Market Overview

Great Southern Bancorp, Inc. Reports Preliminary Second Quarter Earnings of $0.97 Per Diluted Common Share

Share:

Preliminary Financial Results and Other Matters for the Second Quarter and First Six Months of 2018: 

  • Significant Unusual Income or Expense Items: During the three months ended June 30, 2018, the Company recorded the following unusual item: the Company made valuation write-downs totaling $2.1 million on several foreclosed asset relationships, which is included in the Consolidated Statements of Income under "Noninterest Expense – Expense on foreclosed assets."  These write-downs resulted from management's decision, after marketing these assets for an extended period, to reduce the asking price for several parcels of land (subdivision ground, residential lots and commercial lots and undeveloped ground).   The impact of this item, after the effect of the full tax rate for the Company, reduced earnings per common share by approximately $0.11.
  • Total Loans:  Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $274.5 million, or 6.3%, from December 31, 2017, to June 30, 2018 and increased $194.2 million from March 31, 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 $25.5 million during the six months ended June 30, 2018, and consumer auto loans outstanding decreased $58.2 million during the six months ended June 30, 2018.  Outstanding net loan receivable balances increased $133.5 million, from $3.73 billion at December 31, 2017 to $3.86 billion at June 30, 2018 and increased $98.1 million from March 31, 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 $30.2 million at June 30, 2018, a decrease of $5.6 million from $35.8 million at December 31, 2017.  Non-performing assets at June 30, 2018 were $21.5 million (0.47% of total assets), down $6.3 million from $27.8 million (0.63% of total assets) at December 31, 2017 and down $5.9 million from $27.4 million (0.62% of total assets) at March 31, 2018. 
  • Capital:  The capital position of the Company continues to be strong, significantly exceeding the thresholds established by regulators. On a preliminary basis, as of June 30, 2018, the Company's Tier 1 Leverage Ratio was 11.3%, Common Equity Tier 1 Capital Ratio was 10.9%, Tier 1 Capital Ratio was 11.5%, and Total Capital Ratio was 14.1%. 
  • Net Interest Income:  Net interest income for the second quarter of 2018 increased $3.3 million to $41.2 million compared to $37.9 million for the second quarter of 2017.  Net interest income was $39.4 million for the first quarter of 2018.  Net interest margin was 3.94% for the quarter ended June 30, 2018, compared to 3.68% for the quarter ended June 30, 2017 and 3.93% for the quarter ended March 31, 2018.  The increase in net interest margin compared to the prior year second 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.  The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 10, 12 and 12 basis points for the quarters ended June 30, 2018, June 30, 2017, and March 31, 2018, respectively.  For further discussion of the additional yield accretion of the discount on acquired loan pools, see "Net Interest Income."

SPRINGFIELD, Mo., July 18, 2018 (GLOBE NEWSWIRE) -- Great Southern Bancorp, Inc. (NASDAQ:GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended June 30, 2018, were $0.97 per diluted common share ($13.8 million available to common shareholders) compared to $1.14 per diluted common share ($16.2 million available to common shareholders) for the three months ended June 30, 2017. 

Preliminary earnings for the six months ended June 30, 2018, were $1.91 per diluted common share ($27.3 million available to common shareholders) compared to $1.95 per diluted common share ($27.7 million available to common shareholders) for the six months ended June 30, 2017. 

For the quarter ended June 30, 2018, annualized return on average common equity was 11.32%, annualized return on average assets was 1.23%, and net interest margin was 3.94%, compared to 14.37%, 1.45% and 3.68%, respectively, for the quarter ended June 30, 2017.  For the six months ended June 30, 2018, annualized return on average common equity was 11.27%; annualized return on average assets was 1.23%; and net interest margin was 3.93% compared to 12.46%, 1.24% and 3.73%, respectively, for the six months ended June 30, 2017. 

President and CEO Joseph W. Turner commented, "Second quarter results were very strong, driven by an expanding core net interest margin, loan growth and expense containment.  Core net interest margin for the second quarter 2018 expanded to 3.84%, which was an increase of 28 and three basis points from the year ago quarter and most recent quarter, respectively. The primary driver of the margin expansion was increased yields in most of our loan categories, partially offset by a gradual, but steady, increase in deposit costs.  As in the first quarter of this year, our income tax expense was lower than the year-ago quarter due to enactment of the federal tax legislation last December.

"Commercial real estate and construction loan production was strong during the second quarter and our level of loan commitments and unfunded balances increased. Total gross loans, including the undisbursed portion of loans and excluding FDIC-assisted acquired loans and mortgages held for sale, have increased $274.5 million, or 6.3%, from the end of 2017. Credit quality during the quarter was stable with decreased net charge-offs ($704,000) and decreases in non-performing loans and foreclosed assets and repossessions.  During the quarter we reduced the list prices for several of our foreclosed land assets, resulting in a pre-tax net write-down of $2.1 million."  

Turner continued, "As noted, loan growth has been good in the first half of this year; however, there is strong competition for these loans and we did receive some significant loan repayments in late June. While we are experiencing good production throughout our nine-state franchise, we look for strategic opportunities to expand our reach into other markets by adding quality lenders in loan production offices.  As such, we are pleased to announce that we expect to open loan production offices in Atlanta and Denver during the third quarter of 2018.  Local and highly-experienced commercial lenders have been hired to manage these offices, which will be modeled similar to our current offices in Chicago, Dallas, Omaha and Tulsa.

"Lastly, we expect to close on the sale of the four Omaha-area banking centers on July 20, 2018.  As we noted in previous regulatory filings, this transaction will result in a significant gain being recorded in the third quarter."  

Selected Financial Data:

(In thousands, except per share data) Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017     2018   2017
Net interest income $   41,212  $   37,901   $   80,651  $   76,602
Provision for loan losses     1,950     1,950       3,900     4,200
Non-interest income     7,459     15,800       14,394     23,496
Non-interest expense      29,915      28,371        58,228      56,941
Provision for income taxes     2,967     7,204       5,612     11,262
Net income and net income available to common shareholders $   13,839  $   16,176   $   27,305  $   27,695
           
Earnings per diluted common share $   0.97  $   1.14   $   1.91  $   1.95
           

NET INTEREST INCOME

Net interest income for the second quarter of 2018 increased $3.3 million to $41.2 million compared to $37.9 million for the second quarter of 2017.  Net interest margin was 3.94% in the second quarter of 2018, compared to 3.68% in the same period of 2017, an increase of 26 basis points.  For the three months ended June 30, 2018, the net interest margin increased one basis point compared to the net interest margin of 3.93% in the three months ended March 31, 2018.  The increase in the margin from the prior year second 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, partially offset by an increase in the average interest rate on deposits and a reduction in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior year period.  The average interest rate spread was 3.72% for the three months ended June 30, 2018, compared to 3.53% for the three months ended June 30, 2017 and 3.74% for the three months ended March 31, 2018. 

Net interest income for the six months ended June 30, 2018 increased $4.1 million to $80.7 million compared to $76.6 million for the six months ended June 30, 2017.  Net interest margin was 3.93% in the six months ended June 30, 2018, compared to 3.73% in the same period of 2017, an increase of 20 basis points.  The average interest rate spread was 3.73% for the six months ended June 30, 2018, compared to 3.58% for the six months ended June 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 six month period, the increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the FDIC (when such agreements were in place), 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 totaling approximately $725,000 and $2.5 million were recorded in the three and six months ended June 30, 2018, respectively, related to all of these loan pools. 

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

     
  Three Months Ended  
  June 30, 2018   June 30, 2017  
  (In thousands, except basis points data)
Impact on net interest income/net interest margin (in basis points) $   1,070   10 bps   $   1,282   12 bps  
Non-interest income       —           —    
Net impact to pre-tax income $   1,070     $   1,282    


  Six Months Ended  
  June 30, 2018   June 30, 2017  
  (In thousands, except basis points data)
Impact on net interest income/net interest margin (in basis points) $   2,227   11 bps   $   3,262     16 bps  
Non-interest income       —           (634 )    
Net impact to pre-tax income $   2,227     $   2,628      
 

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 $1.4 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 six months ended June 30, 2018, increased 28 and 25 basis points, respectively, when compared to the year-ago periods.  The increase in net interest margin in the three and six 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.

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

NON-INTEREST INCOME

For the quarter ended June 30, 2018, non-interest income decreased $8.3 million to $7.5 million when compared to the quarter ended June 30, 2017, primarily as a result of the following items:

  • 2017 gain on early termination of FDIC loss sharing agreement for Inter Savings Bank:  In the quarter ended June 30, 2017, the Company recognized a one-time gross gain of $7.7 million from the termination of the loss sharing agreement 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 three months ended June 30, 2017. 
  • Other income:  Other income decreased $348,000 compared to the prior year quarter.  This decrease was primarily due to fee income totaling approximately $275,000 related to interest rate swaps entered into in the prior year quarter, which was not repeated in the current year quarter. 
  • Late charges and fees on loans:  Late charges and fees on loans decreased $223,000 compared to the prior year quarter.  The decrease was primarily due to fees totaling $130,000 on loan payoffs received on two commercial loan relationships during the 2017 quarter, with no similar large fees in the current year quarter.   

For the six months ended June 30, 2018, non-interest income decreased $9.1 million to $14.4 million when compared to the six months ended June 30, 2017, primarily as a result of the following items:

  • 2017 gain on early termination of FDIC loss sharing agreement 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 agreement 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 six months ended June 30, 2017. 
  • Amortization of income related to business acquisitions:  Because of the termination of the loss sharing agreements in previous years, the net amortization expense related to business acquisitions was $-0- for the six months ended June 30, 2018, compared to $485,000 for the six months ended June 30, 2017, which reduced non-interest income by that amount in the previous year period.   
  • Late charges and fees on loans:  Late charges and fees on loans decreased $711,000 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 $687,000 compared to the prior year period.  The decrease was primarily due to the interest rate swap income in 2017 noted above and the receipt of approximately $212,000 related to the exit of certain tax credit partnerships in 2017.  
  • Net gains on loan sales:  Net gains on loan sales decreased $603,000 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.

NON-INTEREST EXPENSE

For the quarter ended June 30, 2018, non-interest expense increased $1.5 million to $29.9 million when compared to the quarter ended June 30, 2017, primarily as a result of the following items:

  • Expense on foreclosed assets and repossessions:  Expense on foreclosed assets increased $2.1 million compared to the prior year period primarily due to net write-downs of certain foreclosed assets during the current period, totaling approximately $2.1 million.  These write-downs resulted from management's decision to reduce the asking price for several parcels of land (subdivision ground, residential lots and commercial lots and undeveloped ground).  
  • Salaries and employee benefits:  Salaries and employee benefits increased $449,000 from the prior year quarter.  This increase is approximately 3% over the prior year expense total and is primarily attributable to normal an
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