Earnings positively affected by significant gain related to the Company's second FDIC-assisted acquisition
Oct. 22, 2009 (PR Newswire) -- SPRINGFIELD, Mo., Oct. 22 /PRNewswire-FirstCall/ --
Key Items for the Third Quarter and First Nine Months of 2009:
-- 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.
