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Great Southern Bancorp, Inc. Reports Preliminary Fourth Quarter and Annual Earnings of $0.86 and $3.65 Per Diluted Common Share

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PR Newswire

SPRINGFIELD, Mo., Jan. 23, 2018

SPRINGFIELD, Mo., Jan. 23, 2018 /PRNewswire/ --

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

Preliminary Financial Results and Other Matters for the Quarter and Year Ended December 31, 2017:

Significant Unusual Income or Expense Items: During the three months ended December 31, 2017, the Company recorded the following unusual items: (1) The Company announced that following the enactment of the Tax Cuts and Jobs Act of 2017 (the "Act") federal tax reform legislation on December 22, 2017, it will distribute special cash bonuses to its more than 1,200 employees. The Company recorded a pre-tax expense of $1.1 million, which is included in the Consolidated Statements of Income under "Noninterest Expense – Salaries and employee benefits." This decreased diluted earnings per share by $0.05 in the three months ended December 31, 2017; and (2) Among other things, the Act permanently lowers the corporate federal income tax rate to 21% from the existing maximum rate of 35% in future periods. As a result of this reduction of the corporate federal income tax rate, U.S. generally accepted accounting principles require companies to perform a revaluation of their deferred tax assets and liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment (the three months and year ended December 31, 2017). The effect of the tax legislation resulted in a net decrease in the Company's income tax expense of $250,000, or a $0.02 increase in diluted earnings per share in the three months ended December 31, 2017.
Total Loans: Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $248.9 million, or 6.1%, from December 31, 2016, to December 31, 2017. This increase was primarily in construction loans, other residential (multi-family) real estate loans and commercial real estate loans. The FDIC-acquired loan portfolios had net decreases totaling $73.5 million during the year ended December 31, 2017. Outstanding net loan receivable balances decreased $33.7 million, from $3.76 billion at December 31, 2016 to $3.73 billion at December 31, 2017, and decreased $74.7 million, from $3.80 billion at September 30, 2017.
Asset Quality: Non-performing assets and potential problem loans, excluding those previously covered by FDIC loss sharing agreements and those acquired in the FDIC-assisted transaction with Valley Bank, which are accounted for and analyzed as loan pools rather than individual loans, totaled $35.8 million at December 31, 2017, a decrease of $10.5 million from $46.3 million at December 31, 2016 and a decrease of $5.1 million from $40.9 million at September 30, 2017. Non-performing assets at December 31, 2017 were $27.8 million (0.63% of total assets), down $11.5 million from $39.3 million (0.86% of total assets) at December 31, 2016 and down $5.1 million from $32.9 million (0.73% of total assets) at September 30, 2017.
Capital: The capital position of the Company continues to be strong, significantly exceeding the thresholds established by regulators. On a preliminary basis, as of December 31, 2017, the Company's Tier 1 Leverage Ratio was 10.9%, Common Equity Tier 1 Capital Ratio was 10.9%, Tier 1 Capital Ratio was 11.4%, and Total Capital Ratio was 14.1%.
Net Interest Income: Net interest income for the fourth quarter of 2017 decreased $975,000 to $39.3 million compared to $40.2 million for the fourth quarter of 2016. Net interest income was also $39.3 million for the third quarter of 2017. Net interest margin was 3.75% for the quarter ended December 31, 2017, compared to 3.87% for the fourth quarter of 2016 and 3.77% for the quarter ended September 30, 2017. The decrease in the margin from the prior year fourth quarter was primarily the result of a reduction in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior periods, partially offset by increased total average loans. Increased average interest rates on deposits and other borrowings also contributed to lower net interest margin compared to the year ago quarter. The decrease in the margin from the quarter ended September 30, 2017 to the quarter ended December 31, 2017 was primarily due to a reduction in the additional yield accretion recognized. The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 7, 30 and 9 basis points for the quarters ended December 31, 2017, December 31, 2016, and September 30, 2017, respectively. For further discussion of the additional yield accretion of the discount on acquired loan pools, see "Net Interest Income."

Great Southern Bancorp, Inc. (NASDAQ:GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended December 31, 2017, were $0.86 per diluted common share ($12.2 million available to common shareholders) compared to $0.83 per diluted common share ($11.8 million available to common shareholders) for the three months ended December 31, 2016.

Preliminary earnings for the year ended December 31, 2017, were $3.65 per diluted common share ($51.6 million available to common shareholders) compared to $3.21 per diluted common share ($45.3 million available to common shareholders) for the year ended December 31, 2016.

For the quarter ended December 31, 2017, annualized return on average common equity was 10.37%, return on average assets was 1.10%, and net interest margin was 3.75%, compared to 10.98%, 1.05% and 3.87%, respectively, for the quarter ended December 31, 2016. For the year ended December 31, 2017, annualized return on average common equity was 11.32%, annualized return on average assets was 1.16%, and net interest margin was 3.74% compared to 10.93%, 1.04% and 4.05%, respectively, for the year ended December 31, 2016.

President and CEO Joseph W. Turner commented, "We are pleased with our results in the fourth quarter, especially as the competition for loans and deposits continues to increase in our markets. Strong commercial and construction loan production, solid credit quality, a stable core net interest margin, and expense containment were highlights from the 2017 fourth quarter. In addition, in the fourth quarter and into future periods, the Company was and will be impacted by the recent federal tax reform legislation. We anticipate that the tax changes will lower our effective tax rate in 2018 and future periods, benefitting our net income. Discussion of the tax reform impact can be found later in this earnings release.

ARIVA.DE Börsen-Geflüster

Kurse

Great Southern Bancorp

52,71 $

-0,38%

"We continued to see good commercial and construction loan production during the fourth quarter as we've seen all year. For the second year in a row, our lenders have originated more than $1 billion in loans with commercial clients throughout our franchise footprint. Total gross loans, including the undisbursed portion of loans and excluding FDIC-assisted acquired loans and mortgages held for sale, increased $248.9 million, or 6.1%, from the end of 2016. This increase was partially offset by expected decreases in the consumer loan portfolio (down about $144 million) and one- to four-family residential loans. Outstanding loan balances were also negatively impacted by significant loan payoffs during 2017, resulting in our outstanding loan balance at the end of 2017 being down slightly from the end of 2016."

Turner said, "Our level of non-performing assets decreased $5.1 million and $11.5 million, from the end of the third quarter of 2017 and the end of 2016, respectively. The level of potential problem loans remained fairly consistent with balances at September 30, 2017 and December 31, 2016 of $8.0 million and $7.0 million, respectively. Foreclosed assets, excluding those acquired in FDIC-assisted transactions, were reduced by $6.8 million during the fourth quarter as we continue to resolve these credits, primarily through property sales.

"Core net interest margin improved by 11 basis points compared to the year ago quarter and was stable from the previous linked quarter. Expense containment remains a major focus for the Company. Total non-interest expenses were $29.3 million in the 2017 fourth quarter as compared to $28.0 million in the 2017 third quarter. Fourth quarter expenses include $1.1 million in special cash bonuses to be paid to Great Southern employees at the end of January 2018."

Selected Financial Data:

(In thousands, except per share data)	Three Months Ended December 31,		Year Ended December 31,
	2017	2016	2017	2016
Net interest income	$ 39,273	$ 40,248	$ 155,156	$ 163,056
Provision for loan losses	1,950	2,380	9,100	9,281
Non-interest income	7,374	7,528	38,527	28,510
Non-interest expense	29,284	29,041	114,261	120,427
Provision for income taxes	3,207	4,561	18,758	16,516
Net income and net income available to common shareholders	$ 12,206	$ 11,794	$ 51,564	$ 45,342

Earnings per diluted common share	$ 0.86	$ 0.83	$ 3.65	$ 3.21

NET INTEREST INCOME

Net interest income for the fourth quarter of 2017 decreased $975,000 to $39.3 million compared to $40.2 million for the fourth quarter of 2016. Net interest margin was 3.75% in the fourth quarter of 2017, compared to 3.87% in the same period of 2016, a decrease of 12 basis points. For the three months ended December 31, 2017, the net interest margin decreased two basis points compared to the net interest margin of 3.77% in the three months ended September 30, 2017. The decrease in the margin from the prior year fourth quarter was primarily the result of a reduction in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior periods, partially offset by increased total average loans. Increased average interest rates on deposits and other borrowings also contributed to lower net interest margin compared to the year ago quarter. The small decrease in the margin from the quarter ended September 30, 2017 to the quarter ended December 31, 2017 was primarily due to a reduction in the additional yield accretion recognized. The average interest rate spread was 3.58% for the three months ended December 31, 2017, compared to 3.74% for the three months ended December 31, 2016 and 3.60% for the three months ended September 30, 2017.

Net interest income for the year ended December 31, 2017 decreased $7.9 million to $155.2 million compared to $163.1 million for the year ended December 31, 2016. Net interest margin was 3.74% in the year ended December 31, 2017, compared to 4.05% for the year ended December 31, 2016, a decrease of 31 basis points. The average interest rate spread was 3.59% for the year ended December 31, 2017, compared to 3.93% for the year ended December 31, 2016. The decrease in the margin from the prior year was primarily the result of a reduction in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior periods, partially offset by increased total average loans. Increased average interest rates on deposits and other borrowings also contributed to lower net interest margin compared to the prior year.

The Company's net interest margin has been positively impacted by significant additional yield accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in the 2009, 2011, 2012 and 2014 FDIC-assisted transactions. On an on-going basis, the Company estimates the cash flows expected to be collected from the acquired loan pools. For each of the loan portfolios acquired, the cash flow estimates increased during the current and prior periods presented below, based on payment histories and reduced credit loss expectations. This resulted in increased income that has been spread, on a level-yield basis, over the remaining expected lives of the loan pools (and, therefore, has decreased over time). In the prior period, the increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the FDIC (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 loss sharing agreements or the remaining expected lives of the loan pools, whichever was shorter. Additional estimated cash flows totaling approximately $706,000 and $1.3 million were recorded in the three months and year ended December 31, 2017, respectively, related to all of these loan pools.

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

	Three Months Ended
	December 31, 2017		December 31, 2016
	(In thousands, except basis points data)
Impact on net interest income/ net interest margin (in basis points)	$ 776	7 bps	$ 3,142	30 bps
Non-interest income	—		(1,014)
Net impact to pre-tax income	$ 776		$ 2,128

	Year Ended
	December 31, 2017		December 31, 2016
	(In thousands, except basis points data)
Impact on net interest income/ net interest margin (in basis points)	$ 5,014	12 bps	$ 16,393	41 bps
Non-interest income	(634)		(7,033)
Net impact to pre-tax income	$ 4,380		$ 9,360

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 $2.6 million. As there is no longer, nor will there be in the future, indemnification asset amortization related to Team Bank, Vantus Bank, Sun Security Bank or InterBank due to the termination or expiration of the related loss sharing agreements for those transactions, there is no remaining indemnification asset or related adjustments that will affect non-interest income (expense). Of the remaining adjustments affecting interest income, we expect to recognize $1.7 million of interest income during 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 months and year ended December 31, 2017, increased 11 and decreased two basis points, respectively, when compared to the year-ago periods. The decrease in net interest margin in the twelve month period is primarily due to the interest expense associated with the issuance of $75.0 million of subordinated notes in the third quarter of 2016 and an increase in the average interest rate on deposits and other borrowings.

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

NON-INTEREST INCOME

For the quarter ended December 31, 2017, non-interest income decreased $154,000 to $7.4 million when compared to the quarter ended December 31, 2016, primarily as a result of the following items:

Amortization of income related to business acquisitions: Because of the termination of the loss sharing agreements in previous periods, the net amortization expense related to business acquisitions was $-0- for the quarter ended December 31, 2017, compared to $848,000 for the quarter ended December 31, 2016, which reduced non-interest income by that amount in the previous year.
Other income: Other income decreased $426,000 compared to the prior year quarter. This decrease was primarily due to the loss on disposal of certain fixed assets, including ATMs, during the quarter.

For the year ended December 31, 2017, non-interest income increased $10.0 million to $38.5 million when compared to the year ended December 31, 2016, primarily as a result of the following items:

Gain on early termination of FDIC loss sharing agreement for Inter Savings Bank: As previously disclosed in the Company's Current Report on Form 8-K filed on June 9, 2017, the Company's loss sharing agreement with the FDIC related to Inter Savings Bank was terminated early and the Company received a payment of $15.0 million to settle all outstanding items related to the terminated agreement. The Company recognized a one-time gross gain of $7.7 million related to the termination, which was recorded in the accretion of income related to business acquisitions line item of the consolidated statements of income during the year ended December 31, 2017.
Amortization of income related to business acquisitions: Because of the termination of FDIC loss sharing agreements in previous periods, the net amortization expense related to business acquisitions was $486,000 for the year ended December 31, 2017, compared to $6.4 million for the year ended December 31, 2016. The amortization expense for the year ended December 31, 2017, consisted of the following items: $504,000 of amortization expense related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios acquired from InterBank and $140,000 of amortization of the clawback liability. Partially offsetting the expense was income from the accretion of the discount related to the indemnification asset for the InterBank acquisition of $158,000.
Late charges and fees on loans: Late charges and fees on loans increased $484,000 compared to the prior year. The increase was primarily due to fees totaling $632,000 on loan payoffs received on four loan relationships, partially offset by a decrease in late charges and fees during the fourth quarter of 2017.
Net gains on loan sales: Net gains on loan sales decreased $791,000 compared to the prior year. The decrease was due to a decrease in originations of fixed-rate loans in 2017 compared to 2016. Fixed rate single-family loans originated are generally subsequently sold in the secondary market.
Other income: Other income decreased $825,000 compared to the prior year. During 2016, the Company recognized gains of $367,000 on the sale of the two branches in Southwest Missouri. In addition, a gain of $238,000 was recognized on sales of fixed assets unrelated to the branch sales during 2016. There were no similar transactions during 2017. There were net losses on the disposal of certain fixed assets, including ATMs, during the fourth quarter of 2017 of approximately $114,000, with no significant losses on the disposal of fixed assets in the comparable prior year period.
Net realized gains on sales of available-for-sale securities: During 2016, the Company sold an investment held by Bancorp for a gain of $2.7 million and sold other investment securities for a net gain of $144,000. There were no gains on sales of investments in the current year.

NON-INTEREST EXPENSE

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