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-- The Company's Federal Deposit Insurance Corporation (FDIC)-assisted
acquisition of certain assets and liabilities of Sioux City, Iowa-based
Vantus Bank on September 4, 2009, resulted in a one-time gain of $45.9
million (pre-tax), based upon the estimated fair value of the assets
acquired and liabilities assumed. In addition, the Company recorded
certain acquisition-related costs of $850,000 in the three months ended
September 30, 2009.
-- The capital position of the Company continues to be strong,
significantly exceeding the "well capitalized" thresholds established by
regulators. As of September 30, 2009, on a preliminary basis, the
Company's Tier 1 leverage ratio was 9.08%, Tier 1 risk-based capital
ratio was 14.73%, and total risk-based capital ratio was 15.99%. At
September 30, 2009, the Company's tangible common equity to total assets
ratio was 6.01% as compared to 6.65% at December 31, 2008. The Company's
tangible common equity to total risk-weighted assets ratio was 11.0% at
September 30, 2009, as compared to 9.3% at December 31, 2008.
-- The FDIC-assisted acquisitions of former TeamBank N.A. and Vantus Bank
continue to go well with more than 96% of the acquired deposits retained
in each institution. Integration of the TeamBank operating system into
Great Southern's operating system was completed in July and operational
efficiencies should be fully realized beginning in the fourth quarter of
2009. The integration of the Vantus Bank operating system is scheduled
for December 2009.
-- Non-performing assets, excluding FDIC-covered assets, decreased $1.3
million to $64.6 million from December 31, 2008. Non-performing assets
as a percentage of total assets were 1.73% at September 30, 2009, as
compared to 2.48% at December 31, 2008.
-- Total gross loans, including FDIC-covered loans, increased $364.9
million, or 20.9%, from December 31, 2008, and increased $209.7 million,
or 11.0%, from June 30, 2009. Excluding FDIC-covered loans, construction
and land development loans were down $129.6 million, or 23.8%, as
compared to December 31, 2008, and down $52.1 million, or 11.2%, as
compared to June 30, 2009.
-- The Company increased the ratio of allowance for loan losses to total
loans (excluding FDIC-covered loans) to 2.28% as of September 30, 2009,
compared to 1.91% as of June 30, 2009, and 1.66% at December 31, 2008.
-- The Company reduced its brokered deposits by $423.7 million, or 52.5%,
from December 31, 2008, while maintaining strong liquidity levels.
(Explanations of above financial results are detailed in body of this release below.)
Great Southern Bancorp, Inc. (Nasdaq: GSBC), the holding company for Great Southern Bank, today reported preliminary earnings for the quarter ended September 30, 2009, were $1.91 per diluted common share, or $26.7 million, compared to the $.06 per diluted common share, or $824,000, the Company earned during the same quarter in the prior year. In the quarter ended September 30, 2009, the Company recorded a one-time gain of $45.9 million (pre-tax) related to the September 4, 2009, FDIC-assisted acquisition of certain assets and liabilities of Sioux City, Iowa-based Vantus Bank, based upon the estimated fair value of the assets acquired and liabilities assumed. In addition, the Company recorded certain acquisition-related costs of $850,000 in the three months ended September 30, 2009. Earnings for the quarter ended September 30, 2008, were negatively impacted by the write-down of the Company's investment in perpetual preferred stock of Fannie Mae and Freddie Mac equating to approximately $5.3 million (pre-tax) or $.26 per diluted share.
Preliminary earnings for the nine months ended September 30, 2009, were $3.43 per diluted common share, or $47.4 million, compared to a loss of $.60 per diluted common share, or $8.0 million loss, during the same period in the prior year. Year-to-date 2009 results include a first quarter 2009 pre-tax gain of $28.8 million related to the FDIC-assisted acquisition of TeamBank N.A. and the Vantus Bank net gain discussed above. In the March 31, 2008 quarter, the Company recorded a loan loss provision and related charge-off of $35 million, equal to $1.70 per share (after tax), in connection with a defaulted $30 million stock loan to the holding company of a failed Arkansas-based bank and the under-collateralized portion of other associated loans totaling $5 million (see the Company's Quarterly Report on Form 10-Q for March 31, 2008 for additional information). The nine-month 2008 results were also negatively impacted by the Fannie Mae and Freddie Mac investment write-downs in the third quarter of 2008 described above.
For the three months ended September 30, 2009, return on average equity (ROAE) was 50.82%; return on average assets (ROAA) was 3.17%; and net interest margin (NIM) was 3.27%. For the nine months ended September 30, 2009, return on average equity (ROAE) was 32.97%; return on average assets (ROAA) was 2.02%; and net interest margin (NIM) was 2.96%.
"The current economic environment continues to create opportunities for well-positioned institutions. On September 4, 2009, Great Southern acquired deposits and certain assets of Sioux City, Iowa-based Vantus Bank in a FDIC-assisted loss sharing transaction. We believe this acquisition will prove to be a nice long-term addition to our franchise. Vantus Bank had a solid core customer base and a group of quality and customer-focused associates that we're pleased to welcome to our Company," said Great Southern President and CEO Joseph W. Turner.
"The March 2009 FDIC-assisted acquisition of the former TeamBank reached a major milestone in the third quarter with the completion of the operational and systems conversion in late July. Savings from this operational consolidation were partially realized in the month of September, but expected acquisition efficiencies should begin to be realized fully in the fourth quarter of 2009."
Turner continued, "The past six months have been an extraordinary time in the history of our Company. The Company was well-positioned in early 2009 to take advantage of the opportunities presented by these two FDIC-assisted acquisitions and is now even better positioned with the additional liquidity, capital and knowledge gained from these transactions along with new market opportunities. Our team of associates has done a tremendous job in integrating these companies into Great Southern. Throughout both transactions, we leveraged the depth of experience of our senior management team and seasoned our mid-level management team, which will further strengthen our Company for future opportunities.
"As we've reiterated for the last several quarters, credit quality and the resolution of non-performing loans continue to be a priority for our Company. From the end of 2008, we have seen some decline in non-performing assets and loans and an increase in foreclosed assets, which indicates the migration of some problem credits through the credit resolution process. Net charge-offs were up from the year ago quarter with $10.5 million charged off in the three months ended September 30, 2009, versus $2.4 million in the three months ended September 30, 2008. We continue to focus on ensuring that our allowance for loan losses is adequate in these uncertain times, and to that end, we are committed to maintain a well-funded reserve as we navigate through this credit cycle. While we are working through many of our problem credits and making progress, we expect non-performing assets, loan loss provisions and net charge-offs to continue to be elevated, but at manageable levels.
"Finally, we believe that the economic environment will remain challenging for the remainder of 2009 and into 2010. We also anticipate that more opportunities may arise in the next 12 to 18 months. We are committed to be ready to take advantage of any additional opportunities if they make strategic sense for the long-term success of our Company. Our operating efficiency, capital and liquidity positions, significant allowance for loan and lease losses, and experienced management team allow us to be in this opportunistic position."
Selected Financial Data and Non-GAAP Reconciliation
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
Effect of Excluding Effect of Excluding
Hedge Hedge Hedge Hedge
Accounting Accounting Accounting Accounting
As Entries Entries As Entries Entries
Reported Recorded Recorded Reported Recorded Recorded
Net
interest
income $23,775 $ -- $23,775 $63,125 $(393) $63,518
Provision
for loan
losses 16,500 -- 16,500 28,300 -- 28,300
Non-interest
income 57,005 -- 57,005 97,959 1,184 96,775
Non-interest
expense 22,657 -- 22,657 57,283 -- 57,283
Provision for
income taxes 14,058 -- 14,058 25,541 (277) 25,264
Net income $27,565 $ -- $27,565 $49,960 $514 $49,446
Net income
available to
common
shareholders $26,714 $ -- $26,714 $47,444 $514 $46,930
Three Months Ended Nine Months Ended
September 30, 2008 September 30, 2008
Effect of Excluding Effect of Excluding
Hedge Hedge Hedge Hedge
Accounting Accounting Accounting Accounting
As Entries Entries As Entries Entries
Reported Recorded Recorded Reported Recorded Recorded
Net
interest
income $18,367 $(139) $18,506 $54,341 $(2,472) $56,813
Provision
for
loan
losses 4,500 -- 4,500 47,200 -- 47,200
Non-interest
income 1,789 22 1,767 21,836 5,285 16,551
Non-interest
expense 14,650 -- 14,650 42,324 -- 42,324
Provision
for income taxes 182 41 223 (5,350) (985) (6,335)
Net income
(loss) $824 $(76) $900 $(7,997) $1,828 $(9,825)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Earnings Earnings Earnings Earnings
Per Per Per Per
Dollars Share Dollars Share Dollars Share Dollars Share
Reported
Earnings
(Loss) Per
Common
Share $26,714 $1.91 $824 $.06 $47,444 $3.43 $(7,997) $(.60)
Amortization
of deposit
broker
origination
fees (net
of taxes) -- 90 256 1,607
Net change in
fair value
of interest
rate swaps and
related
deposits
(net of
taxes) -- (14) (770) (3,435)
Earnings
excluding
impact of hedge
accounting
entries $26,714 $900 $46,930 $(9,825)
FDIC-ASSISTED ACQUISITIONS
* Vantus Bank, Sioux City, Iowa - September 4, 2009. Great Southern
entered into a purchase and assumption agreement with loss share with
the FDIC to assume all of the deposits and acquire certain assets of
Vantus Bank, a full-service thrift headquartered in Sioux City, Iowa.
Vantus Bank operated 15 locations with eight banking centers in
northwest Iowa, a banking center in South Sioux City, Neb., and six
offices in central Iowa, including four in the Des Moines market area.
Great Southern assumed approximately $350 million of the deposits of
Vantus Bank at a premium of $1.7 million. Additionally, Great Southern
purchased approximately $332 million in loans and $6 million of other
real estate owned (ORE) at a discount of $75 million. The loans and
ORE purchased are covered by a loss share agreement between the FDIC
and Great Southern which affords Great Southern significant
protection. Under this agreement, the FDIC has agreed to cover 80% of
the losses on the loans and ORE up to approximately $102 million, and
95% of losses that exceed that amount. In addition, Great Southern
also acquired cash and cash equivalents and investment securities of
Vantus Bank valued at $42 million, and assumed $84 million in
borrowings from the Federal Home Loan Bank and the Federal Reserve
Bank.
The former Vantus Bank franchise is currently operating under the
Great Southern name. The Company anticipates buying all primary
banking center buildings available for purchase from the FDIC.
Acquisition costs of the buildings will be based on current appraisals
and determined at a later date. Since the acquisition, banking center
customer deposits have remained stable with a 96% retention rate
currently. The Company expects to convert operational systems on
December 11, 2009, so that the Company operates under a single
platform. This conversion will allow all Great Southern and former
Vantus Bank customers to conduct business at all banking centers
throughout the Great Southern four-state franchise. Upon completion
of the operational conversion, back office operations will be
consolidated.
As a result of the transaction described above, the Company recorded a
one-time gain of $45.9 million (pre-tax), based upon the estimated
fair value of the assets acquired and liabilities assumed in
accordance with FASB ASC 805 (SFAS No. 141 (R), Business
Combinations). It is expected that the Company will accrete additional
discounts into income as the Company collects on the assets covered by
the loss share agreement. Based on the level of discounts expected to
be accreted into income in future years, the acquired Vantus Bank
impaired loans are not considered non-performing as we have a
reasonable expectation to recover both the discounted book balances of
such loans as well as a yield on the discounted book balances. As with
the TeamBank acquisition, the Vantus Bank acquisition entries may be
subject to change in future periods in accordance with the
requirements of FASB ASC 805. Loans and foreclosed real estate with an
unpaid balance of $337.8 million were recorded at their fair value of
$249.3 million (net of all discounts) in the Company's consolidated
financial statements as of the acquisition date. In addition, the
Company recorded an indemnification asset from the FDIC in the amount
of $62.2 million as part of the loss share agreement.
* TeamBank N.A., Paola, Kan.- March 20, 2009. On March 20, 2009, Great
Southern Bank entered into a purchase and assumption agreement with
loss share with the FDIC to assume all of the deposits (excluding
brokered deposits) and certain assets of TeamBank, N.A., a full
service commercial bank headquartered in Paola, Kan. The Company
provided significant details about this transaction in its Current
Report on Form 8-K/A filed on June 5, 2009.
Since the March acquisition, customer deposits have remained stable
with a current retention rate of 96%. At the end of business on July
24, 2009, the Company merged the former TeamBank operational systems
into Great Southern's systems. Back office support functions were
consolidated with anticipated operational efficiencies being realized
in the month of September 2009 and in future periods.
NET INTEREST INCOME
Including the impact of the accounting entries recorded for certain interest rate swaps, net interest income for the third quarter of 2009 increased $5.4 million to $23.8 million compared to $18.4 million for the third quarter of 2008. Net interest margin was 3.27% in the quarter ended September 30, 2009, compared to 3.13% in the same period in 2008, an increase of 14 basis points. Excluding the impact of the accounting entries recorded for certain interest rate swaps (amortization of deposit broker origination fees), economically, net interest income for the third quarter of 2009 increased $5.3 million to $23.8 million compared to $18.5 million for the third quarter of 2008. Net interest margin excluding the effects of the accounting change was 3.27% in the quarter ended September 30, 2009, compared to 3.15% in the quarter ended September 30, 2008. The average interest rate spread was 3.30% in the three months ended September 30, 2009, compared to 2.87% in the three months ended September 30, 2008. In addition, the average interest rate spread increased 31 basis points compared to the average interest rate spread of 2.99% in the three months ended June 30, 2009.
The Company's net interest margin increased compared to the same quarter in the prior year and also increased compared to the June 30, 2009 quarter. In 2008, the Company decided to increase the amount of longer-term brokered certificates of deposit to provide additional liquidity for operations and to maintain in reserve its available secured funding lines with the Federal Home Loan Bank (FHLBank) and the Federal Reserve Bank. In 2008, the Company issued approximately $359 million of new brokered deposits which are fixed rate certificates with maturity terms of generally two to four years, which the Company (at its discretion) may redeem at par generally after six months. As market interest rates on these types of deposits have decreased in recent months, the Company has redeemed or replaced many of these certificates in 2009 in order to lock in cheaper funding rates or reduce some of its excess liquidity. At September 30, 2009, the Company had approximately $90 million of callable deposits remaining. These longer-term certificates carry an interest rate that is approximately 3%. The Company decided that maintaining these deposits was justified by the longer term and the ability to keep committed funding lines available. Excess funds were invested in short-term cash equivalents at rates that resulted in a negative spread. The average balance of cash and cash equivalents in the three and nine months ended September 30, 2009, was $450 million and $392 million, respectively. These cash levels are higher than our historical averages.
The addition of the TeamBank core deposits provided a relatively lower cost funding source, which allowed the Company to reduce some of its higher cost funds. The Company also had significant maturities in its retail certificate portfolio and renewed many of these certificates at significantly lower rates in many cases. In addition, the TeamBank loans were recorded at their fair value at March 4, 2009, which provided a current market yield on the portfolio.
As a result of all of these factors, the Company's net interest margin increased to 3.27% in the three months ended September 30, 2009, compared to 3.00% in the three months ended June 30, 2009, and 3.13% in the three months ended September 30, 2008.
The Federal Reserve most recently cut interest rates on December 16, 2008. Great Southern has a significant portfolio of loans which are tied to a "prime rate" of interest. Some of these loans are tied to some national index of "prime," while most are indexed to "Great Southern prime." The Company has elected to leave its "prime rate" of interest at 5.00% in light of the current highly competitive funding environment for deposits and wholesale funds. This does not affect a large number of customers as a majority of the loans indexed to "Great Southern prime" are already at interest rate floors, which are provided for in individual loan documents. At its most recent meeting on September 23, 2009, the Federal Reserve Board elected to leave the Federal Funds rate unchanged and did not indicate that rate changes are imminent.
Including the impact of the accounting entries recorded for certain interest rate swaps, net interest income for the first nine months of 2009 increased $8.8 million to $63.1 million compared to $54.3 million for the first nine months of 2008. Net interest margin was 2.96% in the nine months ended September 30, 2009, compared to 3.09% in the same period in 2008, a decrease of 13 basis points. Excluding the impact of the accounting entries recorded for certain interest rate swaps, economically, net interest income for the first nine months of 2009 increased $6.7 million to $63.5 million compared to $56.8 million for the first nine months of 2008. Net interest margin excluding the effects of the accounting change was 2.98% in the nine months ended September 30, 2009, compared to 3.23% in the nine months ended September 30, 2008.
Non-GAAP Reconciliation
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Dollars % Dollars % Dollars % Dollars %
Net Interest
Income
/Margin $23,775 3.27% $18,367 3.13% $63,125 2.96% $54,341 3.09%
Amortization
of deposit
broker
origination
fees -- -- 139 .02 393 .02 2,472 .14
Net interest
income
/margin
excluding
impact of
hedge
accounting
entries $23,775 3.27% $18,506 3.15% $63,518 2.98% $56,813 3.23%
For additional information on net interest income components, refer to "Average Balances, Interest Rates and Yields" tables in this release. This table is prepared including the impact of the accounting changes for interest rate swaps.
NON-INTEREST INCOME
Non-interest income increased to $57.0 million for the third quarter of 2009 compared to $1.8 million in the same period 2008, primarily as a result of the following items:
-- Vantus Bank FDIC-assisted acquisition: A one-time gain of $45.9 million
was recorded related to the fair value accounting estimates of the
assets acquired and liabilities assumed of Vantus Bank. The details of
this transaction were discussed above.
-- TeamBank N.A. FDIC-assisted acquisition: Income of $1.4 million was
recorded due to the discount related to the FDIC indemnification asset
booked in connection with the FDIC-assisted transaction completed in the
first quarter of 2009. Additional income will be recognized in future
periods as loans are collected from customers and as reimbursements of
losses are collected from the FDIC, but we cannot estimate the timing of
this income due to the variables associated with this transaction.
-- Gain on loan sales: Net realized gains on loan sales increased
$360,000, or 97.6%, in the third quarter of 2009. The gain on loan sales
was mainly due to a higher volume of fixed-rate residential mortgage
loan originations, which the Company typically sells in the secondary
market.
-- Gain on available-for-sale securities sales: Net realized gains on
available-for-sale securities were $2.0 million in the third quarter of
2009, compared to a net realized loss of $5.3 million in the third
quarter of 2008. The Company elected to sell various municipal and
corporate bonds, which were primarily acquired in the TeamBank
transaction, as the market for these securities rebounded from the March
acquisition-date valuations. The loss recorded in the 2008 period
related to agency preferred securities and was described previously.
-- Deposit account charges: Deposit account charges and ATM and debit card
usage fees increased $663,000, or 16.3%, in the three months ended
September 30, 2009, compared to the same period in 2008. A large portion
of this increase was the result of the acquisition of former TeamBank
accounts.
Partially offsetting the above positive income items during the third quarter 2009 as compared to the third quarter 2008 was the following item:
-- Commission revenue: Third quarter 2009 commission income from the
Company's travel, insurance and investment divisions decreased $368,000,
or 18.7%, compared to the same period in 2008. The decrease was
primarily in the Company's travel division, where customers have reduced
their travel in light of current economic conditions.
Non-interest income increased to $98.0 million for the first nine months of 2009 compared to $21.8 million for the nine months ending September 30, 2008, primarily as a result of the following items:
-- Vantus Bank FDIC-assisted acquisition: A one-time gain of $45.9 million
was recorded related to the fair value accounting estimates of the
assets acquired and liabilities assumed of Vantus Bank, as discussed
above.
-- TeamBank N.A. FDIC-assisted acquisition: A significant one-time gain of
$28.8 million was recorded related to the TeamBank transaction which was
discussed in the Company's March 31, 2009 Quarterly Report on Form 10-Q.
Additional accretions increases related to the indemnification assets
are described in the above discussion of non-interest income for the
three months ended September 30, 2009. For the nine months ended
September 30, 2009, this additional income totaled $2.7 million.
-- Securities gains, losses and impairments: Losses on securities sales and
impairments in the nine months ending September 30, 2009, were reduced
by $3.5 million compared to the nine months ended September 30, 2008.
The 2009 impairment write-down totaled $4.3 million on a pre-tax basis,
$4.0 million of which was discussed in the Company's March 31, 2009
Quarterly Report on Form 10-Q.
-- Gain on loan sales: Net realized gains on loan sales increased
$943,000, or 83.7%, in the first nine months of 2009 compared to the
same period in 2008. The gain on loan sales was mainly due to a higher
volume of fixed-rate residential mortgage loan originations, which the
Company typically sells in the secondary market.
-- Deposit account charges: Deposit account charges and ATM and debit card
usage fees increased $975,000, or 8.4%, in the nine months ended
September 30, 2009, compared to the same period in 2008. This increase
was mainly the result of the acquisition of former TeamBank accounts.
Partially offsetting the above positive income items for the first nine months of 2009 as compared with the same period in 2008 were the following items:
-- Interest rate swaps: The change in the fair value of certain interest
rate swaps and the related change in fair value of hedged deposits
resulted in an increase of $1.2 million in the nine months ended
September 30, 2009, compared to an increase of $5.3 million in the nine
months ended September 30, 2008. This income is part of a 2005
accounting restatement in which approximately $3.4 million (net of
taxes) was charged against retained earnings in 2005. This charge was
recovered in subsequent periods as interest rate swaps matured or were
terminated by the swap counterparty. At June 30, 2009, all of this
charge was recovered and there will be no impact in future quarters.
-- Commission revenue: For the nine months ended September 30, 2009,
commission income from the Company's travel, insurance and investment
divisions decreased $1.8 million, or 26.0%, compared to the same period
in 2008. The decrease was primarily in the Company's travel division
where customers have reduced their travel in light of current economic
conditions. Another large portion of the decrease also occurred in the
investment division as a result of the alliance formed in 2008 with
Ameriprise Financial Services. As a result of this change, Great
Southern now records most of its investment services activity on a net
basis in non-interest income.
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 2009 was $22.7 million compared with $14.7 million for the third quarter of 2008, or an increase of $8.0 million, or 54.7%. Non-interest expense for the first nine months of 2009 was $57.3 million compared with $42.3 million for the first nine months of 2008, or an increase of $15.0 million, or 35.3%. The following were key items related to the increases in non-interest expense in the three and nine month periods:
-- TeamBank N.A. FDIC-assisted acquisition: The Company's increase in
non-interest expense in the third quarter and first nine months of 2009
compared to the same periods in 2008 primarily related to the
FDIC-assisted acquisition of the former TeamBank. In the three months
ended September 30, 2009, non-interest expenses related to the
operations of the former TeamBank banking centers were $2.2 million,
including $1.3 million of salaries and benefits expense and $471,000 of
occupancy and equipment expense. In the nine months ended September 30,
2009, non-interest expenses related to the operations of the former
TeamBank banking centers were $5.0 million, including $3.2 million of
salaries and benefits expense and $1.0 million of occupancy and
equipment expense. In addition, the Company recorded other non-interest
expenses related to the operation of other areas of the former TeamBank,
such as lending and certain support functions. In the three and nine
months ended September 30, 2009, the Company incurred costs related to
the conversion of deposits and loans to its core computer processing
systems and incurred expenses related to retention and separation pay
for employees whose positions were consolidated.
-- Vantus Bank FDIC-assisted acquisition: The Company's increase in
non-interest expense in the third quarter and first nine months of 2009
compared to the same periods in 2008 also related to Vantus Bank
acquisition-related expenses. Of the total $1.1 million in Vantus
Bank-related expenses, salaries and benefits were $272,000, legal and
professional fees were $209,000, and occupancy and equipment expenses
were $311,000.
-- New banking centers: The Company's increase in non-interest expense in
the third quarter and first nine months of 2009 compared to the same
periods in 2008 also related to the continued internal growth of the
Company. The Company opened its first retail banking center in Creve
Coeur, Mo., in May 2009 and its second banking center in Lee's Summit,
Mo., in late September 2009. In the three months ended September 30,
2009, compared to the three months ended September 30, 2008,
non-interest expenses increased $175,000 associated with the ongoing
operations of these entities. In the nine months ended September 30,
2009, compared to the nine months ended September 30, 2008, non-interest
expenses increased $426,000 associated with the ongoing operations of
these locations.
-- FDIC insurance premiums: In 2009, the FDIC significantly increased
insurance premiums for all banks, nearly doubling the regular quarterly
deposit insurance assessments. In addition, the FDIC imposed a special
five basis point assessment on all insured depository institutions based
on assets (minus Tier 1 capital) as of June 30, 2009. The Company
recorded an expense of $1.7 million in the second quarter of 2009 for
this special assessment, thereby affecting the nine-month 2009
non-interest expense results. Due to growth of the Company and the
increased assessment rates noted above, FDIC insurance expense (not
including the special assessment) increased from $379,000 in the three
months ended September 30, 2008, to $820,000 in the three months ended
September 30, 2009.
-- Foreclosure-related expenses: Due to the increases in levels of
foreclosed assets, foreclosure-related expenses in the third quarter of
2009 were higher than the comparable 2008 period by approximately $1.1
million. Similarly, foreclosure-related expenses increased $1.8 million
in the nine months ended September 30, 2009, compared to the same period
in 2008.
The Company's efficiency ratio for the quarter ended September 30, 2009, was 28.05% compared to 72.68% in the same quarter in 2008. The Company's ratio of non-interest expense to average assets increased from 2.07% for the three months ended September 30, 2008, to 2.27% for the three months ended September 30, 2009. The efficiency ratio in the third quarter of 2009 was positively impacted by the Vantus Bank-related one-time gain partially offset by TeamBank-related operating expenses, Vantus Bank acquisition-related expenses, and increased expenses related to foreclosures and FDIC deposit insurance premiums. These increased expenses contributed to the increase in the Company's ratio of non-interest expense to average assets.
The Company's efficiency ratio for the nine months ended September 30, 2009, was 35.56% compared to 55.56% in the same period in 2008. The Company's ratio of non-interest expense to average assets increased from 2.13% for the nine months ended September 30, 2008, to 2.15% for the nine months ended September 30, 2009. The efficiency ratio in the first nine months of 2009 was positively impacted by the TeamBank and Vantus Bank-related one-time gains and negatively impacted by the investment securities impairment write-downs recorded by the Company in the first quarter of 2009 and the other expenses discussed above.
Non-GAAP Reconciliation:
(Dollars in thousands)
Three Months Ended September 30,
2009 2008
Non-Interest Revenue Non-Interest Revenue
Expense Dollars* % Expense Dollars* %
Efficiency
Ratio $22,657 $80,780 28.05% $14,650 $20,156 72.68%
Amortization
of deposit
broker
origination
fees -- -- -- -- 139 (.50)
Net change in
fair value of
interest rate
swaps and
related deposits -- -- -- -- (22) .08
Efficiency ratio
excluding impact
of hedge
accounting
entries $22,657 $80,780 28.05% $14,650 $20,273 72.26%
* Net interest income plus non-interest income
Nine Months Ended September 30,
2009 2008
Non-Interest Revenue Non-Interest Revenue
Expense Dollars* % Expense Dollars* %
Efficiency
Ratio $57,283 $161,084 35.56% $42,324 $76,177 55.56%
Amortization
of deposit
broker
origination
fees -- 393 (.09) -- 2,472 (1.87)
Net change in
fair value of
interest rate
swaps and
related
deposits -- (1,184) .27 -- (5,285) 4.00
Efficiency ratio
excluding impact
of hedge
accounting
entries $57,283 $160,293 35.74% $42,324 $73,364 57.69%
* Net interest income plus non-interest income
INCOME TAXES
For the three months ended September 30, 2009, the Company's effective tax rate was 33.8%. For the nine months ended September 30, 2009, the Company's effective tax rate was 33.8%. In future periods, the Company expects its effective tax rate to be 32-36%.
CAPITAL
As of September 30, 2009, total stockholders' equity was $286.3 million (7.7% of total assets). As of September 30, 2009, common stockholders' equity was $230.4 million (6.2% of total assets), equivalent to a book value of $17.19 per common share. Total stockholders' equity at December 31, 2008, was $234.1 million (8.8% of total assets). As of December 31, 2008, common stockholders' equity was $178.5 million (6.7% of total assets), equivalent to a book value of $13.34 per common share. Common stockholders' equity increased $51.9 million, or 29.2%, in the nine months ended September 30, 2009.
At September 30, 2009, the Company's tangible common equity to total assets ratio was 6.01% as compared to 6.6% at December 31, 2008, due to increased assets from the FDIC-assisted acquisitions and increases in cash equivalents and investments. The Company's tangible common equity to total risk-weighted assets ratio was 11.03% at September 30, 2009.
As of September 30, 2009, the Company's and the Bank's regulatory capital levels were categorized as "well capitalized" as defined by the Federal banking agencies' capital-related regulations. On September 30, 2009, and on a preliminary basis, the Company's Tier 1 leverage ratio was 9.08%, Tier 1 risk-based capital ratio was 14.73%, and total risk-based capital ratio was 15.99%. On September 30, 2009, and on a preliminary basis, the Bank's Tier 1 leverage ratio was 7.76%, Tier 1 risk-based capital ratio was 12.58%, and total risk-based capital ratio was 13.84%.
On December 5, 2008, Great Southern Bancorp, Inc. became a participant in the U.S. Treasury's voluntary Capital Purchase Program (CPP), a part of the Emergency Economic Stabilization Act of 2008, designed to provide capital to healthy financial institutions to promote confidence and stabilization in the economy. At the time the Company was approved to participate in the CPP, it exceeded all "well-capitalized" regulatory benchmarks. The Company issued to the U.S. Treasury 58,000 shares of the Company's newly authorized Fixed Rate Cumulative Perpetual Preferred Stock, Series A, for an aggregate purchase price of $58.0 million. Great Southern also issued to the U.S. Treasury a warrant to purchase 909,091 shares of common stock at $9.57 per share.
Through its preferred stock investment, the Treasury will receive a cumulative dividend of 5% per year for the first five years, or $2.9 million per year, and 9% per year thereafter. The preferred shares are callable at 100% of the issue price, subject to the approval of the Company's primary federal regulator.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses increased $12.0 million, from $4.5 million during the three months ended September 30, 2008, to $16.5 million during the three months ended September 30, 2009. The provision for loan losses decreased $18.9 million, from $47.2 million during the nine months ended September 30, 2008, to $28.3 million during the nine months ended September 30, 2009. See the Company's Quarterly Report on Form 10-Q for March 31, 2008, for additional information regarding the large provision for loan losses in the first quarter of 2008. The allowance for loan losses increased $9.4 million, or 32.5%, to $38.6 million at September 30, 2009, compared to $29.2 million at December 31, 2008. Net charge-offs were $10.5 million in the three months ended September 30, 2009, versus $2.4 million in the three months ended September 30, 2008. Four relationships accounted for $8.9 million of the $10.5 million charged off in the quarter ended
September 30, 2009. Net charge-offs were $18.8 million in the nine months ended September 30, 2009, versus $43.3 million in the nine months ended September 30, 2008. The amount of charge-offs for the nine months ended September 30, 2008, was due principally to the $35 million which was provided for and charged off in the quarter ended March 31, 2008, related to the Company's loans to the Arkansas-based bank holding company and related loans to individuals described in the Company's Quarterly Report on Form 10-Q for March 31, 2008. In addition, general market conditions, and more specifically, housing supply, absorption rates and unique circumstances related to individual borrowers and projects also contributed to increased provisions in both 2008 and 2009. As properties were transferred into foreclosed assets, evaluations were made of the value of these assets with corresponding charge-offs as appropriate.
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, regular reviews by internal staff and regulatory examinations.
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 has long ago established 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. More recently, additional procedures have been implemented to provide for more frequent management review of the loan portfolio based on loan size, loan type, delinquencies, 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 Bank's allowance for loan losses as a percentage of total loans, excluding loans supported by the FDIC loss share agreement, was 2.28%, 1.91%, and 1.66% at September 30, 2009, June 30, 2009, and December 31, 2008, respectively. Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at this time, based on recent internal and external reviews of the Company's loan portfolio and current economic conditions. If economic conditions remain weak or deteriorate significantly, 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 and Vantus Bank non-performing assets, including foreclosed assets, are not included in the totals and in the discussion of non-performing loans, potential problem loans and foreclosed assets below due to the respective loss share agreements with the FDIC, which substantially covers principal losses that may be incurred in these portfolios. In addition, these covered assets were recorded at their estimated fair values as of March 20, 2009, for TeamBank and September 4, 2009, for Vantus Bank, and no material additional losses or changes to these estimated fair values have been identified as of September 30, 2009.
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 FDIC-covered non-performing assets, at September 30, 2009, were $64.6 million, a decrease of $1.3 million from December 31, 2008. Non-performing assets as a percentage of total assets were 1.73% at September 30, 2009, compared to 2.48% at December 31, 2008. Compared to December 31, 2008, non-performing loans decreased $9.8 million to $23.4 million while foreclosed assets increased $8.5 million to $41.1 million. Construction and land development loans comprised $10.8 million, or 46%, of the total $23.4 million of non-performing loans at September 30, 2009.
Non-performing Loans. Despite improvement in non-performing loans since December 31, 2008, an increase of $9.0 million occurred since June 30, 2009. The following are additions to non-performing loans during the three months ended September 30, 2009:
-- A $2.3 million relationship, which is secured by various single family
residences, duplexes and triplexes in the Joplin, Mo. area.
-- A $1.9 million relationship, which is secured by townhomes in
Springfield, Mo. Out-of-area ownership has contributed to difficulty
leasing these townhomes. This relationship was reduced to $1.1 million
due an $800,000 charge-off.
-- A $2.4 million relationship, which is secured by a partially-completed
subdivision in Springfield, Mo., and improved commercial and residential
land in Branson, Mo.
-- A $1.5 million relationship, which is secured by an ownership interest
in a closely-held corporation. The Company is currently in the process
of obtaining additional real estate collateral. This loan was previously
charged down $3.5 million in the quarter ended September 30, 2009, and
the remaining $1.5 million relationship was transferred to
non-performing loans at that time.
-- A $5.3 million relationship, which is secured by commercial lots and
acreage located in Northwest Arkansas. The slowdown in the market has
made it difficult for the borrower to market or develop the property.
Partially offsetting these increases in non-performing loans were the following changes to loans in this category:
-- A $1.7 million loan relationship, which was secured primarily by an
office building near Springfield, Mo. and commercial land in Branson,
Mo. This relationship was charged down approximately $1.2 million upon
transfer to non-performing loans. A parcel of commercial land was
foreclosed in the second quarter of 2009, which reduced this loan
relationship from $2.0 million.
-- A $1.6 million loan relationship, which is secured primarily by eleven
houses for sale in Northwest Arkansas. Eight houses valued at $1.1
million were transferred to foreclosed assets during the third quarter
of 2009. The remaining three houses valued at $500,000 are scheduled for
foreclosure during the fourth quarter of 2009.
-- A $1.4 million loan relationship, which is secured by a condominium
historic rehabilitation development in St. Louis was returned to
performing status due to receipt of payments. This is a participation
loan in which Great Southern is not the lead bank. The remaining
condominium units have been converted to apartment units with
satisfactory lease-up.
At September 30, 2009, the five new significant relationships listed above accounted for $12.6 million of the total non-performing loan balance of $23.4 million. There were no other relationships in excess of $1 million in the non-performing loan category at September 30, 2009. None of the significant loan relationships previously included in Non-performing Loans at June 30, 2009, remained in this category as of September 30, 2009.
Potential Problem Loans. Potential problem loans increased $11.3 million during the three months ended September 30, 2009, from $20.6 million at June 30, 2009, to $31.9 million at September 30, 2009. This was $14.1 million more than at December 31, 2008. Potential problem loans are loans which management has identified as having possible credit problems that may cause the borrowers difficulty in complying with current repayment terms. These loans are not reflected in the non-performing assets. During the three months ended September 30, 2009, Potential Problem Loans increased primarily due to the addition of six unrelated relationships totaling $18.9 million to the Potential Problem Loans category. These six additional relationships include:
-- A $9.7 million relationship primarily secured by a condominium project
located in Branson, Mo. This project is experiencing slower than
projected sales.
-- A $2.7 million relationship primarily secured by commercial improved
ground located near Springfield, Mo. The borrower is in the development
business and experiencing some cash flow difficulties.
-- A $1.8 million relationship secured by rental houses and duplexes
located in Springfield, Mo. The borrower is experiencing cash flow
difficulties as a result of higher than normal vacancies.
-- A $1.9 million relationship secured by a storage facility, houses and
equipment located in southwest Missouri. The borrower is experiencing
some cash flow difficulties.
-- A $1.4 million relationship primarily secured by a subdivision,
warehouse, two single-family residences and equipment located near
Branson, Mo. The borrower is in the development business and sales are
slower than projected, which has resulted in cash flow difficulties.
-- A $1.4 million relationship secured by a subdivision, lots and acreage
and single family residences located in Branson, Mo. Sales of lots and
houses are slower than projected, which has caused cash flow
difficulties.
Decreases totaling $7.5 million in Potential Problem Loans resulted primarily from:
-- A reduction of $1.9 million ($1.1 million to Foreclosed Assets with an
$800,000 market adjustment recognized at foreclosure) and
-- A $2.3 million and a $2.4 million relationship, respectively, described
above as additions to the Non-performing Loans category.
Foreclosed Assets. Foreclosed assets increased $1.2 million during the three months ended September 30, 2009 from $39.9 million at June 30, 2009 to $41.1 million at September 30, 2009. For the nine months ending September 30, 2009, foreclosed assets increased $8.4 million from $32.7 million at December 31, 2008, to $41.1 million at September 30, 2009. During the three months ended September 30, 2009, foreclosed assets increased primarily due to the addition of one $1.1 million relationship consisting of eight houses located in Northwest Arkansas, another $1.1 million foreclosure on a six-unit townhouse complex located in Springfield, Mo., and a $1.3 million foreclosure on an office building located in Ozark, Mo. Additionally, the Company paid $2.1 million in return for a $2.6 million participants' interest in lots owned in St. Louis, Mo. This purchase was offset by the sale of approximately $2.3 million of lots in the real estate owned parcel. These increases were partially offset by decreases due to various foreclosed asset sales totaling $2.1 million with the remainder of the decrease coming from $3.2 million in market adjustments.
At September 30, 2009, ten separate relationships comprise $25.6 million, or 64%, of the total foreclosed assets balance. In addition to the three new relationships described above, seven other of these relationships were previously described more fully in the Company's June 30, 2009, Quarterly Report on Form 10-Q under "Foreclosed Assets."
BUSINESS INITIATIVES
The Company plans to open two to three banking centers per year as market conditions warrant as part of its overall long-term strategic plan. On September 23, 2009, the Company's second location in Lee's Summit, Mo., was opened and will enhance access and service to Lee's Summit-area customers. The Company first entered the Lee's Summit market, a suburb of Kansas City, Mo., in 2006. Including the locations recently added in the TeamBank acquisition, Great Southern now operates six banking centers in the Kansas City metropolitan area.
Great Southern will continue its participation in the FDIC's Transaction Account Guarantee Program (a part of the Temporary Liquidity Guarantee Program), which was extended by the FDIC until June 30, 2010. By participating in this program, Great Southern is purchasing additional FDIC insurance coverage for its customers. Great Southern customers with noninterest-bearing deposit accounts, Lawyer's Trust Accounts or IOLTA's, and NOW accounts paying interest at a rate less than 0.50 percent will be fully insured by the FDIC regardless of the account balance. Coverage under the Transaction Account Guarantee Program is in addition to and separate from the coverage available under the FDIC's general deposit insurance rules.
The common stock of Great Southern Bancorp, Inc., is quoted on the Nasdaq Global Select Market System under the symbol "GSBC". The last reported sale price of GSBC stock in the quarter ended September 30, 2009, was $23.71.
Great Southern offers a broad range of banking, investment, insurance and travel services to customers and clients. Headquartered in Springfield, Mo., Great Southern operates 72 banking centers and more than 200 ATMs in Missouri, Iowa, Kansas and Nebraska. The Company also serves lending needs through a loan production office in Rogers, Ark.
www.greatsouthernbank.com
Forward-Looking Statements
When used in 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 shareholder 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, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, 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, the Company's ability to access cost-effective funding, fluctuations in real estate values and both residential and commercial real estate market conditions, demand for loans and deposits in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above 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 nine months ended September 30, 2009, and 2008, are not necessarily indicative of the results of operations which may be expected for any future period.
Selected Financial September 30, December 31, June 30,
Condition Data: 2009 2008 2009
(Dollars in thousands)
Total assets $3,726,996 $2,659,923 $3,332,715
Loans receivable, gross 2,111,073 1,746,159 1,901,377
Allowance for loan losses 38,630 29,163 32,602
Foreclosed assets, net 45,616 32,659 42,935
Available-for-sale
securities, at fair value 728,598 647,678 721,123
Deposits 2,740,982 1,908,028 2,448,521
Total borrowings 654,862 500,030 608,719
Total stockholders' equity 286,260 234,087 257,375
Common stockholders' equity 230,355 178,507 201,579
Non-performing assets
(excluding FDIC-supported
assets) 64,575 65,861 54,353
Three Months Nine Months Three Months
Ended Ended Ended
September 30, September 30, June 30,
2009 2008 2009 2008 2009
Selected Operating Data: (Dollars in thousands)
Interest income $39,686 $35,024 $113,814 $109,028 $40,221
Interest expense 15,911 16,657 50,689 54,687 18,442
Net interest
income 23,775 18,367 63,125 54,341 21,779
Provision for
loan losses 16,500 4,500 28,300 47,200 6,800
Non-interest
income 57,005 1,789 97,959 21,836 9,583
Non-interest
expense 22,657 14,650 57,283 42,324 20,008
Provision
(credit) for
income taxes 14,058 182 25,541 (5,350) 1,072
Net income
(loss) $27,565 $824 $49,960 $(7,997) $3,482
Net income
(loss)
available to
common
shareholders $26,714 $824 $47,444 $(7,997) $2,641
Per Common Share:
Net income
(loss)
(fully diluted) $1.91 $.06 $3.43 $(.60) $.19
Book value $17.19 $12.61 $17.19 $12.61 $15.06
Earnings Performance Ratios:
Annualized return
on average assets 3.17% .13% 2.02% (.43)% .41%
Annualized return
on average
stockholders'
equity 50.82% 1.90% 32.97% (5.86)% 6.78%
Net interest margin 3.27% 3.13% 2.96% 3.09% 3.00%
Net interest margin
excluding hedge
acctg. entries 3.27% 3.15% 2.98% 3.23% 3.04%
Average interest
rate spread 3.30% 2.87% 2.94% 2.80% 2.99%
Efficiency
ratio 28.05% 72.68% 35.56% 55.56% 63.80%
Non-interest expense
to average total
assets 2.27% 2.07% 2.15% 2.13% 2.30%
Asset Quality Ratios (excluding FDIC-supported assets):
Allowance for loan
losses to period-
end loans 2.28% 1.63% 1.63% 1.63% 1.91%
Non-performing
assets to period-
end assets 1.73% 2.61% 1.73% 2.61% 1.63%
Non-performing loans
to period-end loans 1.11% 1.84% 1.11% 1.84% .75%
Annualized net charge
-offs to average
loans 2.47% .51% 1.45% 3.10% 1.01%
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except number of shares)
September 30, December 31, June 30,
2009 2008 2009
(Unaudited) (Unaudited)
ASSETS
Cash $362,942 $135,043 $225,970
Interest-bearing deposits
in other financial
institutions 189,124 32,877 179,297
Cash and cash equivalents 552,066 167,920 405,267
Available-for-sale securities 728,598 647,678 721,123
Hel For full details for GSBC click here.
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