Press Release

Great Southern Bancorp, Inc. Reports Preliminary Second Quarter Earnings of $1.14 Per Diluted Common Share

Company Release - 7/19/2017 6:30 PM ET

SPRINGFIELD, Mo., July 19, 2017 /PRNewswire/ --

Great Southern Bancorp logo. (PRNewsFoto/Great Southern Bancorp, Inc.)

Preliminary Financial Results and Other Matters for the Second Quarter and First Half of 2017:

  • Significant Unusual Income or Expense Items: During the three months ended June 30, 2017, the Company recorded the following unusual items. In June 2017, the Company finalized an agreement with the FDIC to terminate the loss sharing agreements for Inter Savings Bank. The Company recorded a pre-tax gain on the termination (net of associated costs) of $7.5 million, which is included in the Consolidated Statements of Income under "Noninterest Income – Accretion (amortization) of income related to business acquisitions." For further discussion of the loss sharing agreement termination, see "Loss Sharing Agreements." FHLB advances totaling $31.4 million were repaid prior to maturity resulting in prepayment penalties of $340,000, which is included in the Consolidated Statements of Income under "Noninterest Expense – Other operating expenses." The Company sold and otherwise disposed of fixed assets at a net loss of $136,000, which is included in the Consolidated Statements of Income under "Noninterest Income – Other income."
  • Total Loans: Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $126.9 million, or 3.1%, from December 31, 2016, to June 30, 2017. This increase was primarily in construction loans, commercial real estate loans and other residential (multi-family) real estate loans. These increases were partially offset by decreases in consumer loans and one- to four-family residential loans. The FDIC-acquired loan portfolios had net decreases totaling $40.0 million during the six months ended June 30, 2017. Outstanding loans receivable balances increased $12.9 million, from $3.76 billion at December 31, 2016 to $3.77 billion at June 30, 2017, and increased $45.2 million, from $3.73 billion at March 31, 2017.
  • Asset Quality: Non-performing assets and potential problem loans, excluding those previously covered by FDIC loss sharing agreements and those acquired in the FDIC-assisted transaction with Valley Bank, which are accounted for and analyzed as loan pools rather than individual loans, totaled $37.2 million at June 30, 2017, a decrease of $9.1 million from $46.3 million at December 31, 2016 and a decrease of $8.8 million from $46.0 million at March 31, 2017. Non-performing assets at June 30, 2017 were $35.0 million (0.79% of total assets), down $4.3 million from $39.3 million (0.86% of total assets) at December 31, 2016 and down $6.0 million from $41.0 million (0.92% of total assets) at March 31, 2017.
  • Capital: The capital position of the Company continues to be strong, significantly exceeding the thresholds established by regulators. On a preliminary basis, as of June 30, 2017, the Company's Tier 1 Leverage Ratio was 10.5%, Common Equity Tier 1 Capital Ratio was 10.4%, Tier 1 Capital Ratio was 10.9%, and Total Capital Ratio was 13.6%.
  • Net Interest Income:  Net interest income for the second quarter of 2017 decreased $2.8 million to $37.9 million compared to $40.7 million for the second quarter of 2016.  Net interest income was $38.7 million for the first quarter of 2017.  Net interest margin was 3.68% for the quarter ended June 30, 2017, compared to 4.10% for the second quarter of 2016 and 3.78% for the quarter ended March 31, 2017.  The decrease in the margin from the prior year second quarter was primarily the result of a reduction in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior periods, partially offset by increased total average loans.  Increased average interest rates on deposits and other borrowings also contributed to lower net interest margin.  The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 12, 39 and 18 basis points for the quarters ended June 30, 2017, June 30, 2016, and March 31, 2017, respectively.  For further discussion of the additional yield accretion of the discount on acquired loan pools, see "Net Interest Income."

Great Southern Bancorp, Inc. (NASDAQ:GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended June 30, 2017, were $1.14 per diluted common share ($16.2 million available to common shareholders) compared to $0.89 per diluted common share ($12.5 million available to common shareholders) for the three months ended June 30, 2016. 

Preliminary earnings for the six months ended June 30, 2017, were $1.95 per diluted common share ($27.7 million available to common shareholders) compared to $1.59 per diluted common share ($22.3 million available to common shareholders) for the six months ended June 30, 2016. 

For the quarter ended June 30, 2017, annualized return on average common equity was 14.37%, annualized return on average assets was 1.45%, and annualized net interest margin was 3.68%, compared to 12.15%, 1.16% and 4.10%, respectively, for the quarter ended June 30, 2016.  For the six months ended June 30, 2017, annualized return on average common equity was 12.46%; annualized return on average assets was 1.24%; and net interest margin was 3.73% compared to 10.92%, 1.04% and 4.18%, respectively, for the six months ended June 30, 2016. 

President and CEO Joseph W. Turner commented, "During the quarter, we were pleased to successfully complete an agreement with the FDIC to terminate the loss sharing agreements associated with the Bank's 2012 FDIC-assisted acquisition of Inter Savings Bank. Under the terms of this agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items related to the Inter Savings Bank loss sharing agreements, which resulted in a one-time pre-tax gain of $7.5 million (inclusive of some professional fees incurred related to the transaction).   With this agreement, all outstanding loss sharing agreements related to the Bank's four FDIC-assisted acquisitions from 2009 through 2012 have been terminated.

"Good loan production occurred in the second quarter, resulting in an increase in net outstanding loan balances of approximately $45 million from the end of the first quarter 2017. Loan production occurred in all of our major markets with increases primarily in commercial real estate, multi-family and construction loans. As expected, consumer lending, mainly in the indirect auto segment, declined in light of tightened underwriting standards implemented in the latter half of 2016. Outstanding consumer loan balances have declined $70 million (12.5%) in 2017."

Turner continued, "Our level of non-performing assets improved from the end of the first quarter of 2017.  Two large problem credit relationships were resolved during the quarter, which reduced non-performing assets by nearly $6 million.

"Expense control continues to be a major focus for the Company.  Total non-interest expenses were $28.4 million in the 2017 second quarter, despite non-recurring expense items (as described above)."

Selected Financial Data:

(In thousands, except per share data)

Three Months Ended

June 30,


Six Months Ended

June 30,


2017

2016


2017

2016

Net interest income

$         37,901

$         40,662


$         76,602

$         81,780

Provision for loan losses

1,950

2,300


4,200

4,401

Non-interest income

15,800

8,916


23,496

13,890

Non-interest expense

28,371

29,807


56,941

60,726

Provision for income taxes

7,204

4,937


11,262

8,216

Net income and net income available to common shareholders

$         16,176

$         12,534


$         27,695

$         22,327







Earnings per diluted common share

$              1.14

$              0.89


$              1.95

$              1.59

NET INTEREST INCOME

Net interest income for the second quarter of 2017 decreased $2.8 million to $37.9 million compared to $40.7 million for the second quarter of 2016.  Net interest margin was 3.68% in the second quarter of 2017, compared to 4.10% in the same period of 2016, a decrease of 42 basis points.  For the three months ended June 30, 2017, the net interest margin decreased 10 basis points compared to the net interest margin of 3.78% in the three months ended March 31, 2017.  The average interest rate spread was 3.53% for the three months ended June 30, 2017, compared to 3.99% for the three months ended June 30, 2016 and 3.63% for the three months ended March 31, 2017.

Net interest income for the six months ended June 30, 2017 decreased $5.2 million to $76.6 million compared to $81.8 million for the six months ended June 30, 2016.  Net interest margin was 3.73% in the six months ended June 30, 2017, compared to 4.18% in the same period of 2016, a decrease of 45 basis points.  The average interest rate spread was 3.58% for the six months ended June 30, 2017, compared to 4.08% for the six months ended June 30, 2016. 

The Company's net interest margin has been positively impacted by significant additional yield accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in the 2009, 2011, 2012 and 2014 FDIC-assisted transactions. On an on-going basis, the Company estimates the cash flows expected to be collected from the acquired loan pools. For each of the loan portfolios acquired, the cash flow estimates increased during the current and prior periods presented below, based on payment histories and reduced credit loss expectations. This resulted in increased income that has been spread, on a level-yield basis, over the remaining expected lives of the loan pools (and, therefore, has decreased over time). In the prior period, the increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the FDIC (to the extent such agreements were in place), which were recorded as indemnification assets, with such reductions amortized on a comparable basis over the remainder of the loss sharing agreements or the remaining expected lives of the loan pools, whichever was shorter.  Additional estimated cash flows totaling approximately $-0- and $155,000 were recorded in the three and six months ended June 30, 2017, respectively, related to all of these loan pools. 

The impact of adjustments on all portfolios acquired in FDIC-assisted transactions for the reporting periods presented is shown below:


Three Months Ended



June 30, 2017


June 30, 2016



(In thousands, except basis points data)

Impact on net interest income/net interest margin (in basis points)

$              1,282

   12 bps


$              3,858

   39 bps


Non-interest income



(1,774)



Net impact to pre-tax income

$              1,282



$              2,084







Six Months Ended



June 30, 2017


June 30, 2016



(In thousands, except basis points data)

Impact on net interest income/net interest margin (in basis points)

$              3,262

   16 bps


$              9,240

   47 bps


Non-interest income

(634)



(4,708)



Net impact to pre-tax income

$              2,628



$              4,532



Because these adjustments will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well.  The remaining accretable yield adjustment that will affect interest income is $3.2 million.  As there is no longer, nor will there be in the future, indemnification asset amortization related to Team Bank, Vantus Bank, Sun Security Bank or InterBank due to the termination or expiration of the related loss sharing agreements for those transactions, there is no remaining indemnification asset or related adjustments that will affect non-interest income (expense).  Of the remaining adjustments affecting interest income, we expect to recognize $1.2 million of interest income during the remainder of 2017.  Additional adjustments may be recorded in future periods from the FDIC-assisted transactions, as the Company continues to estimate expected cash flows from the acquired loan pools. 

Excluding the impact of the additional yield accretion, net interest margin for the three and six months ended June 30, 2017, decreased 15 and 14 basis points, respectively, when compared to the year-ago periods.  The decrease in net interest margin is primarily due to the interest expense associated with the issuance of $75.0 million of subordinated notes in the third quarter of 2016 and an increase in the average interest rate on deposits and other borrowings.

For additional information on net interest income components, see the "Average Balances, Interest Rates and Yields" tables in this release.

NON-INTEREST INCOME

For the quarter ended June 30, 2017, non-interest income increased $6.9 million to $15.8 million when compared to the quarter ended June 30, 2016, primarily as a result of the following items:

  • Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As discussed above, and as previously disclosed in the Company's news release dated June 9, 2017, the Company's loss sharing agreement with the FDIC related to Inter Savings Bank was terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated agreement. The Company recognized a one-time gross gain of $7.7 million related to the termination, which was recorded in the accretion of income related to business acquisitions line item of the consolidated statements of income during the three months ended June 30, 2017.
  • Amortization of income related to business acquisitions: Because of the termination of the loss sharing agreements, the net amortization expense related to business acquisitions was $-0- for the quarter ended June 30, 2017, compared to $1.6 million for the quarter ended June 30, 2016.
  • Late charges and fees on loans: Late charges and fees on loans increased $306,000 compared to the prior year quarter. The increase was primarily due to fees on loan payoffs totaling $130,000 received on two loan relationships.
  • Net realized gains on sales of available-for-sale securities: During the 2016 quarter the Company sold an investment held by Bancorp for a gain of $2.7 million. There were no gains on sales of investments in the current quarter.

For the six months ended June 30, 2017, non-interest income increased $9.6 million to $23.5 million when compared to the six months ended June 30, 2016, primarily as a result of the following items:

  • Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As discussed above, and as previously disclosed in the Company's news release dated June 9, 2017, the Company's loss sharing agreement with the FDIC related to Inter Savings Bank was terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated agreement. The Company recognized a one-time gross gain of $7.7 million related to the termination, which was recorded in the accretion of income related to business acquisitions line item of the consolidated statements of income during the six months ended June 30, 2017.
  • Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $489,000 for the six months ended June 30, 2017, compared to $4.9 million for the six months ended June 30, 2016. The amortization expense for the six months ended June 30, 2017, consisted of the following items: $507,000 of amortization expense related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios acquired from InterBank and $140,000 of amortization of the clawback liability. Partially offsetting the expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
  • Late charges and fees on loans: Late charges and fees on loans increased $607,000 compared to the prior year period. The increase was primarily due to fees on loan payoffs totaling $632,000 received on four loan relationships.
  • Other income: Other income decreased $420,000 compared to the prior year period. During the 2016 period, the Company recognized a $257,000 gain on the sale of the Thayer, Mo., branch and deposits and a $110,000 gain on the sale of the Buffalo, Mo., branch and deposits. In addition, a gain of $238,000 was recognized on sales of fixed assets unrelated to the branch sales during the 2016 period. There were no similar transactions during the 2017 period.
  • Net realized gains on sales of available-for-sale securities: During the 2016 period the Company sold an investment held by Bancorp for a gain of $2.7 million. There were no gains on sales of investments in the current year period.

NON-INTEREST EXPENSE

For the quarter ended June 30, 2017, non-interest expense decreased $1.4 million to $28.4 million when compared to the quarter ended June 30, 2016, primarily as a result of the following items:

  • Salaries and employee benefits: Salaries and employee benefits decreased $748,000 from the prior year quarter. In the 2016 period, compensation expense was still elevated due to the then-recent Fifth Third branch and deposit acquisition. Subsequent to June 30, 2016, some of the employees related to those operations left the Company and many were not replaced. In 2017, residential loan originations have been lower than in the prior year period, resulting in less incentive compensation for loan originators and staff. The Company has also recently reorganized some staff functions in certain areas to operate more efficiently. In addition, there are budgeted but unfilled positions in various areas of the Company that have resulted in lower compensation costs in some areas.
  • Net occupancy and equipment expense: Net occupancy expense decreased $354,000 in the quarter ended June 30, 2017 compared to the same quarter in 2016. The decrease was primarily due to furniture, fixtures and equipment, and computer equipment which became fully depreciated during the past year resulting in less depreciation expense during the current year.
  • Insurance expense: Insurance expense decreased $284,000 in the quarter ended June 30, 2017 compared to the prior year quarter primarily due to a reduction in FDIC insurance premiums resulting from a change in the FDIC insurance assessment rates, which went into effect during the fourth quarter of 2016. Because the FDIC's deposit insurance fund hit a predetermined threshold, deposit insurance rates for many banks, including ours, have been reduced.
  • Partnership tax credit: Partnership tax credit expense decreased $203,000 in the quarter ended June 30, 2017 compared to the same quarter in 2016. The decrease was primarily due to the end of the amortization period for some of the Company's new market tax credits and the investment in those tax credits has been written off.
  • Other operating expenses: Other operating expenses increased $404,000 in the quarter ended June 30, 2017 compared to the same period in 2016. This increase was primarily due to the $340,000 prepayment penalty incurred when FHLB advances totaling $31.4 million were repaid prior to maturity.

For the six months ended June 30, 2017, non-interest expense decreased $3.8 million to $56.9 million when compared to the six months ended June 30, 2016, primarily as a result of the following items:

  • Fifth Third Bank branch acquisition expenses: During the 2016 period, the Company incurred approximately $1.4 million of one-time expenses related to the acquisition of certain branches from Fifth Third Bank. Those expenses included approximately $124,000 of compensation expense, approximately $385,000 of legal, audit and other professional fees expense, approximately $294,000 of computer license and support expense, approximately $436,000 in charges to replace former Fifth Third Bank customer checks with Great Southern Bank checks, and approximately $79,000 of travel, meals and other expenses related to the transaction.
  • Salaries and employee benefits: Salaries and employee benefits decreased $779,000 from the prior year period. In the 2016 period, the Company incurred one-time acquisition related net salary and retention bonus and other compensation expenses paid as part of the Fifth Third branch transaction totaling $124,000. Compensation expense also decreased for the reasons outlined in the second quarter discussion above.
  • Net occupancy expense: Net occupancy expense decreased $880,000 in the six months ended June 30, 2017 compared to the same period in 2016. During 2016, the Company had one-time expenses as part of the acquisition of the Fifth Third banking centers of $279,000 and increased computer license and support costs of $247,000 with no similar expenses in the current year period.
  • Expense on foreclosed assets: Expense on foreclosed assets decreased $534,000 compared to the prior year period due to expenses and valuation write-downs of foreclosed assets during the 2016 period, primarily related to three properties, totaling approximately $978,000, partially offset by expenses and write-downs in the current year period.
  • Insurance expense: Insurance expense decreased $438,000 in the six months ended June 30, 2017 compared to the prior year period primarily due to a reduction in FDIC insurance premiums resulting from a change in the FDIC insurance assessment rates, which went into effect during the fourth quarter of 2016. Because the FDIC's deposit insurance fund hit a predetermined threshold, deposit insurance rates for many banks, including ours, have been reduced.
  • Partnership tax credit: Partnership tax credit expense decreased $345,000 in the six months ended June 30, 2017 compared to the same period in 2016. The decrease was primarily due to the end of the amortization period for some of the Company's new market tax credits and the investment in those tax credits has been written off.
  • Legal, audit and other professional fees: Legal, audit and other professional fees decreased $271,000 from the prior year period due to additional expenses in the 2016 period related to the Fifth Third transaction, as noted in the Fifth Third Bank branch acquisition expenses above.

The Company's efficiency ratio for the quarter ended June 30, 2017, was 52.83% compared to 60.12% for the same quarter in 2016.  The improvement in the ratio in the 2017 three month period was primarily due to the increase in non-interest income (significantly impacted by the gain on the termination of the loss sharing agreements for the Inter Savings Bank FDIC-assisted transaction) and the decrease in non-interest expense, partially offset by the decrease in net interest income.  The Company's ratio of non-interest expense to average assets decreased from 2.75% for the three months ended June 30, 2016, to 2.55% for the three months ended June 30, 2017.  The decrease in the current three month period ratio was due to the decrease in non-interest expense and the increase in average assets in the 2017 period compared to the 2016 period.  Average assets for the quarter ended June 30, 2017, increased $114.6 million, or 2.6%, from the quarter ended June 30, 2016, primarily due to organic loan growth, partially offset by decreases in investment securities and other interest-earning assets.  The Company's ratio of non-interest expense to average assets decreased from 2.84% for the six months ended June 30, 2016, to 2.55% for the six months ended June 30, 2017.  The decrease in the current six month period ratio was due to the decrease in non-interest expense and the increase in average assets in the 2017 period compared to the 2016 period.  Average assets for the six months ended June 30, 2017, increased $186.7 million, or 4.4%, from the six months ended June 30, 2016, primarily due to organic loan growth, partially offset by decreases in investment securities and other interest-earning assets. 

INCOME TAXES

For the three months ended June 30, 2017 and 2016, the Company's effective tax rate was 30.8% and 28.3%, respectively.  For the six months ended June 30, 2017 and 2016, the Company's effective tax rate was 28.9% and 26.9%, respectively.  These effective rates were lower than the statutory federal tax rate of 35%, due primarily to the utilization of certain investment tax credits and to tax-exempt investments and tax-exempt loans which reduced the Company's effective tax rate.  In future periods, the Company expects its effective tax rate typically will be 26-28% of pre-tax net income, assuming it continues to maintain or increase its use of investment tax credits and maintain or increase its pre-tax net income. The Company's effective tax rate may fluctuate as it is impacted by the level and timing of the Company's utilization of tax credits and the level of tax-exempt investments and loans and the overall level of pre-tax income.  The Company's effective tax rate was higher than its typical effective tax rate in the 2016 and 2017 three-month periods due to increased net income due to the gain on termination of the loss sharing agreements for the Inter Savings Bank FDIC-assisted transaction (2017) and gains on the sales of investments (2016).

CAPITAL

As of June 30, 2017, total stockholders' equity and common stockholders' equity were $453.6 million (10.2% of total assets), equivalent to a book value of $32.32 per common share.  Total stockholders' equity and common stockholders' equity at December 31, 2016, were $429.8 million (9.4% of total assets), equivalent to a book value of $30.77 per common share.  At June 30, 2017, the Company's tangible common equity to tangible assets ratio was 10.0%, compared to 9.2% at December 31, 2016.   

On a preliminary basis, as of June 30, 2017, the Company's Tier 1 Leverage Ratio was 10.5%, Common Equity Tier 1 Capital Ratio was 10.4%, Tier 1 Capital Ratio was 10.9%, and Total Capital Ratio was 13.6%.  On June 30, 2017, and on a preliminary basis, the Bank's Tier 1 Leverage Ratio was 11.3%, Common Equity Tier 1 Capital Ratio was 11.8%, Tier 1 Capital Ratio was 11.8%, and Total Capital Ratio was 12.7%. 

LOANS

Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $126.9 million, or 3.1%, from December 31, 2016, to June 30, 2017.  This increase was primarily in construction loans ($168 million), commercial real estate loans ($32 million) and other residential (multi-family) real estate loans ($21 million).  These increases were partially offset by decreases in consumer loans ($69 million) and one- to four-family residential loans ($24 million).  The FDIC-acquired loan portfolios had net decreases totaling $40.0 million during the six months ended June 30, 2017.  

Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):


June 30,
2017

March 31,
2017

December 31,
2016

December 31,
2015

December 31,
2014

Closed loans with unused available lines






   Secured by real estate (one- to four-family)

$         129,894

$         127,527

$         123,433

$       105,390

$          92,286

   Secured by real estate (not one- to four-family)

17,486

22,234

26,062

21,857

23,909

   Not secured by real estate - commercial business

99,680

93,541

79,937

63,865

63,381







Closed construction loans with unused available lines






   Secured by real estate (one-to four-family)

8,767

8,419

10,047

14,242

17,564

   Secured by real estate (not one-to four-family)

604,999

583,396

542,326

385,969

356,913







Loan Commitments not closed






   Secured by real estate (one-to four-family)

18,769

20,252

15,884

13,411

12,700

   Secured by real estate (not one-to four-family)

149,317

61,543

119,126

120,817

54,643

   Not secured by real estate - commercial business

10,244

4,558

7,022








$     1,039,156

$        921,470

$        923,837

$        725,551

$        621,396

For further information about the Company's loan portfolio, please see the quarterly loan portfolio presentation available on the Company's Investor Relations website under "Presentations". 

LOSS SHARING AGREEMENTS

On June 9, 2017, Great Southern Bank executed an agreement with the FDIC to terminate the loss sharing agreements for Inter Savings Bank, effective immediately.  The agreement required the FDIC to pay $15.0 million to settle all outstanding items related to the terminated loss sharing agreements.  As a result of entering into the agreement, assets that were covered by the terminated loss sharing agreements, including covered loans in the amount of $138.8 million and covered other real estate owned in the amount of $2.9 million as of March 31, 2017, were reclassified as non-covered assets effective June 9, 2017.  On the date of the termination, the indemnification asset balances, certain other receivables from the FDIC and the Bank's clawback liability due to the FDIC related to Inter Savings Bank, which totaled $7.3 million, became $-0- as a result of the receipt of funds from the FDIC as outlined in the termination agreement.  There will be no future effects on non-interest income (expense) related to adjustments or amortization of the indemnification asset and the related clawback liability for Inter Savings Bank.  The remaining accretable yield adjustments that affect interest income are not changed by this transaction and continue to be recognized for all of the Bank's FDIC-assisted transactions in the same manner as they have been previously.

The termination of the loss sharing agreements for the Inter Savings Bank transaction has no impact on the yields for the loans that were previously covered under this agreement. All future recoveries, gains, losses and expenses related to these previously covered assets will now be recognized entirely by Great Southern Bank since the FDIC will no longer be sharing in such gains or losses. Accordingly, the Company's future earnings will be positively impacted to the extent the Company recognizes gains on any sales or recoveries in excess of the carrying value of such assets. Similarly, the Company's future earnings will be negatively impacted to the extent the Company recognizes expenses, losses or charge-offs related to such assets.  At June 9, 2017, the Company had discounts related to the Inter Savings Bank loan pools totaling approximately $14.0 million which are available to absorb charge-offs.  Any future charge-offs exceeding that aggregate amount would impact the Company's allowance for loan losses.

This agreement terminates the last outstanding loss sharing agreements related to the Bank's four FDIC-assisted acquisitions from 2009 through 2012. In April 2016, the Company executed an agreement with the FDIC to terminate loss sharing agreements related to the FDIC-assisted acquisitions of TeamBank, Vantus Bank and Sun Security Bank.  More information about that termination agreement can be found in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.

PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES

Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses identified in the loan portfolio, economic conditions, and internal as well as external reviews.  The levels of non-performing assets, potential problem loans, loan loss provisions and net charge-offs fluctuate from period to period and are difficult to predict.

Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or requirements for an increase in loan loss provision expense. Management maintains various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan work-outs. Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.

The provision for loan losses for the quarter ended June 30, 2017, decreased $350,000 to $2.0 million when compared with the quarter ended June 30, 2016.  At June 30, 2017 and December 31, 2016, the allowance for loan losses was $36.5 million and $37.4 million, respectively.  Total net charge-offs were $2.4 million and $1.2 million for the quarters ended June 30, 2017 and 2016, respectively.  During the quarter ended June 30, 2017, net charge-offs of $1.0 million related to one commercial relationship and net charge-offs of $1.2 million related to the consumer auto category.  Total net charge-offs were $5.1 million and $4.4 million for the six months ended June 30, 2017 and 2016, respectively.  During the six months ended June 30, 2017, $3.0 million of the $5.1 million of net charge-offs were in the consumer auto category.  In response to a more challenging consumer credit environment, the Company tightened its underwriting guidelines on automobile lending in the latter part of 2016.  Management took this step in an effort to improve credit quality in the portfolio and lower delinquencies and charge-offs.  This action also resulted in a lower level of origination volume and, as such, the outstanding balance of the Company's automobile loans declined approximately $70 million in the six months ended June 30, 2017.  We expect to see further declines in the automobile loan totals through the balance of 2017 as well.  General market conditions and unique circumstances related to individual borrowers and projects contributed to the level of provisions and charge-offs.  As assets were categorized as potential problem loans, non-performing loans or foreclosed assets, evaluations were made of the values of these assets with corresponding charge-offs as appropriate.   

In June 2017, the loss sharing agreements for Inter Savings Bank were terminated.  In April 2016, the loss sharing agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated.  Loans acquired from the FDIC related to Valley Bank did not have a loss sharing agreement.  All acquired loans were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date.  These loan pools are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition.  Techniques used in determining risk of loss are similar to those used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics.  Review of the acquired loan portfolio also includes meetings with customers, review of financial information and collateral valuations to determine if any additional losses are apparent.

The Bank's allowance for loan losses as a percentage of total loans, excluding acquired loans that were previously covered by the FDIC loss sharing agreements, was 1.01%, 1.04% and 1.03% at June 30, 2017, December 31, 2016 and March 31, 2017, respectively.  Management considers the allowance for loan losses adequate to cover losses inherent in the Bank's loan portfolio at June 30, 2017, based on recent reviews of the Bank's loan portfolio and current economic conditions. If economic conditions were to deteriorate or management's assessment of the loan portfolio were to change, it is possible that additional loan loss provisions would be required, thereby adversely affecting future results of operations and financial condition.

ASSET QUALITY

Former TeamBank, Vantus Bank, Sun Security Bank and InterBank non-performing assets, including foreclosed assets and potential problem loans, are not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets below as they were subject to loss sharing agreements with the FDIC until those agreements expired, or until early termination occurred.  In addition, these assets were initially recorded at their estimated fair values as of their acquisition dates.  The overall performance of the loan pools acquired in 2009, 2011 and 2012 in FDIC-assisted transactions has been better than original expectations as of the acquisition dates.  Former Valley Bank loans are also excluded from the totals and the discussion of non-performing loans, potential problem loans and foreclosed assets below, although they were not covered by a loss sharing agreement.  Former Valley Bank loans are accounted for in pools and were recorded at their fair value at the time of the acquisition; therefore, these loan pools are analyzed rather than the individual loans.  The performance of the loan pools acquired in the Valley Bank transaction also has been better than expectations at the acquisition date. 

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 June 30, 2017 were $35.0 million, a decrease of $4.3 million from $39.3 million at December 31, 2016 and a decrease of $6.0 million from $41.0 million at March 31, 2017.  Non-performing assets, excluding all FDIC-assisted acquired assets, as a percentage of total assets were 0.79% at June 30, 2017, compared to 0.86% at December 31, 2016 and 0.92% at March 31, 2017. 

Compared to December 31, 2016, non-performing loans decreased $817,000 to $13.3 million at June 30, 2017, and foreclosed assets decreased $3.5 million to $21.8 million at June 30, 2017.  Compared to March 31, 2017, non-performing loans decreased $2.8 million and foreclosed assets decreased $3.1 million at June 30, 2017.  Non-performing commercial business loans were $5.4 million, or 40.6%, of the total $13.3 million of non-performing loans at June 30, 2017, an increase of $1.0 million from March 31, 2017.  Non-performing consumer loans increased $344,000 in the three months ended June 30, 2017, and were $3.0 million, or 22.9%, of total non-performing loans at June 30, 2017.  Non-performing commercial real estate loans comprised $2.6 million, or 19.3%, of the total non-performing loans at June 30, 2017, a decrease of $360,000 from March 31, 2017.  Non-performing one- to four-family residential loans comprised $1.5 million, or 11.3%, of the total non-performing loans at June 30, 2017, a decrease of $45,000 from March 31, 2017.  Non-performing construction and land development loans comprised $623,000, or 4.7%, of the total non-performing loans at June 30, 2017, a decrease of $3.8 million from March 31, 2017. Two loans in this category were paid off during the quarter, including one loan totaling $3.8 million.

Compared to March 31, 2017 and December 31, 2016, potential problem loans decreased $2.8 million and $4.8 million, respectively, to $2.2 million at June 30, 2017.  The decrease during the quarter was due to $2.0 million in loans transferred to non-performing loans, $1.4 million in payments and $8,000 in charge-offs, partially offset by the addition of $569,000 of loans to potential problem loans. 

Activity in the non-performing loans category during the quarter ended June 30, 2017, was as follows:


Beginning
Balance,

April 1

Additions to
Non-
Performing

Removed
from Non-
Performing

Transfers

to Potential
Problem
Loans

Transfers to
Foreclosed
Assets

Charge-Offs

Payments

Ending
Balance,
June 30


(In thousands)










One- to four-family construction

$            381

$               —

$               —

$                  —

$                —

$             —

$               (2)

$            379

Subdivision construction

107

(2)

105

Land development

3,919

139

(92)

(3,827)

139

Commercial construction

One- to four-family residential

1,547

420

(289)

(47)

(10)

(119)

1,502

Other residential

164

(2)

162

Commercial real estate

2,914

1,457

(1,291)

(526)

2,554

Commercial business

4,351

1,042

(5)

5,388

Consumer

2,691

1,367

(84)

(21)

(136)

(343)

(439)

3,035










Total

$       16,074

$          4,425

$            (84)

$             (310)

$             (183)

$         (1,738)

$        (4,920)

$       13,264

At June 30, 2017, the non-performing commercial business category included nine loans, three of which were added during the current quarter.  One loan totaling $970,000 was transferred from potential problem loans during the quarter and is collateralized by the business assets of an entity in the St. Louis, Mo. area.  The largest loan in this category totaled $2.8 million, or 52.7% of the total category, and is secured by the borrower's interest in a condo project in Branson, Mo.  The Bank's lending involvement with this project dates back to 2005.  This project had experienced some performance difficulties in the past and a new borrower became involved in this project during 2013.  The second largest relationship totaled $1.5 million, or 28.1% of the total category.  This relationship was previously collateralized by commercial real estate which has been foreclosed and subsequently sold.  We are currently pursuing collection efforts against the guarantors of the credit relationship.  The non-performing commercial real estate category included 10 loans, four of which were added in the current quarter.  The largest relationship in this category included two loans and was transferred from potential problem loans during the current quarter, totaled $803,000, or 31.4% of the total category.  The relationship is collateralized by commercial entertainment property and other property in Branson, Mo.  One relationship in this category, which was collateralized by a theatre property in Branson, Mo incurred charge-offs of $1.2 million and received payments of $480,000 during the quarter, which paid off the remaining balance of that loan.  The non-performing consumer category included 245 loans, 109 of which were added during the current quarter, and the majority of which are indirect used automobile loans. The non-performing one- to four-family residential category included 20 loans, eight of which were added during the current quarter.  The non-performing land development category included one loan, which was transferred from potential problem loans during the quarter.  One loan, which is the same relationship as discussed in the commercial real estate category, and was collateralized by land in the Branson, Mo. area had charge-offs of $92,000 and received payments of $3.8 million during the quarter, which paid off the remaining balance of that loan. 

Activity in the potential problem loans category during the quarter ended June 30, 2017, was as follows:


Beginning
Balance,

April 1

Additions to
Potential
Problem

Removed
from
Potential
Problem

Transfers to
Non-
Performing

Transfers to
Foreclosed
Assets

Charge-Offs

Payments

Ending
Balance,

June 30

(In thousands)











One- to four-family construction

$               —

$               —

$               —

$               —

$               —

$               —

$               —

$               —

Subdivision construction

Land development

432

(139)

(288)

5

Commercial construction

One- to four-family residential

728

445

(131)

(6)

1,036

Other residential

Commercial real estate

2,515

(803)

(968)

744

Commercial business

1,155

(970)

(76)

109

Consumer

216

124

(4)

(8)

(43)

285










Total

$         5,046

$            569

$               —

$       (2,047)

$               —

$              (8)

$       (1,381)

$         2,179

At June 30, 2017, the commercial real estate category of potential problem loans included two loans, the largest of which is $668,000, and is collateralized by a commercial building in Springfield, Mo.  $963,000 of the payments in the category related to one relationship, the remainder of which was moved to non-performing loans during the current quarter.  The relationship is collateralized by commercial entertainment property and other property in Branson, Mo.  The one- to four-family residential category of potential problem loans included 14 loans, six of which were added during the current quarter.  The commercial business category of potential problem loans included six loans.  One loan totaling $970,000 was transferred to non-performing loans during the current quarter, and is collateralized by the business assets of an entity in the St. Louis, Mo. area. 

Activity in foreclosed assets during the quarter ended June 30, 2017, excluding $4.2 million in foreclosed assets previously covered by FDIC loss sharing agreements, $1.9 million in foreclosed assets related to Valley Bank and not covered by loss sharing agreements, and $2.2 million in properties which were not acquired through foreclosure, was as follows:


Beginning
Balance,

April 1

Additions

ORE Sales

Capitalized
Costs

ORE Write-
Downs

Ending
Balance,
June 30


(In thousands)








One-to four-family construction

$               —

$              —

$              —

$             —

$                —

$               —

Subdivision construction

6,313

(96)

6,217

Land development

10,692

(370)

10,322

Commercial construction

One- to four-family residential

1,210

47

(792)

465

Other residential

810

(810)

Commercial real estate

3,210

(935)

2,275

Commercial business

Consumer

2,668

3,373

(3,535)

2,506








Total

$      24,903

$       3,420

$      (6,168)

$               —

$            (370)

$      21,785

At June 30, 2017, the land development category of foreclosed assets included 20 properties, the largest of which was located in northwest Arkansas and had a balance of $1.4 million, or 13.3% of the total category.  Of the total dollar amount in the land development category of foreclosed assets, 37.7% and 34.9% was located in the Branson, Mo. and the northwest Arkansas areas, respectively, including the largest property previously mentioned.  The subdivision construction category of foreclosed assets included 26 properties, the largest of which was located in the Springfield, Mo. metropolitan area and had a balance of $1.2 million, or 19.8% of the total category.  Of the total dollar amount in the subdivision construction category of foreclosed assets, 29.6% and 19.8% is located in Branson, Mo. and Springfield, Mo., respectively, including the largest property previously mentioned.  The commercial real estate category of foreclosed assets included four properties.  The largest relationship in the commercial real estate category, which was added during the previous year, totaled $1.3 million, or 56.3% of the total category, and is a hotel located in the western United States.  One property in the commercial real estate category totaling $935,000, which was a retail property located in Georgia, was sold during the quarter.  The one-to four-family residential category of foreclosed assets included eight properties, one of which was added during the second quarter of 2017.  Six properties in this category, totaling $792,000, were sold during the second quarter.  The other residential category of foreclosed assets had a zero balance at June 30, 2017.  During the second quarter, four properties, all of which are part of the same condominium community located in Branson, Mo. and had a balance of $810,000 at March 31, 2017, were sold.  The larger amount of additions and sales under consumer loans are due to a higher volume of repossessions of automobiles, which generally are subject to a shorter repossession process.  Compared to previous years, in 2016 and 2017 the Company experienced increased levels of delinquencies and repossessions in consumer loans, primarily indirect used automobile loans. 

BUSINESS INITIATIVES

A commercial loan production office opened in April 2017 in downtown Chicago in a leased office at 2 North Riverside Plaza in the West Loop.  In early 2017, a 30-year banking veteran in the Chicago area, Rick Percifield, was hired to manage this office. The Company also operates commercial loan production offices in Tulsa, Okla., and Dallas. 

In April 2017, Great Southern entered into a new partnership with Lenexa, Kan.-based BASYS to serve the merchant services needs of the Bank's business customers. In the partnership, BASYS provides all customer support and servicing, while Great Southern is responsible for sales production throughout the Bank's franchise. The Bank has offered merchant services solutions for many years, with the last vendor offering both sales and servicing support to customers. The relationship with BASYS represents a business model change so that Great Southern can manage the sales process with its customers.

In June 2017, Great Southern Bank entered into an agreement with the FDIC that terminated loss sharing agreements related to the Bank's 2012 acquisition of Maple Grove, Minn.-based Inter Savings Bank through an FDIC-assisted transaction. Under the termination agreement, the FDIC paid $15.0 million to the Bank to settle all outstanding items related to the terminated loss sharing agreements.  More information about this termination agreement can be found in the "Loss Sharing Agreements" section of this news release. In April 2016, the Company executed an agreement with the FDIC to terminate loss sharing agreements related to the FDIC-assisted acquisitions of TeamBank, Vantus Bank and Sun Security Bank. More information about that termination agreement can be found in the Company's Form 10-Q for the quarter ended March 31, 2016. All loss sharing agreements related to the Bank's FDIC-assisted acquisitions have now been terminated.

A banking center is currently under construction to replace a nearby leased office in Springfield, Mo. The new banking center at 1320 W. Battlefield will replace a leased office at 1580 W. Battlefield. Expected to be open in the fourth quarter 2017, the new office will offer better access and convenience for customers.

Headquartered in Springfield, Mo., Great Southern offers a broad range of banking services to customers. The Company operates 104 retail banking centers and more than 200 ATMs in Missouri, Arkansas, Iowa, Kansas, Minnesota and Nebraska and commercial lending offices in Chicago, Dallas and Tulsa, Okla. The common stock of Great Southern Bancorp, Inc. is listed on the Nasdaq Global Select Market under the symbol "GSBC."

www.GreatSouthernBank.com

Forward-Looking Statements

When used in this press release and documents filed or furnished by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's other press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, (i) non-interest expense reductions from Great Southern's banking center consolidations might be less than anticipated and the costs of the consolidation and impairment of the value of the affected premises might be greater than expected; (ii) expected revenues, cost savings, earnings accretion, synergies and other benefits from the Company's  merger and acquisition activities (including the Fifth Third branch acquisition in 2016) 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; (iii) changes in economic conditions, either nationally or in the Company's market areas; (iv) fluctuations in interest rates; (v) the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; (vi) the possibility of other-than-temporary impairments of securities held in the Company's securities portfolio; (vii) the Company's ability to access cost-effective funding; (viii) fluctuations in real estate values and both residential and commercial real estate market conditions; (ix) demand for loans and deposits in the Company's market areas; (x) the ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace; (xi) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (xii) legislative or regulatory changes that adversely affect the Company's business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing regulations, and the overdraft protection regulations and customers' responses thereto; (xiii) changes in accounting principles, policies or guidelines; (xiv) monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xv) results of examinations of the Company and the Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to increase its allowance for loan losses or to write-down assets; (xvi) costs and effects of litigation, including settlements and judgments; and (xvii) competition. The Company wishes to advise readers that the factors listed above and other risks described from time to time in documents filed or furnished by the Company with the SEC could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

The following tables set forth certain selected consolidated financial information of the Company at and for the periods indicated.  Financial data for all periods is unaudited.  In the opinion of management, all adjustments, which consist only of normal recurring accruals, necessary for a fair presentation of the results for and at such unaudited periods have been included.  The results of operations and other data for the three and six months ended June 30, 2017 and 2016, and the three months ended March 31, 2017, are not necessarily indicative of the results of operations which may be expected for any future period. 


June 30,

December 31,


2017

2016

 Selected Financial Condition Data:

(In thousands)




Total assets

$         4,447,095

$         4,550,663

Loans receivable, gross

3,814,582

3,802,235

Allowance for loan losses

36,533

37,400

Other real estate owned, net

30,114

32,658

Available-for-sale securities, at fair value

195,144

213,872

Deposits

3,572,645

3,677,230

Total borrowings

396,744

416,786

Total common stockholders' equity

453,550

429,806

Non-performing assets (excluding FDIC-assisted transaction assets)

35,049

39,330

 


Three Months Ended

Six Months Ended

Three Months
Ended


June 30,

June 30,

March 31,


2017

2016

2017

2016

2017

Selected Operating Data:

(Dollars in thousands, except per share data)







Interest income

$         44,744

$         45,636

$         90,157

$         91,382

$         45,413

Interest expense

6,843

4,974

13,555

9,602

6,712

Net interest income

37,901

40,662

76,602

81,780

38,701

Provision for loan losses

1,950

2,300

4,200

4,401

2,250

Non-interest income

15,800

8,916

23,496

13,890

7,698

Non-interest expense

28,371

29,807

56,941

60,726

28,573

Provision for income taxes

7,204

4,937

11,262

8,216

4,058

Net income and net income available to common shareholders

$         16,176

$         12,534

$         27,695

$         22,327

$         11,518

 


At or For the Three
Months Ended

At or For the Six

Months Ended

At or For the
Three Months
Ended


June 30,

June 30,

March 31,


2017

2016

2017

2016

2017

Per Common Share:

(Dollars in thousands, except per share data)







Net income (fully diluted)

$           1.14

$           0.89

$           1.95

$           1.59

$             0.81

Book value

$         32.32

$         29.79

$         32.32

$         29.79

$           31.40







Earnings Performance Ratios:






Annualized return on average assets

1.45%

1.16%

1.24%

1.04%

1.03%

Annualized return on average common stockholders' equity

14.37%

12.15%

12.46%

10.92%

10.50%

Net interest margin

3.68%

4.10%

3.73%

4.18%

3.78%

Average interest rate spread

3.53%

3.99%

3.58%

4.08%

3.63%

Efficiency ratio

52.83%

60.12%

56.89%

63.47%

61.58%

Non-interest expense to average total assets

2.55%

2.75%

2.55%

2.84%

2.55%







Asset Quality Ratios:

Allowance for loan losses to period-end loans (excluding covered/previously covered loans)

1.01%

1.10%

1.01%

1.10%

1.03%

Non-performing assets to period-end assets

0.79%

0.77%

0.79%

0.77%

0.92%

Non-performing loans to period-end loans

0.35%

0.16%

0.35%

0.16%

0.43%

Annualized net charge-offs to average loans

0.27%

0.14%

0.28%

0.27%

0.30%

 

Great Southern Bancorp, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except number of shares)



June 30,

2017

December 31,

 2016

Assets



Cash

$           119,911

$            120,203

Interest-bearing deposits in other financial institutions

92,594

159,566

Cash and cash equivalents

212,505

279,769




Available-for-sale securities

195,144

213,872

Held-to-maturity securities

130

247

Mortgage loans held for sale

8,178

16,445

Loans receivable (1), net of allowance for loan losses of $36,533 - June 2017; $37,400 -  December 2016

3,772,816

3,759,966

FDIC indemnification asset

13,145

Interest receivable

10,818

11,875

Prepaid expenses and other assets

44,184

45,649

Other real estate owned (2), net

30,114

32,658

Premises and equipment, net

138,045

140,596

Goodwill and other intangible assets

11,675

12,500

Federal Home Loan Bank stock

12,842

13,034

Current and deferred income taxes

10,644

10,907




Total Assets

$       4,447,095

$        4,550,663




Liabilities and Stockholders' Equity



Liabilities



Deposits

$       3,572,645

$        3,677,230

Federal Home Loan Bank advances

31,452

Securities sold under reverse repurchase agreements with customers

111,992

113,700

Short-term borrowings

185,365

172,323

Subordinated debentures issued to capital trust

25,774

25,774

Subordinated notes

73,613

73,537

Accrued interest payable

2,587

2,723

Advances from borrowers for taxes and insurance

7,878

4,643

Accounts payable and accrued expenses

13,691

19,475

Total Liabilities

3,993,545

4,120,857




Stockholders' Equity



Capital stock



Preferred stock, $.01 par value; authorized 1,000,000 shares; issued and outstanding June 2017 and December 2016 – -0- shares

Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding June 2017 – 14,034,653 shares; December 2016 – 13,968,386 shares

140

140

Additional paid-in capital

27,128

25,942

Retained earnings

424,264

402,166

Accumulated other comprehensive gain

2,018

1,558

Total Stockholders' Equity

453,550

429,806




Total Liabilities and Stockholders' Equity

$       4,447,095

$        4,550,663



(1)

At June 30, 2017, December 31, 2016 and March 31, 2017, includes loans, net of discounts, totaling $-0-, $134.4 million and $123.9 million, respectively, which were subject to FDIC support through loss sharing agreements.  At June 30, 2017, December 31, 2016 and March 31, 2017, respectively, also includes $177.8 million, $72.6 million and $67.1 million of loans, net of discounts, acquired in FDIC-assisted transactions for which the loss sharing agreements were terminated, or loss sharing agreements had already expired.  In addition, as of June 30, 2017, December 31, 2016, and March 31, 2017, includes $65.4 million, $76.2 million and $68.0 million,  respectively, of loans, net of discounts, acquired in the Valley Bank transaction which are not covered by an FDIC loss sharing agreement. 

(2)

At June 30, 2017, December 31, 2016, and March 31, 2017 includes foreclosed assets, net of discounts, totaling $-0- million, $1.4 million, and $2.9 million respectively, which were subject to FDIC support through loss sharing agreements. At June 30, 2017, December 31, 2016 and March 31, 2017, respectively, also includes $4.2 million, $316,000 and $351,000 of foreclosed assets, net of discounts, acquired in FDIC-assisted transactions, for which the loss sharing agreements were terminated.  At June 30, 2017, December 31, 2016, and March 31, 2017, includes $1.9 million, $2.0 million, and $2.3 million, respectively, net of discounts, of foreclosed assets related to the Valley Bank transaction, which are not covered by FDIC loss sharing agreements.  In addition, at June 30, 2017, December 31, 2016, and March 31, 2017, includes $2.2 million and $3.7 million, and $2.2 million, respectively, of properties which were not acquired through foreclosure, but are held for sale.

 

Great Southern Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)



Three Months Ended


Six Months Ended


Three Months
Ended


June 30,


June 30,


March 31,


2017

2016


2017

2016


2017

Interest Income








Loans

$           43,166

$           44,078


$          86,910

$          88,125


$          43,744

Investment securities and other

1,578

1,558


3,247

3,257


1,669


44,744

45,636


90,157

91,382


45,413

Interest Expense








Deposits

5,004

4,121


9,969

8,056


4,964

Federal Home Loan Bank advances

244

257


499

696


255

Short-term borrowings and repurchase agreements

318

406


544

487


226

Subordinated debentures issued to capital trust

252

190


493

363


242

Subordinated notes

1,025


2,050


1,025


6,843

4,974


13,555

9,602


6,712









Net Interest Income

37,901

40,662


76,602

81,780


38,701

Provision for Loan Losses

1,950

2,300


4,200

4,401


2,250

Net Interest Income After Provision for Loan Losses

35,951

38,362


72,402

77,379


36,451









Noninterest Income








Commissions

306

215


572

518


266

Service charges and ATM fees

5,394

5,374


10,662

10,653


5,268

Net gains on loan sales

752

1,012


1,624

1,845


872

Net realized gains on sales of available-for-sale securities

2,735


2,738


Late charges and fees on loans

608

302


1,486

879


878

Net change in interest rate swap fair value             

(20)

(75)


(13)

(237)


7

Accretion (amortization) of income related to business acquisitions

7,708

(1,578)


7,219

(4,872)


(489)

Other income

1,052

931


1,946

2,366


896


15,800

8,916


23,496

13,890


7,698









Noninterest Expense








Salaries and employee benefits

14,498

15,246


29,831

30,610


15,333

Net occupancy expense

6,025

6,379


12,341

13,221


6,316

Postage

874

957


1,807

1,958


933

Insurance

747

1,031


1,545

1,983


798

Advertising

656

522


1,069

963


413

Office supplies and printing

233

395


930

860


697

Telephone

789

904


1,599

1,826


810

Legal, audit and other professional fees

1,061

811


1,381

1,652


320

Expense on foreclosed assets

677

874


1,251

1,785


575

Partnership tax credit

217

420


495

840


278

Acquired deposit intangible asset amortization

412

490


825

1,033


412

Other operating expenses

2,182

1,778


3,867

3,995


1,688


28,371

29,807


56,941

60,726


28,573









Income Before Income Taxes

23,380

17,471


38,957

30,543


15,576

Provision for Income Taxes

7,204

4,937


11,262

8,216


4,058









Net Income and Net Income Available to Common Shareholders

$           16,176

$           12,534


$           27,695

$           22,327


$         11,518









Earnings Per Common Share








Basic

$               1.15

$               0.90


$               1.98

$               1.61


$               0.82

Diluted

$               1.14

$               0.89


$               1.95

$               1.59


$               0.81









Dividends Declared Per Common Share

$               0.24

$               0.22


$               0.46

$               0.44


$               0.22

Average Balances, Interest Rates and Yields

The following table presents, for the periods indicated, the total dollar amounts 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 $0.5 million and $1.0 million for the three months ended June 30, 2017 and 2016, respectively.  Net fees included in interest income were $1.7 million and $2.2 million for the six months ended June 30, 2017 and 2016, respectively.  Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes.


June 30,
2017(1)

Three Months Ended
June 30, 2017


Three Months Ended
June 30, 2016



Average


Yield/


Average


Yield/


Yield/Rate

Balance

Interest

Rate


Balance

Interest

Rate


(Dollars in thousands)

Interest-earning assets:









Loans receivable:









  One- to four-family residential

4.20%

$  461,321

$ 5,528

4.81%


$  558,805

$ 7,384

5.31%

  Other residential

4.32

690,405

7,717

4.48


460,059

5,402

4.72

  Commercial real estate

4.34

1,247,830

13,556

4.36


1,116,450

13,149

4.74

  Construction

4.14

422,683

4,756

4.51


441,336

4,882

4.45

  Commercial business

4.57

293,411

3,566

4.87


321,314

4,159

5.21

  Other loans

6.03

652,293

7,630

4.69


692,381

8,511

4.94

  Industrial revenue bonds

5.31

26,144

413

6.33


37,517

591

6.34










     Total loans receivable

4.68

3,794,087

43,166

4.56


3,627,862

44,078

4.89










Investment securities

3.17

211,944

1,327

2.51


264,310

1,445

2.20

Other interest-earning assets

1.17

120,125

251

0.84


98,570

113

0.46










     Total interest-earning assets

4.52

4,126,156

44,744

4.35


3,990,742

45,636

4.60

Non-interest-earning assets:









  Cash and cash equivalents


108,131




107,036



  Other non-earning assets


217,764




239,630



     Total assets


$4,452,051




$4,337,408












Interest-bearing liabilities:









  Interest-bearing demand and savings

0.29

$1,569,069

1,137

0.29


$1,507,079

958

0.26

  Time deposits

1.09

1,419,996

3,867

1.09


1,302,160

3,163

0.98

  Total deposits

0.67

2,989,065

5,004

0.67


2,809,239

4,121

0.59

  Short-term borrowings and repurchase agreements

0.03

234,655

318

0.54


428,840

406

0.38

  Subordinated debentures issued to

capital trust

2.77

25,774

252

3.92


25,774

190

2.96

  Subordinated notes

5.57

73,594

1,025

5.59


  FHLB advances

0.00

30,378

244

3.22


31,509

257

3.28










     Total interest-bearing liabilities

0.81

3,353,466

6,843

0.82


3,295,362

4,974

0.61

Non-interest-bearing liabilities:









  Demand deposits


621,429




602,551



  Other liabilities


26,984




26,797



     Total liabilities


4,001,879




3,924,710



Stockholders' equity


450,172




412,698



     Total liabilities and stockholders' equity


$4,452,051




$4,337,408












Net interest income:









Interest rate spread

3.71%


$37,901

3.53%



$40,662

3.99%

Net interest margin*




3.68%




4.10%

Average interest-earning assets to average interest-bearing liabilities


123.0%




121.1%



__________________

*Defined as the Company's net interest income divided by average total interest-earning assets.

(1)

The yield on loans at June 30, 2017, does not include the impact of the adjustments to the accretable yield (income) on loans acquired in the FDIC-assisted transactions.  See "Net Interest Income" for a discussion of the effect on results of operations for the three months ended June 30, 2017.

 


June 30,
2017(1)

Six Months Ended
June 30, 2017


Six Months Ended
June 30, 2016



Average


Yield/


Average


Yield/


Yield/Rate

Balance

Interest

Rate


Balance

Interest

Rate


(Dollars in thousands)

Interest-earning assets:









Loans receivable:









  One- to four-family residential

4.20%

$  472,667

$11,624

4.96%


$  547,823

$14,988

5.50%

  Other residential

4.32

684,965

15,243

4.49


451,044

11,078

4.94

  Commercial real estate

4.34

1,232,317

27,085

4.43


1,097,385

25,761

4.72

  Construction

4.14

412,200

9,132

4.47


426,926

9,709

4.57

  Commercial business

4.57

293,984

7,380

5.06


320,901

8,437

5.29

  Other loans

6.03

670,642

15,660

4.71


679,225

16,999

5.03

  Industrial revenue bonds

5.31

26,752

786

5.92


38,790

1,153

5.98










     Total loans receivable

4.68

3,793,527

86,910

4.62


3,562,094

88,125

4.98










Investment securities

3.17

216,130

2,742

2.56


268,363

3,005

2.25

Other interest-earning assets

1.17

129,826

505

0.78


104,107

252

0.49










     Total interest-earning assets

4.52

4,139,483

90,157

4.39


3,934,564

91,382

4.67

Non-interest-earning assets:









  Cash and cash equivalents


107,974




105,477



  Other non-earning assets


221,130




241,855



     Total assets


$4,468,587




$4,281,896












Interest-bearing liabilities:









  Interest-bearing demand and









savings

0.29

$1,562,247

2,232

0.29


$1,490,591

1,863

0.25

  Time deposits

1.09

1,453,943

7,737

1.07


1,310,797

6,193

0.95

  Total deposits

0.67

3,016,190

9,969

0.67


2,801,388

8,056

0.58

  Short-term borrowings and repurchase agreements

0.03

236,076

544

0.46


316,873

487

0.31

  Subordinated debentures issued to

capital trust

2.77

25,774

493

3.86


25,774

363

2.83

  Subordinated notes

5.57

73,573

2,050

5.62


  FHLB advances

0.00

30,905

499

3.26


105,581

696

1.33










     Total interest-bearing liabilities

0.81

3,382,518

13,555

0.81


3,249,616

9,602

0.59

Non-interest-bearing liabilities:









  Demand deposits


614,827




596,074



  Other liabilities


26,710




27,148



     Total liabilities


4,024,055




3,872,838



Stockholders' equity


444,532




409,058



     Total liabilities and stockholders' equity


$4,468,587




$4,281,896












Net interest income:









Interest rate spread

3.71%


$76,602

3.58%



$81,780

4.08%

Net interest margin*




3.73%




4.18%

Average interest-earning assets to average interest-bearing liabilities


122.4%




121.1%














__________________

*Defined as the Company's net interest income divided by average total interest-earning assets.

(1)

The yield on loans at June 30, 2017, does not include the impact of the adjustments to the accretable yield (income) on loans acquired in the FDIC-assisted transactions.  See "Net Interest Income" for a discussion of the effect on results of operations for the six months ended June 30, 2017.

NON-GAAP FINANCIAL MEASURES

This document contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States ("GAAP"). These non-GAAP financial measures include core net interest income, core net interest margin and 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 the core net interest income and core net interest margin are useful in assessing the Company's core performance and trends, in light of the fluctuations that can occur related to updated estimates of the fair value of the loan pools acquired in the 2009, 2011, 2012 and 2014 FDIC-assisted transactions.

In calculating the ratio of tangible common equity to tangible assets, we subtract period-end intangible assets from common equity and from total assets.  Management believes that the presentation of these measures excluding the impact of intangible assets provides useful supplemental information that is helpful in understanding our financial condition and results of operations, as they provide a method to assess management's success in utilizing our tangible capital as well as our capital strength.  Management also believes that providing measures that exclude balances of intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers.  In addition, management believes that these are standard financial measures used in the banking industry to evaluate performance.

These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to other similarly titled measures as calculated by other companies.

Non-GAAP Reconciliation:  Core Net Interest Income and Core Net Interest Margin


Three Months Ended

Six Months Ended


June 30,

June 30,


2017

2016

2017

2016


(Dollars in thousands)

(Dollars in thousands)

Reported net interest income / margin

$         37,901

3.68%

$         40,662

4.10%

$         76,602

3.73%

$         81,780

4.18%

Less:  Impact of loss share adjustments

1,282

0.12

3,858

0.39

3,262

0.16

9,240

0.47

Core net interest income / margin

$         36,619

3.56%

$         36,804

3.71%

$         73,340

3.57%

$         72,540

3.71%

Non-GAAP Reconciliation:  Ratio of Tangible Common Equity to Tangible Assets         


June 30,

December 31,


2017

2016


(Dollars in thousands)

Common equity at period end

$      453,550

$      429,806

Less:  Intangible assets at period end

11,675

12,500

Tangible common equity at period end  (a)

$      441,875

$      417,306




Total assets at period end

$   4,447,095

$   4,550,663

Less:  Intangible assets at period end

11,675

12,500

Tangible assets at period end (b)

$   4,435,420

$   4,538,163




Tangible common equity to tangible assets (a) / (b)

9.96%

9.20%

 

View original content with multimedia:http://www.prnewswire.com/news-releases/great-southern-bancorp-inc-reports-preliminary-second-quarter-earnings-of-114-per-diluted-common-share-300491157.html

SOURCE Great Southern Bancorp, Inc.