONS
SUPPORTED
$70K+
3,700+
$1.8M+
650+
MARY DUNAVANT
Regional Banking
Center Manager
Bill and Ann Turner
Award Recipient
Each year we honor and recognize an outstanding
Great Southern associate who has 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 wife Ann.
The 2022 Community Service Award recipient is Mary
Dunavant, regional banking center manager for our
St. Louis market. Mary volunteers at a wide variety of
organizations and events. Whether serving meals to
grieving families through Annie’s Hope or partnering
with the Sons of the American Legion to raise funds
for several veteran-focused organizations, she seeks
to better the lives of others simply because it is the
right thing to do.
Her dedication to volunteering is an inspiration to
her associates. She regularly gathers members of her
team to participate in group volunteer events, viewing
them as opportunities to better their community and
strength their bond as teammates.
Mary’s dedication to making a difference around the
St. Louis community and helping those in need aligns
with the spirit of our Community Matters program and
the integrity of the Bill and Ann Turner Distinguished
Community Service Award.
We’re so proud to have Mary leading our St. Louis
banking center teams!
Springfield Symphony
The pandemic has impacted each of us in unique
ways, but has been especially difficult on senior
generations. Due to the pandemic and health
restrictions, many who resided in assisted living
facilities and nursing homes were unable to travel
around the community as they once could –
restricting them from participating in events or
activities. The Springfield Symphony was one of
those events.
While the Springfield Symphony was silent to in-
person performances in 2020, in-person gatherings
returned in 2021 with appropriate precautions to keep
their patrons healthy and safe. Many residents in
assisted living facilities and nursing homes, who were
long-term patrons and supporters of the Springfield
Symphony, wished to return to the Springfield
Symphony. And we wanted to help.
We partnered with the Springfield Symphony to
sponsor the transportation of residents from various
facilities throughout our community to and from these
performances. We’re so proud of this partnership and
the opportunity to support local seniors.
STRENGTH THAT BUILDS | 15
Crittenton Center
An often stressful task of being a parent or caregiver is
finding safe and reliable childcare. Knowing that your
child may spend as much, if not more, time in the care
of someone else makes it even more stressful.
The Crittenton Center, in Sioux City, Iowa, is a childcare
and preschool center that provides assistance
to parents in need. In addition to providing basic
childcare, the center also provides resources to
parents and helps assess developmental milestones
and learning readiness. To fit the schedules of working
parents, The Crittenton Center offers evening childcare
options, giving parents and caregivers peace of mind
as they go to work or school.
Our donation, combined with other corporate
donations, helped to purchase iPads and computers,
sensory equipment for classrooms, and outdoor
playground equipment. With the understanding that
every child deserves a good start in life, we’re honored
to be a part of their journey.
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, 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.
GREAT SOUTHERN
LEADERSHIP TEAM
JOSEPH W. TURNER
President and Chief Executive Officer
BRYAN TIEDE
Chief Risk Officer
KELLY POLONUS
Chief Communications and Marketing Officer
KRIS CONLEY
Chief Retail Banking Officer
JOHN BUGH
Chief Lending Officer
TAMMY BAURICHTER
Controller
MARK MAPLES
Chief Operations Officer
REX COPELAND
Chief Financial Officer
DEBBIE FLOWERS
Director of Credit Risk Administration
ERIC JOHNSON
Chief Information Officer
MATT SNYDER
Chief Human Resources Officer
KEVIN BAKER
Chief Credit Officer
HENRY HEIMSOTH
Director of Commercial Lending
JEFF PATRICK
Director of Physical Operations
STRENGTH THAT BUILDS | 17
STRENGTH THAT BUILDS | 17
SELEC TED
FINANCIAL DATA
The following table sets 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 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:
(Dollars In Thousands)
DECEMBER 31,
Assets
Loans receivable, net
Allowance for credit losses on loans
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
2021
2020
2019
2018
2017
$ 5,449,944
4,016,235
60,754
501,032
2,087
4,552,101
$ 5,526,420
4,314,584
55,743
414,933
1,877
4,516,903
$ 5,015,072
4,163,224
40,294
374,175
5,525
3,960,106
$ 4,676,200
3,990,651
38,409
243,968
8,440
3,725,007
$ 4,414,521
3,734,505
36,492
179,179
22,002
3,597,144
238,713
339,863
412,374
397,594
324,097
616,752
616,752
4,274,176
5,502,356
4,539,740
627,516
229,942
93
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
Summary Statement of Income Information:
(In Thousands)
FOR THE YEAR ENDED DECEMBER 31,
2021
2020
2019
2018
2017
INTEREST INCOME:
Loans
Investment securities and other
$ 186,269
12,404
198,673
$ 204,964
12,739
217,703
$ 223,047
11,947
234,994
$ 198,226
7,723
205,949
$ 176,654
6,407
183,061
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 (credit) for credit losses on loans
Provision for unfunded commitments
Net interest income after provision
(credit) for credit losses and provision
for unfunded commitments
NONINTEREST INCOME:
Commissions
Overdraft and insufficient funds fees
Point-of-sale and ATM fee income
and service charges
Net gain on loan sales
Net realized gain (loss) on sales
of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Gain recognized on sale of business units
Gain on termination of loss sharing agreements
Amortization of income/expense
related to business acquisition
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
Acquired deposit intangible
asset amortization
Other operating expenses
13,102
—
37
448
7,165
20,752
177,921
(6,700)
939
32,431
—
675
628
6,831
40,565
177,138
15,871
—
45,570
—
3,635
1,019
4,378
54,602
180,392
6,150
—
27,957
3,985
765
953
4,097
37,757
168,192
7,150
—
20,595
1,516
747
949
4,098
27,905
155,156
9,100
—
183,682
161,267
174,242
161,042
146,056
1,263
6,686
15,029
9,463
—
1,434
312
—
—
—
4,130
38,317
70,290
29,163
3,164
3,061
3,072
848
3,458
6,555
892
6,481
12,203
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
889
8,249
12,649
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
1,137
8,688
13,007
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
1,041
8,946
12,682
3,150
—
2,231
28
—
7,705
(486)
3,230
38,527
60,034
24,613
3,461
2,959
2,311
1,446
3,188
2,862
627
2,023
2,184
4,919
3,929
863
6,534
127,635
1,154
6,363
123,225
1,190
7,021
115,138
1,562
6,762
115,310
1,650
7,808
114,261
Income before income taxes
Provision for income taxes
Net income and net income
available to common shareholders
94,364
19,737
73,092
13,779
90,061
16,449
81,950
14,841
70,322
18,758
$ 74,627
$ 59,313
$ 73,612
$ 67,109
$ 51,564
STRENGTH THAT BUILDS | 19
(Number of shares in thousands)
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 credit losses/year-end loans
Non-performing assets/year-end
loans and foreclosed assets
Allowance for credit losses/non-performing loans
Net charge-offs/average loans
Gross non-performing assets/year end assets
Non-performing loans/year-end loans
BALANCE SHEET RATIOS:
Loans to deposits
Average interest-earning assets as a percentage
of average interest-bearing liabilities
CAPITAL RATIOS:
Average common stockholders’
equity to average assets
Year-end tangible common stockholders’
equity to tangible assets(9)
Great Southern Bancorp, Inc.:
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Common equity Tier 1 ratio
Great Southern Bank:
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Common equity Tier 1 ratio
AT OR FOR THE YEAR ENDED DECEMBER 31,
2021
2020
2019
2018
2017
$ 5.50
5.46
1.40
46.98
13,558
13,128
13,674
1.36 %
11.89
0.70
2.32
3.22
3.20
3.37
59.03
1.62
25.64
$ 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
1.52 %
12.88
0.64
2.37
3.62
3.28
3.95
54.48
1.73
40.27
$ 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
1.49 %
1.16 %
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
1.49 %
1.32 %
1.00 %
0.98 %
1.01 %
0.15
1,120.31
0.00
0.11
0.13
0.09
1,831.86
0.01
0.07
0.07
0.19
891.66
0.10
0.16
0.11
0.29
609.67
0.13
0.25
0.16
0.73
324.23
0.26
0.63
0.30
88.23 %
95.52 %
105.13 %
107.13 %
103.82 %
139.94
132.49
127.50
126.47
123.74
11.4 %
11.7 %
11.8 %
11.1 %
10.2 %
11.2
13.4
16.3
11.3
12.9
14.1
15.4
11.9
14.1
11.3
12.7
17.2
10.9
12.2
13.7
14.9
11.8
13.7
11.9
12.5
15.0
11.8
12.0
13.1
14.0
12.3
13.1
11.2
11.9
14.4
11.7
11.4
12.4
13.3
12.2
12.4
10.5
11.4
14.1
10.9
10.9
12.3
13.2
11.7
12.3
(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
(7) Cash dividends per common share divided by earnings per
common share.
(8) Prior to January 1, 2021, the ratio excluded the FDIC-assisted
interest-bearing liabilities.
acquired loans.
(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.
(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.
2021
Financial Information
CONTENTS
22 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
66 Report of Independent Registered Public Accounting Firm
69 Consolidated Statements of Financial Condition
71 Consolidated Statements of Income
73 Consolidated Statements of Comprehensive Income
74 Consolidated Statements of Stockholders’ Equity
76 Consolidated Statements of Cash Flows
78 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 has adversely affected 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. While general business and economic conditions have improved, 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 credit losses; (v) the possibility of
realized or unrealized losses on securities held in the Company's investment 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; (xi) changes in accounting policies and practices or accounting standards; (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 credit 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 potential replacement indexes; 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.
1
22
Critical Accounting Policies, Judgments and Estimates
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States and
general practices within the financial services industry. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
Allowance for Credit Losses and Valuation of Foreclosed Assets
The Company believes that the determination of the allowance for credit losses involves a higher degree of judgment and complexity
than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining an
allowance level believed by management to be sufficient to absorb estimated credit losses. The allowance for credit losses is measured
using an average historical loss model which incorporates relevant information about past events (including historical credit loss
experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the
collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a
collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral and
repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or TDR
loans with a balance greater than or equal to $100,000 which are classified or restructured troubled debt, are evaluated on an
individual basis.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the
Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding
loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent manageme nt’s
credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss
rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net
charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or
decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroecono mic
variables including, but not limited to, unemployment rate, GDP, disposable income and market volatility. The adjustments are based
on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for
a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted
loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The
contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled
debt restructuring will be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in
historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significa nt unique
events or conditions.
For additional discussion of the allowance for credit losses, see “Item 1. Business - Allowance for Credit Losses and Foreclosed
Assets” in the Company’s 2021 Annual Report on Form 10-K. Inherent in this process is the evaluation of individual significant credit
relationships. 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. Significant changes were made to
management’s overall methodology for evaluating the allowance for credit losses during the periods presented in the financial
statements in this report due to the adoption of ASU 2016-13.
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 GAAP and, instead, requires an entity to
reflect its current estimate of all expected credit losses. See Note 3 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.
2
23
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,
2021, 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, 2021, 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 and related deposits
in the St. Louis market. 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, 2021, the amortizable intangible assets consisted of core deposit intangibles of $685,000
which is related to the branch transaction in January 2016. These amortizable intangible assets are reviewed for impairment if
circumstances indicate their value may not be recoverable based on a comparison of fair value. See Note 1 of the accompanying
audited financial statements for additional information.
For purposes of testing goodwill for impairment, the Company used a market approach to value its reporting unit. The market
approach applies a market multiple, based on observed purchase transactions for each reporting unit, to the metrics appropriate for the
valuation of the operating unit. Significant judgment is applied when goodwill is assessed for impairment. This judgment may include
developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating
general economic and market conditions.
Based on the Company’s goodwill impairment testing, management does not believe any of the Company’s goodwill or other
intangible assets were impaired as of December 31, 2021. While management believes no impairment existed at December 31, 2021,
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. Economic conditions improved in the following years, as indicated by higher
consumer confidence levels, increased economic activity and low unemployment levels. The U.S. economy continued to operate at
historically strong levels until the impact of the COVID 19 pandemic began to take its toll in March 2020. While U.S. economic
trends have rebounded, new COVID variants have emerged and 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.
The economy plunged into recession in the first quarter of 2020, as efforts to contain the spread of the coronavirus forced all but
essential business activity, or any work that could not be done from home, to stop, shuttering factories, restaurants, entertainment,
sports events, retail shops, personal services, and more.
More than 22 million jobs were lost in March and April 2020 as businesses closed their doors or reduced their operations, sending
employees home on furlough or layoffs. 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. Since then, significant
improvements in consumer spending, GDP, and employment have occurred, greatly supported by the actions described below.
The CARES Act, a fiscal relief bill passed by Congress in March 2020, injected approximately $3 trillion into the economy through
direct payments to individuals and grants to small businesses that would keep employees on their payrolls, fueling a historic bounce-
back in economic activity.
3
24
To help our customers navigate through the pandemic situation, we offered and supplied 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 loans being classified as troubled debt restructurings, potential problem
loans or non-performing loans. More severely impacted industries in our loan portfolio included retail, hotel and restaurants. At
December 31, 2021, nearly all modified loans have returned to their original terms.
The Federal Reserve acted decisively, employing a wide arsenal of tools including slashing its benchmark interest rate to near zero
and ensuring credit availability to businesses, households, and municipal governments. The Fed’s efforts largely insulated the
financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008. Purchases of
Treasury and agency mortgage-backed securities totaling $120 billion each month by the Federal Reserve began shortly after the
pandemic began. In November 2021, the Federal Reserve made the decision to taper its quantitative easing (QE) and is expected to
steadily reduce its bond purchases in coming months, winding down its QE by March 2022. Additionally, Federal fund rates, which
have been at zero lower bound since the pandemic began, are expected to increase in 2022. Financial markets are anticipating an
aggressive increase in interest rates in 2022, with three to six hikes anticipated. Several factors prompting the Federal Reserve to
possibly begin normalizing policy include: the strengthening economy, the recent surge in inflation, higher inflation expectations,
upward trajectory of wages, reduced pandemic concerns and the strong housing market. However, the military hostilities in Ukraine
have now created uncertainty regarding the world economy and the path of market interest rates, including the aggressiveness of
Federal Reserve interest rate increases.
The “American Rescue Plan,” an economic relief fiscal measure of approximately $1.9 trillion with an emphasis on vaccination and
individual and small business relief, was passed early in 2021. The "Build Back Better" recovery package continues to be pursued
with an emphasis on infrastructure, research and development, education and green energy transition.
Employment
The national unemployment rate dropped from 4.2% in November 2021 to 3.9% in December 2021 or with 6.3 million unemployed
individuals, compared to February 2020, prior to the COVID-19 pandemic, at which time the unemployment rate was 3.5% and the
unemployed persons numbered 5.7 million. The U.S. economy added 199,000 jobs in December 2021 down from 249,000 in
November and was the smallest monthly gain during a year that nonetheless produced record job growth. Hiring slowed significantly
at the end of 2021, indicating that employers are struggling to fill positions even as the United States remains millions of jobs short of
pre-pandemic levels. Wages have continued to surge, rising 0.6% in December 2021 and 4.7% for the 2021 year, reflecting intense
competition among employers for workers.
Across industries, the economic recovery remains uneven. Employment in the financial activities and transportation and warehousing
sectors are now above pre-pandemic levels; however, employment in the leisure and hospitality industry, one of the largest major
sectors in the country, continues to be more than 7% below where it was in February 2020. Most jobs in the leisure and hospitality
industry cannot be done remotely, and many businesses closed or saw a sharp reduction in business at the onset of the health and
economic crises.
As of December 2021, the labor force participation rate (the share of working-age Americans employed or actively looking for a job)
was at 61.9% and has remained within a narrow range of 61.4% to 61.9% since September 2020. The unemployment rate for the
Midwest, where the Company conducts most of its business, has decreased from 5.7% in December 2020 to 4.0% in December 2021.
Unemployment rates for December 2021 in the states where the Company has branch or loan production offices were Arkansas at
3.1%, Colorado at 4.8%, Georgia at 2.6%, Illinois at 5.3%, Iowa at 3.5%, Kansas at 3.3%, Minnesota at 3.1%, Missouri at 3.3%,
Nebraska at 1.7%, Oklahoma at 2.3%, and Texas at 5.0%. Of the metropolitan areas in which the Company does business, most are
below the national unemployment rate of 3.9% for December 2021. Chicago has a higher unemployment rate of 4.3%, along with
Denver at 4.2% at the end of December 2021.
Single Family Housing
Sales of new single-family homes in December 2021 were at a seasonally adjusted annual rate of 811,000, according to U.S. Census
Bureau and Department of Housing and Urban Development estimates.
The median sales price of new houses sold in December 2021 was $377,700, up from $344,400 a year earlier, and the average sales
price of $457,300 was up from $405,100 a year ago in December 2020. The inventory of new homes for sale, at an estimated 403,000
4
25
at the end of December 2021, would support a 6 months’ supply at the current sales rate, up from 3.5 months at the end of December
2020.
The 2021 annual existing-home sales hit its highest level since 2006 with sales reaching a 6.18 million seasonally adjusted annual rate.
December existing-home sales declined 4.6% from November 2021, after three consecutive months of increases. There were a record
low of 910,000 previously owned homes on the market in December 2021, supporting 1.8 months’ supply at the current sales rate.
The strongest home price appreciation recorded occurred in 2021, with the median existing-home sales price reaching $346,900, a
gain of $50,200 compared to 2020. The December 2021 existing home sales price marks the 118th straight month of year-over-year
increases, the longest running streak on record. Prices increased in every region of the U.S., with the Midwest showing an increase of
10% with prices increasing from $233,500 in December 2020 to $256,900 in December 2021.
Homes are being quickly snapped up as demand remains elevated. Currently it takes approximately 19 days for a home to go from
listing to contract compared to 21 days a year ago. Underbuilding over the last 15 years and a shrinking inventory of existing homes
for sale has led to a significant housing shortage. Existing home sales are expected to slow slightly in the coming months due to higher
mortgage rates; however, recent employment gains and stricter underwriting standards should prevent home sales from crashing.
First-time buyers accounted for 30% of sales in December 2021, up from 28% of sales in September 2021 and down from 31% in
December 2020.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.1% in December
2021, up slightly from 2.90% in September 2021. The average commitment rate for all of 2021 was 2.96%, down from 3.10% for
2020.
Multi-Family Housing and Commercial Real Estate
CoStar indicates demand for apartments totaled roughly 700,000 units for 2021, nearly matching full-year totals for both 2020 and
2019 with the national apartment vacancy rate to a two-decade low 4.7%. Both suburban and downtown areas are recording strong
gains across a wide range of diverse markets. The use of concessions has come back down to normal levels, although many downtown
properties continue to utilize them to attract tenants. With demand and rent growth indicators surging, investors have renewed
confidence in the sector, and sales volume has returned to more normal levels. Values are back on the rise with investors gravitating
toward Sun Belt markets and increased sales volume observed in metros like Dallas-Fort Worth, Atlanta, and Phoenix.
Our market areas reflected the following apartment vacancy levels as of December 31, 2021: Springfield, Missouri at 2.8%, St. Louis
at 6.4%, Kansas City at 6.3%, Minneapolis at 6.0%, Tulsa, Oklahoma at 6.6%, Dallas-Fort Worth at 5.7%, Chicago at 5.6%, Atlanta at
5.8%, and Denver at 6.5%. Two of our market areas; Dallas-Fort Worth and Atlanta were in the top ten metropolitan areas for current
construction and 2021 deliveries to market.
The national office market took a first step toward recovery in 2021, but uncertainty still looms over the sector. 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 throughout 2021. Office-using employment has bounced back quicker than the average for all employment sectors, and
more office jobs could lead to stronger office leasing. Leasing volume improved in the second half of 2021, and net absorption was
positive in the third and fourth quarters of 2021. With more sublet options available, office-users have increasingly turned to sublet
leases for their space needs. The amount of sublet space on the market has leveled off over the past few quarters, but still remains at a
record high of 11% of total office space available, well above the pre-pandemic average of about 7%. Remote and hybrid work
structures instituted early on in the pandemic are expected to remain in place, at least to an extent, and it is likely that office-using
companies will continue to reassess their physical footprints as their leases roll over. On a positive note, many office-using firms have
committed to large physical space expansions, despite delaying return-to-office mandates. But even in an upside scenario, it will likely
take years for the office market to work through all of the sublet and backfill space that's come on the market over the past few
quarters, and uncertainty regarding the prevalence of remote and flex work arrangements will influence the office sector in the near
term.
As of the end of December 2021, national office vacancy rates remain about the same at 12.2% quarter-over-quarter while our market
areas reflected the following vacancy levels: Springfield, Missouri at 3.3%, St. Louis at 8.7%, Kansas City at 9.4%, Minneapolis at
9.9%, Tulsa, Oklahoma at 12.0%, Dallas-Fort Worth at 17.7%, Chicago at 15.4%, Atlanta at 14% and Denver at 14.4%.
5
26
The retail sector enjoyed a pronounced rebound in 2021. Fiscal support provided by the U.S. government throughout the pandemic
provided consumers with trillions of extra dollars, while a tightening labor market and historical level of job openings have supported
relatively robust wage growth, especially at the lower end of the income ladder. With additional funds at their disposal, American
consumers pushed brick and mortar retail sales to record levels in 2021.
Underpinning the strong retail environment has been a return to stores by many consumers as vaccination rates have grown and
operations have normalized. Shopper foot traffic has returned to pre-pandemic levels at many open-air and lifestyle centers, while a
majority of national retailers are reporting higher same-store sales relative to pre-pandemic levels. In addition, the number of retailers
filing for bankruptcies has declined to a five-year low, while openings outpaced closures in 2021 for the first time since 2014.
Leasing activity accelerated back to pre-pandemic levels in 2021. While activity continues to be dominated by discounters, grocers,
and apparel retailers, numerous fitness tenants increased leasing activity during the quarter, including Planet Fitness and Crunch
Fitness, which were both among the top-ten tenants in the nation for new retail space signed for in 2021.
At December 31, 2021, national retail vacancy rates remained level at 4.6% while our market areas reflected the following vacancy
levels: Springfield, Missouri at 3.2%, St. Louis at 6.0%, Kansas City at 5.1%, Minneapolis at 3.4%, Tulsa, Oklahoma at 3.7%, Dallas-
Fort Worth at 5.4%, Chicago at 6.0%, Atlanta at 4.4% and Denver at 4.6%.
American consumers are in the midst of a historic boom in household spending on retail goods (both online and in stores). Consumers
are flush with cash from stimulus checks and savings accrued while social distancing. The unprecedented rise in online shopping and
quick delivery demands brought on by the pandemic have propelled industrial demand to all-time highs.
The U.S. industrial market will face a record level of new logistics facilities delivering from late 2021 through 2022, but all
indications are that tenants will be up to the task of filling them. Strong demand from a wide variety of business types and segments
was enough to offset new supply and decreased vacancy rates. Persistent demand from e-commerce and third-party logistics (3PLs)
companies continues to drive demand.
Major markets across the country have seen record jumps in tenant demand that some metropolitan areas can barely accommodate. As
a result, the fastest accelerations in industrial leasing are being recorded in smaller markets with open land for development that
typically catch spillover demand from nearby population centers where developers are unable to build space fast enough.
Today's strong labor market and the $4 trillion in savings that U.S. households accrued during the pandemic should still support the
record levels of goods spending and industrial leasing during 2022–23, particularly if lingering health risks from the pandemic
continue to boost e-commerce's share of total consumer spending. Investors continue to aggressively pursue industrial acquisitions;
with longer-term risk revolves around whether speculative development continues to increase as retail sales normalize. Additionally,
land constraints and localized opposition to new construction may keep construction levels from rising much further in many top U.S.
markets.
At December 31, 2021, national industrial vacancy rates sit at a record low of 4.2% while our market areas reflected the following
vacancy levels: Springfield, Missouri at 1.7%, St. Louis at 3.3%, Kansas City at 4.3%, Minneapolis at 3.3%, Tulsa, Oklahoma at
3.2%, Dallas-Fort Worth at 5.4%, Chicago at 5.2%, Atlanta at 3.4% and Denver at 5.6%.
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 COVID-19 pandemic, including the administration of
vaccines in our local markets. As always, the health, safety and well-being of our customers, associates and communities, while
maintaining uninterrupted service, 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.
The Company continues to work diligently with its more than 1,100 associates to enforce the most current health, hygiene and social
distancing practices. Initially, teams in nearly every operational department were 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
6
27
or reductions in staffing. With the advent of COVID-19 vaccinations in the Company’s markets, associates working from home or
other sites began to return to their normal workplace during the fourth quarter of 2021.
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 are open following social distancing and health protocols. Great Southern continues to work with customers
experiencing hardships caused by the pandemic. As a resource to customers, a COVID-19 information center continues to be 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 continues to
evolve and will ultimately depend on the remaining length and severity of the economic downturn brought on by the pandemic. Some
positive economic signs have occurred in 2021 and early 2022, such as lower unemployment rates, improving gross domestic product
(“GDP”) levels and other measures of the economy and increased vaccination rates. The Company expects that the COVID-19
pandemic could still 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 and fixed
rate loans, resulting in reduced net interest income
Certain fees for deposit and loan products may be waived or reduced
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 again in future periods if the pandemic situation
worsens again
Additional loan modifications may occur and borrowers may default on their loans, which may necessitate further increases
to the allowance for credit losses
A contraction in economic activity may reduce demand for our loans and for our other products and services
Paycheck Protection Program Loans
Great Southern has actively participated in the PPP through the SBA. The PPP has been met with very high demand throughout the
country, resulting in a second round of funding in 2021 through an amendment to the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act). In the first round of the PPP, we originated approximately 1,600 PPP loans, totaling approximately $121 million.
As of December 31, 2021, SBA forgiveness has been approved and processed for all of these PPP loans.
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 which began on January 19, 2021, and had an original expiration date of March
31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed, extending the PPP an additional two months to May 31,
2021, along with an additional 30-day period for the SBA to process applications that were still pending as of May 31, 2021. In the
second round of the PPP, we funded approximately 1,650 PPP loans, totaling approximately $58 million. As of December 31, 2021,
full forgiveness proceeds have been received from the SBA for 1,415 of these PPP loans, totaling approximately $48 million.
Great Southern received fees from the SBA for originating PPP loans based on the amount of each loan. At December 31, 2021,
remaining net deferred fees related to PPP loans totaled $504,000. The fees, net of origination costs, are deferred in accordance with
standard accounting practices and accreted to interest income on loans over the contractual life of each loan. These loans generally
have a contractual maturity of up to five years from origination date, but may be repaid or forgiven (by the SBA) sooner. If these
loans are repaid or forgiven prior to their contractual maturity date, the remaining deferred fee for such loans will be accreted to
interest income immediately. We expect a significant portion of these remaining net deferred fees will accrete to interest income
during the first quarter of 2022. In the three months and year ended December 31, 2021, Great Southern recorded approximately $1.6
million and $5.5 million, respectively, of net deferred fees in interest income on PPP loans.
Loan Modifications
At December 31, 2021, the Company had no remaining modified commercial loans and eight modified consumer and mortgage loans
with an aggregate principal balance outstanding of $1.2 million. These balances have decreased from $232.4 million in commercial
loans and $18.2 million in consumer and mortgage loans at December 31, 2020. The loan modifications were within the guidance
7
28
provided by the CARES Act, the federal banking regulatory agencies, the Securities and Exchange Commission and the Financial
Accounting Standards Board (FASB); therefore, they have not been considered troubled debt restructurings.
General
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend primarily on its
net interest income, as well as provisions for credit 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, 2021, Great Southern’s total assets decreased $76.5 million, or 1.4%, from $5.53 billion at December
31, 2020, to $5.45 billion at December 31, 2021. Full details of the current year changes in total assets are provided below, under
“Comparison of Financial Condition at December 31, 2021 and December 31, 2020.”
Loans. In the year ended December 31, 2021, Great Southern’s net loans decreased $289.3 million, or 6.7%, from $4.30 billion at
December 31, 2020, to $4.01 billion at December 31, 2021. This decrease was primarily in other residential (multi-family) loans,
commercial real estate loans, commercial business loans and consumer auto loans. These decreases were partially offset by increases
in construction loans and one- to four-family residential loans. As loan demand is affected by a variety of factors, including general
economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, we cannot be
assured that our loan growth will match or exceed the average level of growth achieved in prior years. The Company’s strategy
continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.
Recent growth has occurred in some loan types, primarily in one- to four-family residential loans and construction 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 analysis and repayment ability. It has been, and continues to be, Great
Southern’s practice to verify information from potential borrowers regarding assets, income or payment ability and credit ratings as
applicable and as required by the authority approving the loan. To minimize construction risk, projects are monitored as construction
draws are requested by comparison to budget and with progress verified through property inspections. The geographic and product
diversity of collateral, equity requirements and limitations on speculative construction projects help to mitigate overall risk in these
loans. Underwriting standards for all loans also include loan-to-value ratio limitations which vary depending on collateral type, debt
service coverage ratios or debt payment to income ratio guidelines, where applicable, credit histories, use of guaranties and other
recommended terms relating to equity requirements, amortization, and maturity. Consumer loans, other than home equity 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. In 2019, the Company made the decision to discontinue indirect auto loan originations.
Of the total loan portfolio at December 31, 2021 and 2020, 88.1% and 87.0%, respectively, was secured by real estate, as this is the
Bank’s primary focus in its lending efforts. At December 31, 2021 and 2020, commercial real estate and commercial construction
loans were 52.6% and 48.4% of the Bank’s total loan portfolio, respectively. Commercial real estate and commercial construction
loans generally afford the Bank an opportunity to increase the yield on, and the proportion of interest rate sensitive loans in, its
portfolio. They do, however, present somewhat greater risk to the Bank because they may be more adversely affected by conditions in
the real estate markets or in the economy generally. At both December 31, 2021 and 2020, loans made in the Springfield, Missouri
metropolitan statistical area (Springfield MSA) comprised 8% of the Bank’s total loan portfolio. 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 both December 31, 2021 and 2020, loans made in the St. Louis metropolitan
statistical area (St. Louis MSA) comprised 19% of the Bank’s total loan portfolio. The Company’s expansion into the St. Louis MSA
beginning in May 2009 has provided an opportunity to not only diversify 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
8
29
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 2021 Annual Report on Form 10-K.
The percentage of fixed-rate loans in our loan portfolio has been as much as 45% in recent years and was 39% as of December 31,
2021. The majority of the increase in fixed rate loans over the past few years was in commercial real estate, which typically has short
durations within our portfolio. Of the total amount of fixed rate loans in our portfolio as of December 31, 202 1, approximately 75%
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 3 1, 2021, 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 “Risk Factors – We may be adversely
affected by interest rate changes.”
While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans
with loan-to-value ratios at that level are minimal. Private mortgage insurance is typically required for loan amounts above the 80%
level. Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved. We
consider these lending practices to be consistent with or more conservative than what we believe to be the norm for banks our size. At
December 31, 2021, 0.3% of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at
origination. At December 31, 2020, none of our owner occupied one- to four-family residential loans had loan-to-value ratios above
100% at origination. At December 31, 2021 and 2020, an estimated 0.2% and 0.6%, respectively, of total non-owner occupied one- to
four-family residential loans had loan-to-value ratios above 100% at origination.
At December 31, 2021, troubled debt restructurings totaled $3.9 million, or 0.1% of total loans, a decrease of $1.1 million from $5.0
million, or 0.1% of total loans, at December 31, 2020. Concessions granted to borrowers experiencing financial difficulties may
include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended
to maximize collection. For troubled debt restructurings occurring during the year ended December 31, 2021, one loan totaling
$45,000 was restructured into multiple new loans. For troubled debt restructurings occurring during the year ended December 31,
2020, five loans totaling $107,000 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, 2021, $1.2 million of residential and consumer
loans were subject to such modifications and no commercial 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.
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, 2021, available-for-sale securities increased $86.1 million, or 20.8%,
from $414.9 million at December 31, 2020, to $501.0 million at December 31, 2021. The increase was primarily due to the purchase
of FNMA and GNMA fixed-rate multi-family or single-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.
9
30
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, 2021, total deposit balances increased $35.2
million, or 0.8%. Transaction account balances increased $464.9 million and retail certificates of deposit decreased $338.4 million
compared to December 31, 2020. The increase in transaction accounts were primarily a result of increased balances in non-interest
accounts, money market deposit accounts and certain NOW account types. Retail certificates of deposit decreased due to decreases in
national CDs initiated through internet channels and retail certificates generated through the banking center network. CDs initiated
through internet channels experienced a planned decrease due to increases in overall liquidity levels and in order to reduce the
Company’s cost of funds. Brokered deposits, including IntraFi program purchased funds, were $67.4 million at December 31, 2021, a
decrease of $91.3 million from $158.7 million at December 31, 2020. 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 FHLBank
advances. In times when our loan demand has outpaced our generation of new deposits, we have utilized brokered deposits and
FHLBank advances to fund these loans. These funding sources have been attractive to us because we can create either fixed or
variable rate funding, as desired, which more closely matches the interest rate nature of much of our loan portfolio. It also gives us
greater flexibility in increasing or decreasing the duration of our funding. While we do not currently anticipate that our ability to
access these sources will be reduced or eliminated in future periods, if this should happen, the limitation on our ability to fund
additional loans could have a material adverse effect on our business, financial condition and results of operations.
Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with
customers decreased $27.1 million from $164.2 million at December 31, 2020 to $137.1 million at December 31, 2021. These
balances fluctuate over time based on customer demand for this product.
Federal Home Loan Bank Advances and Short Term Borrowings. The Company’s FHLBank term advances were $-0- at both
December 31, 2021 and December 31, 2020. At both December 31, 2021 and December 31, 2020, there also were no overnight
borrowings from the FHLBank.
Short term borrowings and other interest-bearing liabilities increased $321,000 from $1.5 million at December 31, 2020 to $1.8
million at December 31, 2021. The short term borrowings included no overnight FHLBank borrowings at December 31, 2021 or
December 31, 2020. The Company may utilize both overnight borrowings and short-term FHLBank advances depending on relative
interest rates.
Subordinated notes. Subordinated notes decreased $74.4 million from $148.4 million at December 31, 2020 to $74.0 million at
December 31, 2021. The Company redeemed $75.0 million of its outstanding subordinated notes at par in August 2021.
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, prior to 2021, 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 credit losses. These accretable yield adjustments no
longer occur subsequent to 2020.
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
10
31
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,
2021, the Federal Funds rate stood at 0.25%. Financial markets are anticipating an aggressive increase in interest rates in 2022, with
three to six hikes anticipated. A substantial portion of Great Southern’s loan portfolio ($1.43 billion at December 31, 2021) 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, 2021.
Of these loans, $1.42 billion had interest rate floors. Great Southern also has a portfolio of loans ($598 million at December 31, 2021)
tied to a "prime rate" of interest and will adjust at least once within 90 days after December 31, 2021. Of these loans, $592 million had
interest rate floors at various rates. At December 31, 2021, $1.2 billion in LIBOR and “prime rate” loans were at their floor rate. If
interest rates were to increase 25 basis points, loans of $360.7 million would move above their floor rate. If interest rates were to
increase 50 basis points, an additional $285.1 million in loans would move above their floor rate.
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 or the “prime rate” 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, 2021, 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 relatively minor changes in interest rates because our portfolios are relatively well
matched in a twelve-month horizon. In a situation where market interest rates increase significantly in a short period of time, our net
interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in
LIBOR interest rates and “prime” interest rates. 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 and “prime” 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 assets and the issuance of
subordinated notes during 2020 and the net interest margin remained lower than our historical average in 2021. LIBOR interest rates
decreased in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and
deposits remains in most of our markets. For further discussion of the processes used to manage our exposure to interest rate risk, see
“Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate
Changes.”
Non-Interest Income and Operating Expenses. The Company's profitability is also affected by the level of its non-interest income
and operating expenses. Non-interest income consists primarily of service charges and ATM fees, late charges and prepayment fees on
loans, gains on sales of loans and available-for-sale investments and other general operating income. 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, 2021 and 2020.”
Business Initiatives
In 2021 and continuing into 2022, Great Southern is actively monitoring and responding 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
11
32
service are the Company’s top priorities. Please see “COVID-19 Impact to Our Business and Response” and “Paycheck Protection
Program Loans” above for further information, including the Company’s participation in the SBA’s PPP for small businesses.
The Company’s 93 banking centers and its loan production offices are consistently reviewed to measure performance and to ensure
responsiveness to changing customer needs and preferences. As such, the Company may open banking centers and loan production
offices and invest resources where customer demand leads, and from time to time, consolidate banking centers or even exit markets
when conditions dictate.
Several banking center changes were initiated in 2021 and are planned for 2022:
In September 2021 in the Joplin, Missouri, market, the Company opened a new banking center at 2801 E. 32 nd Street, replacing a
nearby leased office. The new office provides customers more convenient access and has a fresh, modern design facilitating an
enhanced customer experience. The Company currently has two banking centers serving the Joplin market.
After a thorough evaluation, in November 2021, the Company consolidated one banking center in the St. Louis region. The
Westfall Plaza banking center located at 8013 W. Florissant was consolidated into a nearby Great Southern office at 10385 W.
Florissant, less than three miles away. The Company operates 18 banking centers in the greater St. Louis area.
During 2022, the banking center in Kimberling City, Missouri, will be replaced with a newly constructed building on the same
property at 14309 Highway 13. Customers will be served in a temporary building on the property during construction. The new
office is expected to open in the fourth quarter of 2022. Including this office, the Company operates three banking centers in the
Branson Tri-Lakes area of southwest Missouri.
Other corporate initiatives occurred in 2021 or are planned in 2022:
Great Southern Bank was recognized as part of Forbes’ annual list of the World’s Best Banks 2021. The Bank was ranked first in
the list of best banks in the United States. The study involved asking 43,000 bank customers from 28 countries to rate banks they
are involved with on general satisfaction and key attributes like trust, terms and conditions, customer services, digital services and
financial advice. Some 500 banks around the world were featured on the list and can be viewed on the Forbes website.
In August 2021, the Company redeemed all of its outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes (due August 15,
2026) having an aggregate principal amount of $75 million, in accordance with the terms of the Subordinated Notes. The
Company used excess cash on hand for the redemption payment.
During 2021, a consulting firm was engaged to support the Company in its evaluation of core and ancillary software and
information technology systems. The Company’s core systems software is provided by third parties. The consultant’s support
included assisting the Company in identifying various software options, helping identify positive and negative attributes of those
software options and assisting in negotiating contract terms and pricing. In December 2021, the Company entered into a new
multi-year contract for these core and ancillary software services, which are expected to commence in late 2023.
Two long-term executive team members retired from the Company in 2021. Both announced their retirements at least a year in
advance to ensure an orderly leadership transition.
Chief Operating Officer Doug Marrs retired from the Company in July 2021. Mr. Marrs joined Great Southern in 1996, with his
banking career spanning 43 years. His successor, Mark Maples, is a banking veteran with 39 years of banking experience, 16
years of which have been with Great Southern.
Chief Information Officer Linton J. Thomason retired at the end of 2021. With more than 40 years in the banking industry, Mr.
Thomason joined Great Southern in 1997. His successor, Eric Johnson, joined Great Southern in 2008 and has held various
managerial roles related to the Company’s information technology and data security. Prior to joining Great Southern, Mr. Johnson
worked for 12 years in information technology at a regional healthcare provider.
In January 2022, the Company’s Board of Directors authorized the purchase of an additional one million shares of the Company’s
common stock, resulting in a total of nearly 1.2 million shares available in the stock repurchase authorization at that time.
12
33
Commercial loan production offices (LPOs) continue to play a significant role in developing the commercial loan portfolio. In
February 2022, the Company opened a commercial loan production office in Phoenix. Two local, highly experienced commercial
lenders were hired to develop commercial lending relationships in the Phoenix market area. The Phoenix office represents the
Company’s seventh LPO. Other LPOs are located in Atlanta, Chicago, Dallas, Denver, Omaha, Nebraska, and Tulsa, Oklahoma.
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.
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
8.5% for calendar year 2021, and 9% thereafter. The Company and the Bank have chosen to not utilize the new Community Bank
13
34
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, 2021 and December 31, 2020
During the year ended December 31, 2021, total assets decreased by $76.5 million to $5.45 billion. The decrease was primarily
attributable to decreases in loans receivable, partially offset by increases in cash and cash equivalents and available-for-sale securities.
Cash and cash equivalents were $717.3 million at December 31, 2021, an increase of $153.6 million, or 27.2%, from $563.7 million at
December 31, 2020. During 2021, the increase was primarily related to excess funds held at the Federal Reserve Bank. The additional
funds were primarily the result of increases in net loan repayments throughout 2021.
The Company’s available for sale securities increased $86.1 million, or 20.8%, compared to December 31, 2020. The increase was
primarily due to the purchase of FNMA and GNMA fixed-rate multi-family and single-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 9.2% and 7.5% of total assets at
December 31, 2021 and 2020, respectively.
Net loans decreased $289.3 million from December 31, 2020, to $4.01 billion at December 31, 2021. Decreases primarily occurred in
other residential (multi-family) loans, commercial real estate loans, commercial business loans and consumer auto loans. Other
residential (multi-family) loans decreased $307.4 million, or 30.8%, commercial real estate loans decreased $82.7 million, or 5.4%,
commercial business loans decreased $39.4 million, or 12.4%, and consumer auto loans decreased $37.3 million, or 43.2%. Partially
offsetting the decreases in these loans was an increase of $156.0 million, or 27.7%, in construction loans and an increase of $53.7
million, or 9.2%, in one- to four-family residential loans. In 2021, we experience significant early payoffs of multi-family loans and
commercial real estate loans. We also received repayment of a large portion of our PPP loans. Construction loans increased as new
loans were originated and draws were made on existing loans in 2021. A large portion of these construction loans were for multi-
family projects.
Other real estate owned and repossessions were $2.1 million at December 31, 2021, an increase of $210,000, or 11.2%, from $1.9
million at December 31, 2020. The increase was primarily due to the addition of properties which were not acquired through
foreclosure during the period, partially offset by sales of other real estate properties, and is discussed in more detail in the Non-
performing Assets section below.
Total liabilities decreased $63.5 million from $4.90 billion at December 31, 2020 to $4.83 billion at December 31, 2021. The decrease
was primarily attributable to the redemption of subordinated notes during 2021.
Total deposits increased $35.2 million, or 0.8%, from $4.52 billion at December 31, 2020 to $4.55 billion at December 31, 2021.
Transaction account balances increased $464.9 million compared to December 31, 2020. Non-interest-bearing checking account
balances increased $225.0 million and interest-bearing transaction accounts increased $239.9 million. The increase in transaction
accounts were primarily a result of increased money market deposit accounts and certain NOW account types. Customer retail
certificates initiated through our banking center network decreased by $140.4 million during the year ended December 31, 2021.
Market interest rates declined on both transaction accounts and retail time deposits. In many cases, customers chose to move funds
from time deposit accounts to interest-bearing transaction accounts to retain flexibility with their funds and because time deposit rates
were low. Customer retail certificates initiated through our internet channel network decreased by $200.3 million during the year
ended December 31, 2021. These deposits were less attractive to retain as other deposit categories’ balances increased in 2021.
Brokered deposits were $67.4 million at December 31, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020.
In both 2020 and 2021, the brokered deposits were allowed to mature without replacement as other deposit categories increased.
14
35
The Company’s Federal Home Loan Bank advances were $-0- at both December 31, 2021 and 2020. At December 31, 2021 and
2020, there were no borrowings from the FHLBank. The Company may utilize both overnight borrowings and short-term FHLBank
advances depending on relative interest rates.
Short term borrowings and other interest-bearing liabilities increased $321,000 from $1.5 million at December 31, 2020 to $1.8
million at December 31, 2021. The short term borrowings included no overnight FHLBank borrowings at December 31, 2021 and
2020.
Securities sold under reverse repurchase agreements with customers decreased $27.1 million, or 16.5%, from $164.2 million at
December 31, 2020 to $137.1 million at December 31, 2021. These balances fluctuate over time based on customer demand for this
product.
Total stockholders' equity decreased $13.0 million, from $629.7 million at December 31, 2020 to $616.8 million at December 31,
2021. The Company recorded net income of $74.6 million for the year ended December 31, 2021. In addition, total stockholders’
equity increased $4.9 million due to stock option exercises. Total stockholders’ equity decreased $39.1 million due to repurchases of
the Company’s common stock. Accumulated other comprehensive income decreased $20.4 million due to decreases in the fair value
of available-for-sale investment securities and the fair value of cash flow hedges. Dividends declared on common stock, which
decreased total stockholders’ equity, were $18.9 million. In addition, the initial adoption of the CECL accounting standard for credit
losses on January 1, 2021, resulted in a decrease in stockholders’ equity of $14.2 million.
Results of Operations and Comparison for the Years Ended December 31, 2021 and 2020
General
Net income increased $15.3 million, or 25.8%, during the year ended December 31, 2021, compared to the year ended December 31,
2020. Net income and net income available to common shareholders was $74.6 million for the year ended December 31, 2021
compared to $59.3 million for the year ended December 31, 2020. This increase was due to a decrease in provision (credit) for credit
losses and unfunded commitments of $21.6 million, or 136.3%, an increase in non-interest income of $3.3 million, or 9.3%, and an
increase in net interest income of $783,000, or 0.4%, partially offset by an increase in income tax expenses of $6.0 million, or 43.2%,
and an increase in non-interest expenses of $4.4 million, or 3.6%.
Total Interest Income
Total interest income decreased $19.0 million, or 8.7%, during the year ended December 31, 2021 compared to the year ended
December 31, 2020. The decrease was due to an $18.7 million, or 9.1%, decrease in interest income on loans and a $335,000, or 2.6%,
decrease in interest income on investment securities and other interest-earning assets. Interest income on loans decreased in 2021
compared to 2020 due to lower average rates of interest and lower average balances of loans. Interest income from investment
securities and other interest-earning assets decreased during 2021 compared to 2020 due to lower average rates of interest, partially
offset by higher average balances of investments and other interest-earning assets.
Interest Income – Loans
During the year ended December 31, 2021 compared to the year ended December 31, 2020, interest income on loans decreased due to
lower average balances and lower average interest rates. Interest income decreased $13.0 million as the result of lower average
interest rates on loans. The average yield on loans decreased from 4.66% during the year ended December 31, 2020 to 4.36% during
the year ended December 31, 2021. The decreased yields in most loan categories were primarily a result of decreased LIBOR and
Federal Funds interest rates. In addition, interest income on loans decreased $5.7 million as a result of lower average loan balances,
which decreased from $4.40 billion during the year ended December 31, 2020, to $4.27 billion during the year ended December 31,
2021. The lower average balances were primarily due to higher loan repayments during 2021. In 2020, the Company also originated
$121 million of PPP loans, which have a much lower yield compared to the overall loan portfolio. These loans were largely repaid
during 2021, contributing to the lower average balance in loans.
On an on-going basis, the Company has estimated the cash flows expected to be collected from the FDIC-assisted 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
15
36
income over time. For the years ended December 31, 2021 and 2020, the adjustments increased interest income and pre-tax income
by $1.6 million and $5.6 million, respectively.
As of December 31, 2021, the remaining accretable yield adjustment that will affect interest income was $429,000. We expect to
recognize the remaining $429,000 of interest income during 2022. 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 4.32% during the year ended December 31, 2021,
compared to 4.53% during the year ended December 31, 2020, 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 was 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, the Company was
required to pay net settlements to the counterparty and record 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 has 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
$8.1 million and $7.7 million during the years ending December 31, 2021 and 2020, respectively, related to this interest rate swap.
The Company currently expects to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income in
future periods. If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be
required to recognize this interest income more rapidly.
In February 2022, 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 $300 million with an effective date of March 1, 2022
and a termination date of March 1, 2024. Under the terms of the swap, the Company will receive a fixed rate of interest of 1.6725%
and will pay a floating rate of interest equal to one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of
interest due to/from the counterparty will also occur monthly. The initial floating rate of interest was set at 0.24143%. Therefore, in
the near term, the Company will receive net interest settlements which will be recorded as loan interest income, to the extent that the
fixed rate of interest continues to exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest in future periods,
the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest
income on loans.
Interest Income - Investments and Other Interest-earning Assets
Interest income on investments decreased $573,000 in the year ended December 31, 2021 compared to the year ended December 31,
2020. Interest income decreased $1.2 million due to a decrease in average interest rates from 2.88% during the year ended December
31, 2020 to 2.61% during the year ended December 31, 2021, due to lower market rates of interest on investment securities purchased
during 2021 compared to securities already in the portfolio. Interest income increased $600,000 as a result of an increase in average
balances from $426.4 million during the year ended December 31, 2020, to $447.9 million during the year ended December 31, 2021.
Interest income on other interest-earning assets increased $238,000 in the year ended December 31, 2021 compared to the year ended
December 31, 2020. Interest income increased $438,000 as a result of an increase in average balances from $246.1 million during the
year ended December 31, 2020, to $552.1 million during the year ended December 31, 2021. Average balances increased due to
higher balances held at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020 and
significant loan repayments in 2021. Interest income decreased $200,000 due to a decrease in average interest rates from 0.19% during
the year ended December 31, 2020, to 0.13% during the year ended December 31, 2021. 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 and
remained low in 2021.
16
37
Total Interest Expense
Total interest expense decreased $19.8 million, or 48.8%, during the year ended December 31, 2021, when compared with the year
ended December 31, 2020, due to a decrease in interest expense on deposits of $19.3 million, or 59.6%, a decrease in interest expense
on short-term borrowings and repurchase agreements of $638,000, or 94.5%, and a decrease in interest expense on subordinated
debentures issued to capital trust of $180,000, or 28.7%. Partially offsetting these decreases, interest expense on subordinated notes
increased $334,000, or 4.9%.
Interest Expense - Deposits
Interest expense on demand deposits decreased $4.5 million due to a decrease in average rates from 0.38% during the year ended
December 31, 2020, to 0.17% during the year ended December 31, 2021. Partially offsetting that decrease, interest on demand
deposits increased $1.4 million due to an increase in average balances from $1.87 billion in the year ended December 31, 2020, to
$2.32 billion in the year ended December 31, 2021. 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 and remained elevated during 2021. In 2020, many of our business and personal customers
increased their average account balances with us (some through funds received from government entities) and we also added new
accounts throughout the year. Much of these increased balances remained or grew in 2021; therefore, the average balances were
higher in 2021 versus 2020.
Interest expense on time deposits decreased $10.3 million as a result of a decrease in average rates of interest from 1.55% during the
year ended December 31, 2020, to 0.78% during the year ended December 31, 2021. In addition, interest expense on time deposits
decreased $6.0 million due to a decrease in average balance of time deposits from $1.64 billion during the year ended December 31,
2020, to $1.16 billion during the year ended December 31, 2021. A large portion of the Company’s certificate of deposit portfolio
matures within six to twelve 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 and 2021. The decrease in average balances of time deposits was a
result of decreases in retail customer time deposits obtained through the banking center network, retail customer time deposits
obtained through on-line channels and decreases in brokered deposits. Brokered and on-line channel deposits were actively reduced by
the Company as other deposit sources increased. The Company reduced its rates on these types of time deposits and allowed these
deposits to mature without replacement during 2021.
Interest Expense - FHLBank Advances; Short-term Borrowings, Repurchase Agreements and Other Interest-bearing
Liabilities; Subordinated Debentures Issued to Capital Trust and Subordinated Notes
FHLBank term advances were not utilized during the years ended December 31, 2021 and 2020. FHLB overnight borrowings were
utilized in the first quarter of 2020.
Interest expense on repurchase agreements increased $6,000 due to an increase in average balances from $140.9 million during the
year ended December 31, 2020, to $143.8 million during the year ended December 31, 2021. The increase in average balances was
due to changes in customers’ need for this product, which can fluctuate. There was only a minor change in the average interest rate on
the repurchase agreements between 2021 and 2020.
Interest expense on short-term borrowings, overnight FHLBank borrowings, and other interest-bearing liabilities decreased $326,000
due to average rates that decreased from 1.51% in the year ended December 31, 2020, to 0.02% in the year ended December 31, 2021.
In addition to this decrease, interest expense on short-term borrowings and other interest-bearing liabilities decreased $318,000 due to
a decrease in average balances from $42.6 million during the year ended December 31, 2020, to $1.5 million during the year ended
December 31, 2021. The decrease in average balances and rates was due to changes in the Company’s funding needs and the mix of
funding, which can fluctuate.
During the year ended December 31, 2021, compared to the year ended December 31, 2020, interest expense on subordinated
debentures issued to capital trusts decreased $180,000 due to lower average interest rates. The average interest rate was 2.44% in
2020, compared to 1.74% in 2021. 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 2021 and 2020.
17
38
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. In August 2021, the Company completed the
redemption of all of its 5.25% subordinated notes due August 15, 2026. The notes were redeemed for cash by the Company at 100%
of their principal amount, plus accrued and unpaid interest. Interest expense on subordinated notes increased $265,000 due to an
increase in average balances from $115.3 million during the year ended December 31, 2020 to $119.8 million during the year ended
December 31, 2021 due to higher average balances resulting from the issuance of new notes in June 2020, slightly offset by the
redemption of the subordinated notes maturing in 2026 during August 2021. Interest expense on the subordinated notes increased
$69,000 due to average rates that increased from 5.92% in the year ended December 31, 2020, to 5.98% in the year ended December
31, 2021.
Net Interest Income
Net interest income for the year ended December 31, 2021 increased $783,000, or 0.4%, to $177.9 million, compared to $177.1
million for the year ended December 31, 2020. Net interest margin was 3.37% for the year ended December 31, 2021, compared to
3.49% for the year ended December 31, 2020, a decrease of 12 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, 2021 and 2020
were increases in interest income of $1.6 million and $5.6 million, respectively, and increases in net interest margin of three basis
points and 11 basis points, respectively. Excluding the positive impact of the additional yield accretion, net interest margin decreased
four basis points during the year ended December 31, 2021. 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 redemption of
subordinated notes in 2021.
The Company's overall interest rate spread decreased one basis point, or 0.5%, from 3.23% during the year ended December 31, 2020,
to 3.22% during the year ended December 31, 2021. The decrease was due to a 52 basis point decrease in the weighted average yield
on interest-earning assets, partially offset by a 51 basis point decrease in the weighted average rate paid on interest-bearing liabilities.
In comparing the two years, the yield on loans decreased 30 basis points, the yield on investment securities decreased 27 basis points
and the yield on other interest-earning assets decreased six basis points. The rate paid on deposits decreased 55 basis points, the rate
paid on subordinated debentures issued to capital trust decreased 70 basis points, the rate paid on short-term borrowings decreased 34
basis points, and the rate paid on subordinated notes increased six basis points.
For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields" table in this
Report.
Provision for and Allowance for Credit Losses
The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, effective January 1, 2021. The CECL methodology replaces the incurred loss methodology with a lifetime “expected
credit loss” measurement objective for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the
time the financial asset is originated or acquired. This standard requires the consideration of historical loss experience and current
conditions adjusted for reasonable and supportable economic forecasts. Our 2020 financial statements were prepared under the
incurred loss methodology standard. Upon adoption of the CECL accounting standard, we increased the balance of our allowance for
credit losses related to outstanding loans by $11.6 million and created a liability for potential losses related to the unfunded portion of
our loans and commitments of approximately $8.7 million. The after-tax effect reduced our retained earnings by approximately $14.2
million. The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at January
1, 2021. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as
well as the credit quality and underwriting standards of a company’s portfolio.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past
events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the
estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk
18
39
characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in
environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index
and national retail sales index.
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 provision expense. Management maintains various controls in
an attempt to limit future losses, such as a watch list of problem loans and potential 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.
During the year ended December 31, 2021, the Company recorded a negative provision expense of $6.7 million on its portfolio of
outstanding loans, compared to a $15.9 million provision expense recorded for the year ended December 31, 2020. The negative
provision for credit losses in 2021 reflected decreased outstanding total loans and continued positive trends in asset quality metrics,
combined with an improved economic forecast. In 2021, the national unemployment rate continued to decrease and many measures of
economic growth improved. The Company experienced net recoveries of $116,000 for the year ended December 31, 2021 compared
to net charge offs of $422,000 for the year ended December 31, 2020. The provision for losses on unfunded commitments for the year
ended December 31, 2021 was $939,000. General market conditions and unique circumstances related to specific industries and
individual 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. In 2020, due to the COVID-19 pandemic and its effects on the overall economy and
unemployment, the Company increased its provision for credit losses and increased its allowance for credit losses, even though actual
realized net charge-offs were very low.
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 credit losses as a percentage of total loans was 1.49% and 1.32% at December 31, 2021 and 2020,
respectively. Prior to January 1, 2021, the ratio excluded the FDIC-assisted acquired loans. Management considers the allowance for
credit losses adequate to cover losses inherent in the Bank’s loan portfolio at December 31, 2021, based on recent reviews of the
Bank’s loan portfolio and current economic conditions. If challenging economic conditions were to last longer than anticipated or
deteriorate further or management’s assessment of the loan portfolio were to change, additional credit loss provisions could be
required, thereby adversely affecting the Company’s future results of operations and financial condition.
Non-performing Assets
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.
Prior to adoption of the CECL accounting standard on January 1, 2021, FDIC-assisted acquired non-performing assets, including
foreclosed assets and potential problem loans, were not included in the totals or in the discussion of non-performing loans, potential
problem loans and foreclosed assets. These assets were initially recorded at their estimated fair values as of their acquisition dates and
accounted for in pools. The loan pools were analyzed rather than the individual loans. The performance of the loan pools acquired in
each of the Company’s five FDIC-assisted transactions has been better than expectations as of the acquisition dates. In the tables
below, FDIC-assisted acquired assets are included in their particular collateral categories and then the total FDIC-assisted acquired
assets are subtracted from the total balances.
19
40
Non-performing assets, including all FDIC-assisted acquired assets, at December 31, 2021, were $6.0 million, a decrease of $2.1
million from $8.1 million at December 31, 2020. Non-performing assets, including all FDIC-assisted acquired assets, as a percentage
of total assets were 0.11% at December 31, 2021, compared to 0.15% at December 31, 2020.
Compared to December 31, 2020, non-performing loans decreased $1.5 million to $5.4 million at December 31, 2021, and foreclosed
assets decreased $635,000 to $588,000 at December 31, 2021. Non-performing one-to four-family residential loans comprised $2.2
million, or 40.9%, of the total non-performing loans at December 31, 2021. Non-performing commercial real estate loans comprised
$2.0 million, or 37.0%, of total non-performing loans at December 31, 2021. Non-performing consumer loans comprised $733,000, or
13.5%, of the total non-performing loans at December 31, 2021. Non-performing land development loans comprised $468,000, or
8.6%, of total non-performing loans at December 31, 2021.
Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2021, was as follows:
Beginning Additions
Removed
Balance,
from Non-
to Non-
January 1 Performing Performing
Potential
Problem
Loans
Transfers to Transfers to
Foreclosed
Assets and Charge-
Repossessions
Offs
Payments December 31
Ending
Balance,
$
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Total non-performing loans
Less: FDIC-assisted acquired loans
— $
—
—
—
4,465
190
849
114
1,268
6,886
3,843
(In Thousands)
— $
—
622
—
1,031
—
4,562
20
330
6,565
144
— $
—
—
—
(1,236)
(185)
(330)
—
(232)
(1,983)
(1,149)
— $
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
(183)
—
(191)
—
(83)
(457)
(373)
— $
—
(154)
—
(77)
—
—
—
(191)
(422)
(94)
— $
—
—
—
(1,784)
(5)
(2,884)
(134)
(359)
(5,166)
(635)
—
—
468
—
2,216
—
2,006
—
733
5,423
1,736
Total non-performing loans net of
FDIC-assisted acquired loans
$ 3,043 $ 6,421 $
(834) $
— $
(84) $ (328) $ (4,531) $
3,687
At December 31, 2021, the non-performing one- to four-family residential category included 40 loans, eight of which were added
during 2021. The largest relationship in this category is an FDIC-assisted acquired loan totaling $326,000, or 14.7% of the total
category. The non-performing commercial real estate category included two loans, both of which were added during 2021. The largest
relationship in this category, which totaled $1.7 million, or 86.0% of the total category, was transferred from potential problems and is
collateralized by a mixed use commercial retail building. The previous largest non-performing commercial real estate relationship
($2.4 million) was paid off in 2021. The non-performing consumer category included 30 loans, seven of which were added during
2021. The non-performing land development category consisted of one loan added during 2021, which totaled $468,000 and is
collateralized by unimproved zoned vacant ground in southern Illinois.
Loans that were modified under the guidance provided by the CARES Act are not included as non-performing loans in the table above
as they are current under their modified terms. For additional information about these loan modifications, see the "Loan
Modifications" section in this Report.
20
41
Other Real Estate Owned and Repossessions. Of the total $2.1 million of other real estate owned and repossessions at December 31,
2021, $1.5 million represents properties which were not acquired through foreclosure.
Activity in foreclosed assets and repossessions during the year ended December 31, 2021, was as follows:
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Total foreclosed assets and repossessions
Less: FDIC-assisted acquired assets
Beginning
Balance,
January 1 Additions
Capitalized
Sales
Costs
(In Thousands)
Write-
Downs
Ending
Balance,
December 31
$ — $ — $ — $ — $ — $
263
682
—
125
—
—
—
153
1,223
446
—
—
—
183
—
192
—
759
1,134
375
(169)
(250)
—
(125)
—
(192)
—
(822)
(1,558)
(206)
—
—
—
—
—
—
—
—
—
—
(94)
(117)
—
—
—
—
—
—
(211)
(117)
—
—
315
—
183
—
—
—
90
588
498
Total foreclosed assets and repossessions net of FDIC-
assisted acquired assets
$
777 $
759 $ (1,352) $ — $
(94) $
90
At December 31, 2021, the land development category of foreclosed assets consisted of one property in central Iowa (this was an
FDIC-assisted acquired asset), which was added prior to 2021. The one- to four-family residential category of foreclosed assets
consisted of two properties (both of which were FDIC-assisted acquired assets), both of which were added during 2021. The amount
of additions and sales in the consumer category are due to the volume of repossessions of automobiles, which generally are subject to
a shorter repossession process.
Potential Problem Loans. Potential problem loans decreased $3.8 million during the year ended December 31, 2021, from $5.8
million at December 31, 2020 to $2.0 million at December 31, 2021. 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.
Due to the impact on economic conditions from COVID-19, it is possible that we could experience an increase in potential problem
loans in future periods. As noted, we experienced an increased level of loan modifications in late March through June 2020; however,
total loan modifications were much lower at December 31, 2020, and decreased further through December 31, 2021. 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
automatically result in these loans being classified as TDRs, potential problem loans or non-performing loans. If more severe or
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 TDRs, additional potential problem loans and/or additional non-performing loans. Further actions on our
part, including additions to the allowance for credit losses, could result.
21
42
Activity in the potential problem loans category during the year ended December 31, 2021, was as follows:
Removed
from
Transfers to
Non-
Transfers to
Foreclosed
Assets and Charge-
to Potential Potential
Beginning Additions
Balance,
January 1
Problem Problem Performing Repossessions
Offs
Payments December 31
Ending
Balance,
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Total potential problem loans
Less: FDIC-assisted acquired loans
Total potential problem loans net of
(In Thousands)
$
— $
21
—
—
2,157
—
3,080
—
588
5,846
1,523
— $
—
—
—
—
—
—
—
158
158
—
— $
—
—
—
(314)
—
(1,070)
—
(21)
(1,405)
(314)
— $
—
—
—
(52)
—
(1,726)
—
(1)
(1,779)
—
— $
—
—
—
—
—
—
—
(95)
(95)
—
— $
—
—
—
—
—
—
—
(97)
(97)
—
— $
(6)
—
—
(359)
—
(74)
—
(209)
(648)
(205)
—
15
—
—
1,432
—
210
—
323
1,980
1,004
FDIC-assisted acquired loans
$ 4,323 $
158 $ (1,091) $ (1,779) $
(95) $ (97) $ (443) $
976
At December 31, 2021, the commercial real estate category of potential problem loans included one loan, which was added in a prior
year. During 2021, within the commercial real estate category of potential problem loans, one at $536,000 was upgraded after six
months of consecutive payments and one at $534,000 was paid off and removed from the potential problem loans category; both of
these loans had been added to potential problem loans in 2020. One loan totaling $1.7 million was moved to the non-performing
category. The one- to four-family residential category of potential problem loans included 25 loans, none of which were added during
2021. The largest relationship in this category totaled $171,000, or 12.0% of the category. The consumer category of potential
problem loans included 27 loans, eight of which were added during 2021.
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 2021, loans
classified as “Watch” decreased $34.0 million, from $64.8 million at December 31, 2020 to $30.7 million at December 31, 2021. This
decrease was primarily due to loans being upgraded out of the “Watch” category, which primarily included one $14.3 million
relationship collateralized by a shopping center, one $10.6 million relationship collateralized by recreational facilities and other real
estate and business assets, and one $3.9 million relationship collateralized by a shopping center and other real estate and business
assets. Also, one $11.6 million relationship collateralized by a healthcare facility was paid in full during 2021. Partially offsetting
those decreases, one $10.3 million relationship collateralized by a healthcare facility was downgraded and added to the “Watch”
category. 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, 2021 was $38.3 million compared with $35.0 million for the year ended
December 31, 2020. The increase of $3.3 million, or 9.3%, was primarily as a result of the following items:
Point-of-sale and ATM fees: Point-of-sale and ATM fees increased $2.8 million compared to the prior year. This increase was
primarily due to a reduction in customer usage in 2020 as the COVID-19 pandemic caused many businesses to close or limit access
for a period of time. In the year ended December 31, 2021, debit card and ATM usage by customers was back to normal levels, a nd in
some cases, increased levels of activity.
Net gains on loan sales: Net gains on loan sales increased $1.4 million compared to the prior year. The increase was due to an
increase in originations of fixed-rate single-family mortgage loans during 2021 compared to 2020. Fixed-rate single-family mortgage
loans originated are generally subsequently sold in the secondary market. These loan originations increased substantially when market
22
43
interest rates decreased to historically low levels in the latter half of 2020 and the first half of 2021. As a result of the significant
volume of refinance activity recently, and as market interest rates moved a bit higher in the latter half of 2021, mortgage refinance
volume has decreased and loan originations and related gains on sales of these loans have returned to levels closer to historic averages.
Gain (loss) on derivative interest rate products: In 2021, the Company recognized a gain of $312,000 on the change in fair value of its
back-to-back interest rate swaps related to commercial loans. In 2020, the Company recognized a loss of $264,000 on the change in
fair value of its back-to-back interest rate swaps related to commercial loans. Generally, as market interest rates increase, this creates
a net increase in the fair value of these instruments. As market rates decrease, the opposite tends to occur. This is a non-cash item as
there was no required settlement of this amount between the Company and its swap counterparties.
Other income: Other income decreased $2.0 million compared to the prior year. In 2020, the Company recognized approximately
$1.5 million of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan
customers and swap counterparties, with fewer of these transactions and related fee income generated in 2021.
Non-Interest Expense
Total non-interest expense increased $4.4 million, or 3.6%, from $123.2 million in the year ended December 31, 2020, to $127.6
million in the year ended December 31, 2021. The Company’s efficiency ratio for the year ended December 31, 2021 was 59.03%, an
increase from 58.07% for 2020. The higher efficiency ratio in 2021 was primarily due to an increase in non-interest expense
(primarily from the significant IT consulting expense and related contract termination liability incurred in December 2021), partially
offset by an increase in total revenue. Excluding this consulting expense and contract termination liability, the Company’s efficiency
ratio was 56.57% in 2021. In the year ended December 31, 2021, the Company’s efficiency ratio was negatively impacted by a
decrease in interest income on loans and positively impacted by a decrease in interest expense on deposits. 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. The Company’s ratio of non-interest expense to average assets
was 2.32% for the year ended December 31, 2021 compared to 2.31% for the year ended December 31, 2020. Average assets for the
year ended December 31, 2021, increased $178.9 million, or 3.4%, from the year ended December 31, 2020, primarily due to
increases in investment securities and interest-bearing cash equivalents, partially offset by a decrease in net loans receivable.
The following were key items related to the increase in non-interest expense for the year ended December 31, 2021 as compared to the
year ended December 31, 2020:
Legal, Audit and Other Professional Fees: Legal, audit and other professional fees increased $4.2 million from the prior year, to $6.6
million. In 2021, the Company expensed and paid $4.1 million in fees to consultants that were engaged to support the Company in its
evaluation of core and ancillary software and information technology systems. The consultant’s support included assisting the
Company in identifying various software options, helping identify positive and negative attributes of those software options and
assisting in negotiating contract terms and pricing.
Net Occupancy and Equipment Expense: Net occupancy and Equipment expense increased $1.6 million from the prior year, to $29.2
million. In 2021, the Company expensed a $1.2 million contract termination fee related to the Company’s current core software and
information technology system.
Insurance: Insurance expense increased $656,000 compared to the prior year. This increase was primarily due to an increase in FDIC
deposit insurance premiums. In 2020, the Company had a $482,000 credit with the FDIC for a portion of premiums previously paid to
the deposit insurance fund. The remaining deposit insurance fund credit was utilized in 2020 in addition to $870,000 in premiums
being due for the year ended December 31, 2020, while the premium expense was $1.4 million for the year ended December 31, 2021.
Expense on other real estate owned and repossessions: Expense on other real estate owned and repossessions decreased $1.4 million
compared to the prior year primarily due to sales of most foreclosed assets and a smaller amount of repossessed automobiles in 2021,
plus higher valuation write-downs of certain foreclosed assets during 2020. During 2020, sales and valuation write-downs of certain
foreclosed assets totaled a net expense of $963,000, while sales and valuation write-downs in 2021 totaled a net gain of $7,000.
Salaries and employee benefits: Salaries and employee benefits decreased $520,000 in the year ended December 31, 2021 compared
to the prior year. In 2020, the Company approved two special cash bonuses to all employees totaling $2.2 million in response to the
COVID-19 pandemic. Such bonuses were not repeated in the year ended December 31, 2021.
23
44
Provision for Income Taxes
For the years ended December 31, 2021 and 2020, the Company's effective tax rates were 20.9% and 18.9%, respectively. These
effective rates were at or below 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, the level of
tax-exempt investments and loans, the amount of taxable income in various state jurisdictions and the overall level of pre-tax income.
State tax expense estimates have evolved throughout 2020 and 2021 as taxable income and apportionment between states have been
analyzed. The higher effective tax rate in 2021 was due to higher overall income, lower levels of low income housing tax credits and
less tax-exempt interest income. The Company's effective income tax rate is currently generally expected to remain near the statutory
federal tax rate due primarily to the factors noted above. The Company currently expects its effective tax rate (combined federal and
state) will be approximately 20.5% to 21.5% in future periods.
24
45
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
$11.2 million, $6.6 million and $4.0 million for 2021, 2020 and 2019, respectively. Tax-exempt income was not calculated on a tax
equivalent basis. The table does not reflect any effect of income taxes.
Dec. 31,
2021(2)
Yield/
Rate
Year Ended
December 31, 2021
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Average
Balance
Yield/
Interest Rate
Average
Balance
Interest Rate
Yield/
Average
Balance
Yield/
Interest Rate
Interest-earning assets:
Loans receivable:
One- to four-family residential
Other residential
Commercial real estate
Construction
Commercial business
Other loans
Industrial revenue bonds (1)
(Dollars In Thousands)
3.29 % $
4.29
4.06
3.98
4.02
4.64
4.44
678,900
922,739
1,541,095
616,899
279,232
220,783
14,528
$ 25,251
40,998
65,811
27,696
15,403
10,347
763
3.72 % $
4.44
4.27
4.49
5.52
4.69
5.25
652,096
930,529
1,526,618
665,546
325,397
283,678
15,395
$
29,099
43,902
69,437
32,443
14,070
15,184
829
4.46 % $
4.72
4.55
4.87
4.32
5.35
5.38
532,051
812,412
1,443,435
706,581
258,606
387,854
14,841
$
27,450
43,931
74,256
41,767
13,234
21,511
898
5.16 %
5.41
5.14
5.91
5.12
5.55
6.05
Total loans receivable
4.26
4,274,176
186,269
4.36
4,399,259
204,964
4.66
4,155,780
223,047
5.37
Investment securities (1)
Interest-earning deposits in other banks
2.42
0.15
447,943
552,094
11,689
715
2.61
0.13
426,383
246,110
12,262
477
2.88
0.19
326,450
87,767
10,066
1,881
3.08
2.14
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
Securities sold under reverse repurchase
agreements
Short-term borrowings, overnight FHLBank
borrowings and other interest-bearing
liabilities
Subordinated debentures issued to capital trust
Subordinated notes
Total interest-bearing liabilities
Non-interest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income:
Interest rate spread
Net interest margin*
Average interest-earning assets to average interest-
bearing liabilities
3.58
5,274,213
198,673
3.77
5,071,752
217,703
4.29
4,569,997
234,994
5.14
96,989
131,154
$ 5,502,356
93,832
157,842
$ 5,323,426
92,315
192,695
$ 4,855,007
0.12
0.60
0.26
0.02
0.07
1.73
5.97
$ 2,316,890
1,161,134
3,478,024
4,023
9,079
13,102
143,757
37
1,529
25,774
119,780
—
448
7,165
0.17
0.78
0.38
0.03
0.02
1.74
5.98
$ 1,867,166
1,636,205
3,503,371
7,096
25,335
32,431
0.38
1.55
0.93
$ 1,507,518
1,716,786
3,224,304
7,971
37,599
45,570
0.53
2.19
1.41
140,938
31
0.02
102,615
19
0.02
42,560
25,774
115,335
644
628
6,831
1.51
2.44
5.92
157,409
25,774
74,070
3,616
1,019
4,378
2.30
3.95
5.91
0.38
3,768,864
20,752
0.55
3,827,978
40,565
1.06
3,584,172
54,602
1.52
1,061,716
44,260
4,874,840
627,516
$ 5,502,356
826,900
46,111
4,700,989
622,437
$ 5,323,426
665,606
33,592
4,283,370
571,637
$ 4,855,007
3.20 %
$ 177,921
3.22 %
3.37 %
$ 177,138
3.23 %
3.49 %
$ 180,392
3.62 %
3.95 %
139.9 %
132.5 %
127.5 %
*
(1)
(2)
Defined as the Company's net interest income divided by total interest-earning assets.
Of the total average balance of investment securities, average tax-exempt investment securities were $42.3 million, $55.9
million and $41.7 million for 2021, 2020 and 2019, respectively. In addition, average tax-exempt industrial revenue bonds
were $17.9 million, $20.0 million and $20.8 million in 2021, 2020 and 2019, respectively. Interest income on tax-exempt
assets included in this table was $1.6 million, $2.2 million and $2.4 million for 2021, 2020 and 2019, respectively. Interest
income net of disallowed interest expense related to tax-exempt assets was $1.6 million, $2.0 million and $2.2 million for
2021, 2020 and 2019, respectively.
The yield/rate on loans at December 31, 2021 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 2021 results of operations.
25
46
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, 2021 vs.
December 31, 2020
Increase (Decrease)
Due to
Total
Increase
Year Ended
December 31, 2020 vs.
December 31, 2019
Increase (Decrease)
Due to
Total
Increase
Volume (Decrease)
Rate
Volume (Decrease) Rate
(In Thousands)
Interest-earning assets:
Loans receivable
Investment securities
Interest-earning deposits in other banks
Total interest-earning assets
Interest-bearing liabilities:
Demand deposits
Time deposits
Total deposits
$ (12,982) $
(1,173)
(200)
(14,355)
(4,497)
(10,246)
(14,743)
(5,713) $ (18,695) $ (30,621) $
(573)
238
(19,030)
(715)
(2,745)
(34,081)
600
438
(4,675)
12,538 $ (18,083)
2,196
2,911
(1,404)
1,341
(17,291)
16,790
1,424
(6,010)
(4,586)
(3,073)
(16,256)
(19,329)
(2,531)
(10,571)
(13,102)
1,656
(1,693)
(37)
(875)
(12,264)
(13,139)
Securities sold under reverse repurchase
agreements
Short-term borrowings, overnight FHLBank
borrowings and other liabilities
Subordinated debentures issued to capital trust
Subordinated notes
Total interest-bearing liabilities
Net interest income
6
—
6
4
8
12
(326)
(180)
69
(15,174)
(318)
—
265
(4,639)
(644)
(180)
334
(19,813)
(949)
(391)
9
(14,429)
$
819 $
(36) $
783 $ (19,652) $
(2,023)
—
2,444
392
16,398 $
(2,972)
(391)
2,453
(14,037)
(3,254)
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 credit 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
26
47
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.
As of December 31, 2020, the remaining accretable yield adjustment that will affect interest income was $2.0 million; $1.6 million of
this amount was recognized in interest income during 2021. 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 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 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.
27
48
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 2020.
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 Structured 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 2019, as discussed below.
Interest expense on repurchase agreements increased $4,000 due to average rates that increased from 0.019% in the year ended
December 31, 2019, to 0.022% in the year ended December 31, 2020. In addition to this increase, interest expense on repurchase
agreements increased $8,000 due to an increase in average balances from $102.6 million during the year ended December 31, 2019, to
$140.9 million during the year ended December 31, 2020. The increase in average balances was due to changes in customers’ need for
this product, which can fluctuate.
Interest expense on short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities decreased $949,000
due to average rates that decreased from 2.30% in the year ended December 31, 2019, to 1.51% 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 other
interest-bearing liabilities decreased $2.0 million due to a decrease in average balances from $157.4 million during the year ended
December 31, 2019, to $42.6 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
28
49
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.
For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” table in this
Report.
Provision for Loan Losses and Allowance for Loan Losses
The provision for loan losses for the year ended December 31, 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
auto 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. 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.
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.
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
29
50
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:
Transfers to Transfers to
Beginning Additions to Removed
Balance,
from Non-
Non-
January 1 Performing Performing Loans
Potential
Problem
Foreclosed
Assets and Charge-
Ending
Balance,
Repossessions Offs
Payments December 31
(In Thousands)
One- to four-family construction
Subdivision construction
Land development
Commercial construction
One- to four-family residential
Other residential
Commercial real estate
Other commercial
Consumer
$
— $
—
—
—
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
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, Missouri 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 in this Report.
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.
30
51
Activity in foreclosed assets and repossessions during the year ended December 31, 2020, was as follows:
Beginning
Balance,
January 1 Additions from Sales Costs
(In Thousands)
Proceeds Capitalized
ORE
Expense
Ending
Balance,
Write-Downs 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
$
— $
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, Missouri 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 foreclosed assets consisted of one property in the Branson,
Missouri 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 proceeds from 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 credit losses.
Activity in the potential problem loans category during the year ended December 31, 2020, was as follows:
Removed
from
Beginning
Potential
Balance,
January 1 Additions Problem Performing Assets
(In Thousands)
Transfers Transfers to
Foreclosed
to Non-
Charge-Offs Payments December 31
Ending
Balance,
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)
— $
—
—
—
(83)
—
—
—
(40)
— $
—
—
—
—
—
—
—
(70)
— $
—
—
—
—
—
—
—
(124)
— $
(3)
—
—
(149)
—
(1,308)
—
(228)
—
21
—
—
863
—
2,851
—
588
Total
$
4,381 $
1,981 $
(34) $
(123) $
(70) $
(124) $ (1,688) $
4,323
31
52
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 cat egory, 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 year ended December 31, 2019. 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 20 19. 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 2020.
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 d ue 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 cash
and cash equivalents.
32
53
The following were key items related to the decrease 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.
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 manage ment. These
obligations include the credit needs of customers, funding deposit withdrawals and the day-to-day operations of the Company. Liquid
assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the
Company's management of the ability to generate liquidity primarily through liability funding, management believes that the
Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At
December 31, 2021, the Company had commitments of approximately $213.3 million to fund loan originations, $1.51 billion of
unused lines of credit and unadvanced loans, and $13.4 million of outstanding letters of credit.
33
54
Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):
Closed non-construction loans with unused available lines
Secured by real estate (one- to four-family)
Secured by real estate (not one- to four-family)
Not secured by real estate - commercial business
$
175,682 $
164,480 $
155,831 $
150,948 $
23,752
91,786
22,273
77,411
19,512
83,782
11,063
87,480
133,587
10,836
113,317
December
December
December
December
December
2021
2020
2019
2018
2017
Closed construction loans with unused available lines
Secured by real estate (one-to four-family)
Secured by real estate (not one-to four-family)
Loan commitments not closed
Secured by real estate (one-to four-family)
Secured by real estate (not one-to four-family)
Not secured by real estate - commercial business
74,501
1,092,029
42,162
823,106
48,213
798,810
37,162
906,006
20,919
718,277
53,529
146,826
12,920
85,917
45,860
699
69,295
92,434
—
24,253
104,871
405
23,340
156,658
4,870
$ 1,671,025 $ 1,261,908 $ 1,267,877 $ 1,322,188 $ 1,181,804
The following table summarizes the Company's fixed and determinable contractual obligations by payment date as of December 31,
2021. 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.
Payments Due In:
One Year or Over One to
Less
Five Years
Over Five
Years
Total
(In Thousands)
Deposits without a stated maturity
Time and brokered certificates of deposit
Short-term borrowings
Subordinated debentures
Subordinated notes
Operating leases
Dividends declared but not paid
— $
$ 3,591,032 $
764,935
138,955
—
—
1,116
4,727
195,183
—
—
—
3,984
—
— $ 3,591,032
961,069
138,955
25,774
73,984
9,115
4,727
951
—
25,774
73,984
4,015
—
$ 4,500,765 $ 199,167 $ 104,724 $ 4,804,656
The Company’s primary sources of funds are customer deposits, short term borrowings at the FHLBank, other borrowings, loan
repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities, and funds provided from operations.
The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from
time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be
appropriate, supplements deposits with less expensive alternative sources of funds.
At December 31, 2021 and 2020, the Company had these available secured lines and on-balance sheet liquidity:
Federal Home Loan Bank line
Federal Reserve Bank line
Interest-Bearing and Non-Interest-Bearing Deposits
Unpledged Securities
December 31, 2021
$
December 31, 2020
756.5 million $ 1,069.3 million
436.4 million
352.4 million
563.7 million
717.3 million
195.1 million
406.8 million
34
55
Statements of Cash Flows. During the years ended December 31, 2021, 2020 and 2019, the Company had positive cash flows from
operating activities. The Company experienced positive cash flows from investing activities during the year ended December 31,
2021, and negative cash flows from investing activities during the years ended December 31, 2020 and 2019. The Company
experienced negative cash flows from financing activities during the year ended December 31, 2021, and positive cash flows from
financing activities during the years ended December 31, 2020 and 2019.
Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to c hanges
in accrued and deferred assets, credits and other liabilities, the provision for credit losses, realized gains on the sale of investment
securities and loans, depreciation and amortization and the amortization of deferred loan origination fees and discounts (pre miums) 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 $85.0 million, $46.0 million and $86.4 million during the years ended December
31, 2021, 2020 and 2019, respectively.
During the years ended December 31, 2021, 2020 and 2019, investing activities provided cash of $190.7 million and used cash of
$131.3 million and $295.1 million, respectively, primarily due to the net increases and purchases of loans (2020 and 2019) and
investment securities (2021, 2020 and 2019), partially offset by cash received for the termination of interest rate derivatives (2020)
and the sales of investment securities (2019). During 2021, investing activities provided cash as net loan repayments exceeded the
purchase of loans and investment securities.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are primarily due to
changes in deposits after interest credited, changes in short-term borrowings, proceeds from the issuance of subordinated notes,
redemption of subordinated notes, purchases of the Company’s common stock and dividend payments to stockholders. Financing
activities provided cash flows of $428.9 million and $226.1 million during the years ended December 31, 2020 and 2019, 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.
Financing activities used cash flows of $122.2 million during the year ended December 31, 2021, as dividend payments to
stockholders, redemption of subordinated notes and purchases of the Company’s common stock exceeded the net increase in deposits.
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, 2021, total stockholders’ equity and common stockholders’ equity were each $616.8 million, or 11.3% of total
assets, equivalent to a book value of $46.98 per common share. 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. At
December 31, 2021, the Company’s tangible common equity to tangible assets ratio was 11.2%, compared to 11.3% at December 31,
2020. Included in stockholders’ equity at December 31, 2021 and 2020, were unrealized gains (net of taxes) on the Company’s
available-for-sale investment securities totaling $9.1 million and $23.3 million, respectively. This decrease in unrealized gains during
2021 primarily resulted from increasing market interest rates during 2021, which decreased the fair value of the investment securities.
Also included in stockholders’ equity at December 31, 2021, were realized gains (net of taxes) on the Company’s cash flow hedge
(interest rate swap), which was terminated in March 2020, totaling $23.6 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, 2021, the remaining pre-tax amount to be recorded in interest income was $30.6 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, 2021,
the Bank's common equity Tier 1 capital ratio was 14.1%, its Tier 1 capital ratio was 14.1%, its total capital ratio was 15.4% and its
Tier 1 leverage ratio was 11.9%. As a result, as of December 31, 2021, the Bank was well capitalized, with capital ratios in excess of
those required to qualify as such. On December 31, 2020, the Bank's common equity Tier 1 capital ratio was 13.7%, its Tier 1 capital
56
35
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.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On
December 31, 2021, the Company's common equity Tier 1 capital ratio was 12.9%, its Tier 1 capital ratio was 13.4%, its total capital
ratio was 16.3% and its Tier 1 leverage ratio was 11.3%. 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, 2021, the
Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. 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%. As of December 31, 2020, 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.
On August 15, 2021, the Company completed the redemption, at par, of all $75.0 million aggregate principal amount of its 5.25%
fixed to floating rate subordinated notes due August 15, 2026. The total redemption price was 100% of the aggregate principal balance
of the subordinated notes plus accrued and unpaid interest. The Company utilized cash on hand for the redemption payment. These
subordinated notes were included as capital in the Company’s calculation of its total capital ratio.
Dividends. During the year ended December 31, 2021, the Company declared common stock cash dividends of $1.40 per share
(25.6% of net income per common share) and paid common stock cash dividends of $1.38 per share. 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. The Board of Directors meets regularly to consider the level and the timing of dividend payments. The $0.36 per share
dividend declared but unpaid as of December 31, 2021, was paid to stockholders in January 2022.
Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the
years ended December 31, 2021 and 2020, the Company repurchased 715,397 shares of its common stock at an average price of
$54.69 per share and 529,883 shares of its common stock at an average price of $41.71 per share, respectively. During the years ended
December 31, 2021 and 2020, the Company issued 91,285 shares of stock at an average price of $40.53 per share and 21,436 shares of
stock at an average price of $30.81 per share, respectively, to cover stock option exercises.
In January 2022, the Company’s Board of Directors authorized the purchase of an additional one million shares of the Company’s
common stock, resulting in a total of 1.2 million shares currently available in its stock repurchase authorization.
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 core net interest income, core net interest margin, efficiency ratio excluding one-time consulting expense
and related contract termination liability, and the tangible common equity to tangible assets ratio.
We calculate core net interest income and core net interest margin by subtracting the impact of adjustments regarding changes in
expected cash flows related to pools of loans we acquired through FDIC-assisted transactions from reported net interest income and
net interest margin. Management believes that core net interest income and core net interest margin are useful in assessing the
Company’s core performance and trends, in light of the previous changes in estimates of the fair value of the loan pools acquired in
the Company’s FDIC-assisted transactions.
36
57
We calculate the efficiency ratio excluding the one-time consulting expense and the related contract termination liability by
subtracting from the non-interest expense component of the ratio the one-time consulting expense and contract termination fee we
incurred in connection with the evaluation of our core and ancillary software and information technology systems. Management
believes the efficiency ratio calculated in this manner better reflects our core operating performance and makes this ratio more
meaningful when comparing our operating results to different periods.
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 this measure excluding the impact of intangible assets provides
useful supplemental information that is helpful in understanding our financial condition and results of operations, as it provides a
method to assess management’s success in utilizing our tangible capital as well as our capital strength. Management also believes that
providing a measure that excludes 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 this is a standard financial
measure 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: Core Net Interest Income and Core Net Interest Margin
2021
Year Ended
December 31,
2020
(Dollars In Thousands)
2019
Reported net interest income/margin
Less: Impact of FDIC-assisted acquired loan
accretion adjustments
$
177,921
3.37 %
$
177,138
3.49 %
$
180,392 3.95 %
1,576
0.03
5,574
0.11
7,433 0.16
Core net interest income/margin
$
176,345
3.34 %
$
171,564
3.38 %
$
172,959 3.79 %
Non-GAAP Reconciliation: Efficiency Ratio Excluding One-time Consulting Expense and Related Contract Termination Liability
Year Ended
December 31, 2021
(Dollars In Thousands)
Reported non-interest expense/ efficiency ratio
Less: Impact of one-time consulting expense and
related contract termination liability
Core non-interest expense/ efficiency ratio
$
$
127,635
59.03 %
5,318
2.46
122,317
56.57 %
There were no non-GAAP adjustments to the efficiency ratio for 2020 or 2019.
37
58
Non-GAAP Reconciliation: Ratio of Tangible Common Equity to Tangible Assets
December 31, December 31, December 31, December 31, December 31,
2019
(Dollars In Thousands)
2020
2017
2021
2018
Common equity at period end
Less: Intangible assets at period end
Tangible common equity at period end (a)
$
$
616,752
6,081
610,671
$
$
629,741
6,944
622,797
$
$
603,066
8,098
594,968
$
$
531,977
9,288
522,689
$
$
471,662
10,850
460,812
Total assets at period end
Less: Intangible assets at period end
Tangible assets at period end (b)
$ 5,449,944
6,081
$ 5,443,863
$ 5,526,420
6,944
$ 5,519,476
$ 5,015,072
8,098
$ 5,006,974
$ 4,676,200
9,288
$ 4,666,912
$ 4,414,521
10,850
$ 4,403,671
Tangible common equity to tangible assets (a) / (b)
11.22 %
11.28 %
11.88 %
11.20 %
10.46 %
38
59
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, 2021, 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 relatively minor changes in interest rates because our portfolios are relatively well
matched in a twelve-month horizon. In a situation where market interest rates increase significantly in a short period of time, our net
interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in
LIBOR interest rates and “prime” interest rates. 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 and “prime” 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 assets and the issuance of
subordinated notes during 2020 and the net interest margin remained lower than our historical average in 2021. LIBOR interest rates
decreased in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and
deposits remains in most of our markets. Subsequent to December 31, 2021, cumulative time deposit maturities are as follows: within
three months --$222 million; within six months -- $430 million; and within twelve months -- $765 million. At December 31, 2021, the
weighted average interest rates on these various cumulative maturities were 0.49%, 0.53% and 0.54%, 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, 2021,
the Federal Funds rate stood at 0.25%. Financial markets are anticipating an aggressive increase in interest rates in 2022, with three to
six hikes anticipated. A substantial portion of Great Southern’s loan portfolio ($1.43 billion at December 31, 2021) 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, 2021. Of these
loans, $1.42 billion had interest rate floors. Great Southern also has a portfolio of loans ($598 million at December 31, 2021) tied to a
"prime rate" of interest and will adjust at least one within 90 days after December 31, 2021. Of these loans, $592 million had interest
rate floors at various rates. At December 31, 2021, $1.2 billion in LIBOR and “prime rate” loans were at their floor rate. If interest
rates were to increase 25 basis points, loans of $360.7 million would move above their floor rate. If interest rates were to increase 50
basis points, an additional $285.1 million in loans would move above their floor rate.
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.
38
60
39
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, 2021, 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 relatively minor changes in interest rates because our portfolios are relatively well
matched in a twelve-month horizon. In a situation where market interest rates increase significantly in a short period of time, our net
interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in
LIBOR interest rates and “prime” interest rates. 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 and “prime” 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 assets and the issuance of
subordinated notes during 2020 and the net interest margin remained lower than our historical average in 2021. LIBOR interest rates
decreased in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and
deposits remains in most of our markets. Subsequent to December 31, 2021, cumulative time deposit maturities are as follows: within
three months --$222 million; within six months -- $430 million; and within twelve months -- $765 million. At December 31, 2021, the
weighted average interest rates on these various cumulative maturities were 0.49%, 0.53% and 0.54%, 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, 2021,
the Federal Funds rate stood at 0.25%. Financial markets are anticipating an aggressive increase in interest rates in 2022, with three to
six hikes anticipated. A substantial portion of Great Southern’s loan portfolio ($1.43 billion at December 31, 2021) 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, 2021. Of these
loans, $1.42 billion had interest rate floors. Great Southern also has a portfolio of loans ($598 million at December 31, 2021) tied to a
"prime rate" of interest and will adjust at least one within 90 days after December 31, 2021. Of these loans, $592 million had interest
rate floors at various rates. At December 31, 2021, $1.2 billion in LIBOR and “prime rate” loans were at their floor rate. If interest
rates were to increase 25 basis points, loans of $360.7 million would move above their floor rate. If interest rates were to increase 50
basis points, an additional $285.1 million in loans would move above their floor rate.
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.
38
39
61
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.
Maturities
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.
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.
In February 2022, 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 $300 million with an effective date of March 1, 2022
and a termination date of March 1, 2024. Under the terms of the swap, the Company will receive a fixed rate of interest of 1.6725%
and will pay a floating rate of interest equal to one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of
interest due to/from the counterparty will also occur monthly. The initial floating rate of interest was set at 0.24143%. Therefore, in
the near term, the Company will receive net interest settlements which will be recorded as loan interest income, to the extent that the
fixed rate of interest continues to exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest in future periods,
the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest
income on loans.
The Company’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,
2021. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based
on information prepared in accordance with generally accepted accounting principles.
December 31,
December 31,
2021
2022
2023
2024
2025
2026
2027-2036 Thereafter
Total
Fair Value
(Dollars In Thousands)
Financial Assets:
Interest-bearing deposits
Weighted average rate
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Available-for-sale debt securities(1)
$
2,001
$ 12,867
$
5.68 %
3.15 %
4,161
$
2.90 %
7,287
$
2.73 %
4,982
1.67 %
$
627,259
0.15 %
—
—
—
—
—
—
—
—
—
—
228,996
240,738
501,032
501,032
627,259
627,259
—
—
$
$
0.15 %
$
$
2.53 %
2.23 %
2.41 %
$ 741,662
$ 395,101
$ 276,070
$ 237,686
$ 134,004
196,520
495,870
$ 2,476,913
$
2,470,397
5.51 %
5.15 %
3.41 %
3.61 %
3.46 %
3.21 %
2.97 %
4.23 %
$ 227,638
$ 198,628
$ 187,497
$ 267,977
$ 379,725
307,106
40,803
$ 1,609,374
$
1,609,751
4.49 %
4.57 %
4.49 %
4.36 %
3.62 %
4.37 %
4.00 %
4.28 %
Federal Home Loan Bank stock and
other interest-earning assets
$
Weighted average rate
—
—
—
—
—
—
—
—
—
—
—
—
6,655
$
3.00 %
6,655
$
3.00 %
6,655
$
$
$
$
$
$
$
Total financial assets
$ 1,598,560
$ 606,596
$ 467,728
$ 512,950
$ 518,711
$
732,622
$
784,066
$ 5,221,233
Non-interest-bearing demand
$ 1,209,822
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Weighted average rate
Securities sold under reverse
repurchase agreements
Weighted average rate
Short-term borrowings, overnight
FHLB borrowings, and other
liabilities
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
$ 764,936
$ 145,781
$
32,416
$
13,571
$
3,414
$
0.54 %
0.75 %
1.16 %
0.97 %
0.77 %
951
$
1.50 %
—
$
961,069
$
961,172
$ 2,381,210
0.12 %
$
137,116
0.02 %
$
1,839
0.07 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 2,381,210
$
2,381,210
$ 1,209,822
$
1,209,822
0.60 %
0.12 %
—
$
137,116
$
137,116
0.02 %
—
—
—
—
—
—
—
—
—
—
—
75,000
5.98
$
$
$
$
$
1,839
0.07 %
75,000
5.98 %
$
$
$
1,839
81,000
$
25,774
25,774
25,774
1.73 %
1.73 %
Total financial liabilities
$ 4,494,923
$ 145,781
$ 32,416
$ 13,571
$
3,414
$
75,951
$
25,774
$ 4,791,830
(1) Available-for-sale debt securities include approximately $424.0 million of mortgage-backed securities and collateralized
mortgage obligations which pay interest and principal monthly to the Company. Of this total, $34.0 million represents securities
that have variable rates of interest after a fixed interest period. These securities will experience rate changes at varying times over
the next ten years. This table does not show the effect of these monthly repayments of principal or rate changes.
40
62
41
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.
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.
In February 2022, 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 $300 million with an effective date of March 1, 2022
and a termination date of March 1, 2024. Under the terms of the swap, the Company will receive a fixed rate of interest of 1.6725%
and will pay a floating rate of interest equal to one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of
interest due to/from the counterparty will also occur monthly. The initial floating rate of interest was set at 0.24143%. Therefore, in
the near term, the Company will receive net interest settlements which will be recorded as loan interest income, to the extent that the
fixed rate of interest continues to exceed one-month USD-LIBOR. If USD-LIBOR exceeds the fixed rate of interest in future periods,
the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest
The Company’s interest rate derivatives and hedging activities are discussed further in Note 16 of the accompanying audited financial
income on loans.
statements.
The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31,
2021. 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.
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
Maturities
increase our net interest margin.
December 31,
December 31,
2021
2022
2023
2024
2025
2026
2027-2036 Thereafter
Total
Fair Value
(Dollars In Thousands)
Financial Assets:
Interest-bearing deposits
Weighted average rate
Available-for-sale debt securities(1)
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock and
$
627,259
0.15 %
2,001
5.68 %
—
—
$ 12,867
$
3.15 %
—
—
4,161
$
2.90 %
—
—
7,287
$
2.73 %
$
$ 741,662
$ 395,101
$ 276,070
$ 237,686
$ 134,004
196,520
495,870
$ 2,476,913
$ 227,638
$ 198,628
$ 187,497
$ 267,977
$ 379,725
307,106
40,803
$ 1,609,374
5.51 %
5.15 %
3.41 %
3.61 %
4.49 %
4.57 %
4.49 %
4.36 %
—
—
4,982
$
1.67 %
$
3.46 %
$
3.62 %
—
—
228,996
$
2.53 %
$
3.21 %
$
4.37 %
—
—
240,738
$
2.23 %
2.97 %
4.00 %
$
627,259
501,032
$
0.15 %
$
2.41 %
$
4.23 %
$
4.28 %
627,259
501,032
2,470,397
1,609,751
other interest-earning assets
$
Weighted average rate
—
—
—
—
—
—
—
—
—
—
$
—
—
$
6,655
3.00 %
$
6,655
3.00 %
6,655
Total financial assets
$ 1,598,560
$ 606,596
$ 467,728
$ 512,950
$ 518,711
$
732,622
$
784,066
$ 5,221,233
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand
Weighted average rate
Securities sold under reverse
repurchase agreements
Weighted average rate
Short-term borrowings, overnight
FHLB borrowings, and other
liabilities
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
0.54 %
$ 2,381,210
0.12 %
$ 1,209,822
—
$
137,116
0.02 %
$
1,839
0.07 %
—
—
—
—
$ 764,936
$ 145,781
$
0.75 %
—
—
—
—
32,416
$
1.16 %
—
—
—
—
13,571
$
0.97 %
—
—
—
—
3,414
$
0.77 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
75,000
5.98
—
—
$
$
$
—
—
—
—
25,774
$
1.73 %
$
951
1.50 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
961,069
$ 2,381,210
$
0.60 %
$
0.12 %
$
961,172
2,381,210
1,209,822
$ 1,209,822
—
$
$
$
137,116
$
0.02 %
137,116
1,839
$
0.07 %
75,000
$
5.98 %
$
1.73 %
25,774
1,839
81,000
25,774
Total financial liabilities
$ 4,494,923
$ 145,781
$ 32,416
$ 13,571
$
3,414
$
75,951
$
25,774
$ 4,791,830
(1) Available-for-sale debt securities include approximately $424.0 million of mortgage-backed securities and collateralized
mortgage obligations which pay interest and principal monthly to the Company. Of this total, $34.0 million represents securities
that have variable rates of interest after a fixed interest period. These securities will experience rate changes at varying times over
the next ten years. This table does not show the effect of these monthly repayments of principal or rate changes.
40
41
63
Repricing
December 31,
December 31,
2021
2022
2023
2024
2025
2026
2027-2036
Thereafter
Total
Fair Value
(Dollars In Thousands)
$
Financial Assets:
Interest-bearing deposits
Weighted average rate
Available-for-sale debt securities(1) $
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock and
627,259
0.15 %
2,001
5.68 %
—
—
$ 12,867
$
3.15 %
—
—
4,161
—
—
$ 7,287
—
—
$ 4,982
2.90 %
2.72 %
1.67 %
$ 2,031,069
$ 15,854
$ 19,225
$ 39,615
$ 38,618
4.42 %
3.01 %
4.37 %
3.65 %
3.36 %
$ 227,638
$ 198,628
$ 187,497
$ 267,977
$ 379,725
4.49 %
4.57 %
4.49 %
4.36 %
3.82 %
—
—
228,996 $
2.53 %
332,532
3.30 %
307,106 $
4.37 %
$
$
$
—
—
240,738
$
2.23 %
—
—
40,803
$
627,259
$
0.15 %
$
2.41 %
501,032
627,259
501,032
$ 2,476,913
$ 2,470,397
4.23 %
$ 1,609,374
$ 1,609,751
4.00 %
4.28 %
other interest-earning assets
$
6,655
Weighted average rate
3.00 %
—
—
—
—
—
—
—
—
—
—
$
—
—
$
6,655
3.00 %
6,655
Total financial assets
$ 2,894,622
$ 227,349
$ 210,883
$ 314,879
$ 423,325
$
868,634 $
281,541
$ 5,221,233
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand(2)
Weighted average rate
Securities sold under reverse
repurchase agreements
Weighted average rate
Short-term borrowings, overnight
FHLB borrowings, and other
liabilities
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
$ 818,584
$ 103,333
$ 21,216
$ 13,571
$ 3,414
0.54 %
0.85 %
$ 2,381,210
0.12 %
—
—
$
137,116
0.02 %
$
$
1,839
0.07 %
—
—
25,774
1.73 %
—
—
—
—
—
—
—
—
—
—
—
—
1.60 %
—
—
—
—
0.97 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 75,000
5.98 %
—
—
$
0.77 %
—
—
—
—
951 $
1.50 %
—
—
— $
—
—
—
—
—
1,209,822
—
$
961,069
$
0.60 %
$
0.12 %
$
961,172
2,381,210
1,209,822
$ 2,381,210
$ 1,209,822
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
—
—
—
—
—
—
—
—
137,116
$
0.02 %
137,116
1,839
$
0.07 %
75,000
$
5.98 %
$
1.73 %
25,774
1,839
81,000
25,774
Total financial liabilities
$ 3,364,523
$ 103,333
$ 21,216
$ 88,571
$ 3,414
Periodic repricing GAP
$ (469,901)
$ 124,016
$ 189,667
$ 226,308
$ 419,911
$
$
951 $ 1,209,822
$ 4,791,830
867,683 $
(928,281)
$
429,403
Cumulative repricing GAP
$ (469,901)
$ (345,885)
$ (156,218)
$ 70,090
$ 490,001
$ 1,357,684 $
429,403
(1) Available-for-sale debt securities include approximately $424.0 million of mortgage-backed securities which pay interest and
principal monthly to the Company. Of this total, $34.0 million represents securities that have variable rates of interest after a fixed
interest period. These securities will experience rate changes at varying times over the next ten years. This table does not show the
effect of these monthly repayments of principal or rate changes.
(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.
42
64
Repricing
December 31,
2022
2023
2024
2025
2026
2027-2036
Thereafter
Total
Fair Value
(Dollars In Thousands)
Financial Assets:
Interest-bearing deposits
Weighted average rate
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
Federal Home Loan Bank stock and
Available-for-sale debt securities(1) $
2,001
$ 12,867
$
4,161
$ 7,287
$ 4,982
228,996 $
240,738
$
501,032
501,032
$
627,259
0.15 %
—
—
—
—
—
—
—
—
—
—
5.68 %
3.15 %
2.90 %
2.72 %
1.67 %
2.53 %
2.23 %
2.41 %
$ 2,031,069
$ 15,854
$ 19,225
$ 39,615
$ 38,618
332,532
$ 2,476,913
$ 2,470,397
4.42 %
3.01 %
4.37 %
3.65 %
3.36 %
3.30 %
4.23 %
$ 227,638
$ 198,628
$ 187,497
$ 267,977
$ 379,725
307,106 $
40,803
$ 1,609,374
$ 1,609,751
4.49 %
4.57 %
4.49 %
4.36 %
3.82 %
4.37 %
4.00 %
4.28 %
other interest-earning assets
$
6,655
Weighted average rate
3.00 %
—
—
—
—
—
—
—
—
—
—
$
—
—
6,655
$
3.00 %
6,655
December 31,
2021
$
627,259
627,259
0.15 %
$
$
Total financial assets
$ 2,894,622
$ 227,349
$ 210,883
$ 314,879
$ 423,325
$
868,634 $
281,541
$ 5,221,233
$ 818,584
$ 103,333
$ 21,216
$ 13,571
$ 3,414
$
0.54 %
0.85 %
1.60 %
0.97 %
0.77 %
951 $
1.50 %
Financial Liabilities:
Time deposits
Weighted average rate
Interest-bearing demand
Weighted average rate
Non-interest-bearing demand(2)
Weighted average rate
Securities sold under reverse
repurchase agreements
Weighted average rate
Short-term borrowings, overnight
FHLB borrowings, and other
liabilities
Weighted average rate
Subordinated notes
Weighted average rate
Subordinated debentures
Weighted average rate
$ 2,381,210
0.12 %
—
—
$
137,116
0.02 %
$
1,839
0.07 %
—
—
$
25,774
1.73 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 75,000
5.98 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
961,069
$
961,172
$ 2,381,210
$
2,381,210
0.60 %
0.12 %
—
0.02 %
$
137,116
$
137,116
$
$
$
1,839
0.07 %
75,000
5.98 %
25,774
1.73 %
$
$
$
1,839
81,000
25,774
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total financial liabilities
$ 3,364,523
$ 103,333
$ 21,216
$ 88,571
$ 3,414
951 $ 1,209,822
$ 4,791,830
Periodic repricing GAP
$ (469,901)
$ 124,016
$ 189,667
$ 226,308
$ 419,911
867,683 $
(928,281)
$
429,403
Cumulative repricing GAP
$ (469,901)
$ (345,885)
$ (156,218)
$ 70,090
$ 490,001
$ 1,357,684 $
429,403
$
$
$
$
$
(1) Available-for-sale debt securities include approximately $424.0 million of mortgage-backed securities which pay interest and
principal monthly to the Company. Of this total, $34.0 million represents securities that have variable rates of interest after a fixed
interest period. These securities will experience rate changes at varying times over the next ten years. This table does not show the
effect of these monthly repayments of principal or rate changes.
(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.
— $
1,209,822
$ 1,209,822
$
1,209,822
Great Southern Bancorp, Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2021 and 2020
42
65
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Springfield, Missouri
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Great Southern
Bancorp, Inc. (the “Company”) as of December 31, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021,
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, 2021, based on Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 7, 2022, expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Notes 1 and 3 to the consolidated financial statements, the Company changed its method of
accounting for the allowance for credit losses in 2021 due to the adoption of ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As
discussed below, auditing the Company’s allowance for credit losses, including adoption of the new
accounting guidance related to the estimate of allowance for credit losses, was a critical audit matter.
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.
66
66
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Page 2
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of this critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
As more fully described in Note 1 and Note 3 to the Company’s consolidated financial statements, the
Company adopted Topic 326 effective January 1, 2021. The allowance for credit losses on loans as defined
by Topic 326 is an estimate of lifetime expected credit losses on loans. The allowance for credit losses is
measured on a collective basis based on pools of loans with similar risk characteristics. Average historical
loss rates over a defined lookback period are analyzed for the segmented loan pools, and adjusted for
significant factors that, in management’s judgment, reflect the impact of any current conditions and
reasonable and supportable forecasts. Qualitative factors such as changes in economic conditions,
concentrations of risk, and changes in portfolio risk resulting from regulatory changes are considered in
determining the adequacy of the level of the allowance for credit losses. The Company discloses that this
determination involves a high degree of judgment and complexity and is inherently subjective.
We identified the valuation of the allowance for credit losses as a critical audit matter. Auditing the
allowance for credit 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 individually evaluated loans, and
assessing the appropriateness of loan credit ratings.
The primary procedures we performed to address this critical audit matter included:
Obtaining an understanding of the Company’s process for establishing the allowance for credit
losses;
Testing the design and operating effectiveness of controls, including those related to technology,
over the allowance for credit 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 individually evaluated loans, and management’s review and
disclosure controls over the allowance for credit losses;
67
Audit Committee, Board of Directors, and Stockholders
Great Southern Bancorp, Inc.
Page 3
Testing of completeness and accuracy of the information utilized in the allowance for credit losses;
Testing the mathematical accuracy of the calculation of the allowance for credit losses;
Evaluating the qualitative adjustments, including assessing the basis for the adjustments and the
reasonableness of the significant assumptions;
Testing the loan review function and evaluating the accuracy of loan credit ratings;
Evaluating the reasonableness of specific allowances on individually evaluated 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 7, 2022
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2021 and 2020
(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
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
2021
2020
$
90,008
$
92,403
627,259
471,326
717,267
563,729
501,032
414,933
8,735
17,780
132,733
139,170
10,705
45,176
2,087
6,081
6,655
11,973
12,793
58,889
1,877
6,944
9,806
3,695
Loans receivable, net of allowance for credit losses of $60,754 and $55,743 at
December 31, 2021 and 2020, respectively
4,007,500
4,296,804
Total assets
$
5,449,944
$
5,526,420
68
See Notes to Consolidated Financial Statements
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2021 and 2020
(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
2021
2020
$
90,008
$
92,403
627,259
471,326
717,267
563,729
501,032
414,933
8,735
17,780
Loans receivable, net of allowance for credit losses of $60,754 and $55,743 at
December 31, 2021 and 2020, respectively
4,007,500
4,296,804
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
10,705
45,176
2,087
12,793
58,889
1,877
132,733
139,170
6,081
6,655
11,973
6,944
9,806
3,695
Total assets
$
5,449,944
$
5,526,420
See Notes to Consolidated Financial Statements
69
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2021 and 2020
(In Thousands, Except Per Share Data)
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2021, 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
Liability of unfunded commitments
$
2021
2020
$
4,552,101
137,116
1,839
25,774
73,984
646
6,147
25,956
9,629
4,516,903
164,174
1,518
25,774
148,397
2,594
7,536
29,783
—
Total liabilities
4,833,192
4,896,679
Commitments and Contingencies
Stockholders’ Equity
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 2021 and 2020 – -0- shares
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 2021 – 13,128,493 shares,
2020 – 13,752,605 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net of income taxes
of $9,676 and $15,699 at December 31, 2021 and 2020, respectively
Total stockholders’ equity
—
—
131
38,314
545,548
32,759
616,752
—
—
138
35,004
541,448
53,151
629,741
Total liabilities and stockholders’ equity
$
5,449,944
$
5,526,420
Interest Income
Loans
Investment securities and other
Interest Expense
Deposits
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Subordinated notes
Net Interest Income
Provision (Credit) for Credit Losses on Loans
Provision for Unfunded Commitments
Net Interest Income After Provision (Credit) for Credit
Losses and Provision for Unfunded Commitments
Noninterest Income
Commissions
Overdraft and insufficient funds fees
Point-of-sale and ATM fee income and service charges
Net gain on loan sales
Net realized gain (loss) on sales of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
Other income
Noninterest Expense
Salaries and employee benefits
Net occupancy and equipment expense
Postage
Insurance
Advertising
Telephone
Office supplies and printing
Legal, audit and other professional fees
Expense on other real estate and repossessions
Acquired deposit intangible asset amortization
Other operating expenses
2021
2020
2019
$
$
186,269
12,404
198,673
$
204,964
12,739
217,703
223,047
11,947
234,994
183,682
161,267
174,242
13,102
37
448
7,165
20,752
177,921
(6,700)
939
1,263
6,686
15,029
9,463
—
1,434
312
4,130
38,317
70,290
29,163
3,164
3,061
3,072
848
3,458
6,555
627
863
6,534
127,635
32,431
675
628
6,831
40,565
177,138
15,871
—
892
6,481
12,203
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
1,154
6,363
45,570
3,635
1,019
4,378
54,602
180,392
6,150
—
889
8,249
12,649
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
1,190
7,021
123,225
115,138
See Notes to Consolidated Financial Statements
2
See Notes to Consolidated Financial Statements
3
70
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2021, 2020 and 2019
(In Thousands, Except Per Share Data)
Interest Income
Loans
Investment securities and other
Interest Expense
Deposits
Short-term borrowings and repurchase agreements
Subordinated debentures issued to capital trust
Subordinated notes
Net Interest Income
Provision (Credit) for Credit Losses on Loans
Provision for Unfunded Commitments
Net Interest Income After Provision (Credit) for Credit
Losses and Provision for Unfunded Commitments
Noninterest Income
Commissions
Overdraft and insufficient funds fees
Point-of-sale and ATM fee income and service charges
Net gain on loan sales
Net realized gain (loss) on sales of available-for-sale securities
Late charges and fees on loans
Gain (loss) on derivative interest rate products
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
Acquired deposit intangible asset amortization
Other operating expenses
2021
2020
2019
$
$
186,269
12,404
198,673
$
204,964
12,739
217,703
223,047
11,947
234,994
13,102
37
448
7,165
20,752
177,921
(6,700)
939
32,431
675
628
6,831
40,565
177,138
15,871
—
45,570
3,635
1,019
4,378
54,602
180,392
6,150
—
183,682
161,267
174,242
1,263
6,686
15,029
9,463
—
1,434
312
4,130
38,317
70,290
29,163
3,164
3,061
3,072
848
3,458
6,555
627
863
6,534
127,635
892
6,481
12,203
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
1,154
6,363
123,225
889
8,249
12,649
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
1,190
7,021
115,138
See Notes to Consolidated Financial Statements
3
71
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2021, 2020 and 2019
(In Thousands, Except Per Share Data)
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2021, 2020 and 2019
(In Thousands)
Income Before Income Taxes
$
94,364 $
73,092 $
90,061
Net Income
$
74,627
$
59,313
$
73,612
2021
2020
2019
2021
2020
2019
Provision for Income Taxes
19,737
13,779
16,449
Net Income and Net Income Available to
Common Shareholders
Earnings Per Common Share
Basic
Diluted
$
$
$
74,627 $
59,313 $
73,612
5.50 $
4.22 $
5.46 $
4.21 $
5.18
5.14
Unrealized appreciation (depreciation) on available-for-
sale securities, net of taxes (credit) of $(4,171),
$4,215 and $2,574 for 2021, 2020 and 2019,
respectively
Less: reclassification adjustment for losses (gains)
included in net income, net of taxes (credit) of $0, $18
and $(14) for 2021, 2020 and 2019, respectively
Amortization of realized gain on termination of cash
flow hedge, net of taxes (credit) of $(1,852), $(1,541)
and $0, for 2021, 2020, and 2019, respectively
Change in fair value of cash flow hedge, net of taxes of
$0, $3,519 and $4,093 for 2021, 2020 and 2019,
respectively
(14,121)
14,274
8,714
—
(60)
(6,271)
(5,223)
—
11,914
48
—
13,857
22,619
Other comprehensive income (loss)
(20,392)
20,905
Comprehensive Income
$
54,235
$
80,218
$
96,231
See Notes to Consolidated Financial Statements
4
See Notes to Consolidated Financial Statements
5
72
Great Southern Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2021, 2020 and 2019
(In Thousands)
Net Income
$
74,627
$
59,313
$
73,612
2021
2020
2019
Unrealized appreciation (depreciation) on available-for-
sale securities, net of taxes (credit) of $(4,171),
$4,215 and $2,574 for 2021, 2020 and 2019,
respectively
Less: reclassification adjustment for losses (gains)
included in net income, net of taxes (credit) of $0, $18
and $(14) for 2021, 2020 and 2019, respectively
Amortization of realized gain on termination of cash
flow hedge, net of taxes (credit) of $(1,852), $(1,541)
and $0, for 2021, 2020, and 2019, respectively
Change in fair value of cash flow hedge, net of taxes of
$0, $3,519 and $4,093 for 2021, 2020 and 2019,
respectively
(14,121)
14,274
8,714
—
(60)
(6,271)
(5,223)
—
11,914
48
—
13,857
22,619
Other comprehensive income (loss)
(20,392)
20,905
Comprehensive Income
$
54,235
$
80,218
$
96,231
See Notes to Consolidated Financial Statements
5
73
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2021, 2020 and 2019
(In Thousands, Except Per Share Data)
Balance, January 1, 2019
$
Net income
Stock issued under Stock Option Plan
Common dividends declared (1)
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)
Purchase of the Company’s common stock
Other comprehensive gain
Reclassification of treasury stock per Maryland law
Balance, December 31, 2020
Net income
Stock issued under Stock Option Plan
Common dividends declared (3)
Impact of ASU 2016-13 adoption
Purchase of the Company’s common stock
Other comprehensive loss
Reclassification of treasury stock per Maryland law
Balance, December 31, 2021
$
(1) $2.07 per share dividend
(2) $2.36 per share dividend
(3) $1.40 per share dividend
Common
Stock
142
—
—
—
—
—
1
143
—
—
—
—
—
(5)
138
—
—
—
—
—
—
(7)
131
See Notes to Consolidated Financial Statements
74
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2021, 2020 and 2019
(In Thousands, Except Per Share Data)
Common
Stock
$
142
—
—
—
—
—
1
143
138
—
—
—
—
—
(5)
—
—
—
—
—
—
(7)
Balance, January 1, 2019
Net income
Stock issued under Stock Option Plan
Common dividends declared (1)
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)
Purchase of the Company’s common stock
Other comprehensive gain
Reclassification of treasury stock per Maryland law
Balance, December 31, 2020
Net income
Stock issued under Stock Option Plan
Common dividends declared (3)
Impact of ASU 2016-13 adoption
Purchase of the Company’s common stock
Other comprehensive loss
Reclassification of treasury stock per Maryland law
(1) $2.07 per share dividend
(2) $2.36 per share dividend
(3) $1.40 per share dividend
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
$
$
$
30,121
—
3,389
—
—
—
—
33,510
—
1,494
—
—
—
—
35,004
—
3,310
—
—
—
—
—
492,087
73,612
—
(29,373)
—
—
841
537,167
59,313
—
(33,253)
—
—
(21,779)
541,448
74,627
—
(18,851)
(14,175)
—
—
(37,501)
$
9,627
—
—
—
—
22,619
—
32,246
—
—
—
—
20,905
—
53,151
—
—
—
—
—
(20,392)
—
$
—
—
1,691
—
(849)
—
(842)
—
—
320
—
(22,104)
—
21,784
—
—
1,615
—
—
(39,123)
—
37,508
531,977
73,612
5,080
(29,373)
(849)
22,619
—
603,066
59,313
1,814
(33,253)
(22,104)
20,905
—
629,741
74,627
4,925
(18,851)
(14,175)
(39,123)
(20,392)
—
Balance, December 31, 2021
$
131
$
38,314
$
545,548
$
32,759
$
—
$
616,752
See Notes to Consolidated Financial Statements
75
6
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2021, 2020 and 2019
(In Thousands)
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 (credit) for credit losses
Provision for unfunded commitments
Net gain on loan sales
Net realized (gain) loss on available-for-sale securities
Loss (gain) on sale of premises and equipment
Loss (gain) on sale/write-down of other real estate
and repossessions
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
2021
2020
2019
2021
2020
2019
$
74,627
351,391
(332,289)
$
59,313
317,173
(316,125)
$
73,612
131,014
(135,937)
Investing Activities
Net change in loans
Purchase of loans
Cash received for termination of interest rate derivative
—
45,864
9,555
1,583
1,225
(6,700)
939
(9,463)
—
(1)
(71)
(10,262)
(312)
3,712
2,088
3,257
(2,495)
(1,808)
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
Net cash provided by operating activities
84,976
46,048
86,419
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of other real estate and repossessions
Capitalized costs on other real estate owned
Proceeds from sale of 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
and other interest-earning assets
$
448,599
(152,797)
$
(62,493)
(92,099)
$
(5,739)
586
2,230
—
—
(8,224)
781
4,096
(126)
19,236
(81,320)
(97,162)
—
(11,789)
204
15,244
(121)
53,695
72,149
(177,466)
76,248
(118,296)
34,769
(207,634)
3,151
3,667
(1,035)
Net cash provided by (used in) investing activities
190,713
(131,346)
(295,149)
Financing Activities
Net increase (decrease) in certificates of deposit
Net increase in checking and savings accounts
Net increase (decrease) in short-term borrowings and
other interest-bearing liabilities
Advances from (to) borrowers for taxes and insurance
Proceeds from issuance of subordinated notes
Redemption of subordinated notes
Purchase of the company’s common stock
Dividends paid
Stock options exercised
(429,723)
464,921
(26,737)
(1,389)
(75,000)
(39,123)
(18,800)
3,700
(330,306)
887,114
(146,632)
52
(22,104)
(33,426)
661
—
73,513
—
—
—
Net cash provided by (used in) financing activities
(122,151)
428,872
226,143
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
153,538
563,729
343,574
220,155
Cash and Cash Equivalents, End of Year
$
717,267
$
563,729
$
220,155
129,748
105,400
14,346
2,392
(849)
(29,052)
4,158
17,413
202,742
See Notes to Consolidated Financial Statements
7
See Notes to Consolidated Financial Statements
8
76
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 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 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
and other interest-earning assets
2021
2020
2019
$
$
448,599
(152,797)
—
(5,739)
586
2,230
—
—
$
(62,493)
(92,099)
45,864
(8,224)
781
4,096
(126)
19,236
(81,320)
(97,162)
—
(11,789)
204
15,244
(121)
53,695
72,149
(177,466)
76,248
(118,296)
34,769
(207,634)
3,151
3,667
(1,035)
Net cash provided by (used in) investing activities
190,713
(131,346)
(295,149)
Financing Activities
Net increase (decrease) in certificates of deposit
Net increase in checking and savings accounts
Net increase (decrease) in short-term borrowings and
other interest-bearing liabilities
Advances from (to) borrowers for taxes and insurance
Proceeds from issuance of subordinated notes
Redemption of subordinated notes
Purchase of the company’s common stock
Dividends paid
Stock options exercised
(429,723)
464,921
(330,306)
887,114
129,748
105,400
(26,737)
(1,389)
—
(75,000)
(39,123)
(18,800)
3,700
(146,632)
52
73,513
—
(22,104)
(33,426)
661
14,346
2,392
—
—
(849)
(29,052)
4,158
Net cash provided by (used in) financing activities
(122,151)
428,872
226,143
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
153,538
563,729
343,574
220,155
17,413
202,742
Cash and Cash Equivalents, End of Year
$
717,267
$
563,729
$
220,155
See Notes to Consolidated Financial Statements
8
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, Chicago, Dallas, Denver, Omaha,
Nebraska, and Tulsa, Oklahoma. The Company and the Bank are subject to regulation by certain federal and state
agencies and undergo periodic examinations by those regulatory agencies.
The Company’s banking operation is its only reportable segment. The banking operation is principally engaged in
the business of originating residential and commercial real estate loans, construction loans, commercial business
loans and consumer loans and funding these loans by attracting deposits from the general public, accepting
brokered deposits and borrowing from the Federal Home Loan Bank and others. The operating results of this
segment are regularly reviewed by management to make decisions about resource allocations and to assess
performance. Selected information is not presented separately for the Company’s reportable segment, as there is
no material difference between that information and the corresponding information in the consolidated financial
statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the
allowance for credit losses and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and fair values of financial instruments. In connection with the determination of the
allowance for credit 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.
78
9
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Reclassifications
Certain prior periods' amounts have been reclassified to conform to the 2021 financial statements presentation.
These reclassifications, which had no effect on net income, related to the following items:
•
•
•
Overdraft and insufficient funds fees are now reported on a separate line item in the Noninterest Income
section of the Consolidated Statements of Income. Point-of-sale and ATM fee income and service charges
are also now reported on a separate line item in the Noninterest Income section of the Consolidated
Statement of Income. These income items were previously reported together as service charges, debit card
and ATM fees.
Partnership tax credit investment amortization was previously reported separately in the Noninterest
Expense section of the Consolidated Statements of Income and is now included in other operating expenses
in the Noninterest Expense section of the Consolidated Statements of Income.
For all years presented, loans receivable are shown at net outstanding balances. Previously, gross loans
were reported including any unfunded portions of commercial, residential and other residential (multi-
family) construction loans.
Federal Home Loan Bank Stock
Federal Home Loan Bank common stock is a required investment for institutions that are members of the Federal
Home Loan Bank system. The required investment in common stock is based on a predetermined formula, carried
at cost and evaluated for impairment.
Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but
which may be sold in the future, are carried at fair value. Unrealized gains and losses are recorded, net of related
income tax effects, in other comprehensive income.
Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to
hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains
and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for
credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. 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 through
a provision for credit loss 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.
79
10
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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 credit losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income
is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Past
due status is based on the contractual terms of a loan. Generally, loans are placed on nonaccrual status at 90 days past
due and interest is considered a loss, unless the loan is well secured and in the process of collection. Payments received
on nonaccrual loans are applied to principal until the loans are returned to accrual status. Loans are returned to accrual
status when all payments contractually due are brought current, payment performance is sustained for a period of time,
generally six months, and future payments are reasonably assured. With the exception of consumer loans, charge-offs
on loans are recorded when available information indicates a loan is not fully collectible and the loss is reasonably
quantifiable. Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines.
Allowance for Credit Losses
The allowance for credit losses is measured using an average historical loss model which incorporates relevant
information about past events (including historical credit loss experience on loans with similar risk characteristics),
current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows
over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans
are aggregated into pools based on similar risk characteristics including borrower type, collateral and repayment types
and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or
troubled debt restructurings (“TDR”) loans with a balance greater than or equal to $100,000, are evaluated on an
individual basis.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool
using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical
reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on
the individual pool and represent management’s credit expectations for the pool of loans over the remaining
contractual life. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and
supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of
future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment
rate, GDP, disposable income and market volatility. The adjustments are based on results from various regression
models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and
supportable period before reverting to historical averages using a straight-line method. The forecast-adjusted loss rate
is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The
contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation
that a TDR will be executed. Additionally, the allowance for credit losses considers other qualitative factors not
included in historical loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting
practices, or significant unique events or conditions.
80
11
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Loans Acquired in Business Combinations
Loans acquired in business combinations under ASC Topic 805, Business Combinations, required the use of the
acquisition method of accounting. Therefore, such loans were initially recorded at fair value in accordance with
the fair value methodology prescribed in ASC Topic 820, Fair Value Measurements and Disclosures. The
Company’s historical acquisitions all occurred under previous US GAAP prior to the Company’s adoption of
ASU 2016-13. No allowance for credit losses related to the acquired loans was recorded on the acquisition date as
the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at
fair value in accordance with the fair value methodology prescribed in ASC Topic 820. 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 were not considered to be
purchased credit-impaired loans, the Company evaluated 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’s historical acquisitions all occurred under previous US GAAP prior to
the Company’s adoption of ASU 2016-13. The Company evaluated 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 were 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. At the date of CECL
adoption, the Company did not reassess whether purchased credit impaired (PCI) loans met the criteria of purchased
with credit deterioration (PCD) loans.
The Company evaluated 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.
Prior to the adoption of ASU 2016-13, the expected cash flows of the acquired loan pools in excess of the fair values
recorded, referred to as the accretable yield, was 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 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 credit 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
81
12
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
banking, as well as property originally acquired for future expansion but no longer intended to be used for that
purpose.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the
straight-line and accelerated methods over the estimated useful lives of the assets. Leasehold improvements are
capitalized and amortized using the straight-line and accelerated methods over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter.
Material lease obligations consist of leases for various loan offices and banking centers. All of 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.
The calculated amounts of the right of use assets and lease liabilities 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 Company uses 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 Company
uses 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 is the
FHLBank borrowing rate for the term corresponding to the expected term of the lease.
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, 2021, 2020 and 2019.
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.
82
13
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
A summary of goodwill and intangible assets is as follows:
Goodwill – Branch acquisitions
Deposit intangibles
Boulevard Bank
Valley Bank
Fifth Third Bank
December 31,
2021
2020
(In Thousands)
$
5,396 $
5,396
—
—
685
685
31
200
1,317
1,548
$
6,081 $
6,944
Loan Servicing and Origination Fee Income
Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors.
The fees are generally calculated on the outstanding principal balances of the loans serviced and are recorded as
income when earned. Loan origination fees, net of direct loan origination costs, are recognized as income using
the level-yield method over the contractual life of the loan.
Stockholders’ Equity
The Company is incorporated in the State of Maryland. Under Maryland law, there is no concept of “Treasury
Shares.” Instead, shares purchased by the Company constitute authorized but unissued shares under Maryland
law. Accounting principles generally accepted in the United States of America state that accounting for treasury
stock shall conform to state law. The cost of shares purchased by the Company has been allocated to common
stock and retained earnings balances.
83
14
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Earnings Per Common Share
Income Taxes
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:
2021
2019
2020
(In Thousands, Except Per Share Data)
Net income and net income available to common shareholders
$
74,627
$
59,313
$
73,612
Average common shares outstanding
13,558
14,043
14,201
Average common share stock options outstanding
116
61
129
Average diluted common shares
13,674
14,104
14,330
Earnings per common share – basic
Earnings per common share – diluted
$
$
5.50
5.46
$
$
4.22
4.21
$
$
5.18
5.14
Options outstanding at December 31, 2021, 2020 and 2019, to purchase 383,338, 758,901 and 201,400 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, 2021, 2020 and 2019, 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, 2021, 2020 and 2019,
share-based compensation expense totaling $1.2 million, $1.2 million and $922,000, 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, 2021 and 2020, cash equivalents consisted of interest-bearing deposits in other financial institutions.
At December 31, 2021, 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.
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, 2021 and 2020, 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, 2021 and 2020.
84
15
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021 and 2020, 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, 2021 and 2020.
85
16
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (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 GAAP and, instead, requires an entity to
reflect its current estimate of all expected credit losses. The Update affects entities holding financial assets and net
investments in leases that are not accounted for at fair value through net income. The Update affects 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 SEC and FASB, we elected to delay adoption of
the new accounting standard under the Update, which is referred to as the current expected credit loss (“CECL”)
methodology. In December 2020, additional legislation was enacted that amended certain provisions of the CARES
Act. One of the provisions that was affected by this additional 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 were prepared under the incurred loss methodology standard for accounting for credit losses.
The adoption of the CECL model during the first quarter of 2021 required us to recognize a one-time cumulative
adjustment to our allowance for credit 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 related to outstanding loans by $11.6 million and
created a liability for potential losses related to the unfunded portion of our loans and commitments of $8.7 million.
The after-tax effect of these adjustments decreased our retained earnings by $14.2 million.
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 is expected to 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.
86
17
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 2: Investments in Securities
The amortized cost and fair values of securities classified as available-for-sale were as follows:
December 31, 2021
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
Agency mortgage-backed securities
Agency collateralized mortgage obligations
States and political subdivisions securities
Small Business Administration securities
$
219,624
204,332
38,440
26,802
$
$
(In Thousands)
10,561
2,443
1,618
497
744
2,498
43
—
$
229,441
204,277
40,015
27,299
$
489,198
$
15,119
$
3,285
$
501,032
December 31, 2020
Gross
Gross
Amortized
Cost
Unrealized
Unrealized
Gains
Losses
Fair
Value
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
$
$
(In Thousands)
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
At December 31, 2021, the Company’s agency mortgage-backed securities portfolio consisted of FNMA
securities totaling $180.5 million, FHLMC securities totaling $47.4 million and GNMA securities totaling $1.5
million. At December 31, 2021, agency collateralized mortgage obligations consisted of GNMA securities
totaling $72.4 million, FNMA securities totaling $80.5 million and FHLMC securities totaling $51.4 million. At
December 31, 2021, all of the Company’s $229.4 million agency mortgage-backed securities had fixed rates of
interest. At December 31, 2021, $170.5 million of the Company’s agency collateralized mortgage obligations had
fixed rates of interest and $33.8 million had variable rates of interest.
87
18
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The amortized cost and fair value of available-for-sale securities at December 31, 2021, 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
$
1,002
9,200
28,238
450,758
$
1,040
9,847
29,128
461,017
$
489,198
$
501,032
There were no securities classified as held to maturity at December 31, 2021 or December 31, 2020.
The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2021 and
2020:
2021
2020
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In Thousands)
Public deposits
Collateralized borrowing accounts
Other
$
4,742
133,242
6,257
$
$
5,029
139,112
6,461
5,674
188,309
6,413
$
5,962
201,818
6,819
$
144,241
$
150,602
$
200,396
$
214,599
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, 2021 and 2020, was approximately $173.9
million and $24.2 million, respectively, which is approximately 34.7% and 5.8%, respectively, of the Company’s
available-for-sale maturity investment portfolio.
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.
88
19
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021 and 2020:
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
States and political
subdivisions securities
Less than 12 Months
Fair
Value
Unrealized
Losses
2021
12 Months or More
Fair
Value
Unrealized
Losses
(In Thousands)
Total
Fair
Value
Unrealized
Losses
$
47,769
$
(388)
$
10,583
$
(356)
$
58,352
$
(744)
92,727
(1,588)
16,298
(910)
109,025
(2,498)
6,537
(43)
—
—
6,537
(43)
$ 147,033
$
(2,019)
$
26,881
$
(1,266)
$ 173,914
$
(3,285)
Description of Securities
Agency mortgage-backed
securities
Agency collateralized
mortgage obligations
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
1,164
(375)
(6)
—
—
—
—
12,727
1,164
(375)
(6)
$
24,170
$
(1,212)
$
—
$
—
$
24,170
$
(1,212)
Allowance for Credit Losses
On January 1, 2021, the Company began evaluating all securities quarterly to determine if any securities in a loss
position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial
Instruments. All of the mortgage-backed, collateralized mortgage, and SBA securities held by the Company are issued
by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by
the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Likewise,
the Company has not experienced historical losses on these types of securities. Accordingly, no allowance for credit
losses has been recorded for these securities.
Regarding securities issued by state and political subdivisions, management considers the following when evaluating
these securities: (i) current issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers
continue to make timely principal and interest payments under the contractual terms of the securities, (iv) updated
financial information of the issuer, (v) internal forecasts and (vi) whether such securities provide insurance or other
credit enhancement or are pre-refunded by the issuers. These securities are highly rated by major rating agencies and
have a long history of no credit losses. Likewise, the Company has not experienced historical losses on these types of
securities. Accordingly, no allowance for credit losses has been recorded for these securities.
89
20
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Amounts Reclassified Out of Accumulated Other Comprehensive Income
There were no amounts reclassified from accumulated other comprehensive income related to available-for-sale
securities during the year ended December 31, 2021 or December 31, 2020.
Note 3: Loans and Allowance for Credit Losses
The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, effective January 1, 2021. The guidance replaces the incurred loss methodology with
an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit
losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan
receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan
commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted
ASC 326 using the modified retrospective method for loans and off-balance sheet credit exposures. The Company
recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $11.6 million. This adjustment
brought the balance of the allowance for credit losses to $67.3 million as of January 1, 2021. In addition, the Company
recorded an $8.7 million liability for unfunded commitments as of January 1, 2021. The after-tax effect decreased
retained earnings by $14.2 million. The adjustment was based upon the Company’s analysis of then-current
conditions, assumptions and economic forecasts at January 1, 2021.
The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit
deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC
310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD
assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to
reflect the addition of $1.9 million to the allowance for credit losses.
Results for reporting periods prior to January 1, 2021, continue to be reported in accordance with previously applicable
GAAP. Under the incurred loss model, the Company delayed recognition of losses until it was probable that a loss was
incurred. The allowance for credit losses was established as losses were estimated to have occurred through a
provision for credit losses charged to earnings. Credit losses were charged against the allowance when management
believed the uncollectability of a loan balance was confirmed. The allowance for credit losses was evaluated on a
regular basis by management and was 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. The
allowance consisted of allocated and general components. The allocated component related to loans that were
classified as impaired. For loans classified as impaired, an allowance was established when the present value of
expected future cash flows (or collateral value or observable market price) of the impaired loan was lower than the
carrying value of that loan. The general component covered non-classified loans and was based on historical charge-
off experience and expected loss given default derived from the Company’s internal risk rating process. Results for
reporting periods after December 31, 2020, include loans acquired and accounted for under ASC 310-30 net of
discount within the loan classes, while for reporting periods prior to January 1, 2021, the loans acquired and accounted
for under ASC 310-30 were shown separately.
90
21
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Beginning on January 1, 2021, the allowance for credit losses is measured using an average historical loss model
which incorporates relevant information about past events (including historical credit loss experience on loans with
similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of
the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a
collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type,
collateral and repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics,
primarily classified and/or TDR loans with a balance greater than or equal to $100,000, are evaluated on an individual
basis.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool
using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical
reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on
the individual pool and represent management’s credit expectations for the pool of loans over the remaining
contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss
expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate
is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or
decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key
macroeconomic variables including, but not limited to, unemployment rate, GDP, disposable income and market
volatility. The adjustments are based on results from various regression models projecting the impact of the
macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting to
historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of
loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected
extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will
be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in historical
loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting practices, or significant
unique events or conditions.
ASU 2016-13 requires an allowance for off balance sheet credit exposures; unfunded lines of credit, undisbursed
portions of loans, written residential and commercial commitments, and letters of credit. To determine the amount
needed for allowance purposes, a utilization rate is determined either by the model or internally for each pool. Our loss
model calculates the reserve on unfunded commitments based upon the utilization rate multiplied by the average loss
rate factors in each pool with unfunded and committed balances. The liability for unfunded lending commitments
utilizes the same model as the allowance for credit losses on loans; however, the liability for unfunded lending
commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded.
91
22
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Classes of loans at December 31, 2021 and 2020, included:
Classes of loans by aging were as follows as of the dates indicated:
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 (1)
Allowance for credit losses
Deferred loan fees and gains, net
2021
2020
(In Thousands)
$
28,302
26,694
47,827
617,505
561,958
119,635
1,476,230
697,903
280,513
14,203
48,915
37,902
119,965
$
20,718
4,917
54,010
484,372
470,310
114,498
1,541,242
999,447
318,023
14,003
86,173
40,762
114,689
—
4,077,552
(60,754)
(9,298)
4,007,500
$
98,643
4,361,807
(55,743)
(9,260)
4,296,804
$
(1) Loans acquired and accounted for under ASC 310-30 of $74.2 million have been included in the totals by loan
class as of December 31, 2021. At the date of CECL adoption, the Company did not reassess whether PCI loans
met the criteria of PCD loans.
Total
$
2,631
$
76
$ 5,423
$
8,130
$ 4,069,422 $ 4,077,552 $
$
433
$
—
$ 1,736
$
2,169
$
72,001 $
74,170 $
December 31, 2021
30-59 Days 60-89 Days
Days
Total Past
Over 90
Past Due Past Due Past Due
Due
Current Receivable Still Accruing
(In Thousands)
Total
Loans
Total Loans
> 90 Days Past
Due and
$
$
$
$
—
$
28,302 $
28,302 $
—
—
29
—
843
—
—
—
1,404
—
229
126
—
—
—
15
—
—
—
—
—
—
31
28
—
—
—
468
—
—
—
—
—
34
63
636
—
512
—
26,694
47,315
26,694
47,827
617,505
617,505
2
2,216
3,061
558,897
561,958
2,006
2,006
1,474,224
1,476,230
—
119,635
119,635
—
697,903
697,903
1,404
279,109
280,513
—
294
217
636
14,203
48,621
37,685
14,203
48,915
37,902
119,329
119,965
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
FDIC-assisted acquired loans
included above
92
23
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Classes of loans by aging were as follows as of the dates indicated:
December 31, 2021
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
$
$
—
—
29
—
$
—
—
15
—
—
—
468
—
$
—
—
512
—
$
28,302 $
26,694
47,315
617,505
28,302 $
26,694
47,827
617,505
843
—
—
—
1,404
—
229
126
—
2
2,216
3,061
558,897
561,958
—
—
—
—
—
31
28
—
—
2,006
—
—
—
34
63
636
—
2,006
—
1,404
—
294
217
636
119,635
1,474,224
697,903
279,109
14,203
48,621
37,685
119,329
119,635
1,476,230
697,903
280,513
14,203
48,915
37,902
119,965
Total
$
2,631
$
76
$ 5,423
$
8,130
$ 4,069,422 $ 4,077,552 $
FDIC-assisted acquired loans
included above
$
433
$
—
$ 1,736
$
2,169
$
72,001 $
74,170 $
93
24
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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
—
$
19,353 $
4,917
53,990
484,372
20,718 $
4,917
54,010
484,372
113
1,502
2,994
467,316
470,310
—
79
—
—
—
119
7
111
69
587
—
114
—
169
94
508
69
666
—
114
—
652
544
772
114,429
1,540,576
999,447
317,909
14,003
85,521
40,218
113,917
114,498
1,541,242
999,447
318,023
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
4,348,465
98,643
4,361,807
1,662
641
3,843
6,146
92,497
98,643
Total
$
3,724
$
429
$ 3,043
$
7,196
$ 4,255,968 $ 4,263,164 $
94
25
December 31, 2020
30-59 Days 60-89 Days
Days
Total Past
Over 90
Past Due Past Due Past Due
Due
Current Receivable Still Accruing
(In Thousands)
Total
Loans
Total Loans
> 90 Days Past
Due and
residential construction
$
1,365
$
$
$
1,365
$
19,353 $
20,718 $
One- to four-family
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-
family residential
Non-owner occupied one- to
four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
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
1,379
113
1,502
2,994
467,316
470,310
—
20
—
—
—
—
—
—
364
443
153
—
—
—
—
—
79
—
—
—
119
7
111
—
—
—
—
69
587
—
114
—
169
94
508
—
4,917
53,990
4,917
54,010
484,372
484,372
20
—
69
666
—
114
—
652
544
772
114,429
114,498
1,540,576
1,541,242
999,447
999,447
317,909
318,023
14,003
85,521
40,218
14,003
86,173
40,762
113,917
114,689
1,662
5,386
641
1,070
3,843
6,886
6,146
92,497
98,643
13,342
4,348,465
4,361,807
1,662
641
3,843
6,146
92,497
98,643
Total
$
3,724
$
429
$ 3,043
$
7,196
$ 4,255,968 $ 4,263,164 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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.
Non-accruing loans as of December 31, 2020 shown below exclude $3.8 million in loans acquired and accounted for
under ASC 310–30, while the non-accruing loans as of December 31, 2021 shown below include $1.7 million in loans
acquired through various FDIC-assisted transactions in the loan classes listed.
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
Total non-accruing loans
FDIC-assisted acquired loans included above
December 31,
2021
2020
(In Thousands)
$
—
—
468
—
2,216
—
2,006
—
—
—
34
63
636
—
—
—
—
1,502
69
587
—
114
—
169
94
508
3,043
$
$
5,423
$
1,736
No interest income was recorded on these loans for the years ended December 31, 2021 and 2020, respectively.
Nonaccrual loans for which there is no related allowance for credit losses as of December 31, 2021 had an amortized
cost of $2.0 million. These loans are individually assessed and do not require an allowance due to being adequately
collateralized under the collateral-dependent valuation method. A collateral-dependent loan is a financial asset for
which the repayment is expected to be provided substantially through the operation or sale of the collateral when the
borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. Collateral-
dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater
than $100,000, including, but not limited to, any loan in process of foreclosure or repossession.
25
95
26
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
December 31, 2020
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Balance, January 1, 2020
$
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
15,871
(3,152)
2,083
(3,294)
2,872
December 31, 2020
$
4,536
$
9,375
$ 33,707
$
3,521
$
2,390
$
2,214
$ 55,743
90
$
—
$
445
$
—
14
$
164
$
713
4,382
$
9,282
$
32,937
$
3,378
2,331
$
2,040
$ 54,350
$
$
64
$
93
$
325
$
143
$
45
$
10
$
680
Allowance for Loan Losses
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
$
$
$
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
Loans
Individually evaluated
Collectively evaluated
for impairment
Loans acquired and
accounted for under
for impairment
$
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended
December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which added $11.6 million
to the total Allowance for Credit Loss, including $1.9 million of remaining discount on loans that were previously
accounted for as PCI.
December 31, 2021
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Credit L osses
Balance, December 31, 2020 $
CECL adoption
Balance, January 1, 2021
Provision (credit) charged
to expense
Losses charged off
Recoveries
Balance,
4,536
4,533
9,069
$
9,375
5,832
15,207
$
$
33,707
(2,531)
31,176
$
3,521
(1,165)
2,356
$
2,390
1,499
3,889
$
2,214
3,427
5,641
55,743
11,595
67,338
—
(190)
485
(4,797)
—
92
(2,478)
(142)
48
575
(154)
20
—
(81)
334
—
(2,054)
1,758
(6,700)
(2,621)
2,737
December 31, 2021
$
9,364
$ 10,502
$ 28,604
$
2,797
$
4,142
$
5,345
$
60,754
The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the
year ended December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which
created an $8.7 million allowance for unfunded commitments.
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
ASC 310 -30
$
57,113
$
6,150
$
24,613
$
2,551
$
2,549
$
5,667
$ 98,643
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Unfunded
Commitments
Balance, December 31, 2020 $
CECL adoption
Balance, January 1, 2021
Provision (credit) charged
to expense
$
—
917
917
$
—
5,227
5,227
(230)
476
$
—
354
354
13
$
—
910
910
(2)
$
—
935
935
647
$
—
347
347
35
—
8,690
8,690
939
Balance,
December 31, 2021
$
687
$
5,703
$ 367
$
908
$
1,582
$
382
$
9,629
The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended
December 31, 2020 and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the
adoption of ASU 2016-13. Also presented are the balance in the allowance for credit losses and the recorded
investment in loans based on portfolio segment and impairment method as of the years ended December 31, 2020
and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.
96
27
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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
$
4,339
$
5,153
$
24,334
$
3,076
$
1,355
$
2,037
$ 40,294
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2020
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
Loans
Individually evaluated
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
$
4,536
$
9,375
$ 33,707
$
3,521
$
2,390
$
2,214
$ 55,743
$
$
$
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
for impairment
$
3,546
$
—
$
3,438
$
—
$
167
$
1,897
$ 9,048
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
$
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
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended
December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which added $11.6 million
to the total Allowance for Credit Loss, including $1.9 million of remaining discount on loans that were previously
accounted for as PCI.
One- to Four-
Family
Residential
December 31, 2021
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
4,536
4,533
9,069
$
9,375
5,832
$
15,207
$
33,707
(2,531)
31,176
$
3,521
(1,165)
2,356
$
2,390
1,499
3,889
$
2,214
3,427
5,641
55,743
11,595
67,338
—
(190)
485
(4,797)
(2,478)
575
—
92
(142)
48
(154)
20
—
(81)
334
—
(2,054)
1,758
(6,700)
(2,621)
2,737
Allowance for Credit L osses
Balance, December 31, 2020 $
CECL adoption
Balance, January 1, 2021
Provision (credit) charged
to expense
Losses charged off
Recoveries
Balance,
December 31, 2021
$
9,364
$ 10,502
$ 28,604
$
2,797
$
4,142
$
5,345
$
60,754
The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the
year ended December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which
created an $8.7 million allowance for unfunded commitments.
One- to Four-
Family
Residential
Balance, December 31, 2020 $
$
—
$
$
$
$
—
$
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
—
917
917
5,227
5,227
(230)
476
(In Thousands)
—
354
354
13
—
910
910
(2)
—
935
935
647
347
347
35
—
8,690
8,690
939
Allowance for Unfunded
Commitments
CECL adoption
Balance, January 1, 2021
Provision (credit) charged
to expense
Balance,
December 31, 2021
$
687
$
5,703
$ 367
$
908
$
1,582
$
382
$
9,629
The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended
December 31, 2020 and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the
adoption of ASU 2016-13. Also presented are the balance in the allowance for credit losses and the recorded
investment in loans based on portfolio segment and impairment method as of the years ended December 31, 2020
and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.
27
97
28
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
December 31, 2019
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Allowance for Loan Losses
Balance, January 1, 2019
$
3,122
$
4,713
$
19,803
$
3,105
$
1,568
$
6,098
$ 38,409
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
December 31, 2019
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
Loans
Individually evaluated
1,625
(534)
126
603
(189)
26
4,651
(144)
24
22
(101)
50
(309)
(371)
467
(442)
(6,723)
3,104
6,150
(8,062)
3,797
$
4,339
$
5,153
$ 24,334
$
3,076
$
1,355
$
2,037
$ 40,294
$
$
$
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
for impairment
$
2,960
$
—
$
4,020
$
—
$
1,286
$
2,001
$ 10,267
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
$
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
98
29
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
December 31, 2019
One- to Four-
Family
Residential
and
Other
Commercial Commercial Commercial
Construction Residential Real Estate Construction Business
Consumer
Total
(In Thousands)
Balance, January 1, 2019
$
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
198
$
—
$
517
$
—
13
$
201
$
929
3,973
$
5,101
$
23,570
$
2,940
1,306
$
1,814
$ 38,704
$
$
168
$
52
$
247
$
136
$
36
$
22
$
661
for impairment
$
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
Allowance for Loan Losses
Provision (benefit)
charged to expense
Losses charged off
Recoveries
Balance,
$
$
$
Ending balance:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
Loans
Individually evaluated
Collectively evaluated
for impairment
Loans acquired and
accounted for under
ASC 310 -30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021 and 2020, was 4.26% and 4.29%,
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, 2021, was $385.8 million, consisting of
$249.5 million of commercial loan participations sold to other financial institutions and $136.3 million of
residential mortgage loans sold. 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. In addition, available lines of credit on these
loans were $130.9 million and $46.1 million at December 31, 2021 and 2020, respectively.
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of
December 31, 2021:
December 31, 2021
Principal
Balance
Specific
Allowance
(In Thousands)
$
$
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family residential
Non-owner occupied one- to four-family residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
—
—
468
—
1,980
—
2,217
—
—
—
—
160
377
Total
$
5,202
$
—
—
—
—
118
—
397
—
—
—
—
80
—
495
29
99
30
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Prior to adoption of ASU 2016-13, a loan was considered impaired, in accordance with the impairment accounting
guidance (FASB ASC 310-10-35-16) when, based on then-current information and events, it was probable the
Company would be unable to collect all amounts due from the borrower in accordance with the contractual terms of
the loan. Impaired loans included not only nonperforming loans but also loans modified in troubled debt restructurings
where concessions had been granted to borrowers experiencing financial difficulties. The following table presents
information pertaining to impaired loans as of December 31, 2020 and 2019, respectively, in accordance with previous
GAAP prior to the adoption of ASU 2016-13.
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
December 31, 2019
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2019
Average
Investment
in Impaired
Interest
Income
Loans
Recognized
One- to four-family residential construction
$
$
$
$
$
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
Non-owner occupied one- to four-family
residential
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
—
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
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.
For loans which were non-accruing, interest of approximately $432,000, $579,000 and $761,000 would have been
recognized on an accrual basis during the years ended December 31, 2021, 2020 and 2019, respectively.
TDRs 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 credit losses for TDRs primarily using a discounted cash flows or
collateral adequacy approach.
100
31
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Prior to adoption of ASU 2016-13, a loan was considered impaired, in accordance with the impairment accounting
guidance (FASB ASC 310-10-35-16) when, based on then-current information and events, it was probable the
Company would be unable to collect all amounts due from the borrower in accordance with the contractual terms of
the loan. Impaired loans included not only nonperforming loans but also loans modified in troubled debt restructurings
where concessions had been granted to borrowers experiencing financial difficulties. The following table presents
information pertaining to impaired loans as of December 31, 2020 and 2019, respectively, in accordance with previous
GAAP prior to the adoption of ASU 2016-13.
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
Non-owner occupied one- to four-family
residential
residential
Commercial real estate
Other residential
Commercial business
Industrial revenue bonds
Consumer auto
Consumer other
Home equity lines of credit
—
20
—
—
3,457
69
3,438
—
166
—
865
403
630
—
20
—
—
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
—
3
—
—
169
18
135
—
34
—
91
47
36
Total
$
9,048
$
10,109
$
713
$
9,739
$
533
December 31, 2020
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Year Ended
December 31, 2020
Average
Investment
in Impaired
Interest
Income
Loans
Recognized
One- to four-family residential construction
Subdivision construction
Land development
Commercial construction
Owner occupied one- to four-family
$
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
$
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.
For loans which were non-accruing, interest of approximately $432,000, $579,000 and $761,000 would have been
recognized on an accrual basis during the years ended December 31, 2021, 2020 and 2019, respectively.
TDRs 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 credit losses for TDRs primarily using a discounted cash flows or
collateral adequacy approach.
—
9
101
—
131
43
264
—
81
—
125
48
37
839
31
101
32
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
TDRs by class are presented below as of December 31, 2021 and 2020. The December 31, 2020 table excludes
$1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30, while the December 31, 2021
table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed.
Accruing TDR Loans
Balance
Number
December 31, 2021
Non-accruing TDR Loans
Number
Balance
(In Thousands)
Total TDR Loans
Balance
Number
Construction and land development
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
1
10
—
1
—
26
38
$
$
15
579
—
85
—
323
1,002
—
12
—
1
—
13
26
$
$
—
1,059
—
1,726
—
64
2,849
December 31, 2020
1
22
—
2
—
39
64
$
$
15
1,638
—
1,811
—
387
3,851
Construction and land development
One- to four-family residential
Other residential
Commercial real estate
Commercial business
Consumer
Restructured
Troubled Debt
Non-accruing
Accruing Interest
(In Thousands)
Restructured
Troubled Debt
$
$
—
778
—
—
75
118
971
$
$
646
1,121
—
20
52
511
2,350
$
$
646
1,899
—
20
127
629
3,321
102
33
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table presents newly restructured loans during the years ended December 31, 2021, 2020, and 2019 by
type of modification:
2021
Interest Only
Term
Combination
(In Thousands)
Total
Modification
Residential one-to-four family
Commercial real estate
Commercial business
Consumer
$
$
31
1,768
—
—
1,799
$
$
202
—
—
259
461
$
$
2020
134
—
—
11
145
$
$
367
1,768
—
270
2,405
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
At December 31, 2021, of the $3.9 million in TDRs, $2.9 million were classified as substandard using the Company’s
internal grading system. The Company had no TDRs that were modified in the previous 12 months and subsequently
defaulted during the year ended December 31, 2021. At December 31, 2020, of the $3.3 million in TDRs, $1.6 million
were classified as substandard using the Company’s internal grading system. The Company had no TDRs that were
modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2020.
Loans were modified during 2020 or 2021 in response to the COVID-19 pandemic and were within the guidance
provided by the CARES Act, the federal banking regulatory agencies, the Securities and Exchange Commission and
the Financial Accounting Standards Board (FASB). At December 31, 2021, the Company had no remaining modified
commercial loans and eight modified consumer and mortgage loans with an aggregate principal balance outstanding of
$1.2 million. These balances have decreased from $232.4 million in commercial loans and $18.2 million in consumer
and mortgage loans at December 31, 2020. The loan modifications have not been considered TDRs.
The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to
perceived risk associated with the expectation of debt repayment. The analysis of the borrower’s ability to repay
considers specific information, including but not limited to current financial information, historical payment
experience, industry information, collateral levels and collateral types. A risk rating is assigned at loan origination and
then monitored throughout the contractual term for possible risk rating changes.
103
34
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial
statements. Character and capacity of borrower are strong, including reasonable project performance, good industry
experience, liquidity and/or net worth. Probability of financial deterioration seems unlikely. Repayment is expected
from approved sources over a reasonable period of time.
Watch loans are identified when the borrower has capacity to perform according to terms; however, elements of
uncertainty exist. Margins of debt service coverage may be narrow, historical patterns of financial performance may be
erratic, collateral margins may be diminished and the borrower may be a new and/or thinly capitalized company. Some
management weakness may also exist, the borrower may have somewhat limited access to other financial institutions,
and that ability may diminish in difficult economic times.
Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential
weaknesses may result in deterioration of repayment prospects or the Bank’s credit position at some future date. It is a
transitional grade that is closely monitored for improvement or deterioration.
The Substandard rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its
continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-
accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of
repayment.
Doubtful loans have all the weaknesses inherent to those classified Substandard with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and
improbable. Loans considered loss are uncollectable and no longer included as an asset.
All loans are analyzed for risk rating updates regularly. For larger loans, rating assessments may be more frequent if
relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller
loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan
becomes past due related to credit issues. Loans rated Watch, Special Mention, Substandard or Doubtful are subject to
quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel
and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness
of the risk ratings for the loans chosen as part of its risk-based review plan.
The following tables present a summary of loans by risk category and past due status separated by origination and loan
class as of December 31, 2021. The first table, which is as of December 31, 2021, was prepared using the CECL
methodology and includes $74.2 million in FDIC-assisted acquired loans included in the loan class categories. The
remaining accretable discount of $429,000 has not been included in this table. See Note 4 for further discussion of the
FDIC-assisted acquired loans and related discount. The undisbursed portions of loans in process have been netted
against the gross loan balances for presentation in this table. The second table, which is as of December 31, 2020, was
prepared using the previous GAAP incurred loss methodology prior to the adoption of ASU 2016-13. The $98.6
million in FDIC-assisted acquired loans are shown as a total, not within the loan class categories.
104
35
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Term Loans by Origination Year
2021 YTD
2020
2019
2018
2017
Prior
(In Thousands)
Revolving
Loans
Total
One- to four-family residential construction
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Subdivision construction
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Land development construction
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Other Construction
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
One- to four-family residential
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Other residential
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Commercial real estate
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Commercial business
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Consumer
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
Combined
Satisfactory (1-4)
Watch (5)
Special Mention (6)
Classified (7-9)
Total
$ 23,081
$ 4,453
—
—
—
23,081
—
—
—
4,453
24,129
—
—
—
24,129
949
—
—
—
949
$ 763
—
—
—
763
224
—
—
—
224
$ —
$ —
$ 5
—
—
—
—
—
—
—
—
—
—
—
5
$ —
—
—
—
—
$ 28,302
—
—
—
28,302
160
—
—
—
160
252
—
—
—
252
965
—
—
15
980
—
—
—
—
—
26,679
—
—
15
26,694
9,968
—
—
—
9,968
15,965
—
—
—
15,965
11,115
—
—
—
11,115
2,591
—
—
—
2,591
3,013
—
—
—
3,013
4,184
—
—
—
4,184
527
—
—
47,363
—
—
468
995
468
47,831
145,991
—
—
—
145,991
298,710
—
—
—
298,710
130,502
—
—
—
130,502
42,302
—
—
—
42,302
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
617,505
—
—
—
617,505
237,498
169,765
—
—
—
—
93,648
—
—
49,618
132
—
—
237,498
—
169,765
144
93,792
—
49,750
14,707
—
—
50
14,757
113,059
267
—
1,223
114,549
1,662
69
—
679,957
468
—
83
1,814
1,500
681,925
117,029
—
—
—
117,029
96,551
—
—
—
96,551
115,418
—
—
—
115,418
179,441
—
—
—
179,441
104,053
—
—
—
104,053
70,438
3,417
—
—
73,855
11,605
—
—
—
11,605
694,535
3,417
—
—
697,952
141,868
—
—
—
141,868
113,226
410
—
—
113,636
220,580
582
—
—
221,162
231,321
—
—
—
231,321
196,166
—
—
—
196,166
521,545
25,742
—
2,006
549,293
22,785
—
—
—
22,785
1,447,491
26,734
—
2,006
1,476,231
67,049
—
—
—
67,049
28,743
—
—
—
28,743
23,947
—
—
—
23,947
16,513
—
—
—
16,513
24,126
—
—
—
24,126
58,116
58
—
—
58,174
76,187
—
—
—
76,187
294,681
58
—
—
294,739
20,140
—
—
—
20,140
11,138
—
—
7,154
—
—
9,065
20
—
4,175
4
—
24,280
10
—
130,111
29
—
206,063
63
—
2
11,140
—
7,154
16
9,101
32
4,211
280
24,570
347
130,487
677
206,803
786,753
—
—
—
$ 786,753
739,500
410
—
603,351
582
—
531,011
152
—
346,492
4
—
792,592
29,494
—
242,877
98
—
4,042,576
30,740
—
2
$ 739,912
144
$ 604,077
16
$ 531,179
82
$ 346,578
3,524
$ 825,610
898
$ 243,873
4,666
$ 4,077,982
105
36
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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
$
19,353
4,897
54,010
484,372
467,729
$
1,365
—
—
—
216
114,105
1,485,596
995,950
310,806
14,003
85,657
40,514
114,049
324
52,208
3,497
7,102
—
5
2
39
98,633
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
20
—
—
— $
—
—
—
484,372
Total
20,718
4,917
54,010
2,365
69
3,438
—
115
—
511
246
601
—
—
—
—
—
—
—
—
—
470,310
114,498
1,541,242
999,447
318,023
14,003
86,173
40,762
114,689
10
—
98,643
Total
$ 4,289,674
$
64,758
$
—
$
7,375
$
— $ 4,361,807
106
37
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Satisfactory
Watch
Mention Substandard Doubtful
Total
December 31, 2020
Special
(In Thousands)
$
$
1,365
$
$
$
— $
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
19,353
4,897
54,010
484,372
467,729
114,105
1,485,596
995,950
14,003
85,657
40,514
114,049
98,633
—
—
—
216
324
52,208
3,497
—
5
2
39
—
310,806
7,102
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20
—
—
2,365
69
3,438
—
115
—
511
246
601
10
20,718
4,917
54,010
484,372
470,310
114,498
1,541,242
999,447
318,023
14,003
86,173
40,762
114,689
—
—
—
—
—
—
—
—
—
—
—
—
—
98,643
Total
$ 4,289,674
$
64,758
$
—
$
7,375
$
— $ 4,361,807
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021 and 2020, loans
outstanding to these directors and executive officers, and their related interests, are summarized as follows:
2021
2020
(In Thousands)
Balance, beginning of year
New loans
Payments
Balance, end of year
$
$
13,468
629
(4,000)
10,097
$
$
15,240
901
(2,673)
13,468
Note 4:
FDIC-Assisted Acquired Loans
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
37
107
38
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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.
The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at
December 31, 2021 and 2020.
TeamBank
Vantus
Bank
Sun
Security
Bank
(In Thousands)
InterBank
Valley Bank
December 31, 2021
Gross loans receivable
Balance of accretable discount due
to change in expected losses
Net carrying value of loans
$
3,613
$
5,304
$ 9,405
$ 32,645
$ 23,632
(65)
(19)
(63)
(58)
(224)
receivable
$
3,548
$
5,285
$ 9,342
$ 32,587
$ 23,408
December 31, 2020
Gross loans receivable
Balance of accretable discount due
to change in expected losses
Expected loss remaining
Net carrying value of loans
receivable
$
5,393
$
8,052
$ 13,395
$ 44,215
$ 31,515
(97)
(30)
(35)
(13)
(180)
(104)
(1,079)
(1,079)
(612)
(699)
$
5,266
$
8,004
$
13,111
$
42,057
30,204
$
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.
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.
As of January 1, 2021, we adopted the new accounting standard related to accounting for credit losses. With the
adoption of this standard, discounts are no longer reclassified from non-accretable to accretable. All adjustments
made prior to January 1, 2021 continue to be accreted to interest income. As of December 31, 2021, the remaining
accretable yield adjustment that will affect interest income was $429,000.
108
39
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The adjustments to accretable yield made prior to 2021, impacted the Company’s Consolidated Statements of
Income as follows:
2021
Year Ended December 31,
2020
(In Thousands)
2019
Interest income and net impact to pre-tax income
$
1,576 $
5,574 $
7,431
Note 5:
Other Real Estate Owned and Repossessions
Major classifications of other real estate owned at December 31, 2021 and 2020, 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-assisted acquired acquisitions,
net of discounts
Foreclosed assets held for sale and repossessions, net
Other real estate owned not acquired through foreclosure
$
2021
2020
(In Thousands)
$
—
—
—
—
—
—
—
—
90
90
498
588
1,499
—
263
250
—
111
—
—
—
153
777
446
1,223
654
Other real estate owned and repossessions
$
2,087
$
1,877
At December 31, 2021, other real estate owned not acquired through foreclosure included four properties all of which
were branch locations that were closed and held for sale. During the year ended December 31, 2021, one former
branch location was added to this category for $1.2 million. During the year ended December 31, 2021, no additional
valuation write-downs were recorded on branch locations that were closed and held for sale.
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. 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, 2021, residential mortgage loans totaling $125,000 were in the process of foreclosure, none of which
were acquired loans related to FDIC-assisted transactions.
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.
109
40
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Expenses applicable to other real estate owned and repossessions for the years ended December 31, 2021, 2020
and 2019, included the following:
Net gains on sales of other real estate owned and repossessions
Valuation write-downs
Operating expenses, net of rental income
$
(282) $
211
698
(480) $
1,320
1,183
(750)
926
2,008
2021
2020
(In Thousands)
2019
$
627
$
2,023
$
2,184
Operating lease costs classified as occupancy and equipment expense
(includes short-term lease costs and amortization of right of use asset)
$
1,529
$
1,572
Note 6:
Premises and Equipment
Major classifications of premises and equipment at December 31, 2021 and 2020, stated at cost, were as follows:
Land
Buildings and improvements
Furniture, fixtures and equipment
Operating leases right of use asset
Less accumulated depreciation
2021
2020
(In Thousands)
$
$
39,440
101,207
57,982
7,715
206,344
73,611
40,652
100,187
59,226
8,536
208,601
69,431
$
132,733
$
139,170
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). 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, 2021, the lease right of use asset value was $7.7 million and the
corresponding lease liability was $7.9 million. 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. At December 31, 2021, expected lease terms range from
1.3 years to 16.9 years with a weighted-average lease term of 9.3 years. The weighted-average discount rate was 3.44%.
For the years ended December 31, 2021, 2020 and 2019, lease expense was $1.5 million, $1.6 million and $1.5 million,
respectively. 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 $307,000, $275,000 and $286,000 for the years ended
December 31, 2021, 2020 and 2019, respectively.
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, 2021, 2020, and 2019, income recognized from these lease
agreements was $1.2 million, $1.2 million, and $1.1 million respectively, and was included in occupancy and equipment
expense.
110
41
Statement of Financial Condition
Operating leases right of use asset
Operating leases liability
Statement of Income
At or For the Year Ended
December 31, 2021 December 31, 2020
(In Thousands)
$
$
7,716
7,886
$
$
8,536
8,661
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:
$
1,483
$
1,526
Operating leases
$
74
$
972
At December 31, 2021, future expected lease payments for leases with terms exceeding one year were as follows (in
thousands):
2022
2023
2024
2025
2026
Thereafter
$
1,116
1,088
1,005
979
912
4,015
9,115
Future lease payments expected
Less interest portion of lease payments
(1,229)
Lease liability
$
7,886
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, 2021 the Company had 16 such investments, with a net carrying value of $25.1
million. At December 31, 2020 the Company had 16 such investments, with a net carrying value of $20.4 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.
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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:
At or For the Year Ended
December 31, 2021 December 31, 2020
(In Thousands)
$
$
7,716
7,886
$
$
8,536
8,661
$
1,529
$
1,572
$
1,483
$
1,526
Operating leases
$
74
$
972
At December 31, 2021, future expected lease payments for leases with terms exceeding one year were as follows (in
thousands):
2022
2023
2024
2025
2026
Thereafter
Future lease payments expected
$
1,116
1,088
1,005
979
912
4,015
9,115
Less interest portion of lease payments
(1,229)
Lease liability
$
7,886
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, 2021 the Company had 16 such investments, with a net carrying value of $25.1
million. At December 31, 2020 the Company had 16 such investments, with a net carrying value of $20.4 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.
111
42
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The remaining federal affordable housing tax credits to be utilized through 2031 were $26.4 million as of December
31, 2021, 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 $25.1 million, assuming all
projects currently under construction are completed and funded as planned. The Company’s usage of federal
affordable housing tax credits approximated $4.9 million, $6.6 million and $8.0 million during 2021, 2020 and 2019,
respectively. Investment amortization amounted to $4.2 million, $5.5 million and $5.8 million for the years ended
December 31, 2021, 2020 and 2019, 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, 2021 the Company had one such investment,
with a net carrying value of $481,000. At December 31, 2020, the Company had one such investment, with a net
carrying value of $567,000. Due to the Company’s inability to exercise any significant influence over any of the
investments in qualified Community Development Entities, they are all accounted for using the cost method. Each of
the partnerships provides federal New Market Tax Credits over a seven-year credit allowance period. In each of the
first three years, credits totaling five percent of the original investment are allowed on the credit allowance dates and
for the final four years, credits totaling six percent of the original investment are allowed on the credit allowance dates.
Each of the partnerships must be invested in a qualified Community Development Entity on each of the credit
allowance dates during the seven-year period to utilize the tax credits. If the Community Development Entities cease
to qualify during the seven-year period, the credits may be denied for any credit allowance date and a portion of the
credits previously taken may be subject to recapture with interest. The investments in the Community Development
Entities cannot be redeemed before the end of the seven-year period.
The Company’s usage of federal New Market Tax Credits approximated $100,000, $100,000 and $480,000 during
2021, 2020 and 2019, respectively. Investment amortization amounted to $86,000, $80,000 and $365,000 for the
years ended December 31, 2021, 2020 and 2019, 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, 2021 the Company had one such investment, with a net
carrying value of $642,000. At December 31, 2020 the Company had one such investment, with a net carrying value
of $863,000. Under prior tax law, 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. Currently, 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.
112
43
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 8: Deposits
Deposits at December 31, 2021 and 2020, are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking and
savings accounts
Certificate accounts
Weighted Average
Interest Rate
2021
2020
(In Thousands, Except
Interest Rates)
—
$
1,209,822
$
984,798
0.12% and 0.22%
0% - 0.99%
1% - 1.99%
2% - 2.99%
3% - 3.99%
4% and above
2,381,210
3,591,032
825,217
73,563
55,509
6,780
—
961,069
2,141,313
3,126,111
803,737
425,061
143,417
18,148
429
1,390,792
$
4,552,101
$
4,516,903
The weighted average interest rate on certificates of deposit was 0.60% and 1.00% at December 31, 2021 and 2020,
respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations greater than $250,000 was
approximately $88.0 million and $123.1 million at December 31, 2021 and 2020, respectively. The Bank utilizes
brokered deposits as an additional funding source. The aggregate amount of brokered deposits was approximately
$67.4 million and $158.7 million at December 31, 2021 and 2020, respectively.
At December 31, 2021, scheduled maturities of certificates of deposit were as follows:
2022
2023
2024
2025
2026
Thereafter
Retail
Brokered
(In Thousands)
Total
$
$
751,184
103,333
21,217
13,571
3,414
951
13,751
42,448
11,200
—
—
—
$
764,935
145,781
32,417
13,571
3,414
951
$
893,670
$
67,399
$
961,069
113
44
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
A summary of interest expense on deposits for the years ended December 31, 2021, 2020 and 2019, is as follows:
2021
2020
(In Thousands)
2019
Checking and savings accounts
Certificate accounts
Early withdrawal penalties
$
$
4,023
9,139
(60)
$
7,096
25,453
(118)
7,971
37,723
(124)
$
13,102
$
32,431
$
45,570
Note 9: Advances From Federal Home Loan Bank
At December 31, 2021 and 2020, there were no outstanding term advances or overnight funds from the Federal Home
Loan Bank of Des Moines.
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, 2021 and 2020. Loans with carrying values of approximately $1.19 billion and $1.63
billion were pledged as collateral for outstanding advances at December 31, 2021 and 2020, respectively. The Bank
had $756.5 million remaining available on its line of credit under a borrowing arrangement with the FHLB of Des
Moines at December 31, 2021.
Note 10: Short-Term Borrowings
Short-term borrowings at December 31, 2021 and 2020, are summarized as follows:
2021
2020
(In Thousands)
Notes payable – Community Development Equity Funds
Other interest-bearing liabilities
Securities sold under reverse repurchase agreements
$
$
1,449
390
137,116
1,518
—
164,174
$
138,955
$
165,692
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, 2021, 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% at both December 31, 2021 and 2020,
respectively. Short-term borrowings averaged approximately $145.3 million and $183.5 million for the years ended
December 31, 2021 and 2020, respectively. The maximum amounts outstanding at any month end were $184.2
million and $318.7 million, respectively, during those same periods.
114
45
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table represents the Company’s securities sold under reverse repurchase agreements, by collateral type
and remaining contractual maturity at December 31, 2021 and 2020:
2021
Overnight and
Continuous
2020
Overnight and
Continuous
(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC
$ 137,116
$ 164,174
Note 11: Federal Reserve Bank Borrowings
At December 31, 2021 and 2020, the Bank had $352.4 million and $436.4 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, 2021 or 2020.
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 1.73% and 1.81% at December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, subordinated debentures issued to capital trusts were as follows:
Subordinated debentures
$
25,774
$
25,774
2021
2020
(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 were due August 15, 2026 and had a fixed interest rate of 5.25% until August 15, 2021, at which time the rate was
to become floating at a rate equal to three-month LIBOR plus 4.087%. 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 amortized over the five-year
expected life of the notes.
On August 15, 2021, in accordance with the terms of the notes, the Company redeemed all $75.0 million aggregate
principal amount of the notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid
interest.
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
115
46
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021 and 2020, totaled $587,000 and
$608,000, respectively, and is included in interest expense on subordinated notes in the consolidated statements of
income, resulting in an imputed interest rate of 5.97% and 5.84%, respectively.
At December 31, 2021 and 2020, subordinated notes are summarized as follows:
Subordinated notes
Less: unamortized debt issuance costs
Note 14: Income Taxes
2021
2020
(In Thousands)
$
$
75,000
1,016
73,984
$
$
150,000
1,603
148,397
The Company files a consolidated federal income tax return. As of December 31, 2021 and 2020, 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, 2021 and 2020,
respectively.
During the years ended December 31, 2021, 2020 and 2019, the provision for income taxes included these
components:
2021
2020
(In Thousands)
2019
Taxes currently payable
Deferred income taxes (benefit)
Income taxes
$
$
16,025
3,712
$
25,259
(11,480)
$
15,375
1,074
19,737
$
13,779
$
16,449
116
47
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition
were:
Deferred tax assets
Allowance for credit losses
Liability for unfunded commitments
Interest on nonperforming loans
Accrued expenses
Write-down of foreclosed assets
Write-down of fixed assets
Income recognized for tax in excess of book related to
terminated cash flow derivatives
Partnership tax credits
Deferred income
Difference in basis for acquired assets and liabilities
Deferred tax liabilities
Tax depreciation in excess of book depreciation
FHLB stock dividends
Partnership tax credits
Prepaid expenses
Unrealized gain on available-for-sale securities
Unrealized gain on terminated cash flow derivatives
Other
December 31,
2021
2020
(In Thousands)
$
$
13,854
2,196
98
1,227
35
62
12,711
—
142
894
131
114
6,978
—
298
893
25,641
8,830
11
885
1,532
25,250
(5,681)
(313)
(251)
(883)
(2,698)
(6,978)
(328)
(17,132)
(5,988)
(368)
—
(898)
(6,869)
(8,830)
(258)
(23,211)
Net deferred tax asset
$
8,509
$
2,039
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
2021
2020
2019
21.0%
(0.3)
(1.8)
1.3
0.7
20.9%
21.0%
(0.5)
(3.8)
1.4
0.8
18.9%
21.0%
(0.5)
(3.6)
1.3
0.1
18.3%
The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS).
As a result, federal tax years through December 31, 2017 are now closed.
The Company was previously under State of Missouri income and franchise tax examinations for its 2014 and 2015
tax years. The examinations concluded with one unresolved issue related to the exclusion of certain income in the
calculation of Missouri income tax. The Missouri Department of Revenue denied the Company’s administrative
protest regarding the 2014 and 2015 tax years’ examinations. In June 2021, the Company filed a formal protest with
the Missouri Administrative Hearing Commission, which has special jurisdiction to hear tax matters and is similar to a
117
48
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
trial court, to continue defending the Company’s rights and associated tax position. The Company has engaged legal
and tax advisors and continues to believe it will ultimately prevail on the issue; however, if the Company does not
prevail, the tax obligation to the State of Missouri could be up to a total of $4.0 million for these tax years.
The State of Illinois Department of Revenue recently began a tax examination of the Company’s Illinois Business
Income Tax for the 2018 and 2019 tax years.
Note 15: Disclosures About Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820
also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:
Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted unadjusted
prices in active markets for identical assets that the Company has the ability to access at the measurement
date. An active market for the asset is a market in which transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing information on an ongoing basis.
Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from sources independent of the
reporting entity including quoted prices for similar assets, quoted prices for securities in inactive markets
and inputs derived principally from or corroborated by observable market data by correlation or other
means.
Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source independent of the
reporting entity or the reporting entity’s own assumptions that are supported by little or no market activity
or observable inputs.
Financial instruments are broken down 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, 2021 and 2020:
118
49
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 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)
December 31, 2021
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, 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
$
$
$
$
229,441
204,277
40,015
27,299
2,816
(2,895)
169,940
176,621
47,325
21,047
5,062
(5,454)
(In Thousands)
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
229,441
204,277
40,015
27,299
2,816
(2,895)
169,940
176,621
47,325
21,047
5,062
(5,454)
—
—
—
—
—
—
—
—
—
—
—
—
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, 2021 and
2020, 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, 2021.
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, 2021 or 2020. 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, 2021 or 2020.
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, 2021 and
2020:
119
50
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 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, 2021
Collateral-dependent loans
Foreclosed assets held for sale
December 31, 2020
Impaired loans
Foreclosed assets held for sale
(In Thousands)
$
$
$
$
1,712
315
1,759
945
$
$
$
$
—
—
—
—
$
$
$
$
—
—
—
—
$
$
$
$
1,712
312
1,759
945
Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring
basis and recognized in the accompanying statements of financial condition, as well as the general classification of
such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the
process used to develop the reported fair value is described below.
Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of mortgage
loans held for sale is based on what secondary markets are currently offering for portfolios with similar
characteristics. As such, the Company classifies mortgage loans held for sale as Nonrecurring Level 2. Write-
downs to fair value typically do not occur as the Company generally enters into commitments to sell individual
mortgage loans at the time the loan is originated to reduce market risk. The Company typically does not have
commercial loans held for sale. At December 31, 2021 and 2020, the aggregate fair value of mortgage loans held
for sale was not materially different than their cost. Accordingly, no mortgage loans held for sale were marked
down and reported at fair value.
Impaired Loans
Prior to January 1, 2021, a loan was considered to be impaired when it was probable that all of the principal and
interest due may not be collected according to its contractual terms. Generally, when a loan was considered
impaired, the amount of reserve required under FASB ASC 310, Receivables, was measured based on the fair
value of the underlying collateral. The Company made 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 was 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 included 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 were 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
reviewed all collateral-dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals
were necessary based on loan performance, collateral type and guarantor support. At times, the Company
measured the fair value of collateral-dependent impaired loans using appraisals with dates more than one year
prior to the date of review. These appraisals were 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
120
51
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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 were typically discounted 10 40%. The policy described above was the same for all types of
collateral-dependent impaired loans. Subsequent to December 31, 2020, these loans are no longer considered
impaired.
The Company records collateral-dependent 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 of the portion of the loan that
exceeds the fair value or establishes a reserve within the allowance for credit losses specific to the loan. Loans for
which such charge-offs or reserves were recorded during the year ended December 31, 2021, 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, 2021 and 2020, 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.
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. The
carrying amount of accrued interest payable approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are used to
estimate fair value of existing advances.
Short-Term Borrowings
The carrying amount approximates fair value.
121
52
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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 not recorded at fair
value in the financial statements. 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.
December 31, 2021
December 31, 2020
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
credit losses
Accrued interest receivable
Investment in FHLB stock and
other assets
$
717,267
8,735
$
717,267
8,735
4,007,500
10,705
4,001,362
10,705
6,655
6,655
Financial liabilities
Deposits
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
4,552,101
138,955
25,774
73,984
646
4,552,202
138,955
25,774
81,000
646
Unrecognized financial instruments
(net of contractual value)
Commitments to originate loans
Letters of credit
Lines of credit
—
50
—
—
50
—
122
1
2
3
3
3
3
3
3
2
3
3
3
3
$
563,729
17,780
$ 563,729
17,780
4,296,804
12,793
4,303,909
12,793
9,806
9,806
4,516,903
165,692
25,774
148,397
2,594
4,523,586
165,692
25,774
157,032
2,594
—
84
—
—
84
—
53
1
2
3
3
3
3
3
3
2
3
3
3
3
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Subordinated Debentures Issued to Capital Trusts
The subordinated debentures have floating rates that reset quarterly. The carrying amount of these debentures
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 had interest rate derivatives that were 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.
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 $482,000 and
$584,000 at December 31, 2021 and 2020, respectively. At December 31, 2021, excluding the Valley Bank
swaps, the Company had 11 interest rate swaps and one interest rate cap totaling $93.9 million in notional amount
with commercial customers, and 11 interest rate swaps and one interest rate cap with the same notional amount
with third parties related to its program. In addition, at December 31, 2021, the Company had four participation
loans purchased totaling $27.2 million, in which the lead institution has an interest rate swap with their customer
and the economics of the counterparty swap are passed along to us through the loan participation. 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. During the years
ended December 31, 2021, 2020 and 2019, the Company recognized net gains (losses) of $312,000, $(264,000)
and $(104,000), 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
123
54
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 not recorded at fair
value in the financial statements. 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.
December 31, 2021
December 31, 2020
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
(Dollars in Thousands)
Fair
Value
Hierarchy
Level
Cash and cash equivalents
$
717,267
$
717,267
8,735
8,735
$
563,729
$ 563,729
17,780
17,780
Financial assets
Mortgage loans held for sale
Loans, net of allowance for
credit losses
Accrued interest receivable
Investment in FHLB stock and
other assets
Financial liabilities
Deposits
Short-term borrowings
Subordinated debentures
Subordinated notes
Accrued interest payable
4,007,500
10,705
4,001,362
10,705
4,296,804
12,793
4,303,909
12,793
6,655
6,655
9,806
9,806
4,552,101
4,552,202
138,955
25,774
73,984
646
138,955
25,774
81,000
646
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
—
50
—
—
50
—
—
84
—
—
84
—
53
1
2
3
3
3
3
3
3
2
3
3
3
3
1
2
3
3
3
3
3
3
2
3
3
3
3
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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 recorded those net payments as a reduction of interest income on loans.
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. The Company
recorded interest income of $8.1 million and $7.7 million on this interest rate swap during the years ended December
31, 2021 and 2020, 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. The Company currently
expects to have an amount of eligible variable rate loans to continue to accrete this interest income in future periods. If
this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be
required to recognize this interest income more rapidly.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification
on the Consolidated Statements of Financial Condition:
Derivatives not designated
as hedging instruments
Derivative Assets
Interest rate products
Total derivatives not designated
as hedging instruments
Derivative Liabilities
Interest rate products
Total derivatives not designated
as hedging instruments
Location in
Consolidated Statements
of Financial Condition
Fair Value
December 31,
December 31,
2021
2020
(In Thousands)
Prepaid expenses and other assets
$
2,816
$
5,062
$
2,816
$
5,062
Accrued expenses and other liabilities
$
2,895
$
5,454
$
2,895
$
5,454
124
55
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table presents the effect of cash flow hedge accounting on the statements of comprehensive
income:
Cash Flow Hedges
2021
Amount of Gain
Recognized in AOCI
Year Ended December 31
2020
(In Thousands)
2019
Interest rate swap, net of income taxes
$
(6,271)
$
6,691
$
13,857
The following table presents the effect of cash flow hedge accounting on the statements of operations:
Cash Flow Hedges
2021
Year Ended December 31
2020
2019
Interest
Income
Interest
Expense
Interest
Income
(In Thousands)
Interest
Expense
Interest
Income
Interest
Expense
Interest rate swap, net of income taxes
$ 8,123 $ — $ 7,676 $ — $ 3,082 $ —
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, 2021, 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 $437,000. Additionally, the
Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting
thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $1.2 million
to the derivative counterparties to satisfy the loan level agreements. The Bank has received cash collateral from
another derivative counterparty of $390,000 to cover its fair value position with us. If the Company had breached any
of these provisions at December 31, 2021 or December 31, 2020, it could have been required to settle its obligations
under the agreements at the termination value. 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 $5.5 million. 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.
Under the collateral agreements between the parties, either party may choose to provide cash or securities to satisfy its
collateral requirements.
125
56
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 17: Commitments and Credit Risk
Commitments to Originate Loans
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a significant portion of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s
creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.
At December 31, 2021 and 2020, the Bank had outstanding commitments to originate loans and fund commercial
construction loans aggregating approximately $159.7 million and $46.6 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 $53.5 million and $85.9 million at December 31, 2021 and 2020,
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 $13.4 million and $16.1
million at December 31, 2021 and 2020, 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, 2021, the Bank had granted unused lines of credit to borrowers aggregating approximately $1.3
billion and $175.7 million for commercial lines and open-end consumer lines, respectively. 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.
126
57
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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 (including the FDIC-assisted acquired loans)
aggregating approximately $743.5 million and $810.4 million at December 31, 2021 and 2020, respectively, were
secured primarily by apartments, condominiums, residential and commercial land developments, industrial
revenue bonds and other types of commercial properties in the St. Louis, Missouri, area.
Note 18: Additional Cash Flow Information
Noncash Investing and Financing Activities
Real estate acquired in settlement of loans
Sale and financing of foreclosed assets
Conversion of premises and equipment to foreclosed assets
Dividends declared but not paid
Additional Cash Payment Information
Interest paid
Income taxes paid
Note 19: Employee Benefits
2021
2020
(In Thousands)
2019
$ 1,154
—
1,215
4,727
$ 1,707
625
80
4,676
$ 12,729
1,340
1,135
4,849
22,700
12,959
42,221
18,755
53,922
5,719
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, 2021, 2020 and 2019, were approximately $2.1 million, $2.1 million and $1.8
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, 2021 and 2020, was 112.4% and 92.5%,
respectively. The funded status was calculated by taking the market value of plan assets, which reflected
contributions received through June 30, 2021 and 2020, 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, 2021, 2020 and 2019, were
approximately $1.7 million, $1.6 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, 2021, 14,603
options were outstanding under the 2003 Plan.
127
58
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021, 319,563
options were outstanding under the 2013 Plan.
The 2018 Plan provides for the grant from time to time to directors, emeritus directors, officers, employees and
advisory directors of stock options, stock appreciation rights, restricted stock, restricted stock units, performance
shares and performance units. The number of shares of Common Stock available for awards under the 2018 Plan is
800,000 (the “2018 Plan Limit”). Shares utilized for awards other than stock options and stock appreciation rights will
be counted against the 2018 Plan Limit on a 2.5-to-1 basis. At December 31, 2021, 699,137 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, 2019
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)
Balance, December 31, 2020
Granted from 2018 Plan
Exercised
Forfeited from terminated plan(s)
Forfeited from current plan(s)
614,850
(186,400 )
—
—
8,450
436,900
(196,350 )
—
—
4,800
$
773,236
186,400
(125,894 )
(17,424 )
(8,450 )
807,868
196,350
(21,436 )
(6,875 )
(4,800 )
245,350
(202,700 )
—
—
44,022
971,107
202,700
(91,285 )
(5,197 )
(44,022 )
Balance, December 31, 2021
86,672
1,033,303 $
128
43.886
60.086
33.031
44.163
55.000
49.139
41.740
33.805
38.849
57.513
48.079
57.980
40.532
44.563
52.256
50.528
59
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of
the options vest in increments over the requisite service period. These options typically vest one-fourth at the end
of years two, three, four and five from the grant date. As provided for under FASB ASC 718, the Company has
elected to recognize compensation expense for options with graded vesting schedules on a straight-line basis over
the requisite service period for the entire option grant. In addition, ASC 718 requires companies to recognize
compensation expense based on the estimated number of stock options for which service is expected to be
rendered. The Company’s historical forfeitures of its share-based awards have not been significant. Forfeitures are
estimated annually based on historical information.
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, 2021, 2020 and 2019:
Expected dividends per share
Risk-free interest rate
Expected life of options
Expected volatility
Weighted average fair value of
options granted during year
2021
$
1.44
1.24%
5 years
28.33%
$ 11.56
2020
$ 1.36
0.35%
5 years
29.32%
$ 7.30
2019
$ 1.36
1.59%
5 years
25.15%
$ 11.20
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, 2021:
Options outstanding, January 1, 2021
Granted
Exercised
Forfeited
Options outstanding, December 31, 2021
Options
$
971,107
202,700
(91,285)
(49,219)
1,033,303
Options exercisable, December 31, 2021
421,347
Weighted
Average
Exercise
Price
48.079
57.980
40.532
51.444
50.528
46.804
Weighted
Average
Remaining
Contractual
Term
7.23 years
7.05 years
4.87 years
For the years ended December 31, 2021, 2020 and 2019, options granted were 202,700, 196,350, and 186,400,
respectively. The total intrinsic value (amount by which the fair value of the underlying stock exceeds the
exercise price of an option on exercise date) of options exercised during the years ended December 31, 2021, 2020
and 2019, was $1.4 million, $371,000 and $3.1 million, respectively. Cash received from the exercise of options
for the years ended December 31, 2021, 2020 and 2019, was $3.7 million, $661,000 and $4.2 million,
respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $1.2 million,
$257,000 and $2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. The total
intrinsic value of options outstanding at December 31, 2021, 2020 and 2019, was $9.2 million, $4.5 million and
$11.5 million, respectively. The total intrinsic value of options exercisable at December 31, 2021, 2020 and 2019,
was $5.3 million, $2.9 million and $6.6 million, respectively.
129
60
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following table presents the activity related to nonvested options under all plans for the year ended December
31, 2021.
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Options
Nonvested options, January 1, 2021
Granted
Vested this period
Nonvested options forfeited
607,412
202,700
(156,401)
(41,755)
$
51.370
57.980
53.284
51.056
Nonvested options, December 31, 2021
611,956
53.091
8.981
11.560
9.253
8.952
9.768
At December 31, 2021, there was $5.5 million of total unrecognized compensation cost related to nonvested
options granted under the Company’s plans. This compensation cost is expected to be recognized through 2026,
with the majority of this expense recognized in 2022 and 2023.
The following table further summarizes information about stock options outstanding at December 31, 2021:
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
$23.860 to 29.640
$32.590 to 38.610
$41.300 to 41.740
$50.710 to 52.500
$55.000 to 60.150
41,836
52,956
243,381
172,143
522,987
1.51 years
2.82 years
7.66 years
5.11 years
8.28 years
27.771
$
33.072
41.618
51.677
57.883
41,836
52,956
67,231
140,026
119,298
$27.771
33.072
41.300
51.580
57.071
1,033,303
7.05 years
50.528
421,347
46.804
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 credit
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.
130
61
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 22: Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (AOCI), included in stockholders’ equity, are as
follows:
2021
2020
(In Thousands)
Net unrealized gain on available-for-sale securities
$
11,834
$
30,126
Net unrealized gain on derivatives used for cash flow hedges
Tax effect
30,601
42,435
38,724
68,850
(9,676)
(15,699)
Net-of-tax amount
$
32,759
$
53,151
Amounts reclassified from AOCI and the affected line items in the statements of income during the years ended
December 31, 2021, 2020 and 2019, were as follows:
Amounts Reclassified
from AOCI
2020
(In Thousands)
2021
2019
Unrealized gains/(losses) on
available-for-sale securities
$
—
$
78
$
(62)
Change in fair value of cash
flow hedge
8,123
6,764
—
Affected Line Item in the
Statements of Income
Net realized gains (losses) on available-
for-sale securities (total reclassified
amount before tax)
Amortization of realized gain on
termination of cash flow hedge (total
reclassification amount before tax)
Income taxes
(1,852)
(1,559)
14 Tax (expense) benefit
Total reclassifications out of AOCI $
6,271
$
5,283
$
(48 )
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, 2021) of Total and Tier I
Capital (as defined) to risk-weighted assets (as defined), of Tier I Capital (as defined) to adjusted tangible assets (as
defined) and of Common Equity Tier 1 Capital (as defined) to risk-weighted assets (as defined). Management
believes, as of December 31, 2021, that the Bank met all capital adequacy requirements to which it was then subject.
131
62
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
As of December 31, 2021, 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, 2021, 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, 2021 and 2020, 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.
132
63
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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, 2021
Total capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 745,641 16.3% $ 365,120 8.0%
$ 701,215 15.4% $ 365,048 8.0% $
N/A
456,310
N/A
10.0%
Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 613,544 13.4% $ 273,840 6.0%
$ 644,134 14.1% $ 273,786 6.0% $
N/A
365,048
N/A
8.0%
Tier I leverage capital
Great Southern Bancorp, Inc.
Great Southern Bank
$ 613,544 11.3% $ 217,264 4.0%
$ 644,134 11.9% $ 217,209 4.0% $
N/A
271,511
N/A
5.0%
Common equity Tier I capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2020
Total capital
$ 588,544 12.9% $ 205,380 4.5%
$ 644,134 14.1% $ 205,340 4.5% $
N/A
296,602
N/A
6.5%
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
$ 569,645 12.2% $ 209,887 4.5%
$ 638,304 13.7% $ 209,845 4.5% $
N/A
303,109
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.
133
64
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 25: Summary of Unaudited Quarterly Operating Results
Note 26: Condensed Parent Company Statements
Following is a summary of unaudited quarterly operating results for the years 2021, 2020 and 2019:
2021
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision (credit) for credit losses on loans
Provision (credit) for unfunded commitments
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common shareholders
Earnings per common share – diluted
$ 50,633
6,544
300
(674)
9,736
30,321
5,010
18,868
1.36
$ 50,452
5,768
(1,000)
(307)
9,585
30,191
5,271
20,114
1.46
$ 49,640
4,717
(3,000)
643
9,798
31,339
5,375
20,364
1.49
$ 47,948
3,723
(3,000)
1,277
9,198
35,784
4,081
15,281
1.14
2020
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for credit losses on loans
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 credit losses on loans
Net realized gains (losses) on available-for-sale
securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common shareholders
Earnings per common share – diluted
2019
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 57,358
12,753
1,950
$ 58,723
13,802
1,600
$ 60,187
14,263
1,950
$ 58,726
13,784
650
10
7,450
28,495
3,998
17,612
1.23
—
7,157
28,383
3,720
18,375
1.28
—
8,655
28,725
4,172
19,732
1.38
(72)
7,695
29,535
4,559
17,893
1.24
65
134
The condensed statements of financial condition at December 31, 2021 and 2020, and statements of income,
comprehensive income and cash flows for the years ended December 31, 2021, 2020 and 2019, for the parent
company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Investment in subsidiary bank
Deferred and accrued income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2021
2020
(In Thousands)
$
$
$
721,676
$
810,688
$
$
48,372
672,342
94
868
5,166
25,774
73,984
131
38,314
545,548
32,759
111,250
698,398
157
883
6,776
25,774
148,397
138
35,004
541,448
53,151
$
721,676
$
810,688
66
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Note 25: Summary of Unaudited Quarterly Operating Results
Note 26: Condensed Parent Company Statements
Following is a summary of unaudited quarterly operating results for the years 2021, 2020 and 2019:
The condensed statements of financial condition at December 31, 2021 and 2020, and statements of income,
comprehensive income and cash flows for the years ended December 31, 2021, 2020 and 2019, for the parent
company, Great Southern Bancorp, Inc., were as follows:
Statements of Financial Condition
Assets
Cash
Investment in subsidiary bank
Deferred and accrued income taxes
Prepaid expenses and other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Subordinated debentures issued to capital trust
Subordinated notes
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
December 31,
2021
2020
(In Thousands)
$
$
$
$
48,372
672,342
94
868
111,250
698,398
157
883
721,676
$
810,688
$
5,166
25,774
73,984
131
38,314
545,548
32,759
6,776
25,774
148,397
138
35,004
541,448
53,151
$
721,676
$
810,688
135
66
2021
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 50,633
$ 50,452
$ 49,640
$ 47,948
Interest income
Interest expense
Provision (credit) for credit losses on loans
Provision (credit) for unfunded commitments
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common shareholders
Earnings per common share – diluted
6,544
300
(674)
9,736
30,321
5,010
18,868
1.36
5,768
(1,000)
(307)
9,585
30,191
5,271
20,114
1.46
2020
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 57,474
$ 54,011
$ 53,599
$ 52,619
Interest income
Interest expense
Provision for credit losses on loans
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
Provision for credit losses on loans
Net realized gains (losses) on available-for-sale
Interest income
Interest expense
securities
Noninterest income
Noninterest expense
Provision for income taxes
Net income available to common shareholders
Earnings per common share – diluted
12,536
3,871
—
7,367
30,815
2,751
14,868
1.04
12,753
1,950
10
7,450
28,495
3,998
17,612
1.23
10,556
6,000
78
8,261
29,349
3,164
13,203
0.93
13,802
1,600
—
7,157
28,383
3,720
18,375
1.28
2019
Three Months Ended
March 31
June 30
September 30 December 31
(In Thousands, Except Per Share Data)
$ 57,358
$ 58,723
$ 58,726
4,717
(3,000)
643
9,798
31,339
5,375
20,364
1.49
9,431
4,500
—
9,466
31,988
3,692
13,454
0.96
$ 60,187
14,263
1,950
—
8,655
28,725
4,172
19,732
1.38
3,723
(3,000)
1,277
9,198
35,784
4,081
15,281
1.14
8,042
1,500
—
9,956
31,073
4,172
17,788
1.28
13,784
650
(72)
7,695
29,535
4,559
17,893
1.24
65
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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
subsidiaries
Net income
2021
2020
(In Thousands)
2019
74,000
—
—
74,000
2,121
7,613
9,734
$
40,000
5
—
40,005
2,197
7,459
9,656
$
32,000
—
(23)
31,977
2,044
5,397
7,441
64,266
(1,850)
30,349
(1,800)
24,536
(1,381)
66,116
32,149
25,917
8,511
27,164
47,695
$
74,627
$
59,313
$
73,612
136
67
2021
2020
(In Thousands)
2019
$
74,627
$
59,313
$
73,612
(27,164)
1,153
(47,695)
33,880
27,819
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
Redemption of subordinated notes
Dividends paid
Stock options exercised
Net cash provided by (used in) financing activities
Increase (Decrease) in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
(8,511)
1,225
587
—
(1,661)
15
63
66,345
—
—
(75,000)
(39,123)
—
(18,800)
3,700
(129,223)
(62,878)
111,250
$
$
608
—
(15)
31
(46)
—
—
(22,104)
73,513
—
(33,426)
661
18,644
52,524
58,726
48,372
$
111,250
$
$
9,103
$
7,349
5,424
922
434
23
(3)
226
300
2
2
(849)
—
—
(29,052)
4,158
(25,743)
2,078
56,648
58,726
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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
Redemption of subordinated notes
Dividends paid
Stock options exercised
Net cash provided by (used in) financing activities
Increase (Decrease) in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
2021
2020
(In Thousands)
2019
$
74,627
$
59,313
$
73,612
(8,511)
1,225
587
—
15
(1,661)
63
66,345
—
—
(39,123)
—
(75,000)
(18,800)
3,700
(129,223)
(62,878)
111,250
(27,164)
1,153
608
—
(15)
31
(46)
33,880
—
—
(22,104)
73,513
—
(33,426)
661
18,644
52,524
58,726
$
$
48,372
$
111,250
9,103
$
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
137
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Statements of Comprehensive Income
2021
2020
(In Thousands)
2019
Net Income
$ 74,627
$ 59,313
$
73,612
Comprehensive income (loss) of subsidiaries
(20,392)
20,905
22,619
Comprehensive Income
$
54,235
$
80,218
$
96,231
Note 27: Subsequent Event – Interest Rate Swap
In February 2022, 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 $300
million with an effective date of March 1, 2022 and a termination date of March 1, 2024. Under the terms of the
swap, the Company will receive a fixed rate of interest of 1.6725% and will pay a floating rate of interest equal to
one-month USD-LIBOR. The floating rate will be reset monthly and net settlements of interest due to/from the
counterparty will also occur monthly. The initial floating rate of interest was set at 0.24143%. Therefore, in the
near term, the Company will receive net interest settlements which will be recorded as loan interest income, to the
extent that the fixed rate of interest continues to exceed one-month USD-LIBOR. If USD-LIBOR exceeds the
fixed rate of interest in future periods, the Company will be required to pay net settlements to the counterparty and
will record those net payments as a reduction of interest income on loans.
138
69