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Section 1: 8-K (CURRENT REPORT ON FORM 8-K FOR OCTOBER 17, 2018)

gsbc-8kearnings093014.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)
 
October 17, 2018

GREAT SOUTHERN BANCORP, INC.

(Exact name of Registrant as specified in its Charter)

Maryland   0-18082   43-1524856
(State or other jurisdiction of
incorporation)
  (Commission File No.)   (IRS Employer Identification
Number)

1451 East Battlefield, Springfield, Missouri   65804
(Address of principal executive offices)   (Zip Code)

Registrant's telephone number, including area code:    (417) 887-4400   

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 
 

 

Item 2.02.  Results of Operations and Financial Condition
 
         On October 17, 2018, the Registrant issued a press release reporting preliminary financial results for the third quarter and first nine months of the fiscal year ending December 31, 2018. A copy of the press release, including unaudited financial information released as a part thereof, is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
 
Item 9.01.  Financial Statements and Exhibits
 
  (d) Exhibits

    99.1 Press release dated October 17, 2018


 
 
 
2

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 
  GREAT SOUTHERN BANCORP, INC.
 
Date: October 18, 2018  By:
/s/ Joseph W. Turner                   
      Joseph W. Turner, President 
      and Chief Executive Officer 

 
 
 
 
 
 
 
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EXHIBIT INDEX
 
Exhibit No. Description


99.1 Press release dated October 17, 2018










 
 
 
 
 
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Section 2: EX-99.1 (PRESS RELEASE DATED OCTOBER 17, 2018)

Exhibit 99.1
 
 

October 17, 2018
 
FOR IMMEDIATE RELEASE

CONTACT: Kelly Polonus, Great Southern, (417) 895-5242
kpolonus@greatsouthernbank.com
 
Great Southern Bancorp, Inc. Reports Preliminary Third Quarter Earnings of
$1.57 Per Diluted Common Share

Preliminary Financial Results and Other Matters for the Third Quarter and First Nine Months of 2018:
 
·
Significant Unusual Income or Expense Items: During the three months ended September 30, 2018, the Company recorded the following unusual item: the Company sold its branches and related deposits in Omaha, Neb., resulting in pretax income of $7.25 million ($7.4 million gain, which is included in the Consolidated Statements of Income under "Noninterest Income," less $165,000 of transaction expenses, which is included in the Consolidated Statements of Income under various "Noninterest Expense" categories.  The impact of this item, after the effect of the full tax rate for the Company, increased earnings per common share by approximately $0.39.
·
Total Loans:  Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $356.2 million, or 8.2%, from December 31, 2017, to September 30, 2018 and increased $81.7 million from June 30, 2018.  This increase was primarily in construction loans, commercial real estate loans, other residential (multi-family) loans and one- to four-family residential mortgage loans.  The FDIC-acquired loan portfolios had net decreases totaling $32.5 million during the nine months ended September 30, 2018, and consumer auto loans outstanding decreased $79.3 million during the nine months ended September 30, 2018.  Outstanding net loan receivable balances increased $216.5 million, from $3.73 billion at December 31, 2017 to $3.94 billion at September 30, 2018 and increased $83.0 million from June 30, 2018.
·
Asset QualityNon-performing assets and potential problem loans, excluding those acquired in FDIC-assisted transactions (which are accounted for and analyzed as loan pools rather than individual loans), totaled $19.2 million at September 30, 2018, a decrease of $16.6 million from $35.8 million at December 31, 2017 and down $11.0 million from $30.2 million at June 30, 2018.  Non-performing assets at September 30, 2018 were $15.9 million (0.35% of total assets), down $11.9 million from $27.8 million (0.63% of total assets) at December 31, 2017 and down $5.6 million from $21.5 million (0.47% of total assets) at June 30, 2018.
·
Capital:  The capital position of the Company continues to be strong.  At September 30, 2018, the Company's tangible common equity to tangible assets ratio was 10.9%. On a preliminary basis, as of September 30, 2018, the Company's Tier 1 Leverage Ratio was 11.6%, Common Equity Tier 1 Capital Ratio was 11.3%, Tier 1 Capital Ratio was 11.8%, and Total Capital Ratio was 14.4%.
·
Net Interest Income: Net interest income for the third quarter of 2018 increased $3.7 million to $43.0 million compared to $39.3 million for the third quarter of 2017.  Net interest income was $41.2 million for the second quarter of 2018.  Net interest margin was 4.02% for the quarter ended September 30, 2018, compared to 3.77% for the quarter ended September 30, 2017 and 3.94% for the quarter ended June 30, 2018.  The increase in net interest margin compared to the prior year third quarter is primarily due to increased yields in most loan categories and higher overall yields on investments and interest-earning deposits at the Federal Reserve Bank, partially offset by an increase in the average interest rate paid on deposits and FHLBank advances.  The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 14, 9 and 10 basis points for the quarters ended September 30, 2018, September 30, 2017, and June 30, 2018, respectively.  For further discussion of the additional yield accretion of the discount on acquired loan pools, see "Net Interest Income."
 
 
1

 
 
Springfield, Mo. – Great Southern Bancorp, Inc. (NASDAQ:GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended September 30, 2018, were $1.57 per diluted common share ($22.5 million available to common shareholders) compared to $0.82 per diluted common share ($11.7 million available to common shareholders) for the three months ended September 30, 2017.

Preliminary earnings for the nine months ended September 30, 2018, were $3.49 per diluted common share ($49.8 million available to common shareholders) compared to $2.77 per diluted common share ($39.4 million available to common shareholders) for the nine months ended September 30, 2017.

For the quarter ended September 30, 2018, annualized return on average common equity was 17.80%, annualized return on average assets was 1.99%, and net interest margin was 4.02%, compared to 10.09%, 1.05% and 3.77%, respectively, for the quarter ended September 30, 2017.  For the nine months ended September 30, 2018, annualized return on average common equity was 13.51%; annualized return on average assets was 1.49%; and net interest margin was 3.96% compared to 11.65%, 1.18% and 3.75%, respectively, for the nine months ended September 30, 2017.

President and CEO Joseph W. Turner commented, "We are pleased with our third quarter results. Earnings were very strong, due in part to the gain related to the sale of the Omaha, Neb. branches and related deposits in July 2018. Even without this substantial gain, earnings were $1.18 per common diluted share, underscoring a very solid quarter driven by an increased core net interest margin, loan growth, expense containment, and lower credit costs. Core net interest margin for the third quarter 2018 expanded to 3.88%, which was an increase of 20 and four basis points from the year ago quarter and linked quarter, respectively. The primary driver of the core margin expansion was increased yields in most of our loan categories, partially offset by an increase in deposit costs. Non-interest expenses were only slightly higher than the prior year quarter as we continue our strong focus on efficiencies and cost containment."

Turner continued, "Commercial real estate and construction loan production remained strong during the quarter, propelling outstanding net loan balances by $83 million during the quarter. From the end of 2017, outstanding net loan balances have increased $216.5 million. Healthy loan demand continues throughout the franchise's footprint, although competition for quality loans is fierce. Our newest loan production offices in Atlanta and Denver are expected to come online during the fourth quarter.

"During the third quarter 2018, our asset quality metrics further improved. Non-performing assets and potential problem loans decreased by $16.6 million from the end of 2017, and were down $11.0 million from the end of the second quarter 2018. A large portion of the decrease in non-performing assets during the most recent quarter was due to the sale of $3.4 million in foreclosed real estate assets."

Selected Financial Data:
(In thousands, except per share data)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net interest income
 
$
42,985
   
$
39,281
   
$
123,636
   
$
115,883
 
Provision for loan losses
   
1,300
     
2,950
     
5,200
     
7,150
 
Non-interest income
   
14,604
     
7,655
     
28,998
     
31,151
 
Non-interest expense
   
28,309
     
28,034
     
86,537
     
84,976
 
Provision for income taxes
   
5,464
     
4,289
     
11,076
     
15,550
 
Net income and net income available to
   common shareholders
 
$
22,516
   
$
11,663
   
$
49,821
   
$
39,358
 
                                 
Earnings per diluted common share
 
$
1.57
   
$
0.82
   
$
3.49
   
$
2.77
 


2




NET INTEREST INCOME

Net interest income for the third quarter of 2018 increased $3.7 million to $43.0 million compared to $39.3 million for the third quarter of 2017.  Net interest margin was 4.02% in the third quarter of 2018, compared to 3.77% in the same period of 2017, an increase of 25 basis points.  For the three months ended September 30, 2018, the net interest margin increased eight basis points compared to the net interest margin of 3.94% in the three months ended June 30, 2018, primarily as a result of increased yields in most loan categories and higher overall yields on investments and interest-earning deposits at the Federal Reserve Bank, partially offset by an increase in the average interest rate on deposits. The increase in the margin from the prior year third quarter was primarily the result of increased yields in most loan categories and higher overall yields on investments and interest-earning deposits at the Federal Reserve Bank and an increase in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior year period, partially offset by an increase in the average interest rate on deposits and borrowings.  The average interest rate spread was 3.76% for the three months ended September 30, 2018, compared to 3.60% for the three months ended September 30, 2017 and 3.72% for the three months ended June 30, 2018.

Net interest income for the nine months ended September 30, 2018 increased $7.7 million to $123.6 million compared to $115.9 million for the nine months ended September 30, 2017.  Net interest margin was 3.96% in the nine months ended September 30, 2018, compared to 3.75% in the same period of 2017, an increase of 21 basis points.  The average interest rate spread was 3.74% for the nine months ended September 30, 2018, compared to 3.59% for the nine months ended September 30, 2017.

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 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 year nine month period, the increases in expected cash flows also reduced the amount of expected reimbursements under the remaining loss sharing agreements with the FDIC (which remaining agreements were terminated on June 9, 2017), which were recorded as indemnification assets, with such reductions amortized on a comparable basis over the remainder of the terms of the loss sharing agreements or the remaining expected lives of the loan pools, whichever was shorter.  Additional estimated cash flows (reclassification of discounts from non-accretable to accretable) totaling approximately $1.5 million and $4.0 million were recorded in the three and nine months ended September 30, 2018, respectively, related to these acquired 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
   
September 30, 2018
 
September 30, 2017
   
(In thousands, except basis points data)
Impact on net interest income/
net interest margin (in basis points)
 
$
1,424
 
14 bps
 
$
975
 
9 bps
Non-interest income
   
       
   
Net impact to pre-tax income
 
$
1,424
     
$
975
   

   
Nine Months Ended
   
September 30, 2018
 
September 30, 2017
   
(In thousands, except basis points data)
Impact on net interest income/
net interest margin (in basis points)
 
$
3,652
 
12 bps
 
$
4,237
 
14 bps
Non-interest income
   
       
(634
)
 
Net impact to pre-tax income
 
$
3,652
     
$
3,603
   
 
3

 
 

 
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 $2.9 million.  Of the remaining adjustments affecting interest income, we expect to recognize $1.0 million of interest income during the remainder of 2018.  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 nine months ended September 30, 2018, increased 20 and 23 basis points, respectively, when compared to the year-ago periods.  The increase in net interest margin in the three and nine month periods is primarily due to increased yields in most loan categories and higher overall yields on investments and interest-earning deposits at the Federal Reserve Bank, partially offset by an increase in the average interest rate on deposits and FHLB Advances.

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 September 30, 2018, non-interest income increased $6.9 million to $14.6 million when compared to the quarter ended September 30, 2017, primarily as a result of the following items:

·
Sale of Omaha-area banking centers:  On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb., metropolitan market. The Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate, fixed assets and ATMs. The Company recorded a pre-tax gain of $7.4 million on the sale during the 2018 quarter.
·
Net gains on loan sales:  Net gains on loan sales decreased $302,000 compared to the prior year quarter.  The decrease was due to a decrease in originations of fixed-rate loans during the 2018 period compared to the 2017 period.  Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market. In 2018, the Company has originated more variable-rate single-family mortgage loans, which have been retained in the Company's portfolio.

For the nine months ended September 30, 2018, non-interest income decreased $2.2 million to $29.0 million when compared to the nine months ended September 30, 2017, primarily as a result of the following items:

·
2017 gain on early termination of FDIC loss sharing agreements for Inter Savings Bank:  In 2017, the Company recognized a one-time gross gain of $7.7 million from the termination of the loss sharing agreements for Inter Savings Bank, which was recorded in the accretion of income related to business acquisitions line item of the consolidated statements of income for the nine months ended September 30, 2017.
·
Net gains on loan sales:  Net gains on loan sales decreased $905,000 compared to the prior year period.  The decrease was due to a decrease in originations of fixed-rate loans during the 2018 period compared to the 2017 period.  Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market. In 2018, the Company has originated more variable-rate single-family mortgage loans, which have been retained in the Company's portfolio.
·
Late charges and fees on loans:  Late charges and fees on loans decreased $682,000 compared to the prior year period.  The decrease was primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships in the 2017 period which were not repeated in the 2018 period.
·
Other income:  Other income decreased $835,000 compared to the prior year period.  The decrease was primarily due to income from interest rate swaps entered into in 2017, the receipt of approximately $260,000 more income related to the exit of certain tax credit partnerships in 2017 compared to 2018 and $250,000 less in merchant card services fees compared to 2017.
·
Sale of Omaha-area banking centers:  On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb., metropolitan market and recorded a pre-tax gain of $7.4 million on the sale during the 2018 period, as described above.
 
 
4

 
 

 
·
Amortization of income related to business acquisitions:  Because of the termination of the remaining loss sharing agreements in June 2017, the net amortization expense related to business acquisitions was $-0- for the nine months ended September 30, 2018, compared to $486,000 for the nine months ended September 30, 2017, which reduced non-interest income by that amount in the previous year period.

NON-INTEREST EXPENSE

For the quarter ended September 30, 2018, non-interest expense increased $275,000 to $28.3 million when compared to the quarter ended September 30, 2017, primarily as a result of the following items:

·
Salaries and employee benefits:  Salaries and employee benefits increased $498,000 from the prior year quarter.  This increase is approximately 3% over the prior year expense total and is primarily attributable to normal annual raises for employees and increases in costs for health insurance and retirement benefits.
·
Net occupancy and equipment expense:  Net occupancy and equipment expense increased $472,000 in the quarter ended September 30, 2018 compared to the same quarter in 2017, primarily due to increased depreciation expense for upgraded ATM/ITM machines, deconversion expenses related to the sale of the Omaha-area banking centers and repairs and maintenance costs for various banking centers.
·
Legal, audit and other professional fees:  Legal, audit and other professional fees increased $265,000 in the quarter ended September 30, 2018 compared to the same period in 2017.  The increase was primarily due to legal costs related to the sale of the Omaha-area banking centers, fees related to the ongoing implementation of an accounting system which will be utilized for the new loan loss accounting standard and fees for professional services related to process improvement initiatives.
·
Expense on foreclosed assets and repossessions:  Expense on foreclosed assets decreased $845,000 compared to the prior year quarter primarily due to increased gains on the sales of foreclosed assets and repossessions and lower repossession and collection expenses.

For the nine months ended September 30, 2018, non-interest expense increased $1.5 million to $86.5 million when compared to the nine months ended September 30, 2017, primarily as a result of the following items:

·
Expense on foreclosed assets and repossessions:  Expense on foreclosed assets increased $1.8 million compared to the prior year period primarily due to the valuation write-down of certain foreclosed assets during the second quarter 2018, totaling approximately $2.1 million, partially offset by the items noted above in the three month period.
·
Net occupancy and equipment expense:  Net occupancy expense increased $815,000 in the nine months ended September 30, 2018 compared to the same period in 2017.  This increase was due to the reasons noted above in the three month period, as well as increased expenses related to hardware and software costs for loan loss accounting and commercial loan systems and data servers at the Company's disaster recovery site.
·
Legal, audit and other professional fees:  Legal, audit and other professional fees increased $382,000 in the nine months ended September 30, 2018 compared to the same period in 2017 for the reasons noted above in the three month period.
·
Office supplies and printing expense:  Office supplies and printing expense decreased $419,000 in the nine months ended September 30, 2018 compared to the same period in 2017.  During the 2017 period the Bank incurred printing and other costs totaling $373,000 related to the replacement of a portion of customer debit cards with chip-enabled cards, which was not repeated in the current year period.
·
Other operating expenses:  Other operating expenses decreased $786,000 in the nine months ended September 30, 2018 compared to the same period in 2017.  During the 2017 period, the Company incurred a $340,000 prepayment penalty when FHLB advances totaling $31.4 million were repaid prior to maturity, which was not repeated in the 2018 period.  In addition, the Company experienced significantly lower debit card and check fraud losses in the 2018 period compared to the 2017 period.
 
 
5

 
 

 
The Company's efficiency ratio for the quarter ended September 30, 2018, was 49.16% compared to 59.73% for the same quarter in 2017.  The efficiency ratio for the nine months ended September 30, 2018, was 56.70% compared to 57.79% for the same period in 2017.  The decrease in the ratio in both the 2018 three and nine month periods was primarily due to an increase in non-interest income and an increase in net interest income.  In the 2018 periods, the Company's efficiency ratio was positively impacted by the significant gain recorded related to the sale of the Bank's branches and related deposits in Omaha, Neb.  In the 2017 nine-month period, the Company's efficiency ratio was positively impacted by the significant gain recorded related to the termination of the InterSavings Bank loss sharing agreements.  Excluding these non-interest income gain items, the Company's efficiency ratio would have been 56.42% and 59.59% in the three and nine month 2018 periods and would have been 59.73% and 60.78% in the three and nine month 2017 periods.  The Company's ratio of non-interest expense to average assets was 2.50% and 2.58% for the three and nine months ended September 30, 2018, respectively, compared to 2.52% and 2.54% for the three and nine months ended September 30, 2017, respectively.  Average assets for the quarter ended September 30, 2018, increased $83.9 million, or 1.9%, from the quarter ended September 30, 2017, primarily due to an increase in loans receivable.  Average assets for the nine months ended September 30, 2018, increased $4.8 million, or 0.1%, from the nine months ended September 30, 2017, primarily due to organic loan growth, partially offset by decreases in investment securities and other interest-earning assets.

INCOME TAXES

On December 22, 2017, H.R.1, originally known as the Tax Cuts and Jobs Act (the "Act"), was signed into law. Among other things, the Act permanently lowers the corporate federal income tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018.  The Company currently expects its effective tax rate (combined federal and state) to decrease from approximately 26.7% in 2017 to approximately 16.5% to 18.5% in 2018, mainly as a result of the Act.

For the three months ended September 30, 2018 and 2017, the Company's effective tax rate was 19.5% and 26.9%, respectively.  For the nine months ended September 30, 2018 and 2017, the Company's effective tax rate was 18.2% and 28.3%, respectively.  These effective rates were lower than the statutory federal tax rates of 21% (2018) and 35% (2017), due primarily to the utilization of certain investment tax credits and to tax-exempt investments and tax-exempt loans which reduced the Company's effective tax rate.  The Company's effective tax rate may fluctuate in future periods as it is impacted by the level and timing of the Company's utilization of tax credits and the level of tax-exempt investments and loans and the overall level of pre-tax income.  The Company's effective income tax rate is currently expected to continue to be less than the statutory rate due primarily to the factors noted above.

CAPITAL

As of September 30, 2018, total stockholders' equity and common stockholders' equity were $508.1 million (11.1% of total assets), equivalent to a book value of $35.90 per common share.  Total stockholders' equity and common stockholders' equity at December 31, 2017, were $471.7 million (10.7% of total assets), equivalent to a book value of $33.48 per common share.  At September 30, 2018, the Company's tangible common equity to tangible assets ratio was 10.9%, compared to 10.5% at December 31, 2017.

On a preliminary basis, as of September 30, 2018, the Company's Tier 1 Leverage Ratio was 11.6%, Common Equity Tier 1 Capital Ratio was 11.3%, Tier 1 Capital Ratio was 11.8%, and Total Capital Ratio was 14.4%.  On September 30, 2018, and on a preliminary basis, the Bank's Tier 1 Leverage Ratio was 12.4%, Common Equity Tier 1 Capital Ratio was 12.6%, Tier 1 Capital Ratio was 12.6%, and Total Capital Ratio was 13.5%.
 
 
6

 
 

LOANS

Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $356.2 million, or 8.2%, from December 31, 2017, to September 30, 2018.  This increase was primarily in construction loans ($218 million), commercial real estate loans ($149 million), one- to four-family residential mortgage loans ($55 million) and other residential (multi-family) loans ($46 million).  These increases were partially offset by decreases in consumer auto loans ($79 million).  The FDIC-acquired loan portfolios had net decreases totaling $32.5 million during the nine months ended September 30, 2018.
 
Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):

   
September 30,
2018
   
June 30,
2018
   
March 31,
2018
   
December 31,
2017
   
December 31,
2016
   
December 31,
2015
 
Closed loans with unused available lines
                                   
   Secured by real estate (one- to four-family)
 
$
151,880
   
$
144,994
   
$
138,375
   
$
133,587
   
$
123,433
   
$
105,390
 
   Secured by real estate (not one- to four-family)
   
13,179
     
15,306
     
12,382
     
10,836
     
26,062
     
21,857
 
   Not secured by real estate - commercial business
   
92,229
     
104,749
     
108,262
     
113,317
     
79,937
     
63,865
 
 
                                               
Closed construction loans with unused
     available lines
                                               
   Secured by real estate (one-to four-family)
   
26,470
     
31,221
     
29,757
     
20,919
     
10,047
     
14,242
 
   Secured by real estate (not one-to four-family)
   
838,962
     
830,592
     
749,926
     
718,277
     
542,326
     
385,969
 
 
                                               
Loan Commitments not closed
                                               
   Secured by real estate (one-to four-family)
   
30,226
     
47,040
     
37,144
     
23,340
     
15,884
     
13,411
 
   Secured by real estate (not one-to four-family)
   
180,552
     
128,200
     
200,192
     
156,658
     
119,126
     
120,817
 
   Not secured by real estate - commercial business
   
11,521
     
     
12,995
     
4,870
     
7,022
     
 
 
                                               
   
$
1,345,019
   
$
1,302,102
   
$
1,289,033
   
$
1,181,804
   
$
923,837
   
$
725,551
 

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."

PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES

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

Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or requirements for an increase in loan loss provision expense. Management maintains various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan work-outs. Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
 
 
7

 

 
The provision for loan losses for the quarter ended September 30, 2018, decreased $1.7 million to $1.3 million when compared with the quarter ended September 30, 2017.  At September 30, 2018 and December 31, 2017, the allowance for loan losses was $37.5 million and $36.5 million, respectively.  Total net charge-offs were $1.4 million and $3.2 million for the quarters ended September 30, 2018 and 2017, respectively.  During the quarter ended September 30, 2018, $833,000 of the $1.4 million of net charge-offs were in the consumer auto category.  Total net charge-offs were $4.2 million and $8.3 million for the nine months ended September 30, 2018 and 2017, respectively.  During the nine months ended September 30, 2018, $2.8 million of the $4.2 million of net charge-offs were in the consumer auto category.  In response to a more challenging consumer credit environment, the Company tightened its underwriting guidelines on automobile lending in the latter part of 2016.  Management took this step in an effort to improve credit quality in the portfolio and reduce delinquencies and charge-offs.  This action also reduced origination volume and, as such, the outstanding balance of the Company's automobile loans declined approximately $79 million in the nine months ended September 30, 2018.  We expect further declines in the automobile loan outstanding balance through the remainder of 2018.  In addition, two commercial loan relationships amounted to $444,000 of the total charge-offs during the current quarter.  Six commercial loan relationships amounted to $1.3 million of the total charge-offs during the nine months ended September 30, 2018.  Charge-offs were partially offset by recoveries on multiple loans during the quarter.  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 review of financial information, collateral valuations and customer interaction to determine if additional reserves are warranted.

The Bank's allowance for loan losses as a percentage of total loans, excluding FDIC-acquired loans, was 1.00%, 1.01% and 1.02% at September 30, 2018, December 31, 2017 and June 30, 2018, respectively.  Management considers the allowance for loan losses adequate to cover losses inherent in the Bank's loan portfolio at September 30, 2018, 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, InterBank and Valley Bank 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. These assets were initially recorded at their estimated fair values as of their acquisition dates and are accounted for in pools; therefore, these loan pools are analyzed rather than the individual loans.  The performance of the loan pools acquired in each of the five transactions has been better than expectations as of the acquisition dates.

As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate.
 
8

 
 

 
Non-performing assets, excluding all FDIC-assisted acquired assets, at September 30, 2018 were $15.9 million, a decrease of $11.9 million from $27.8 million at December 31, 2017 and a decrease of $5.6 million from $21.5 million at June 30, 2018.  Non-performing assets, excluding all FDIC-assisted acquired assets, as a percentage of total assets were 0.35% at September 30, 2018, compared to 0.63% at December 31, 2017 and 0.47% of total assets at June 30, 2018.

Compared to December 31, 2017, non-performing loans decreased $4.7 million to $6.5 million at September 30, 2018, and foreclosed assets decreased $7.2 million to $9.4 million at September 30, 2018.  Compared to June 30, 2018, non-performing loans decreased $1.6 million and foreclosed assets decreased $4.0 million at September 30, 2018.  Non-performing one- to four-family residential loans comprised $2.8 million, or 42.5%, of the total $6.5 million of non-performing loans at September 30, 2018, an increase of $160,000 from June 30, 2018.  Non-performing consumer loans comprised $1.8 million, or 27.6%, of the total non-performing loans at September 30, 2018, a decrease of $451,000 from June 30, 2018.  Non-performing commercial business loans comprised $1.6 million, or 24.6%, of the total non-performing loans at September 30, 2018, a decrease of $1.3 million from June 30, 2018.  Non-performing commercial real estate loans comprised $346,000, or 5.3%, of the total non-performing loans at September 30, 2018, a decrease of $6,000 from June 30, 2018.  Non-performing construction and land development loans decreased $91,000 from June 30, 2018 to a balance of $-0- at September 30, 2018.

Compared to June 30, 2018, potential problem loans decreased $5.4 million to $3.3 million at September 30, 2018.  The decrease during the quarter was due to $5.3 million in loans removed from potential problem loans, $279,000 in payments, $12,000 in loans moved to non-performing loans and $1,000 in charge-offs, partially offset by the addition of $126,000 of loans to potential problem loans.

Activity in the non-performing loans category during the quarter ended September 30, 2018, was as follows:

   
Beginning
Balance,
July 1
   
Additions to
Non-
Performing
   
Removed
from Non-
Performing
   
Transfers
to Potential
Problem
Loans
   
Transfers to
Foreclosed
Assets and
Repossessions
   
Charge-Offs
   
Payments
   
Ending
Balance,
September 30
 
   
(In thousands)
 
                                                 
One- to four-family construction
 
$
   
$
   
$
   
$
   
$
   
$
   
$
   
$
 
Subdivision construction
   
91
     
     
     
     
     
(3
)
   
(88
)
   
 
Land development
   
     
     
     
     
     
     
     
 
Commercial construction
   
     
     
     
     
     
     
     
 
One- to four-family residential
   
2,591
     
440
     
     
     
(231
)
   
     
(49
)
   
2,751
 
Other residential
   
     
     
     
     
     
     
     
 
Commercial real estate
   
352
     
     
     
     
     
     
(6
)
   
346
 
Commercial business
   
2,852
     
164
     
     
     
     
(249
)
   
(1,177
)
   
1,590
 
Consumer
   
2,239
     
548
     
(7
)
   
(124
)
   
(121
)
   
(509
)
   
(238
)
   
1,788
 
                                                                 
Total
 
$
8,125
   
$
1,152
   
$
(7
)
 
$
(124
)
 
$
(352
)
 
$
(761
)
 
$
(1,558
)
 
$
6,475
 

At September 30, 2018, the non-performing one- to four-family residential category included 30 loans, five of which were added during the current quarter.  The largest relationship in this category was added in 2017 and included nine loans totaling $1.3 million, or 47.4% of the total category, which are collateralized by residential rental homes in the Springfield, Mo. area. The non-performing commercial business category included six loans, one of which was added during the current quarter.  The largest relationship in this category, which was added during the first quarter of 2018, totaled $1.2 million, or 72.6% of the total category.  This relationship is collateralized by an assignment of an interest in a real estate project.  A relationship in the commercial business category, which previously totaled $900,000, received payments during the current quarter to satisfy the remaining recorded balance.  The non-performing consumer category included 160 loans, 41 of which were added during the current quarter, and the majority of which are indirect used automobile loans.
 
 
9


 
Activity in the potential problem loans category during the quarter ended September 30, 2018, was as follows:

   
Beginning
Balance,
July 1
   
Additions to
Potential
Problem
   
Removed
from
Potential
Problem
   
Transfers to
Non-
Performing
   
Transfers to
Foreclosed
Assets and
Repossessions
   
Charge-Offs
   
Payments
   
Ending
Balance,
September 30
 
   
(In thousands)
       
                                                 
One- to four-family construction
 
$
   
$
   
$
   
$
   
$
   
$
   
$
   
$
 
Subdivision construction
   
     
     
     
     
     
     
     
 
Land development
   
4
     
     
     
     
     
     
     
4
 
Commercial construction
   
     
     
     
     
     
     
     
 
One- to four-family residential
   
1,218
     
     
     
     
     
     
(164
)
   
1,054
 
Other residential
   
     
     
     
     
     
     
     
 
Commercial real estate
   
6,670
     
     
(4,709
)
   
     
     
     
(16
)
   
1,945
 
Commercial business
   
68
     
     
(59
)
   
     
     
     
(9
)
   
 
Consumer
   
715
     
126
     
(488
)
   
(12
)
   
     
(1
)
   
(90
)
   
250
 
                                                                 
Total
 
$
8,675
   
$
126
   
$
(5,256
)
 
$
(12
)
 
$
   
$
(1
)
 
$
(279
)
 
$
3,253
 

At September 30, 2018, the commercial real estate category of potential problem loans included one loan, which was added during the previous quarter, and is collateralized by a mixed use commercial retail building. One relationship previously in this category, which is made up of three loans totaling $4.7 million, and is collateralized by theatre and retail property in Branson, Mo., was removed from potential problem loans during the current quarter.  The borrower has been making timely principal and interest payments on these loans and the debt service coverage on the relationship has improved, which led to the Bank's decision to remove these loans from potential problem loans.  The one- to four-family residential category of potential problem loans included 17 loans. The consumer category of potential problem loans included 20 loans, 12 of which were added during the current quarter.

Activity in foreclosed assets and repossessions during the quarter ended September 30, 2018, excluding $1.8 million in foreclosed assets related to loans acquired in FDIC-assisted transactions and $1.6 million in properties which were not acquired through foreclosure, was as follows:

   
Beginning
Balance,
July 1
   
Additions
   
ORE and
Repossession
Sales
   
Capitalized
Costs
   
ORE and
Repossession
Write-Downs
   
Ending
Balance,
September 30
 
   
(In thousands)
 
                                     
One-to four-family construction
 
$
   
$
   
$
   
$
   
$
   
$
 
Subdivision construction
   
2,715
     
     
(194
)
   
     
(257
)
   
2,264
 
Land development
   
5,068
     
20
     
(593
)
   
     
     
4,495
 
Commercial construction
   
     
     
     
     
     
 
One- to four-family residential
   
622
     
212
     
(177
)
   
     
     
657
 
Other residential
   
1,744
     
     
(1,744
)
   
     
     
 
Commercial real estate
   
1,745
     
     
(703
)
   
10
     
(50
)
   
1,002
 
Commercial business
   
     
     
     
     
     
 
Consumer
   
1,470
     
1,617
     
(2,067
)
   
     
     
1,020
 
                                                 
Total
 
$
13,364
   
$
1,849
   
$
(5,478
)
 
$
10
   
$
(307
)
 
$
9,438
 

Excluding the consumer category, during the three months ended September 30, 2018, the Company reduced its foreclosed assets by $3.4 million through asset sales.  At September 30, 2018, the land development category of foreclosed assets included 14 properties, the largest of which was located in the northwest Arkansas area and had a balance of $1.1 million, or 23.5% of the total category.  Of the total dollar amount in the land development category of foreclosed assets, 48.2% and 23.5% 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 10 properties, the largest of which was located in the Springfield, Mo. metropolitan area and had a balance of $799,000, or 35.3% of the total category.  Of the total dollar amount in the subdivision construction category of foreclosed assets, 46.7% and 35.3% is located in Branson, Mo. and Springfield, Mo., respectively, including the largest property previously mentioned.  The commercial real estate category of foreclosed assets included two properties, the largest of which was recreational property in the St. Louis area and had a balance of $656,000, or 65.5% of the total category.  Three properties in the commercial real estate category had sales totaling $703,000 during the current quarter.  The amount of additions and sales under consumer loans are due to a higher volume of repossessions of automobiles, which generally are subject to a shorter repossession process.  The Company experienced increased levels of delinquencies and repossessions in indirect and used automobile loans throughout 2016 and 2017.  The level of delinquencies and repossessions in indirect and used automobile loans has decreased in 2018.  The other residential category of foreclosed assets had a zero balance at September 30, 2018.  The previously remaining property in the category, an apartment building in central Missouri totaling $1.7 million, was sold during the current quarter.
10

 

 
BUSINESS INITIATIVES

On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb., metropolitan market to Lincoln, Neb.-based West Gate Bank. Pursuant to the purchase and assumption agreement, the Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate, fixed assets and ATMs. The Company recorded pre-tax income, net of expenses, of $7.25 million, or $0.39 (after tax) per diluted common share. As a result of this transaction, the Company expects that non-interest income will decrease $300,000–$350,000 annually, non-interest expense will decrease by $1.1– $1.2 million annually, and interest expense will increase by $400,000-$500,000 annually (based on current interest rates for non-deposit funds). Great Southern is maintaining a commercial loan production office in the Omaha market and moved to a new office in July.

In November 2018, the Company expects to open a commercial loan production office in Atlanta, Ga. Final regulatory approval for a commercial loan production office in Denver, Colo., is also expected during November 2018. Highly-experienced local commercial lenders have been hired to manage each office. The Company also operates commercial loan production offices in Chicago, Dallas, Omaha, Neb., and Tulsa, Okla.

The Company will host a conference call on Thursday, October 18, 2018, at 2:00 p.m. Central Time (3:00 p.m. Eastern Time) to discuss its third quarter 2018 preliminary earnings. Individuals interested in listening to the conference call may dial 1.833.832.5121 and enter the passcode 1038778. The call will be available live or in a recorded version at the Company's Investor Relations website, http://investors.greatsouthernbank.com.

Headquartered in Springfield, Mo., Great Southern offers a broad range of banking services to customers. The Company operates 99 retail banking centers and more than 200 ATMs in Missouri, Arkansas, Iowa, Kansas, Minnesota and Nebraska and commercial lending offices in Atlanta, Chicago, Dallas, Omaha, Neb., 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 in other documents filed or furnished by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, (i) the possibility that the changes in non-interest income, non-interest expense and interest expense actually resulting from the Bank's branch sale transaction with West Gate Bank might be materially different from estimated amounts; (ii) the possibility that the actual reduction in the Company's effective tax rate expected to result from H. R. 1, formerly known as the "Tax Cuts and Jobs Act" (the "Tax Reform Legislation") might be different from the reduction estimated by the Company; (iii) expected revenues, cost savings, earnings accretion, synergies and other benefits from the Company's merger and acquisition activities  might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (iv) changes in economic conditions, either nationally or in the Company's market areas; (v) fluctuations in interest rates; (vi) 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; (vii) the possibility of other-than-temporary impairments of securities held in the Company's securities portfolio; (viii) the Company's ability to access cost-effective funding; (ix) fluctuations in real estate values and both residential and commercial real estate market conditions; (x) demand for loans and deposits in the Company's market areas; (xi) the ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace; (xii) 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; (xiii) legislative or regulatory changes that adversely affect the Company's business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing regulations, the overdraft protection regulations and customers' responses thereto and the Tax Reform Legislation; (xiv) changes in accounting principles, policies or guidelines; (xv) monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xvi) 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 limit its business activities, changes its business mix, increase its allowance for loan losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; (xvii) costs and effects of litigation, including settlements and judgments; and (xviii) 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.
 
 
11

 
 
 
The following tables set forth selected consolidated financial information of the Company at the dates and for the periods indicated.  Financial data at all dates and 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 at and for such unaudited dates and periods have been included.  The results of operations and other data for the three and nine months ended September 30, 2018 and 2017, and the three months ended June 30, 2018, are not necessarily indicative of the results of operations which may be expected for any future period.

   
September 30,
   
December 31,
 
   
2018
   
2017
 
 Selected Financial Condition Data:
 
(In thousands)
 
             
Total assets
 
$
4,584,086
   
$
4,414,521
 
Loans receivable, gross
   
3,987,046
     
3,769,294
 
Allowance for loan losses
   
37,497
     
36,492
 
Other real estate owned, net
   
12,844
     
22,002
 
Available-for-sale securities, at fair value
   
191,251
     
179,179
 
Deposits
   
3,595,665
     
3,597,144
 
Total borrowings
   
453,122
     
324,097
 
Total common stockholders' equity
   
508,127
     
471,662
 
Non-performing assets (excluding FDIC-assisted transaction assets)
   
15,913
     
27,830
 


   
Three Months Ended
   
Nine Months Ended
   
Three Months
Ended
 
   
September 30,
   
September 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
   
2018
 
Selected Operating Data:
 
(Dollars in thousands, except per share data)
 
                               
Interest income
 
$
52,982
   
$
46,368
   
$
149,808
   
$
136,525
   
$
49,943
 
Interest expense
   
9,997
     
7,087
     
26,172
     
20,642
     
8,731
 
Net interest income
   
42,985
     
39,281
     
123,636
     
115,883
     
41,212
 
Provision for loan losses
   
1,300
     
2,950
     
5,200
     
7,150
     
1,950
 
Non-interest income
   
14,604
     
7,655
     
28,998
     
31,151
     
7,459
 
Non-interest expense
   
28,309
     
28,034
     
86,537
     
84,976
     
29,915
 
Provision for income taxes
   
5,464
     
4,289
     
11,076
     
15,550
     
2,967
 
Net income and net income available to common shareholders
 
$
22,516
   
$
11,663
   
$
49,821
   
$
39,358
   
$
13,839
 
                                         

   
At or For the Three
Months Ended
   
At or For the Nine
Months Ended
   
At or For the
Three Months
Ended
 
   
September 30,
   
September 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
   
2018
 
Per Common Share:
 
(Dollars in thousands, except per share data)
 
                               
Net income (fully diluted)
 
$
1.57
   
$
0.82
   
$
3.49
   
$
2.77
   
$
0.97
 
Book value
 
$
35.90
   
$
32.90
   
$
35.90
   
$
32.90
   
$
34.69
 
                                         
Earnings Performance Ratios:
                                       
Annualized return on average assets
   
1.99
%
   
1.05
%
   
1.49
%
   
1.18
%
   
1.23
%
Annualized return on average
      common stockholders' equity
   
17.80
%
   
10.09
%
   
13.51
%
   
11.65
%
   
11.32
%
Net interest margin
   
4.02
%
   
3.77
%
   
3.96
%
   
3.75
%
   
3.94
%
Average interest rate spread
   
3.76
%
   
3.60
%
   
3.74
%
   
3.59
%
   
3.72
%
Efficiency ratio
   
49.16
%
   
59.73
%
   
56.70
%
   
57.79
%
   
61.46
%
Non-interest expense to average total assets
   
2.50
%
   
2.52
%
   
2.58
%
   
2.54
%
   
2.66
%
                                         
Asset Quality Ratios:
 
Allowance for loan losses to period-end loans
      (excluding covered/previously covered loans)
   
1.00
%
   
0.99
%
   
1.00
%
   
0.99
%
   
1.02
%
Non-performing assets to period-end assets
   
0.35
%
   
0.73
%
   
0.35
%
   
0.73
%
   
0.47
%
Non-performing loans to period-end loans
   
0.16
%
   
0.25
%
   
0.16
%
   
0.25
%
   
0.21
%
Annualized net charge-offs to average loans
   
0.14
%
   
0.35
%
   
0.14
%
   
0.31
%
   
0.07
%
 
 
12


 


Great Southern Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except number of shares)
 
   
September 30,
2018
   
December 31,
2017
   
June 30,
2018
 
Assets
                 
Cash
 
$
99,044
   
$
115,600
   
$
107,554
 
Interest-bearing deposits in other financial institutions
   
109,777
     
126,653
     
172,931
 
Cash and cash equivalents
   
208,821
     
242,253
     
280,485
 
                         
Available-for-sale securities
   
191,251
     
179,179
     
169,971
 
Held-to-maturity securities
   
     
130
     
 
Mortgage loans held for sale
   
3,474
     
8,203
     
5,087
 
Loans receivable (1), net of allowance for loan losses of $37,497  –
    September 2018; $36,492 – December 2017; $37,556 – June 2018
   
3,942,766
     
3,726,302
     
3,859,801
 
Interest receivable
   
13,008
     
12,338
     
12,449
 
Prepaid expenses and other assets
   
41,116
     
47,122
     
40,937
 
Other real estate owned and repossessions (2), net
   
12,844
     
22,002
     
18,266
 
Premises and equipment, net
   
133,319
     
138,018
     
139,386
 
Goodwill and other intangible assets
   
9,613
     
10,850
     
10,025
 
Federal Home Loan Bank stock
   
14,918
     
11,182
     
15,678
 
Current and deferred income taxes
   
12,956
     
16,942
     
16,778
 
                         
Total Assets
 
$
4,584,086
   
$
4,414,521
   
$
4,568,863
 
                         
Liabilities and Stockholders' Equity
                       
Liabilities
                       
Deposits
 
$
3,595,665
   
$
3,597,144
   
$
3,597,057
 
Federal Home Loan Bank advances
   
240,000
     
127,500
     
259,000
 
Securities sold under reverse repurchase agreements with customers
   
112,184
     
80,531
     
95,543
 
Short-term borrowings
   
1,360
     
16,604
     
1,360
 
Subordinated debentures issued to capital trust
   
25,774
     
25,774
     
25,774
 
Subordinated notes
   
73,804
     
73,688
     
73,766
 
Accrued interest payable
   
3,013
     
2,904
     
3,394
 
Advances from borrowers for taxes and insurance
   
8,858
     
5,319
     
7,957
 
Accounts payable and accrued expenses
   
15,301
     
13,395
     
14,741
 
Total Liabilities
   
4,075,959
     
3,942,859
     
4,078,592
 
                         
Stockholders' Equity
                       
Capital stock
                       
Preferred stock, $.01 par value; authorized 1,000,000 shares;
    issued and outstanding September 2018, December 2017  and
    June 2018 – -0- shares
   
     
     
 
Common stock, $.01 par value; authorized 20,000,000 shares;
    issued and outstanding September 2018 – 14,153,290 shares;
    December 2017 – 14,087,533 shares; June 2018 – 
    14,133,823 shares
   
142
     
141
     
141
 
Additional paid-in capital
   
29,553
     
28,203
     
29,134
 
Retained earnings
   
480,027
     
442,077
     
461,784
 
Accumulated other comprehensive gain (loss)
   
(1,595
)
   
1,241
     
(788
)
Total Stockholders' Equity
   
508,127
     
471,662
     
490,271
 
                         
Total Liabilities and Stockholders' Equity
 
$
4,584,086
   
$
4,414,521
   
$
4,568,863
 

(1)
At September 30, 2018, December 31, 2017 and June 30, 2018, includes loans, net of discounts, totaling $177.1 million, $209.7 million and $184.1 million, respectively, which were acquired in FDIC-assisted transactions and are accounted for under ASC 310-30.
(2)
At September 30, 2018, December 31, 2017 and June 30, 2018, includes foreclosed assets, net of discounts, totaling $1.8 million, $3.8 million and $3.3 million, respectively, which were acquired in FDIC-assisted transactions.  In addition, at each of September 30, 2018, December 31, 2017 and June 30, 2018, includes $1.6 million of properties which were not acquired through foreclosure, but are held for sale.
 
13

 
Great Southern Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)

   
Three Months Ended
   
Nine Months Ended
   
Three Months
Ended
 
   
September 30,
   
September 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
   
2018
 
Interest Income
                             
Loans
 
$
51,063
   
$
44,824
   
$
144,447
   
$
131,734
   
$
48,219
 
Investment securities and other
   
1,919
     
1,544
     
5,361
     
4,791
     
1,724
 
     
52,982
     
46,368
     
149,808
     
136,525
     
49,943
 
Interest Expense
                                       
Deposits
   
7,352
     
5,131
     
19,058
     
15,100
     
6,123
 
Federal Home Loan Bank advances
   
1,192
     
546
     
2,964
     
1,045
     
1,166
 
Short-term borrowings and repurchase agreements
   
177
     
118
     
385
     
662
     
180
 
Subordinated debentures issued to capital trust
   
252
     
267
     
692
     
760
     
238
 
Subordinated notes
   
1,024
     
1,025
     
3,073
     
3,075
     
1,024
 
     
9,997
     
7,087
     
26,172
     
20,642
     
8,731
 
                                         
Net Interest Income
   
42,985
     
39,281
     
123,636
     
115,883
     
41,212
 
Provision for Loan Losses
   
1,300
     
2,950
     
5,200
     
7,150
     
1,950
 
Net Interest Income After Provision for Loan Losses
   
41,685
     
36,331
     
118,436
     
108,733
     
39,262
 
                                         
Noninterest Income
                                       
Commissions
   
309
     
279
     
868
     
851
     
312
 
Service charges and ATM fees
   
5,458
     
5,533
     
16,191
     
16,195
     
5,488
 
Net gains on loan sales
   
417
     
719
     
1,438
     
2,343
     
559
 
Late charges and fees on loans
   
466
     
436
     
1,240
     
1,922
     
385
 
Gain on sales of securities
   
2
     
     
2
     
     
 
Gain (loss) on derivative interest rate products
   
5
     
8
     
53
     
(5
)
   
11
 
Accretion of income related to business acquisitions
   
     
     
     
7,218
     
 
Gain on sale of business units
   
7,414
     
     
7,414
     
     
 
Other income
   
533
     
680
     
1,792
     
2,627
     
704
 
     
14,604
     
7,655
     
28,998
     
31,151
     
7,459
 
                                         
Noninterest Expense
                                       
Salaries and employee benefits
   
15,162
     
14,664
     
44,731
     
44,495
     
14,947
 
Net occupancy expense
   
6,551
     
6,079
     
19,234
     
18,419
     
6,298
 
Postage
   
843
     
845
     
2,544
     
2,651
     
834
 
Insurance
   
682
     
755
     
2,002
     
2,300
     
650
 
Advertising
   
589
     
587
     
1,892
     
1,656
     
632
 
Office supplies and printing
   
255
     
279
     
789
     
1,208
     
301
 
Telephone
   
827
     
790
     
2,339
     
2,389
     
792
 
Legal, audit and other professional fees
   
875
     
610
     
2,373
     
1,991
     
689
 
Expense on foreclosed assets and repossessions
   
498
     
1,343
     
4,376
     
2,595
     
2,737
 
Partnership tax credit
   
91
     
217
     
484
     
713
     
91
 
Acquired deposit intangible asset amortization
   
412
     
412
     
1,237
     
1,237
     
412
 
Other operating expenses
   
1,524
     
1,453
     
4,536
     
5,322
     
1,532
 
     
28,309
     
28,034
     
86,537
     
84,976
     
29,915
 
                                         
Income Before Income Taxes
   
27,980
     
15,952
     
60,897
     
54,908
     
16,806
 
Provision for Income Taxes
   
5,464
     
4,289
     
11,076
     
15,550
     
2,967
 
                                         
Net Income and Net Income Available to Common Shareholders
 
$
22,516
   
$
11,663
   
$
49,821
   
$
39,358
   
$
13,839
 
Earnings Per Common Share
                                       
Basic
 
$
1.59
   
$
0.83
   
$
3.53
   
$
2.81
   
$
0.98
 
Diluted
 
$
1.57
   
$
0.82
   
$
3.49
   
$
2.77
   
$
0.97
 
                                         
Dividends Declared Per Common Share
 
$
0.32
   
$
0.24
   
$
0.88
   
$
0.70
   
$
0.28
 
 
 
14


 
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 $0.9 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively.  Net fees included in interest income were $2.5 million and $2.3 million for the nine months ended September 30, 2018 and 2017, respectively.  Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes.

   
September 30,
2018(1)
   
Three Months Ended
September 30, 2018
   
Three Months Ended
September 30, 2017
 
         
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
   
4.17
%
 
$
453,090
   
$
5,939
     
5.20
%
 
$
450,286
   
$
5,261
     
4.64
%
  Other residential
   
4.97
     
782,595
     
10,163
     
5.15
     
708,745
     
8,135
     
4.55
 
  Commercial real estate
   
4.78
     
1,330,088
     
16,427
     
4.90
     
1,249,120
     
13,868
     
4.40
 
  Construction
   
5.11
     
593,540
     
8,272
     
5.53
     
483,592
     
5,769
     
4.73
 
  Commercial business
   
5.05
     
291,038
     
3,689
     
5.03
     
299,833
     
3,780
     
5.00
 
  Other loans
   
5.99
     
485,647
     
6,283
     
5.13
     
615,604
     
7,637
     
4.92
 
  Industrial revenue bonds
   
4.77
     
19,829
     
290
     
5.80
     
25,424
     
374
     
5.83
 
                                                         
     Total loans receivable
   
5.03
     
3,955,827
     
51,063
     
5.12
     
3,832,604
     
44,824
     
4.64
 
                                                         
Investment securities
   
3.24
     
193,390
     
1,425
     
2.92
     
204,652
     
1,214
     
2.35
 
Other interest-earning assets
   
2.24
     
97,739
     
494
     
2.01
     
93,777
     
330
     
1.40
 
                                                         
     Total interest-earning assets
   
4.88
     
4,246,956
     
52,982
     
4.95
     
4,131,033
     
46,368
     
4.45
 
Non-interest-earning assets:
                                                       
  Cash and cash equivalents
           
97,033
                     
108,953
                 
  Other non-earning assets
           
186,994
                     
207,122
                 
     Total assets
         
$
4,530,983
                   
$
4,447,108
                 
                                                         
Interest-bearing liabilities:
                                                       
  Interest-bearing demand and
                                                       
savings
   
0.43
   
$
1,506,907
     
1,523
     
0.40
   
$
1,529,811
     
1,185
     
0.31
 
  Time deposits
   
1.77
     
1,376,907
     
5,829
     
1.68
     
1,371,147
     
3,946
     
1.14
 
  Total deposits
   
1.08
     
2,883,814
     
7,352
     
1.01
     
2,900,958
     
5,131
     
0.70
 
  Short-term borrowings and repurchase agreements
   
0.01
     
141,864
     
177
     
0.49
     
147,126
     
118
     
0.32
 
  Subordinated debentures issued to
capital trust
   
3.94
     
25,774
     
252
     
3.88
     
25,774
     
267
     
4.11
 
  Subordinated notes
   
5.55
     
73,791
     
1,024
     
5.51
     
73,636
     
1,025
     
5.52
 
  FHLB advances
   
2.18
     
216,674
     
1,192
     
2.18
     
171,728
     
546
     
1.26
 
                                                         
     Total interest-bearing liabilities
   
1.24
     
3,341,917
     
9,997
     
1.19
     
3,319,222
     
7,087
     
0.85
 
Non-interest-bearing liabilities:
                                                       
  Demand deposits
           
660,629
                     
637,156
                 
  Other liabilities
           
22,428
                     
28,355
                 
     Total liabilities
           
4,024,974
                     
3,984,733
                 
Stockholders' equity
           
506,009
                     
462,375
                 
     Total liabilities and stockholders' equity
         
$
4,530,983
                   
$
4,447,108
                 
                                                         
Net interest income:
                                                       
Interest rate spread
   
3.64
%
         
$
42,985
     
3.76
%
         
$
39,281
     
3.60
%
Net interest margin*
                           
4.02
%
                   
3.77
%
Average interest-earning assets to average interest-bearing liabilities
           
127.1
%
                   
124.5
%
               
______________
*Defined as the Company's net interest income divided by average total interest-earning assets.
(1)
The yield on loans at September 30, 2018, 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 September 30, 2018.
 
15

 

 
   
September 30,
2018(1)
   
Nine Months Ended
September 30, 2018
   
Nine Months Ended
September 30, 2017
 
         
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
   
4.17
%
 
$
440,769
   
$
16,544
     
5.02
%
 
$
465,125
   
$
16,885
     
4.85
%
  Other residential
   
4.97
     
755,536
     
28,349
     
5.02
     
692,979
     
23,377
     
4.51
 
  Commercial real estate
   
4.78
     
1,302,940
     
46,753
     
4.80
     
1,237,979
     
40,954
     
4.42
 
  Construction
   
5.11
     
555,708
     
22,007
     
5.29
     
436,259
     
14,902
     
4.57
 
  Commercial business
   
5.05
     
288,579
     
10,592
     
4.91
     
295,955
     
11,160
     
5.04
 
  Other loans
   
5.99
     
511,735
     
19,170
     
5.01
     
652,095
     
23,296
     
4.78
 
  Industrial revenue bonds
   
4.77
     
22,056
     
1,032
     
6.25
     
26,304
     
1,160
     
5.90
 
                                                         
     Total loans receivable
   
5.03
     
3,877,323
     
144,447
     
4.98
     
3,806,696
     
131,734
     
4.63
 
                                                         
Investment securities
   
3.24
     
189,686
     
4,026
     
2.84
     
212,262
     
3,957
     
2.49
 
Other interest-earning assets
   
2.24
     
105,831
     
1,335
     
1.69
     
117,678
     
834
     
0.95
 
                                                         
     Total interest-earning assets
   
4.88
     
4,172,840
     
149,808
     
4.80
     
4,136,636
     
136,525
     
4.41
 
Non-interest-earning assets:
                                                       
  Cash and cash equivalents
           
98,879
                     
108,303
                 
  Other non-earning assets
           
194,441
                     
216,409
                 
     Total assets
         
$
4,466,160
                   
$
4,461,348
                 
                                                         
Interest-bearing liabilities:
                                                       
  Interest-bearing demand and
                                                       
savings
   
0.43
   
$
1,548,273
     
4,268
     
0.37
   
$
1,551,316
     
3,417
     
0.29
 
  Time deposits
   
1.77
     
1,331,098
     
14,790
     
1.49
     
1,426,041
     
11,683
     
1.10
 
  Total deposits
   
1.08
     
2,879,371
     
19,058
     
0.88
     
2,977,357
     
15,100
     
0.68
 
  Short-term borrowings and repurchase agreements
   
0.01
     
127,696
     
385
     
0.40
     
206,100
     
662
     
0.43
 
  Subordinated debentures issued to
capital trust
   
3.94
     
25,774
     
692
     
3.59
     
25,774
     
760
     
3.94
 
  Subordinated notes
   
5.55
     
73,752
     
3,073
     
5.57
     
73,594
     
3,075
     
5.59
 
  FHLB advances
   
2.18
     
198,778
     
2,964
     
1.99
     
78,362
     
1,045
     
1.78
 
                                                         
     Total interest-bearing liabilities
   
1.24
     
3,305,371
     
26,172
     
1.06
     
3,361,187
     
20,642
     
0.82
 
Non-interest-bearing liabilities:
                                                       
  Demand deposits
           
648,257
                     
622,352
                 
  Other liabilities
           
20,678
                     
27,264
                 
     Total liabilities
           
3,974,306
                     
4,010,803
                 
Stockholders' equity
           
491,854
                     
450,545
                 
     Total liabilities and stockholders' equity
         
$
4,466,160
                   
$
4,461,348
                 
                                                         
Net interest income:
                                                       
Interest rate spread
   
3.64
%
         
$
123,636
     
3.74
%
         
$
115,883
     
3.59
%
Net interest margin*
                           
3.96
%
                   
3.75
%
Average interest-earning assets to average interest-bearing liabilities
           
126.2
%
                   
123.1
%
               
______________
*Defined as the Company's net interest income divided by average total interest-earning assets.
(1)
The yield on loans at September 30, 2018, 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 nine months ended September 30, 2018.
 
16


 
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 the tangible common equity to tangible assets ratio.
We calculate core net interest income and core net interest margin by subtracting the impact of adjustments regarding changes in expected cash flows related to pools of loans we acquired through FDIC-assisted transactions from reported net interest income and net interest margin. Management believes that core net interest income and core net interest margin are useful in assessing the Company's core performance and trends, in light of the fluctuations that can occur related to updated estimates of the fair values 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 this measure excluding the impact of intangible assets provides useful supplemental information that is helpful in understanding our financial condition and results of operations, as it provides a method to assess management's success in utilizing our tangible capital as well as our capital strength.  Management also believes that providing a measure that excludes balances of intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers.  In addition, management believes that this is a standard financial measure used in the banking industry to evaluate performance.
These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to other similarly titled measures as calculated by other companies.

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
   
(Dollars in thousands)
   
(Dollars in thousands)
 
Reported net interest income / margin
 
$
42,985
     
4.02
%
 
$
39,281
     
3.77
%
 
$
123,636
     
3.96
%
 
$
115,883
     
3.75
%
Less:  Impact of loss share adjustments
   
1,424
     
0.14
     
975
     
0.09
     
3,652
     
0.12
     
4,237
     
0.14
 
Core net interest income / margin
 
$
41,561
     
3.88
%
 
$
38,306
     
3.68
%
 
$
119,984
     
3.84
%
 
$
111,646
     
3.61
%

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

   
September 30,
   
December 31,
 
   
2018
   
2017
 
   
(Dollars in thousands)
 
Common equity at period end
 
$
508,127
   
$
471,662
 
Less:  Intangible assets at period end
   
9,613
     
10,850
 
Tangible common equity at period end  (a)
 
$
498,514
   
$
460,812
 
                 
Total assets at period end
 
$
4,584,086
   
$
4,414,521
 
Less:  Intangible assets at period end
   
9,613
     
10,850
 
Tangible assets at period end (b)
 
$
4,574,473
   
$
4,403,671
 
                 
Tangible common equity to tangible assets (a) / (b)
   
10.90
%
   
10.46
%



 
17
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