Great Southern Bancorp, Inc. (NASDAQ:GSBC) Q3 2019 Results Earnings Conference Call October 17, 2019 3:00 PM ET Company Participants Kelly Polonus - Investor Relations Joseph Turner - President and Chief Executive Officer Rex Copeland - Senior Vice President and Chief Financial Officer Conference Call Participants Michael Perito - KBW Andrew Liesch - Sandler O'Neil Operator Ladies and gentlemen, thank you for standing by. And welcome to the Great Southern Bancorp, Inc. Third Quarter 2019 Earnings Conference ...

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the Quarterly Period Ended June 30, 2019 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Commission File Number 0-18082 GREAT SOUTHERN BANCORP, INC. (Exact name of registrant as specified in its charter) Maryland 43-1524856 (State or other jurisdiction of incorporation or organization) 1451 E. Battlefield, Springfield, Missouri 65804 (Address of principal executive offices) (Zip Code) (41 ...

[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) - Registrant is an **Accelerated Filer**[3](index=3&type=chunk) - Common Stock, par value **$0.01 per share**, trading symbol **GSBC** on The NASDAQ Stock Market LLC[4](index=4&type=chunk) - **14,196,383 shares** of common stock outstanding at May 6, 2019[4](index=4&type=chunk) [PART I FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS.](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This section presents the unaudited interim consolidated financial statements for Great Southern Bancorp, Inc. as of March 31, 2019 [Consolidated Statements of Financial Condition](index=2&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20FINANCIAL%20CONDITION) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | **Assets** | | | | Cash and cash equivalents | $206,090 | $202,742 | | Available-for-sale securities | $277,750 | $243,968 | | Loans receivable, net | $4,050,336 | $3,989,001 | | Total Assets | $4,778,220 | $4,676,200 | | **Liabilities** | | | | Deposits | $3,956,091 | $3,725,007 | | Total Liabilities | $4,234,585 | $4,144,223 | | **Stockholders' Equity** | | | | Total Stockholders' Equity | $543,635 | $531,977 | [Consolidated Statements of Income](index=3&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Total Interest Income | $57,358 | $46,882 | | Total Interest Expense | $12,753 | $7,444 | | Net Interest Income | $44,605 | $39,438 | | Provision for Loan Losses | $1,950 | $1,950 | | Total Non-Interest Income | $7,450 | $6,935 | | Total Non-Interest Expense | $28,495 | $28,312 | | Income Before Income Taxes | $21,610 | $16,111 | | Provision for Income Taxes | $3,998 | $2,645 | | Net Income | $17,612 | $13,466 | | Basic Earnings Per Common Share | $1.24 | $0.95 | | Diluted Earnings Per Common Share | $1.23 | $0.95 | | Dividends Declared Per Common Share | $1.07 | $0.28 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Net Income | $17,612 | $13,466 | | Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes | $2,977 | $(1,881) | | Change in fair value of cash flow hedge, net of taxes | $5,800 | — | | Comprehensive Income | $26,381 | $11,585 | [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) | Metric | March 31, 2019 (in thousands) | January 1, 2019 (in thousands) | |:---|:---|:---| | Common Stock | $142 | $142 | | Additional Paid-in Capital | $30,916 | $30,121 | | Retained Earnings | $494,181 | $492,087 | | Accumulated Other Comprehensive Income (Loss) | $18,396 | $9,627 | | Total Stockholders' Equity | $543,635 | $531,977 | - Net income for the three months ended March 31, 2019, was **$17.6 million**[13](index=13&type=chunk) - Common dividends declared were **$15.1 million** (**$1.07 per share**) for the three months ended March 31, 2019[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Net cash provided by operating activities | $29,760 | $29,915 | | Net cash used in investing activities | $(88,205) | $(36,964) | | Net cash provided by (used in) financing activities | $61,793 | $(15,222) | | Increases (decreases) in cash and cash equivalents | $3,348 | $(22,271) | | Cash and cash equivalents, end of period | $206,090 | $219,982 | [Notes to Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Note 1: Basis of Presentation](index=7&type=section&id=Note%201:%20Basis%20of%20Presentation) - Unaudited interim consolidated financial statements prepared in accordance with **GAAP** for interim financial information[17](index=17&type=chunk) - Operating results for the three months ended March 31, 2019, are not necessarily indicative of full-year results[17](index=17&type=chunk) - Statements should be read in conjunction with the Company's **Annual Report on Form 10-K for 2018**[18](index=18&type=chunk) [Note 2: Nature of Operations and Operating Segments](index=7&type=section&id=Note%202:%20Nature%20of%20Operations%20and%20Operating%20Segments) - Company operates as a **one-bank holding company**, primarily through Great Southern Bank[19](index=19&type=chunk) - Bank provides financial services across **seven states** and originates commercial loans from offices in **six major cities**[19](index=19&type=chunk) - The banking operation is the Company's **only reportable segment**[20](index=20&type=chunk) [Note 3: Recent Accounting Pronouncements](index=7&type=section&id=Note%203:%20Recent%20Accounting%20Pronouncements) - Adopted **ASU No. 2016-02, Leases (Topic 842)**, on January 1, 2019, recognizing a **$9.5 million** lease liability and right-of-use asset with no material income statement impact[21](index=21&type=chunk) - Evaluating **ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326)**, effective March 31, 2020, expecting a one-time cumulative effect adjustment to the allowance for loan losses[23](index=23&type=chunk) - Evaluating **ASU No. 2017-04, Goodwill Impairment (Topic 350)**, effective for fiscal years beginning after December 15, 2019, with no material impact expected[24](index=24&type=chunk) [Note 4: Earnings Per Share](index=9&type=section&id=Note%204:%20Earnings%20Per%20Share) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---| | Basic Earnings Per Common Share | $1.24 | $0.95 | | Diluted Earnings Per Common Share | $1.23 | $0.95 | | Net income and net income available to common stockholders (in thousands) | $17,612 | $13,466 | - Options to purchase **413,719 shares** (2019) and **252,911 shares** (2018) were excluded from diluted EPS due to exercise prices exceeding average market prices[27](index=27&type=chunk) [Note 5: Investment Securities](index=9&type=section&id=Note%205:%20Investment%20Securities) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | **Available-for-Sale Securities (Fair Value)** | | | | Agency mortgage-backed securities | $180,196 | $153,258 | | Agency collateralized mortgage obligations | $53,006 | $39,260 | | States and political subdivisions | $44,548 | $51,450 | | Total Available-for-Sale Securities | $277,750 | $243,968 | | Gross Unrealized Gains | $5,772 | $2,950 | | Gross Unrealized Losses | $1,561 | $2,585 | - Total fair value of investments with unrealized losses was approximately **$67.1 million** (**24.2% of portfolio**) at March 31, 2019, a decrease from **$95.7 million** (**39.2%**) at December 31, 2018[30](index=30&type=chunk) - No securities were determined to have **other-than-temporary impairment** during the three months ended March 31, 2019 and 2018[36](index=36&type=chunk) [Note 6: Loans and Allowance for Loan Losses](index=12&type=section&id=Note%206:%20Loans%20and%20Allowance%20for%20Loan%20Losses) | Loan Class | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Commercial construction | $1,328,853 | $1,417,166 | | Commercial real estate | $1,388,678 | $1,371,435 | | Other residential | $864,990 | $784,894 | | Total Loans Receivable (gross) | $4,975,335 | $4,993,251 | | Allowance for loan losses | $(38,651) | $(38,409) | | Loans receivable, net | $4,050,336 | $3,989,001 | | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Allowance for loan losses, beginning balance | $38,409 | $36,492 | | Provision (benefit) charged to expense | $1,950 | $1,950 | | Losses charged off | $(2,766) | $(3,640) | | Recoveries | $1,058 | $1,508 | | Allowance for loan losses, ending balance | $38,651 | $36,310 | | Nonaccruing Loans (excluding FDIC-assisted) | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Total Nonaccruing Loans | $4,637 | $6,300 | - Troubled debt restructurings totaled **$5.3 million** at March 31, 2019, a decrease from **$6.9 million** at December 31, 2018[52](index=52&type=chunk) [Note 7: FDIC-Acquired Loans](index=21&type=section&id=Note%207:%20FDIC-Acquired%20Loans) - All loss sharing agreements for **FDIC-assisted acquisitions** were terminated by April 26, 2016, or June 9, 2017[60](index=60&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk) - Post-termination, all recoveries, gains, losses, and expenses related to these assets are recognized entirely by **Great Southern Bank**[68](index=68&type=chunk) | Impact on Financial Results | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Impact on net interest income | $1,512 | $1,157 | | Impact on net interest margin (in basis points) | 13 bps | 12 bps | | Net impact to pre-tax income | $1,512 | $1,157 | | Net impact net of taxes | $1,167 | $898 | | Impact to diluted earnings per share | $0.08 | $0.06 | [Note 8: Other Real Estate Owned and Repossessions](index=24&type=section&id=Note%208:%20Other%20Real%20Estate%20Owned%20and%20Repossessions) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Foreclosed assets held for sale and repossessions | $5,694 | $5,480 | | Foreclosed assets acquired through FDIC-assisted transactions, net of discounts | $1,563 | $1,401 | | Other real estate owned not acquired through foreclosure | $1,515 | $1,559 | | Total Other real estate owned and repossessions | $8,772 | $8,440 | | Expenses on OREO and Repossessions | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---| | Net gains on sales | $(166) | $(472) | | Valuation write-downs | $247 | $616 | | Operating expenses, net of rental income | $539 | $997 | | Total Expense | $620 | $1,141 | [Note 9: Premises and Equipment](index=25&type=section&id=Note%209:%20Premises%20and%20Equipment) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Land | $40,571 | $40,508 | | Buildings and improvements | $95,253 | $95,039 | | Furniture, fixtures and equipment | $54,805 | $54,327 | | Operating leases right of use asset | $9,323 | — | | Less accumulated depreciation | $(58,198) | $(57,450) | | Total Premises and equipment, net | $141,754 | $132,424 | - Adoption of **ASU 2016-02** on January 1, 2019, resulted in recognizing a **$9.5 million** right-of-use asset and corresponding lease liability[80](index=80&type=chunk) - The Company elected the **"package of practical expedients"** and the **short-term lease recognition exemption** for leases under twelve months[82](index=82&type=chunk)[83](index=83&type=chunk) [Note 10: Deposits](index=26&type=section&id=Note%2010:%20Deposits) | Deposit Type | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Time Deposits (Total) | $1,754,851 | $1,591,411 | | Non-interest-bearing demand deposits | $668,829 | $661,061 | | Interest-bearing demand and savings deposits | $1,532,411 | $1,472,535 | | Total Deposits | $3,956,091 | $3,725,007 | - Time deposits with rates between **2.00% - 2.99%** significantly increased from **$857.97 million** to **$1,176.12 million**[87](index=87&type=chunk) [Note 11: Advances from Federal Home Loan Bank](index=28&type=section&id=Note%2011:%20Advances%20from%20Federal%20Home%20Loan%20Bank) - No outstanding **FHLBank advances** at March 31, 2019, and December 31, 2018[89](index=89&type=chunk) [Note 12: Securities Sold Under Reverse Repurchase Agreements and Short-Term Borrowings](index=28&type=section&id=Note%2012:%20Securities%20Sold%20Under%20Reverse%20Repurchase%20Agreements%20and%20Short-Term%20Borrowings) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Short-term borrowings and other interest-bearing liabilities | $22,219 | $192,725 | | Securities sold under reverse repurchase agreements with customers | $118,618 | $105,253 | - Overnight borrowings from the **Federal Home Loan Bank** decreased from **$178.0 million** at December 31, 2018, to **$0** at March 31, 2019[90](index=90&type=chunk) [Note 13: Subordinated Notes](index=28&type=section&id=Note%2013:%20Subordinated%20Notes) - **$75.0 million subordinated notes** due August 15, 2026, carry a fixed interest rate of **5.25%** until August 15, 2021, then float at **three-month LIBOR + 4.087%**[93](index=93&type=chunk) - Debt issuance costs of approximately **$1.5 million** are amortized over five years, resulting in an imputed interest rate of **5.83%**[93](index=93&type=chunk) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Subordinated notes (gross) | $75,000 | $75,000 | | Less: unamortized debt issuance costs | $1,049 | $1,158 | | Subordinated notes (net) | $73,951 | $73,842 | [Note 14: Income Taxes](index=29&type=section&id=Note%2014:%20Income%20Taxes) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---| | Tax at statutory rate | 21.0% | 21.0% | | Nontaxable interest and dividends | (0.5)% | (1.1)% | | Tax credits | (4.5)% | (4.5)% | | State taxes | 1.4% | 1.2% | | Other | 1.1% | (0.2)% | | Effective tax rate | 18.5% | 16.4% | - The Company does not expect significant adjustments from ongoing **IRS examinations** for 2006-2007 or **State of Missouri tax examinations** for 2014-2015[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 15: Disclosures About Fair Value of Financial Instruments](index=30&type=section&id=Note%2015:%20Disclosures%20About%20Fair%20Value%20of%20Financial%20Instruments) - Fair value measurements are categorized into **Level 1** (quoted prices in active markets), **Level 2** (other observable inputs), and **Level 3** (significant unobservable inputs)[103](index=103&type=chunk) | Recurring Fair Value Measurements (in thousands) | March 31, 2019 (Level 2) | December 31, 2018 (Level 2) | |:---|:---|:---| | Agency mortgage-backed securities | $180,196 | $153,258 | | Agency collateralized mortgage obligations | $53,006 | $39,260 | | States and political subdivisions | $44,548 | $51,450 | | Interest rate derivative asset | $20,338 | $12,800 | | Interest rate derivative liability | $(768) | $(716) | | Nonrecurring Fair Value Measurements (in thousands) | March 31, 2019 (Level 3) | December 31, 2018 (Level 3) | |:---|:---|:---| | Impaired loans | $1,212 | $2,805 | | Foreclosed assets held for sale | $343 | $1,776 | [Note 16: Derivatives and Hedging Activities](index=34&type=section&id=Note%2016:%20Derivatives%20and%20Hedging%20Activities) - Company uses **interest rate swaps** for non-designated hedges (customer service, matched book) and designated cash flow hedges for interest rate risk management[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) - A **$400 million notional interest rate swap** (fixed **3.018%** receive, one-month USD-LIBOR pay) was initiated in October 2018 as a cash flow hedge for floating rate loans[124](index=124&type=chunk) | Derivative Fair Value (in thousands) | March 31, 2019 | December 31, 2018 | |:---|:---|:---| | Derivatives designated as hedging instruments (Interest rate swap asset) | $19,618 | $12,106 | | Derivatives not designated as hedging instruments (Asset Derivatives) | $720 | $694 | | Derivatives not designated as hedging instruments (Liability Derivatives) | $768 | $716 | [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=37&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the Company's financial condition and operational results for the three months ended March 31, 2019, covering key policies, economic factors, and performance metrics [Forward-looking Statements](index=37&type=section&id=Forward-looking%20Statements) - Identifies forward-looking statements using specific phrases such as **"will likely result"** and **"are expected to"**[129](index=129&type=chunk) - Risks and uncertainties include **economic conditions**, **interest rate fluctuations**, **lending risks**, **regulatory changes**, and **competition**[129](index=129&type=chunk) - The Company does not undertake to publicly release revisions to forward-looking statements[130](index=130&type=chunk) [Critical Accounting Policies, Judgments and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies,%20Judgments%20and%20Estimates) [Allowance for Loan Losses and Valuation of Foreclosed Assets](index=38&type=section&id=Allowance%20for%20Loan%20Losses%20and%20Valuation%20of%20Foreclosed%20Assets) - Determination of **allowance for loan losses** involves significant judgment and estimates, including expected default probabilities, loss severity, and future cash flows[133](index=133&type=chunk) - Adoption of **ASU No. 2016-13 (Credit Losses)** in Q1 2020 will require a one-time cumulative effect adjustment to the allowance for loan losses, with magnitude yet to be determined[136](index=136&type=chunk) - Valuation of **foreclosed assets** involves high judgment, with carrying values based on management's best estimate of sales proceeds, which may differ from actual outcomes[137](index=137&type=chunk) [Carrying Value of Loans Acquired in FDIC-assisted Transactions](index=38&type=section&id=Carrying%20Value%20of%20Loans%20Acquired%20in%20FDIC-assisted%20Transactions) - Carrying value of **FDIC-acquired loans** reflects management's ongoing estimates of amounts to be realized, requiring significant judgment in monitoring cash flows, credit losses, and accretable yield[138](index=138&type=chunk)[140](index=140&type=chunk) - All **loss sharing agreements** with the FDIC have been terminated, eliminating the indemnification asset[138](index=138&type=chunk) [Goodwill and Intangible Assets](index=39&type=section&id=Goodwill%20and%20Intangible%20Assets) - **Goodwill** and indefinite-lived intangible assets are tested for impairment at least annually; the Company had one reporting unit (the Bank) with **$5.4 million** goodwill at March 31, 2019[141](index=141&type=chunk) - Amortizable intangible assets, primarily **core deposit intangibles**, totaled **$3.6 million** at March 31, 2019, amortized over seven years[141](index=141&type=chunk) | Metric (in thousands) | March 31, 2019 | December 31, 2018 | |:---|:---|:---| | Goodwill – Branch acquisitions | $5,396 | $5,396 | | Deposit intangibles | $3,567 | $3,892 | | Total Goodwill and other intangible assets | $8,963 | $9,288 | [Current Economic Conditions](index=39&type=section&id=Current%20Economic%20Conditions) - National unemployment rate remained steady at **3.8%** in March 2019, a decrease from **4.1%** in March 2018[146](index=146&type=chunk) - New single-family home sales increased **4.5%** in March 2019 (seasonally adjusted annual rate of **692,000 units**) compared to February 2019, and **3%** from March 2018[147](index=147&type=chunk) - Existing home sales decreased **5%** in March 2019 to a seasonally adjusted rate of **5.21 million**, while the national median existing home price rose **3.8%** year-over-year to **$259,400**[148](index=148&type=chunk)[149](index=149&type=chunk) - Multi-family, suburban office, retail, and industrial commercial real estate sectors are largely in **expansion phases** across the Company's market areas, with some exceptions of hyper-supply or recovery[150](index=150&type=chunk)[151](index=151&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) [General](index=41&type=section&id=General%20(Overview%20of%20Financial%20Performance)) - Total assets increased **$102.0 million** (**2.2%**) to **$4.78 billion** at March 31, 2019[158](index=158&type=chunk) - Net outstanding loans increased **$61.3 million** (**1.5%**) to **$4.05 billion**, driven by commercial construction, commercial real estate, and other residential loans, partially offset by decreases in consumer auto loans[159](index=159&type=chunk) - Total deposit balances increased **$231.1 million** (**6.2%**) to **$3.96 billion**, with increases in transaction accounts and retail certificates of deposit[168](index=168&type=chunk) - Interest rate risk models indicate that rising interest rates are expected to have a **positive impact** on net interest income, while declining rates are expected to have a **negative impact**, with greater effects in the 12-36 month horizon[175](index=175&type=chunk)[280](index=280&type=chunk) [Effect of Federal Laws and Regulations](index=44&type=section&id=Effect%20of%20Federal%20Laws%20and%20Regulations) - **Dodd-Frank Act** introduced significant changes, including the **Consumer Financial Protection Bureau** and new capital rules[178](index=178&type=chunk) - **EGRRCP Act** modifies certain Dodd-Frank rules, expanding qualified mortgages and simplifying capital rules for institutions under **$10 billion** by establishing a **"Community Bank Leverage Ratio" (8-10%)**[185](index=185&type=chunk)[186](index=186&type=chunk) - The **capital conservation buffer requirement of 2.5%** of risk-weighted assets became fully implemented on January 1, 2019[183](index=183&type=chunk) [Business Initiatives](index=46&type=section&id=Business%20Initiatives) - Upgraded **online account opening platform** in Q1 2019 for faster customer experience[189](index=189&type=chunk) - Ceased **indirect automobile financing unit operations** effective March 31, 2019, due to market forces, with approximately **$180 million** in indirect loans to be serviced[190](index=190&type=chunk) - Consolidated Fayetteville, Ark., banking center into Rogers, Ark., in April 2019, now operating **one banking center in Arkansas**[191](index=191&type=chunk) [Comparison of Financial Condition at March 31, 2019 and December 31, 2018](index=46&type=section&id=Comparison%20of%20Financial%20Condition%20at%20March%2031,%202019%20and%20December%2031,%202018) [Cash and cash equivalents](index=46&type=section&id=Cash%20and%20cash%20equivalents_FC) - Cash and cash equivalents increased by **$3.4 million** (**1.7%**) to **$206.1 million** at March 31, 2019[192](index=192&type=chunk) [Available-for-sale Securities](index=46&type=section&id=Available-for-sale%20Securities_FC) - Available-for-sale securities increased by **$33.8 million** (**13.8%**) to **$277.8 million**, primarily due to purchases of FNMA and GNMA fixed-rate multi-family mortgage-backed securities[193](index=193&type=chunk) [Net loans](index=46&type=section&id=Net%20loans_FC) - Net loans increased by **$61.3 million** to **$4.05 billion**[194](index=194&type=chunk) - Increases were primarily in commercial construction, commercial real estate, other residential, and one- to four-family residential mortgage loans, offset by **$24 million** reduction in consumer auto loans and **$7 million** in FDIC-acquired loan portfolios[194](index=194&type=chunk) [Other real estate owned and repossessions](index=47&type=section&id=Other%20real%20estate%20owned%20and%20repossessions_FC) - Other real estate owned and repossessions increased by **$332 thousand** (**3.9%**) to **$8.8 million**[196](index=196&type=chunk) [Premises and equipment](index=47&type=section&id=Premises%20and%20equipment_FC) - Premises and equipment increased by **$9.4 million** (**7.0%**) to **$141.8 million**, primarily due to recording a **$9.3 million** right-of-use asset from new lease accounting standards[197](index=197&type=chunk) [Total liabilities](index=47&type=section&id=Total%20liabilities_FC) - Total liabilities increased by **$90.4 million** to **$4.23 billion**[198](index=198&type=chunk) [Total deposits](index=47&type=section&id=Total%20deposits_FC) - Total deposits increased by **$231.1 million** (**6.2%**) to **$3.96 billion**, with transaction accounts up **$67.6 million** and retail certificates of deposit up **$89.6 million**[199](index=199&type=chunk) - Brokered deposits, including CDARS, increased by **$73.9 million** to **$400.8 million**[199](index=199&type=chunk) [FHLBank advances](index=47&type=section&id=FHLBank%20advances_FC) - **FHLBank advances** remained at **$0** at both March 31, 2019, and December 31, 2018[200](index=200&type=chunk) [Short term borrowings and other interest-bearing liabilities](index=47&type=section&id=Short%20term%20borrowings%20and%20other%20interest-bearing%20liabilities_FC) - Short-term borrowings and other interest-bearing liabilities decreased by **$170.5 million** to **$22.2 million**, primarily due to the reduction of **$178.0 million** in overnight FHLBank borrowings[201](index=201&type=chunk) [Securities sold under reverse repurchase agreements with customers](index=47&type=section&id=Securities%20sold%20under%20reverse%20repurchase%20agreements%20with%20customers_FC) - Securities sold under reverse repurchase agreements with customers increased by **$13.3 million** to **$118.6 million**[202](index=202&type=chunk) [Total stockholders' equity](index=47&type=section&id=Total%20stockholders'%20equity_FC) - Total stockholders' equity increased by **$11.6 million** to **$543.6 million**[203](index=203&type=chunk) - Increase driven by **$17.6 million** net income, **$8.8 million** increase in accumulated other comprehensive income, and **$1.3 million** from stock option exercises, partially offset by **$15.1 million** in dividends and **$849 thousand** in stock repurchases[203](index=203&type=chunk) [Results of Operations and Comparison for the Three Months Ended March 31, 2019 and 2018](index=47&type=section&id=Results%20of%20Operations%20and%20Comparison%20for%20the%20Three%20Months%20Ended%20March%2031,%202019%20and%202018) [General](index=47&type=section&id=General_Net_Income_Overview) - Net income increased by **$4.1 million** (**30.8%**) to **$17.6 million** for the three months ended March 31, 2019, compared to **$13.5 million** in the prior year[204](index=204&type=chunk) - This increase was primarily due to a **$5.2 million** (**13.1%**) increase in net interest income and a **$515 thousand** (**7.4%**) increase in non-interest income, partially offset by higher income tax expense and non-interest expense[204](index=204&type=chunk) [Total Interest Income](index=48&type=section&id=Total%20Interest%20Income_RO) - Total interest income increased by **$10.5 million** (**22.3%**) to **$57.36 million** for the three months ended March 31, 2019[205](index=205&type=chunk) - Increase was due to a **$9.4 million** increase in interest income on loans and a **$1.1 million** increase in interest income on investments and other interest-earning assets[205](index=205&type=chunk) [Interest Income – Loans](index=48&type=section&id=Interest%20Income%20%E2%80%93%20Loans_RO) - Interest income on loans increased by **$5.7 million** due to higher average interest rates (yield on loans increased from **4.84% to 5.42%**)[206](index=206&type=chunk) - Interest income on loans increased by **$3.7 million** due to higher average loan balances (from **$3.78 billion to $4.08 billion**)[206](index=206&type=chunk) - Adjustments from **FDIC-acquired loan pools** increased interest income by **$1.5 million** in Q1 2019 (vs. **$1.2 million** in Q1 2018)[207](index=207&type=chunk) [Interest Income – Investments and Other Interest-earning Assets](index=48&type=section&id=Interest%20Income%20%E2%80%93%20Investments%20and%20Other%20Interest-earning%20Assets_RO) - Interest income on investments increased by **$716 thousand** due to higher average balances (**$278.5 million vs. $187.0 million**) and **$226 thousand** due to higher average interest rates (**3.28% vs. 2.84%**)[210](index=210&type=chunk) - Interest income on other interest-earning assets increased by **$161 thousand** due to higher average interest rates (**2.37% vs. 1.67%**)[211](index=211&type=chunk) [Total Interest Expense](index=49&type=section&id=Total%20Interest%20Expense_RO) - Total interest expense increased by **$5.3 million** (**71.3%**) to **$12.75 million**[212](index=212&type=chunk) - Primary drivers were increases in interest expense on deposits (**$4.9 million**), short-term borrowings and repurchase agreements (**$894 thousand**), subordinated debentures (**$65 thousand**), and subordinated notes (**$69 thousand**), partially offset by a decrease in FHLBank advances (**$605 thousand**)[212](index=212&type=chunk) [Interest Expense – Deposits](index=49&type=section&id=Interest%20Expense%20%E2%80%93%20Deposits_RO) - Interest expense on demand deposits increased by **$525 thousand** due to higher average rates (**0.49% vs. 0.34%**), partially offset by a **$72 thousand** decrease due to lower average balances[213](index=213&type=chunk) - Interest expense on time deposits increased by **$3.1 million** due to higher average rates (**2.11% vs. 1.30%**) and **$1.3 million** due to increased average balances (**$1.67 billion vs. $1.33 billion**)[214](index=214&type=chunk) [Interest Expense – FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures Issued to Capital Trusts and Subordinated Notes](index=49&type=section&id=Interest%20Expense%20%E2%80%93%20FHLBank%20Advances,%20Short-term%20Borrowings%20and%20Repurchase%20Agreements,%20Subordinated%20Debentures%20Issued%20to%20Capital%20Trusts%20and%20Subordinated%20Notes) - Interest expense on FHLBank advances decreased by **$605 thousand** due to a decrease in average balances (from **$145.5 million to $0**)[215](index=215&type=chunk) - Interest expense on short-term borrowings and repurchase agreements increased by **$787 thousand** due to higher average rates (**1.45% vs. 0.11%**) and **$107 thousand** due to increased average balances (**$258.2 million vs. $99.5 million**)[216](index=216&type=chunk) - Interest expense on subordinated debentures increased by **$65 thousand** due to higher average interest rates (**4.20% vs. 3.18%**)[218](index=218&type=chunk) - Interest expense on subordinated notes increased by **$66 thousand** due to deferred issuance cost amortization[219](index=219&type=chunk) [Net Interest Income](index=50&type=section&id=Net%20Interest%20Income_RO) - Net interest income increased by **$5.2 million** to **$44.6 million**[220](index=220&type=chunk) - Net interest margin increased by **13 basis points** to **4.06%**[220](index=220&type=chunk) - The overall average interest rate spread increased **one basis point** to **3.75%**, with a **55 basis point** increase in asset yield partially offset by a **54 basis point** increase in liability rates[221](index=221&type=chunk) [Provision for Loan Losses and Allowance for Loan Losses](index=50&type=section&id=Provision%20for%20Loan%20Losses%20and%20Allowance%20for%20Loan%20Losses_RO) - Provision for loan losses remained unchanged at **$2.0 million** for both Q1 2019 and Q1 2018[226](index=226&type=chunk) - Total net charge-offs were **$1.7 million** in Q1 2019 (vs. **$2.1 million** in Q1 2018), with **$934 thousand** in consumer auto and **$371 thousand** in one commercial loan[226](index=226&type=chunk) - The allowance for loan losses as a percentage of total loans (excluding FDIC-acquired) was **0.97%** at March 31, 2019 (vs. **0.98%** at December 31, 2018)[228](index=228&type=chunk) [Non-performing Assets](index=51&type=section&id=Non-performing%20Assets_RO) - Non-performing assets (excluding FDIC-assisted) decreased by **$1.5 million** to **$10.3 million** at March 31, 2019 (**0.22% of total assets**)[232](index=232&type=chunk) - Non-performing loans decreased by **$1.7 million** to **$4.6 million**, while foreclosed assets increased by **$214 thousand** to **$5.7 million**[233](index=233&type=chunk) - Potential problem loans increased by **$1.8 million** (**54.7%**) to **$5.1 million**[235](index=235&type=chunk) [Non-interest Income](index=54&type=section&id=Non-interest%20Income_RO) - Non-interest income increased by **$515 thousand** to **$7.5 million**[241](index=241&type=chunk) - Other income increased by **$1.0 million**, primarily due to **$677 thousand** from sales/recoveries of FDIC-assisted receivables/assets and **$293 thousand** from new debit card contracts[241](index=241&type=chunk) - Service charges and ATM fees decreased by **$286 thousand** due to lower overdraft and insufficient funds fees[242](index=242&type=chunk) - Net gains on loan sales decreased by **$214 thousand** due to fewer fixed-rate loan originations sold in the secondary market[243](index=243&type=chunk) [Non-interest Expense](index=54&type=section&id=Non-interest%20Expense_RO) - Non-interest expense increased by **$183 thousand** to **$28.5 million**[244](index=244&type=chunk) - Salaries and employee benefits increased by **$1.0 million** due to staffing additions in new loan production offices and annual compensation increases[244](index=244&type=chunk) - Expense on other real estate and repossessions decreased by **$521 thousand** due to lower valuation write-downs and consumer repossession expenses[245](index=245&type=chunk) - Partnership tax credit investment amortization decreased by **$211 thousand** as the tax credit period for certain investments ended in 2018[246](index=246&type=chunk) - Efficiency ratio improved to **54.74%** (from **61.05%** in Q1 2018), primarily due to increased net interest income[247](index=247&type=chunk) [Provision for Income Taxes](index=55&type=section&id=Provision%20for%20Income%20Taxes_RO) - Effective tax rate was **18.5%** in Q1 2019 (vs. **16.4%** in Q1 2018), lower than the **21% statutory rate** due to investment tax credits and tax-exempt investments/loans[249](index=249&type=chunk) - Company expects its effective tax rate to be approximately **17.5% to 19.0%** in future years[248](index=248&type=chunk) [Average Balances, Interest Rates and Yields](index=55&type=section&id=Average%20Balances,%20Interest%20Rates%20and%20Yields_RO) | Metric | Q1 2019 Average Balance (in thousands) | Q1 2019 Yield/Rate | Q1 2018 Average Balance (in thousands) | Q1 2018 Yield/Rate | |:---|:---|:---|:---|:---| | Total loans receivable | $4,079,624 | 5.42% | $3,784,181 | 4.84% | | Total investment securities | $278,536 | 3.28% | $187,007 | 2.84% | | Total interest-earning assets | $4,452,534 | 5.22% | $4,070,268 | 4.67% | | Total deposits | $3,145,636 | 1.35% | $2,896,084 | 0.78% | | Total interest-bearing liabilities | $3,503,493 | 1.47% | $3,240,577 | 0.93% | | Net interest income | | $44,605 | | $39,438 | | Net interest margin | | 4.06% | | 3.93% | [Rate/Volume Analysis](index=57&type=section&id=Rate/Volume%20Analysis_RO) | Change in Interest Income/Expense (in thousands) | Due to Rate | Due to Volume | Total Increase (Decrease) | |:---|:---|:---|:---| | **Interest-earning assets:** | | | | | Loans receivable | $5,698 | $3,693 | $9,391 | | Investment securities | $226 | $716 | $942 | | Other interest-earning assets | $161 | $(18) | $143 | | Total interest-earning assets | $6,085 | $4,391 | $10,476 | | **Interest-bearing liabilities:** | | | | | Total deposits | $3,664 | $1,222 | $4,886 | | Short-term borrowings | $787 | $107 | $894 | | Subordinated debentures | $65 | $0 | $65 | | Subordinated notes | $66 | $3 | $69 | | FHLBank advances | $0 | $(605) | $(605) | | Total interest-bearing liabilities | $4,582 | $727 | $5,309 | | Net interest income | $1,503 | $3,664 | $5,167 | [Liquidity](index=57&type=section&id=Liquidity) - Primary sources of funds include **customer deposits**, **FHLBank advances**, other borrowings, loan repayments, unpledged securities, and proceeds from asset sales[257](index=257&type=chunk) | Available Secured Lines and On-Balance Sheet Liquidity (March 31, 2019) | Amount (in millions) | |:---|:---| | Federal Home Loan Bank line | $981.9 | | Federal Reserve Bank line | $428.5 | | Cash and cash equivalents | $206.1 | | Unpledged securities | $114.8 | - Operating activities provided **$29.8 million** in cash, investing activities used **$88.2 million**, and financing activities provided **$61.8 million** for Q1 2019[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) [Capital Resources](index=59&type=section&id=Capital%20Resources) [Dividends](index=60&type=section&id=Dividends_CR) - Declared common stock cash dividends of **$1.07 per share** in Q1 2019 (**87% of diluted EPS**), including a regular dividend of **$0.32** and a special dividend of **$0.75**[269](index=269&type=chunk) - In Q1 2018, declared **$0.28 per share** (**29% of diluted EPS**)[269](index=269&type=chunk) [Common Stock Repurchases and Issuances](index=60&type=section&id=Common%20Stock%20Repurchases%20and%20Issuances_CR) - Repurchased **16,040 shares** of common stock at an average price of **$52.93 per share** during Q1 2019[270](index=270&type=chunk)[299](index=299&type=chunk) - Issued **35,600 shares** at an average price of **$29.56 per share** to cover stock option exercises in Q1 2019[270](index=270&type=chunk) - Board authorized a program on April 18, 2018, to repurchase up to **500,000 shares**; **466,418 shares** remained available as of February 28, 2019[271](index=271&type=chunk)[299](index=299&type=chunk) [Non-GAAP Financial Measures](index=61&type=section&id=Non-GAAP%20Financial%20Measures) - Presents **tangible common equity to tangible assets ratio** as a non-GAAP measure[273](index=273&type=chunk) - This ratio is calculated by subtracting period-end intangible assets from common equity and total assets[274](index=274&type=chunk) - Management believes this measure helps assess **tangible capital utilization**, **capital strength**, and facilitates peer comparison[274](index=274&type=chunk) | Metric (in thousands) | March 31, 2019 | December 31, 2018 | |:---|:---|:---| | Common equity at period end | $543,635 | $531,977 | | Less: Intangible assets at period end | $8,963 | $9,288 | | Tangible common equity at period end | $534,672 | $522,689 | | Total assets at period end | $4,778,220 | $4,676,200 | | Less: Intangible assets at period end | $8,963 | $9,288 | | Tangible assets at period end | $4,769,257 | $4,666,912 | | Tangible common equity to tangible assets | 11.21% | 11.20% | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=62&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details the Company's market risk exposure, primarily interest rate risk, and its management strategies, including repricing gap analysis and derivative use [Asset and Liability Management and Market Risk](index=62&type=section&id=Asset%20and%20Liability%20Management%20and%20Market%20Risk) - Objective is to produce **stable earnings** through a favorable and sustainable interest rate spread[277](index=277&type=chunk) - Reduces interest rate risk by matching repricing periods of interest-bearing liabilities and interest-earning assets, using adjustable-rate mortgages and shorter-term loans[277](index=277&type=chunk) [How We Measure the Risk to Us Associated with Interest Rate Changes](index=62&type=section&id=How%20We%20Measure%20the%20Risk%20to%20Us%20Associated%20with%20Interest%20Rate%20Changes) - Monitors **interest rate risk** by analyzing interest rate repricing "gap" and sensitivity of assets/liabilities to market rate changes[279](index=279&type=chunk)[280](index=280&type=chunk) - Models indicate rising interest rates generally have a **positive impact** on net interest income, while declining rates have a **negative impact**, with effects greater in the 12-36 month horizon[280](index=280&type=chunk) - **Asset and Liability Committee (ALCO)** sets and monitors policies, meeting monthly to review economic conditions, liquidity, capital, and asset/liability mix[284](index=284&type=chunk) - Uses **interest rate swaps** for customer service (matched book) and a **$400 million cash flow hedge** (fixed **3.018%** receive, one-month USD-LIBOR pay) to manage floating rate loan risk[288](index=288&type=chunk)[290](index=290&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=64&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The Company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - **Disclosure controls and procedures** were effective as of March 31, 2019, ensuring accurate and timely reporting[292](index=292&type=chunk) - No material changes in **internal control over financial reporting** occurred during the quarter ended March 31, 2019[293](index=293&type=chunk) - Acknowledges inherent limitations of control procedures, which provide reasonable, not absolute, assurance against errors and fraud[294](index=294&type=chunk) [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) The Company is subject to normal course legal actions, with management expecting no material adverse effect on its financial condition or operations - Company is subject to pending and threatened legal actions in the normal course of business[295](index=295&type=chunk) - Management believes the outcome of current litigation will not have a **material adverse effect** on the Company's business, financial condition, or results of operations[295](index=295&type=chunk) [Item 1A. Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the Company's 2018 Annual Report on Form 10-K - No material changes to risk factors from the **2018 Annual Report on Form 10-K**[296](index=296&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased **16,040 shares** of common stock in Q1 2019, with **466,418 shares** remaining available under the April 2018 repurchase program - Repurchased **16,040 shares** of common stock at an average price of **$52.93 per share** during Q1 2019[298](index=298&type=chunk)[299](index=299&type=chunk) - Board authorized a program on April 18, 2018, to repurchase up to **500,000 shares**; **466,418 shares** remained available as of February 28, 2019[297](index=297&type=chunk)[299](index=299&type=chunk) [Item 3. Defaults Upon Senior Securities](index=65&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities[300](index=300&type=chunk) [Item 4. Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[301](index=301&type=chunk) [Item 5. Other Information](index=65&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - None[301](index=301&type=chunk) [Item 6. Exhibits and Financial Statement Schedules](index=66&type=section&id=Item%206.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the 10-Q report, including various agreements and certifications - Includes various exhibits such as **Plan of acquisition, reorganization, arrangement, liquidation, or succession (FDIC Purchase and Assumption Agreements)**[304](index=304&type=chunk) - Includes **Articles of incorporation and Bylaws**, and **Instruments defining the rights of security holders**[304](index=304&type=chunk) - Material contracts include **stock option and incentive plans**, **employment agreements**, and the **Small Business Lending Fund – Securities Purchase Agreement**[305](index=305&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk) - Certifications include **Rule 13a-14(a) Certifications of Chief Executive Officer and Treasurer**, and **Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002**[320](index=320&type=chunk) [SIGNATURES](index=69&type=section&id=SIGNATURES) - Report signed by **Joseph W. Turner** (President and CEO) and **Rex A. Copeland** (Treasurer) on May 8, 2019[322](index=322&type=chunk)

Financial Data and Key Metrics Changes - The company reported earnings of $1.23 per share, totaling $17.6 million for the quarter [7] - Annualized return on equity was 13.12%, and annualized return on assets was 1.49% [9] - The stated net interest margin was 4.06%, with a core margin of 3.93% [12][21] - Nonperforming assets decreased by $1.5 million, indicating improved asset quality [10] Business Line Data and Key Metrics Changes - The loan portfolio grew by $61 million, although growth in unfunded amounts on the construction portfolio was slightly down [9] - The company completely exited the indirect business, expecting the $180 million portfolio to run off over the next two to four years [10] - Noninterest income increased by approximately $515,000 compared to the first quarter of the previous year, primarily due to one-time income from FDIC acquisitions [16] Market Data and Key Metrics Changes - The company experienced growth in internet CDs and interest-bearing checking accounts, contributing to deposit growth [32] - The efficiency ratio improved to 54.74%, down from about 61% in the first quarter of the previous year [21] Company Strategy and Development Direction - The company is focusing on growing its loan portfolio while maintaining strong capital ratios, which allows for flexibility in share repurchases and dividends [11] - The company is preparing for the new CECL accounting standard for loan losses, set to take effect in the first quarter of 2020 [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about loan growth, particularly in new office locations, while acknowledging ongoing challenges in consumer loans [31] - The company anticipates some pressure on liability costs due to maturing CDs and rising deposit rates [15] Other Important Information - The company has been actively working on process improvements to enhance efficiency and customer service [52] - A consolidation of banking centers in Arkansas was completed, which is expected to yield minor cost savings [22][51] Q&A Session Summary Question: What is the outlook for loan growth? - Management indicated that while they do not project loan growth, the current pipeline remains strong, and they expect growth in specific regions [30][31] Question: What drove the deposit growth this quarter? - The growth was attributed to internet CDs, interest-bearing checking accounts, and a reduction in borrowings from the home loan bank [32] Question: Are there notable cost savings related to the exit from the auto business? - Management confirmed that there will be cost savings over time, although no immediate savings were realized in the first quarter [41][42] Question: Can you elaborate on the yield on the investment book? - The yield on new investments was noted to be in the range of 3.40% to 3.70%, with some securities being replaced to improve yield [43] Question: Are there any new initiatives regarding expenses? - Management stated there are no major initiatives but emphasized ongoing efforts to improve efficiency through process improvements [50][52]

Part I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Great Southern Bancorp, Inc. is a bank holding company with **$4.68 billion** in assets, primarily focused on commercial real estate and construction lending across six states Consolidated Financial Highlights as of December 31, 2018 | Metric | Amount (USD) | | :--- | :--- | | Consolidated Assets | $4.68 billion | | Consolidated Net Loans | $3.99 billion | | Consolidated Deposits | $3.73 billion | | Consolidated Stockholders' Equity | $532.0 million | - The company has grown significantly through five FDIC-assisted transactions between 2009 and 2014, expanding its footprint from Missouri into Iowa, Kansas, Minnesota, and Nebraska[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk) - The company's primary lending strategy focuses on commercial real estate, construction, multi-family, and other commercial loans, which collectively accounted for approximately **81.1%** of the total loan portfolio as of December 31, 2018[22](index=22&type=chunk)[267](index=267&type=chunk) - In February 2019, the company decided to cease its indirect automobile lending services, effective March 31, 2019, due to profitability challenges and strong competition. It will continue to service existing loans[86](index=86&type=chunk) [Lending Activities](index=6&type=section&id=Lending%20Activities) Legacy Great Southern Loan Portfolio Composition (December 31, 2018) | Loan Type | Amount (in thousands) | Percentage of Total | | :--- | :--- | :--- | | **Total Real Estate Loans** | **$4,072,901** | **84.4%** | | One- to four-family | $400,954 | 8.3% | | Other residential (Multi-family) | $784,894 | 16.3% | | Commercial | $1,385,375 | 28.7% | | Construction (All types) | $1,501,678 | 31.1% | | **Total Other Loans** | **$754,349** | **15.6%** | | Consumer loans | $432,230 | 8.9% | | Other commercial loans | $322,119 | 6.7% | | **Total Loans** | **$4,827,250** | **100.0%** | Loans Acquired (ASC 310-30) Portfolio Composition (December 31, 2018) | Loan Type | Amount (in thousands) | Percentage of Total | | :--- | :--- | :--- | | **Total Real Estate Loans** | **$155,990** | **84.6%** | | One- to four-family | $102,153 | 55.4% | | Other residential | $13,396 | 7.3% | | Commercial | $34,853 | 18.9% | | Construction | $5,588 | 3.0% | | **Total Other Loans** | **$28,461** | **15.4%** | | Consumer loans | $23,600 | 12.8% | | Other commercial loans | $4,861 | 2.6% | | **Total Loans** | **$184,451** | **100.0%** | - At December 31, 2018, the Bank's largest single borrower relationship totaled **$50.4 million** in commitments (**$36.9 million** outstanding), collateralized by healthcare facilities, apartment complexes, and a retail development. This was within the legal lending limit of approximately **$149.9 million**[40](index=40&type=chunk) [Loan Delinquencies, Classified and Non-Performing Assets](index=20&type=section&id=Loan%20Delinquencies%2C%20Classified%20and%20Non-Performing%20Assets) Non-Performing Assets (Legacy Portfolio) | Category | Dec 31, 2018 (in thousands) | Dec 31, 2017 (in thousands) | | :--- | :--- | :--- | | Non-accruing loans | $6,300 | $11,159 | | Foreclosed assets & Repossessions | $5,480 | $16,575 | | **Total Gross Non-Performing Assets** | **$11,780** | **$27,830** | | As a % of Average Total Assets | 0.26% | 0.62% | - Total classified assets (substandard, doubtful, loss), excluding FDIC-acquired assets, decreased significantly from **$35.7 million** at year-end 2017 to **$15.1 million** at year-end 2018[106](index=106&type=chunk) - Troubled debt restructurings (TDRs) decreased by more than half, from **$15.0 million** at year-end 2017 to **$6.9 million** at year-end 2018. Of the 2018 total, **$4.7 million** were accruing interest[115](index=115&type=chunk) [Allowances for Losses on Loans and Foreclosed Assets](index=25&type=section&id=Allowances%20for%20Losses%20on%20Loans%20and%20Foreclosed%20Assets) Allowance for Loan Losses Activity | Metric (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Beginning Balance | $36,492 | $37,400 | | Provision for Loan Losses | $7,150 | $9,100 | | Net Charge-offs | ($5,233) | ($10,008) | | **Ending Balance** | **$38,409** | **$36,492** | - The ratio of net charge-offs to average loans outstanding improved to **0.13%** in 2018 from **0.26%** in 2017, primarily due to lower charge-offs in the consumer loan portfolio[129](index=129&type=chunk) [Sources of Funds](index=30&type=section&id=Sources%20of%20Funds) Deposit Composition (December 31, 2018) | Deposit Type | Amount (in thousands) | Percent of Total | | :--- | :--- | :--- | | Non-interest-bearing demand | $661,061 | 17.75% | | Interest-bearing demand and savings | $1,472,535 | 39.53% | | Time deposits | $1,591,411 | 42.72% | | **Total Deposits** | **$3,725,007** | **100.00%** | - The company utilizes brokered deposits as a funding source, which increased to **$326.9 million** at year-end 2018 from **$225.5 million** at year-end 2017[148](index=148&type=chunk) - Borrowings from the Federal Home Loan Bank (FHLBank) are a key source of funds. At year-end 2018, the company had **$178.0 million** in overnight FHLBank borrowings, compared to **$15.0 million** in overnight borrowings and **$127.5 million** in term advances at year-end 2017[155](index=155&type=chunk)[167](index=167&type=chunk) [Government Supervision and Regulation](index=39&type=section&id=Government%20Supervision%20and%20Regulation) - The company is subject to extensive regulation by federal and state agencies, including the Federal Reserve Board (FRB), FDIC, and Missouri Division of Finance (MDF). Major legislation impacting operations includes the Dodd-Frank Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - Effective January 1, 2015, the company became subject to new capital regulations implementing Basel III, which established higher minimum capital ratios for Common Equity Tier 1 (CET1), Tier 1, and Total Capital, and introduced a capital conservation buffer[215](index=215&type=chunk)[216](index=216&type=chunk)[219](index=219&type=chunk) - The 2017 Tax Cuts and Jobs Act reduced the federal corporate income tax rate from **35%** to **21%**, effective January 1, 2018. This required the company to re-measure its deferred tax assets and liabilities in Q4 2017, resulting in a **$2.1 million** increase to the deferred tax asset recorded in 2017 income tax expense[252](index=252&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from concentrated loan portfolios, geographic market exposure, interest rate fluctuations, and regulatory compliance - A primary risk is the high concentration of commercial and residential construction, commercial real estate, multi-family, and other commercial loans, which constituted approximately **81.1%** of the total loan portfolio as of December 31, 2018[267](index=267&type=chunk) - The business is geographically concentrated in Missouri, Iowa, Kansas, and Minnesota, with the largest loan concentrations in the St. Louis and Springfield, MO metropolitan areas, making the company susceptible to downturns in these local economies[259](index=259&type=chunk)[263](index=263&type=chunk) - The company faces significant interest rate risk, as approximately **45.0%** of its total loan portfolio as of December 31, 2018, had adjustable rates. Changes in rates could impact net interest income and borrower ability to repay[277](index=277&type=chunk) - Anti-takeover provisions in the company's charter, including a **10%** voting limitation and a staggered board, could discourage potential acquisitions and adversely affect stockholders[326](index=326&type=chunk) [Item 2. Properties](index=60&type=section&id=Item%202.%20Properties) As of December 31, 2018, the company operated 99 banking centers and over 200 ATMs, with premises and equipment valued at **$132.4 million** Property Overview (as of Dec 31, 2018) | Property Type | Count | Ownership Status | | :--- | :--- | :--- | | Retail Banking Centers | 99 | 89 Owned, 10 Leased | | ATMs | >200 | N/A | | Loan Production Offices | 7 | 1 Owned, 5 Leased | | **Net Book Value (Premises & Equip.)** | **$132.4 million** | N/A | [Item 3. Legal Proceedings](index=60&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to routine legal actions, with management expecting no material adverse effect on financial condition or operations - In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions. Management does not expect the outcome of such litigation to have a material adverse effect on the Company's business, financial condition, or results of operations[333](index=333&type=chunk) [Item 4A. Executive Officers of the Registrant](index=60&type=section&id=Item%204A.%20Executive%20Officers%20of%20the%20Registrant) This section lists key executive officers who are not directors, including the Chief Credit Officer, Chief Lending Officer, and Chief Financial Officer Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=61&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'GSBC,' with a **500,000**-share repurchase program authorized and **17,542** shares repurchased in Q4 2018 - The Company's common stock is listed on The NASDAQ Global Select Market under the symbol "GSBC"[344](index=344&type=chunk) - On April 18, 2018, the Board of Directors authorized a new plan to repurchase up to **500,000** shares of common stock[345](index=345&type=chunk) Stock Repurchases in Q4 2018 | Period | Total Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2018 | 2,500 | $52.05 | | Nov 1 - Nov 30, 2018 | 0 | N/A | | Dec 1 - Dec 31, 2018 | 15,042 | $51.43 | | **Total Q4 2018** | **17,542** | **$51.52** | [Item 6. Selected Financial Data](index=63&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five years of financial data (2014-2018), showing consistent growth in assets, loans, and deposits, alongside improved profitability and asset quality Selected Financial Data (2014-2018) | Metric (in thousands, except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $4,676,200 | $4,414,521 | $4,550,663 | $4,104,189 | $3,951,334 | | Loans receivable, net | $3,990,651 | $3,734,505 | $3,776,411 | $3,352,797 | $3,053,427 | | Deposits | $3,725,007 | $3,597,144 | $3,677,230 | $3,268,626 | $2,990,840 | | Net Income Available to Common Shareholders | $67,109 | $51,564 | $45,342 | $45,948 | $42,950 | | Diluted EPS | $4.71 | $3.64 | $3.21 | $3.28 | $3.10 | | Book Value per Common Share | $37.59 | $33.48 | $30.77 | $28.67 | $26.30 | Key Performance Ratios (2014-2018) | Ratio | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Return on average assets | 1.49% | 1.16% | 1.04% | 1.14% | 1.14% | | Return on average stockholders' equity | 13.46% | 11.32% | 10.93% | 12.13% | 12.63% | | Net interest margin | 3.99% | 3.74% | 4.05% | 4.53% | 4.84% | | Efficiency ratio | 56.41% | 58.99% | 62.86% | 62.85% | 66.30% | | Gross non-performing assets/year end assets | 0.25% | 0.63% | 0.86% | 1.07% | 1.11% | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, net income increased **30.1%** to **$67.1 million**, driven by higher net interest income and improved asset quality, alongside strategic business initiatives Year-over-Year Performance Summary (2018 vs. 2017) | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | Net Income | $67.1M | $51.6M | +30.1% | | Net Interest Income | $168.2M | $155.2M | +8.4% | | Net Interest Margin | 3.99% | 3.74% | +25 bps | | Provision for Loan Losses | $7.2M | $9.1M | -21.4% | | Non-Performing Assets / Total Assets | 0.25% | 0.63% | -38 bps | - Net loans grew by **$262.7 million** (**7.0%**) in 2018, driven by organic growth in construction loans (**+$350.5 million**) and commercial real estate loans (**+$136.1 million**), partially offset by a strategic decrease in consumer auto loans (**-$103.6 million**)[384](index=384&type=chunk)[426](index=426&type=chunk) - In July 2018, the company sold four Omaha-area banking centers, resulting in a pre-tax gain of **$7.4 million** and a reduction of approximately **$56 million** in deposits[404](index=404&type=chunk)[472](index=472&type=chunk) - The company terminated its final FDIC loss sharing agreements in June 2017, receiving a **$15.0 million** payment and recognizing a **$7.7 million** pre-tax gain. All post-termination recoveries and losses on these assets are now fully recognized by the bank[380](index=380&type=chunk)[740](index=740&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=99&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, managed to maintain net interest margin stability, with a **$400 million** interest rate swap hedging floating-rate loans - The company's most significant market risk is interest rate risk. As of December 31, 2018, models indicate that rising interest rates are expected to have a positive impact on net interest income, while declining rates would have a negative impact[568](index=568&type=chunk)[570](index=570&type=chunk) - A substantial portion of the loan portfolio (**$1.46 billion** at Dec 31, 2018) is tied to short-term LIBOR indices, making it highly sensitive to market rate changes. Of this, **$1.34 billion** had interest rate floors[571](index=571&type=chunk) - In October 2018, the company entered into a **$400 million** notional interest rate swap to hedge cash flow risk from its floating-rate loans. Under the swap, the company receives a fixed rate of **3.018%** and pays a floating rate of one-month LIBOR[580](index=580&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=103&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for 2018, including financial condition, income, and cash flow statements, with detailed notes on accounting policies Consolidated Statement of Financial Condition Highlights | (in thousands) | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $202,742 | $242,253 | | Loans receivable, net | $3,989,001 | $3,726,302 | | Available-for-sale securities | $243,968 | $179,179 | | **Total Assets** | **$4,676,200** | **$4,414,521** | | **Liabilities & Equity** | | | | Deposits | $3,725,007 | $3,597,144 | | Total borrowings | $397,594 | $324,097 | | Total stockholders' equity | $531,977 | $471,662 | | **Total Liabilities & Equity** | **$4,676,200** | **$4,414,521** | Consolidated Statement of Income Highlights | (in thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net Interest Income | $168,192 | $155,156 | $163,056 | | Provision for Loan Losses | $7,150 | $9,100 | $9,281 | | Noninterest Income | $36,218 | $38,527 | $28,510 | | Noninterest Expense | $115,310 | $114,261 | $120,427 | | **Net Income** | **$67,109** | **$51,564** | **$45,342** | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=177&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure were reported during the period [Item 9A. Controls and Procedures](index=177&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with an unqualified attestation - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were effective[905](index=905&type=chunk) - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2018, and concluded that it was effective based on the COSO framework[910](index=910&type=chunk) - The independent registered public accounting firm, BKD, LLP, issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2018[914](index=914&type=chunk) [Item 9B. Other Information](index=179&type=section&id=Item%209B.%20Other%20Information) No other information was reported for this period Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=180&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 proxy statement [Item 11. Executive Compensation](index=180&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2019 proxy statement [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=180&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and related stockholder matters is incorporated by reference, detailing outstanding options and shares available for future issuance Equity Compensation Plan Information (as of Dec 31, 2018) | Plan Category | Shares to be Issued Upon Exercise | Weighted-Average Exercise Price | Shares Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by stockholders | 773,236 | $43.886 | 614,850 | | Not approved by stockholders | N/A | N/A | N/A | | **Total** | **773,236** | **$43.886** | **614,850** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=180&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2019 proxy statement [Item 14. Principal Accounting Fees and Services](index=181&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2019 proxy statement Part IV [Item 15. Exhibits, Financial Statement Schedules](index=182&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the Form 10-K, including key agreements and certifications

Great Southern Bancorp, Inc. (NASDAQ:GSBC) Q4 2018 Earnings Conference Call January 23, 2019 3:00 PM ET Company Participants Kelly Polonus – Investor Relations Joe Turner – President and CEO Rex Copeland – Chief Financial Officer Conference Call Participants Andrew Liesch – Sandler O'Neill Michael Perito – KBW Operator Good day, ladies and gentlemen, and welcome to the Great Southern Bancorp, Inc. Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may b ...