Financial Highlights for the Fourth Quarter and Twelve Months of 2008:
* The Company's and Bank's regulatory capital levels increased, and both
entities remained "well capitalized" as defined by the Federal banking
agencies' capital-related regulations as of December 31, 2008. The
Company further strengthened capital levels through its voluntary
participation in the U.S. Treasury's Capital Purchase Program for
healthy institutions.
* The allowance for loan losses increased $3.7 million from December 31,
2007. The allowance as a percentage of total loans was 1.66% at
December 31, 2008, as compared to 1.63% at September 30, 2008, and
1.38% at December 31, 2007.
* Net loans decreased $96.4 million from December 31, 2007, primarily as
a result of a reduction in outstanding construction and land
development loan balances, which were down $142.1 million from year-end
2007. In addition, unfunded balances of construction and land
development loans decreased $195.3 million from $266.4 million at
December 31, 2007, to $71.1 million at December 31, 2008.
* Loan originations for both consumer and residential lending segments
increased from the year ended December 31, 2007. Consumer loan
originations increased $3.6 million, or 5.6%, to $68.1 million for the
full year 2008 as compared to 2007. Single-family residential loan
originations increased $18.0 million, or 14.1%, to $146.3 million for
the full year 2008 as compared to 2007. A significant portion of
originated residential loans are subsequently sold without recourse to
the secondary mortgage market.
* Non-interest income decreased 8.8% ($606,000) in the fourth quarter
2008, and declined 4.4% ($1.3 million) for the twelve months of 2008
over the comparable periods in 2007. For the fourth quarter 2008, the
decrease in non-interest income was primarily due to the $2.1 million
(pre-tax) impairment write-down of certain available-for-sale equity
investments and a decrease of $581,000 in commission revenue from the
Company's travel and investment divisions. The decrease was partially
offset by an increase of $1.7 million in income related to the change
in the fair value of certain interest rate swaps and the related change
in fair value of hedged deposits.
* As part of the Company's on-going expense management, excluding
foreclosure losses and credit-related expenses, operational expense
items were down $1.0 million in the fourth quarter 2008 compared to the
same period in 2007.
SPRINGFIELD, Mo., Jan. 22 /PRNewswire-FirstCall/ -- Great Southern
Bancorp, Inc. (Nasdaq: GSBC), the holding company for Great Southern Bank,
today reported preliminary earnings for the quarter ended December 31, 2008,
were $.26 per diluted common share ($3.5 million) compared to the $.48 per
diluted common share ($6.4 million) the Company earned during the same quarter
in the prior year. The effects of the Company's hedge accounting entries
recorded increased earnings for the quarter ended December 31, 2008, by
$684,000 and increased earnings for the quarter ended December 31, 2007, by
$107,000. Earnings for the fourth quarter 2008 were also impacted by the
items noted above in the "Financial Highlights" section.
Preliminary earnings for the twelve months ended December 31, 2008, were
$(0.35) per diluted common share ($4.7 million loss) compared to the $2.15 per
diluted share ($29.3 million) the Company earned during the same period in the
prior year. The effects of the Company's hedge accounting entries recorded
increased earnings for the twelve months ended December 31, 2008, by $2.5
million and increased earnings for the twelve months ended December 31, 2007,
by $340,000.
For the three months ended December 31, 2008, annualized return on average
equity (ROAE) was 8.80%; annualized return on average assets (ROAA) was 0.58%;
and annualized net interest margin (NIM) was 2.80%. The non-cash amortization
of prepaid broker fees to originate certificates of deposit (which was
recorded as part of the accounting change in 2005) reduced net interest margin
by 10 basis points (from 2.90%).
For the twelve months ended December 31, 2008, ROAE was (2.47)%; ROAA was
(0.18)%; and NIM was 3.01%. The non-cash amortization of prepaid broker fees
to originate certificates of deposit (which was recorded as part of the
accounting change in 2005) reduced net interest margin by 13 basis points
(from 3.14%).
Great Southern President and CEO Joseph W. Turner commented, "The year
2008 was one of the most challenging years in our Company's 86-year history.
While we are disappointed with our overall financial performance, the
challenges of the year also underscored the underlying strength and soundness
of our institution. The Company's Tier 1 risk-based and total risk-based
capital levels are stronger than 2007 year-end levels, even without the
Treasury's Capital Purchase Program investment. The Company's on-balance and
off-balance sheet liquidity levels increased for the year and are strong.
"As anticipated, net loans decreased for the fourth quarter and the year
with declines primarily in the construction and land development sector.
Importantly, loans to consumer lending customers and single-family residential
loan customers were up over year-end 2007 levels. Consumer and residential
loan originations increased compared to 2007 and totaled $68.1 million and
$146.3 million, respectively in 2008.
"Credit quality and the efficient resolution of credit issues remains a
top priority. Non-performing assets remained elevated in 2008, but at
manageable levels. The allowance for loan losses increased $3.7 million from
the end of 2007 to $29.2 million. The allowance for loan losses to total loans
at December 31, 2008, was 1.66%, which compares favorably with industry
averages. In 2009, we expect non-performing assets, loan loss provision levels
and net charge-offs to continue to be elevated, but at manageable levels,
compared to our Company's historic results.
"The net interest margin experienced greater compression during the fourth
quarter with a decline of 33 basis points to 2.80% as compared to fourth
quarter 2007. Most of the decrease in the margin resulted from strategic
efforts to maintain significant liquidity in these uncertain times. Longer-
term brokered certificates of deposit were purchased during 2008 to provide
liquidity and to maintain in reserve available secured funding lines with the
Federal Home Loan Bank and the Federal Reserve Bank."
Turner added, "The Company's on-going expense management showed positive
signs in the quarter. Non-interest expense decreased $343,000 in the fourth
quarter 2008 as compared to the same quarter in 2007. All expense line items
decreased except for foreclosure and credit-related expenses and FDIC
insurance premiums. In 2009, FDIC insurance costs are expected to go up by
approximately $400,000 per quarter as a result of the FDIC increasing
insurance premium for all banks.
"We expect that 2009 will be another difficult year for the industry and
the economy at-large, but we worked hard in 2008 to reposition the Company and
its balance sheet to better manage through the current recession. Our
associates are focused on doing what is right for our customers, our
communities and shareholders. This focus will be the key to our success in
positioning the Company for long-term growth and increasing long-term
shareholder value."
Selected Financial Data and Non-GAAP Reconciliation:
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, 2008 December 31, 2008
Effect Effect
of Excluding 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 $17,242 $(639) $17,881 $71,583 $(3,111) $74,694
Provision for
loan losses 5,000 -- 5,000 52,200 -- 52,200
Non-interest
income 6,309 1,691 4,618 28,144 6,976 21,168
Non-interest
expense 13,383 -- 13,383 55,706 -- 55,706
Provision for
income taxes 1,399 (368) 1,031 (3,751) (1,353) (5,104)
Net income $3,769 $684 $3,085 $(4,428) $2,512 $(6,940)
Net income
available
to common
shareholders $3,527 $684 $2,843 $(4,670) $2,512 $(7,182)
Three Months Ended Twelve Months Ended
December 31, 2007 December 31, 2007
Effect Effect
of Excluding of Excluding
Accounting Accounting Accounting Accounting
Change for Change for Change for Change for
As Int. Rate Int. Rate As Int. Rate Int. Rate
Reported Swaps Swaps Reported Swaps Swaps
Net interest
income $17,799 $(523) $18,322 $71,405 $(1,172) $72,577
Provision
for loan
losses 1,350 -- 1,350 5,475 -- 5,475
Non-interest
income 6,915 687 6,228 29,419 1,695 27,724
Non-interest
expense 13,726 -- 13,726 51,707 -- 51,707
Provision
for income
taxes 3,199 (57) 3,142 14,343 (183) 14,160
Net income $6,439 $107 $6,332 $29,299 $340 $28,959
Selected Financial Data and Non-GAAP Reconciliation:
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Earnings Earnings Earnings Earnings
Dollars Per Dollars Per Dollars Per Dollars Per
(000) Share (000) Share (000) Share (000) Share
Reported
Earnings
(per
common
share) $3,527 $.26 $6,439 $.48 $(4,670) $(.35) $29,299 $2.15
Amortization
of deposit
broker
origination
fees (net
of taxes) 415 340 2,022 762
Net change
in fair
value of
interest
rate swaps
and related
deposits
(net of
taxes) (1,099) (447) (4,534) (1,102)
Earnings
excluding
impact
of hedge
accounting
entries $2,843 $6,332 $(7,182) $28,959
NET INTEREST INCOME
Including the impact of the accounting entries recorded for certain
interest rate swaps, net interest income for the fourth quarter of 2008
decreased $557,000 to $17.2 million compared to $17.8 million for the fourth
quarter of 2007. Net interest margin was 2.80% in the quarter ended December
31, 2008, compared to 3.13% in the same period in 2007, a decrease of 33 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 fourth quarter of 2008 decreased
$441,000 to $17.9 million compared to $18.3 million for the fourth quarter of
2007. Net interest margin excluding the effects of the accounting change was
2.90% in the quarter ended December 31, 2008, compared to 3.22% in the quarter
ended December 31, 2007.
Most of the decrease in net interest margin resulted from the decision by
the Company to increase the amount of longer-term brokered certificates of
deposit during 2008 to provide 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 certificates 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 begun to redeem some of these certificates in 2009 in
order to lock in cheaper funding rates. In addition during 2008, the Company
issued approximately $137 million of new brokered certificates, which are
fixed rate certificates with maturity terms of generally two to four years,
which the Company may not redeem prior to maturity. There are no interest rate
swaps associated with these brokered certificates. These longer-term
certificates carry an interest rate that is approximately 150 basis points
higher than the interest rate that the Company would have paid if it instead
utilized short-term advances from the FHLBank. The Company decided the higher
rate was justified by the longer term and the ability to keep committed
funding lines available throughout 2008. The net interest margin was also
negatively impacted as the Company originated some of the new certificates in
advance of the anticipated terminations of these existing certificates,
thereby causing the Company to have excess funds for a period of time. These
excess funds were invested in short-term cash equivalents at rates that at
times caused the Company to earn a negative spread. The average balance of
interest-bearing cash equivalents in the three and twelve months ended
December 31, 2008, was $76 million and $42 million, respectively. This
compares to the average balance of interest-bearing cash equivalents in the
three and twelve months ended December 31, 2007, of $3 million and $9 million,
respectively. Partially offsetting the increase in brokered CDs, several
existing brokered certificates were redeemed by the Company in 2008 as the
related interest rate swaps were terminated by the swap counterparties.
Interest rate swap notional amounts have decreased from $419 million at
December 31, 2007, to $11 million at December 31, 2008.
Another factor that in 2008 negatively impacted net interest income was
the elevated level of LIBOR interest rates compared to Federal Funds rates as
a result of credit and liquidity concerns in financial markets. These LIBOR
interest rates were elevated approximately 50-75 basis points compared to
historical averages versus the stated Federal Funds rate for most of the three
months ended December 31, 2008. In the latter portion of December 2008 and so
far into January 2009, LIBOR rates have decreased from their higher levels in
comparison to the stated Federal Funds rate. While these LIBOR interest rates
are still elevated compared to historical averages in relation to Federal
Funds, they have decreased along with recent decreases in the Federal Funds
rate. The Company has reduced the amount and percentage of interest rate swaps
and other borrowings that are indexed to LIBOR. Funding costs related to local
market deposits and brokered certificates of deposit have also been elevated
due to competition by issuers seeking to generate significant funding.
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." A rate cut by the
Federal Reserve generally would have an anticipated immediate negative impact
on the Company's net interest income due to the large total balance of loans
which generally adjust immediately as Federal Funds adjust. Because the
Federal Funds rate is already very low, there may also be a negative impact on
the Company's net interest income due to the Company's inability to lower its
funding costs in the current environment. Usually any negative impact is
expected to be offset over the following 60- to 120-day period, and
subsequently is expected to have a positive impact, as the Company's interest
rates on deposits, borrowings and interest rate swaps would normally also go
down as a result of a reduction in interest rates by the Federal Reserve,
assuming normal credit, liquidity and competitive loan and deposit pricing
pressures. Any anticipated positive impact will likely be reduced by the
change in the funding mix noted above, as well as retail deposit competition
in the Company's market areas. 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.
For the three months ended December 31, 2008, and 2007, interest income
was reduced $227,000 and $307,000, respectively, due to the reversal of
accrued interest on loans which were added to non-performing status during the
quarter. For the twelve months ended December 31, 2008, and 2007, interest
income was reduced $1.2 million and $1.6 million, respectively, due to the
reversal of accrued interest on loans which were added to non-performing
status during the period. Partially offsetting this, the Company collected
interest which was previously charged off in the amount of $125,000 and
$44,000 in the three months ended December 31, 2008, and 2007, respectively,
and $227,000 and $183,000 in the twelve months ended December 31, 2008, and
2007, respectively, due to work-out efforts on non-performing assets.
Including the impact of the accounting entries recorded for certain
interest rate swaps, net interest income for the twelve months of 2008
increased $178,000 to $71.6 million compared to $71.4 million for the twelve
months of 2007. Net interest margin was 3.01% in the twelve months ended
December 31, 2008, compared to 3.24% in 2007, a decrease of 23 basis points.
Excluding the impact of the accounting entries recorded for certain
interest rate swaps, economically, net interest income for the twelve months
of 2008 increased $2.1 million to $74.7 million compared to $72.6 million for
the twelve months of 2007. Net interest margin excluding the effects of the
accounting change was 3.14% in the twelve months ended December 31, 2008,
compared to 3.29% in the twelve months ended December 31, 2007, a decrease of
15 basis points.
Non-GAAP Reconciliation:
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Dollars Dollars Dollars Dollars
(000) % (000) % (000) % (000) %
Net
Interest
Income/
Margin $17,242 2.80% $17,799 3.13% $71,583 3.01% $71,405 3.24%
Amortization
of deposit
broker
origination
fees 639 .10 523 .09 3,111 .13 1,172 .05
Net
interest
income/
margin
excluding
impact of
hedge
accounting
entries $17,881 2.90% $18,322 3.22% $74,694 3.14% $72,577 3.29%
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 for the fourth quarter of 2008 was $6.3 million
compared with $6.9 million for the fourth quarter of 2007, or a decrease of
$606,000. This decrease in non-interest income was primarily the result of the
impairment write-down in value of certain available-for-sale equity
investments and lower commission revenue from the Company's travel and
investment divisions, partially offset by an increase in income related to the
change in the fair value of certain interest rate swaps and the related change
in fair value of hedged deposits. The impairment write-down totaled $2.1
million on a pre-tax basis. These equity investments were previously included
in securities available-for-sale at a cost of $3.1 million and have
experienced significant fair value declines over the past year. It is unclear
if or when the values of these investment securities will improve, or whether
such values will deteriorate further. Based on these developments, the Company
recorded an other-than-temporary impairment. The Company continues to hold
these securities in the available-for-sale category. The Company also recorded
an impairment write-down of $1.1 million on unrelated securities on a pre-tax
basis in the fourth quarter of 2007.
Fourth quarter 2008 commission income from the Company's travel, insurance
and investment divisions decreased $581,000, or 25.6%, compared to the same
period in 2007. Part of this decrease ($298,000) was in the investment
division as a result of the alliance formed with Ameriprise Financial Services
through Penney, Murray and Associates. As a result of this change, Great
Southern now records most of its investment services activity on a net basis
in non-interest income. Thus, non-interest expense related to the investment
services division is also reduced. The Company's travel division also
experienced a decrease in commission income of $268,000 in the fourth quarter
of 2008 compared to the same period in 2007. Customers are reducing their
travel in light of current economic conditions.
A significant increase in non-interest income was due to the change in the
fair value of certain interest rate swaps and the related change in fair value
of hedged deposits, which resulted in an increase of $1.7 million in the three
months ended December 31, 2008, and an increase of $789,000 in the three
months ended December 31, 2007. Income of this magnitude related to the change
in the fair value of certain interest rate swaps and the related change in the
fair value of hedged deposits should not be expected in future quarters. 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 has been (and continues to be) recovered in subsequent periods as
interest rate swaps matured or were terminated by the swap counterparty.
Excluding the securities losses and interest rate swap income discussed
above, non-interest income for the fourth quarter of 2008 was $6.7 million
compared with $7.3 million for the fourth quarter of 2007, or a decrease of
$587,000. This decrease was primarily attributable to the lower commission
revenue from the Company's travel and investment divisions, which was
discussed above.
Non-interest income for the year ended December 31, 2008, was $28.1
million compared with $29.4 million for the year ended December 31, 2007, or a
decrease of $1.3 million. This decrease in non-interest income was primarily
the result of the impairment write-down in value of certain available-for-sale
equity investments and lower commission revenue from the Company's travel and
investment divisions, partially offset by an increase in income related to the
change in the fair value of certain interest rate swaps and the related change
in fair value of hedged deposits. The impairment write-down totaled $7.4
million on a pre-tax basis (including $5.3 million related to Fannie Mae and
Freddie Mac preferred stock, which was discussed in the September 30, 2008,
Quarterly Report on Form 10-Q). These equity investments have experienced
significant fair value declines over the past year. It is unclear if or when
the values of these investment securities will improve, or whether such values
will deteriorate further. Based on these developments, the Company recorded an
other-than-temporary impairment. The Company continues to hold these
securities in the available-for-sale category. The Company also recorded an
impairment write-down of $1.1 million on a pre-tax basis in 2007.
For the year ended December 31, 2008, commission income from the Company's
travel, insurance and investment divisions decreased $1.2 million, or 12.2%,
compared to 2007. Part of this decrease ($775,000) was in the investment
division as a result of the alliance formed with Ameriprise Financial Services
through Penney, Murray and Associates, which was discussed above. The
Company's travel division also experienced a decrease in commission income of
$543,000 in 2008 compared to 2007. Customers are reducing their travel in
light of current economic conditions.
A significant increase in non-interest income was due to the change in the
fair value of certain interest rate swaps and the related change in fair value
of hedged deposits, which resulted in an increase of $7.0 million in the year
ended December 31, 2008, and an increase of $1.6 million in the year ended
December 31, 2007. Income of this magnitude related to the change in the fair
value of certain interest rate swaps and the related change in the fair value
of hedged deposits should not be expected in future years. 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 has been
(and continues to be) recovered in subsequent periods as interest rate swaps
matured or were terminated by the swap counterparty.
Excluding the securities losses and interest rate swap income discussed
above, non-interest income for the year ended December 31, 2008, was $28.5
million compared with $28.9 million for the year ended December 31, 2007, or a
decrease of $409,000. This decrease was primarily attributable to the lower
commission revenue from the Company's travel and investment divisions, which
was discussed above, partially offset by an increase in gains on sales of
mortgage loans.
NON-INTEREST EXPENSE
Non-interest expense for the fourth quarter of 2008 was $13.4 million
compared with $13.7 million for the fourth quarter of 2007, or a decrease of
$343,000, or 2.5%. The Company's efficiency ratio for the quarter ended
December 31, 2008, was 56.83% compared to 55.54% in the same quarter in 2007.
The efficiency ratio in the fourth quarter 2008 and full-year was primarily
negatively impacted by the investment write-downs recorded by the Company. The
fourth quarter and full-year 2008 efficiency ratios were also negatively
impacted by increased expenses related to foreclosures discussed below. These
efficiency ratios include the impact of the hedge accounting entries for
certain interest rate swaps. Excluding the effects of these entries, the
efficiency ratio for the fourth quarter of 2008 was 59.48% compared to 55.91%
in the same period in 2007. The Company's ratio of non-interest expense to
average assets decreased from 2.24% for the three months ended December 31,
2007, to 1.90% for the three months ended December 31, 2008, due to the
Company's on-going cost management efforts and higher balances of investment
securities.
Non-interest expense for the twelve months of 2008 was $55.7 million
compared with $51.7 million for the twelve months of 2007, or an increase of
$4.0 million, or 7.7%. The Company's efficiency ratio for the twelve months
ended December 31, 2008, was 55.86% compared to 51.28% in the same period in
2007. These efficiency ratios include the impact of the hedge accounting
entries for certain interest rate swaps. Excluding the effects of these
entries, the efficiency ratio for the twelve months of 2008 was 58.11%
compared to 51.55% in the same period in 2007. The Company's ratio of non-
interest expense to average assets decreased from 2.18% for the twelve months
ended December 31, 2007, to 2.07% for the twelve months ended December 31,
2008.
In 2007, the Federal Deposit Insurance Corporation (FDIC) began to once
again assess insurance premiums on insured institutions. Under the new pricing
system, institutions in all risk categories, even the best rated, are charged
an FDIC premium. Great Southern received a deposit insurance credit as a
result of premiums previously paid. The Company's credit offset assessed
premiums for the first half of 2007, but premiums were owed by the Company in
the latter half of 2007 and into 2008. The Company incurred additional deposit
insurance expense of $74,000 in the fourth quarter of 2008 compared to the
same period in 2007. The Company expects increased expense in 2009 as a
result of the FDIC increasing insurance premiums for all banks. For the year
ended December 31, 2008, compared to the same period in 2007, the Company
incurred additional deposit insurance expense of $827,000.
Due to increases in the level of foreclosed assets, foreclosure-related
expenses in the fourth quarter of 2008 were higher than the comparable 2007
period by approximately $614,000. Similarly, foreclosure-related expenses
increased $2.8 million in the twelve months ended December 31, 2008, compared
to the same period in 2007.
In addition to the expense increases noted above, the Company's increase
in non-interest expense in the year ended December 31, 2008, compared to 2007,
related to the continued growth of the Company. Late in the first quarter of
2007, Great Southern completed its acquisition of a travel agency in St.
Louis. In addition, since June 2007, the Company opened banking centers in
Springfield, Mo. and Branson, Mo. In the year ended December 31, 2008,
compared to the year ended December 31, 2007, non-interest expenses increased
$576,000 related to the ongoing operations of these entities.
Non-GAAP Reconciliation:
Three Months Ended December 31,
2008 2007
Non-Interest Revenue Non-Interest Revenue
Expense Dollars* Expense Dollars*
(000) (000) % (000) (000) %
Efficiency Ratio $13,383 $23,551 56.83% $13,726 $24,714 55.54%
Amortization of
deposit broker
origination fees -- 639 (1.61) -- 523 (1.18)
Net change in
fair value of
interest rate
swaps and
related deposits -- (1,691) 4.26 -- (687) 1.55
Efficiency ratio
excluding impact
of hedge
accounting
entries $13,383 $22,499 59.48% $13,726 $24,550 55.91%
* Net interest income plus non-interest income.
Twelve Months Ended December 31,
2008 2007
Non-Interest Revenue Non-Interest Revenue
Expense Dollars* Expense Dollars*
(000) (000) % (000) (000) %
Efficiency Ratio $55,706 $99,727 55.86% $51,707 $100,824 51.28%
Amortization of
deposit broker
origination fees -- 3,111 (1.81) -- 1,172 (.61)
Net change in
fair value of
interest rate
swaps and
related deposits -- (6,976) 4.06 -- (1,695) .88
Efficiency ratio
excluding impact
of hedge
accounting
entries $55,706 $ 95,862 58.11% $51,707 $100,301 51.55%
* Net interest income plus non-interest income.
INCOME TAXES
For the three months ended December 31, 2008, the Company's effective tax
rate was 27.1%. For the twelve months ended December 31, 2008, the Company's
effective tax benefit rate was 45.9%. In future periods, the Company expects
its effective tax rate to be 32-35%.
CAPITAL
As of December 31, 2008, total stockholders' equity 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. Stockholders' equity at December 31, 2007, was $189.9
million (7.8% of total assets), equivalent to a book value of $14.17 per
common share. As of December 31, 2008, 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 December 31,
2008, and on a preliminary basis, the Bank's Tier 1 leverage ratio was 7.76%,
Tier 1 risk-based capital ratio was 10.68%, and total risk-based capital ratio
was 11.94%. On December 31, 2008, and on a preliminary basis, the Company's
Tier 1 leverage ratio was 10.05%, Tier 1 risk-based capital ratio was 13.84%,
and total risk-based capital ratio was 15.09%.
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, in an aggregate exchange 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. The amount of
preferred shares sold represents approximately 3% of the Company's risk-
weighted assets as of September 30, 2008.
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 after
three years at 100% of the issue price, subject to the approval of the
Company's federal regulator. Earlier redemptions of the preferred stock
require that the Company complete an equity offering of at least $14.5 million
(or 25% of original preferred stock issuance).
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses increased $3.6 million, from $1.4 million
during the three months ended December 31, 2007, to $5.0 million during the
three months ended December 31, 2008. The provision for loan losses increased
$46.7 million, from $5.5 million during the year ended December 31, 2007, to
$52.2 million during the year ended December 31, 2008. 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 $3.7 million, or 14.5%, to $29.2
million at December 31, 2008, compared to $25.5 million at December 31, 2007.
Net charge-offs were $5.2 million in the three months ended December 31, 2008,
versus $2.0 million in the three months ended December 31, 2007. Five
relationships make up $3.8 million of the net charge-off total for the 2008
fourth quarter. Three of these relationships are included in non-performing
loans, and two relationships are included in foreclosed assets. Net charge-
offs were $48.5 million in the year ended December 31, 2008, versus $6.3
million in the year ended December 31, 2007. The increase in charge-offs for
the year ended December 31, 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 and charge-offs. As properties were transferred into non-performing
loans or 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 was
1.66%, 1.63% and 1.38% at December 31, 2008, September 30, 2008, and December
31, 2007, 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
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 at December 31, 2008,
were $65.9 million, down $0.1 million from September 30, 2008, and up $10.0
million from December 31, 2007. Non-performing assets as a percentage of total
assets were 2.48% at December 31, 2008, compared to 2.61% at September 30,
2008, and 2.30% at December 31, 2007. Compared to December 31, 2007, non-
performing loans decreased $2.3 million to $33.2 million while foreclosed
assets increased $12.3 million to $32.7 million. Commercial real estate,
construction and business loans comprised $29.7 million, or 89%, of the total
$33.2 million of non-performing loans at December 31, 2008.
Non-performing Loans. Compared to September 30, 2008, the total amount of
non-performing loans remained unchanged at $33.2 million. Increases in non-
performing loans during the quarter ended December 31, 2008, were primarily
due to the addition of two loan relationships to the Non-performing Loans
category:
* An $8.3 million loan relationship, which is secured primarily by
multiple subdivisions in the St. Louis area. This relationship was
charged down $2 million upon transfer to non-performing loans. The
$8.3 million balance represents the Company's total exposure, but only
55% of the total borrowers' liability, with 45% participated to other
banks. This relationship has been with Great Southern since 2005 and
lot sales have slowed.
* A $1.6 million loan relationship, which is secured primarily by eleven
houses for sale in Northwest Arkansas. Four of the houses are either
under contract or have contracts pending, but none of these sales have
been completed at this time.
Partially offsetting these increases in non-performing loans were the
following decreases to non-performing loans during the three months ended
December 31, 2008:
* A $2.5 million loan relationship, which is secured primarily by an
office and residential historic rehabilitation project in St. Louis,
was assumed by a new borrower upon the sale of the collateral.
* A $3.0 million loan relationship, which is secured primarily by a
condominium development in Kansas City, was reduced to $2.5 million
through a principal reduction. This relationship was previously charged
down approximately $285,000 upon transfer to non-performing loans.
* A portion of the primary collateral underlying a $1.2 million loan
relationship, lots, houses and duplexes for resale in the Joplin, Mo.,
area, was sold during the fourth quarter of 2008. The remaining
properties, totaling $325,000, were foreclosed during the fourth
quarter of 2008.
* The primary collateral underlying a $0.7 million loan relationship,
anticipated tax refunds, was paid off in the three months ended
December 31, 2008, by receipt of these tax refunds. In addition, the
Company recovered $760,000 into the allowance for loan losses.
* A $9.2 million loan relationship, which is secured by a condominium and
retail historic rehabilitation development in St. Louis, was reduced to
$7.7 million due to receipt of Tax Increment Financing funds.
At December 31, 2008, six significant loan relationships accounted for
$23.8 million of the total non-performing loan balance of $33.2 million. In
addition to the two new relationships noted above, four other significant loan
relationships were previously included in Non-performing Loans and remained
there at December 31, 2008. These four relationships are described below:
* A $7.7 million loan relationship, which is secured by a condominium and
retail historic rehabilitation development in St. Louis. The original
relationship has been reduced through the receipt of Tax Increment
Financing funds and a portion of the Federal and State historic tax
credits expected to be received by the Company in 2008. Upon receipt of
the remaining Federal and State tax credits, the Company expects to
reduce the balance of this relationship to approximately $5.0 million,
the value of which is substantiated by a recent appraisal. The Company
expects to remove this relationship from loans and hold it as a real
estate asset once the tax credit process is completed. To date, six of
the ten residential units are leased. The retail space is not leased at
this time. This relationship was updated above and described more fully
in the Company's 2007 Annual Report on Form 10-K under "Non-performing
Assets."
* A $2.5 million loan relationship, which is secured primarily by a
condominium development in Kansas City. This relationship was updated
above and previously described in the Company's September 30, 2008
Quarterly Report on Form 10-Q under "Non-performing Assets."
* A $2.3 million loan relationship, which is secured primarily by
commercial land to be developed into commercial lots in Northwest
Arkansas. This relationship was previously described in the Company's
September 30, 2008 Quarterly Report on Form 10-Q under "Non-performing
Assets."
* A $1.4 million loan relationship, which is secured primarily by a
residential subdivision development and developed lots in various
subdivisions in Springfield, Mo. This relationship was charged down
approximately $413,000 in the fourth quarter of 2008 upon receipt of
updated appraisals to establish the value of the collateral.
Potential Problem Loans. Potential problem loans increased $1.7 million
during the three months ended December 31, 2008, from $16.1 million at
September 30, 2008, to $17.8 million at December 31, 2008, which was $12.6
million less than at December 31, 2007. 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 December 31, 2008, Potential Problem Loans increased primarily
due to the addition of two unrelated relationships totaling $1.8 million to
the Potential Problem Loans category. These two additional relationships
include: a $932,000 relationship primarily secured by condominiums and vacant
land in Branson, Mo.; and an $868,000 relationship primarily secured by
subdivision lots near Joplin, Mo. Decreases totaling $1.2 million in Potential
Problem Loans resulted primarily from the transfer of one relationship
described above as a $1.6 million relationship added in the Non-performing
Loans category.
Foreclosed Assets. Foreclosed assets decreased $151,000 during the three
months ended December 31, 2008, from $32.8 million at September 30, 2008, to
$32.7 million at December 31, 2008. Compared to a balance of $20.4 million at
December 31, 2007, foreclosed assets increased $12.3 million. During the three
months ended December 31, 2008, foreclosed assets increased primarily due to
the addition of one $2.7 million relationship consisting of subdivision lots
in the St. Louis area and the addition of several smaller relationships that
involve houses which are completed and for sale or under construction, as well
as developed subdivision lots. Foreclosed assets decreased primarily due to
the sale of one $1.3 million relationship consisting of a restaurant in
Northwest Arkansas, the sale of one $1.6 million relationship consisting of
subdivision lots in the Kansas City, Mo. area, the sale of one $1.1 million
relationship consisting of an office building in Southwest Missouri and the
sale of several smaller relationships that involve houses which are completed
or under construction, as well as developed subdivision lots.
At December 31, 2008, eight separate relationships comprise $20.4 million,
or 63%, of the total foreclosed assets balance. In addition to the one new
relationship described above, seven of these relationships were previously
described more fully in the Company's September 30, 2008 Quarterly Report on
Form 10-Q under "Foreclosed Assets."
BUSINESS INITIATIVES
The Company is expanding its retail banking center network in the St.
Louis and Kansas City metropolitan regions. This is part of the Company's
overall long-term plan to open two to three banking centers per year as market
conditions warrant. The Company's first retail banking center in the St. Louis
market is expected to open in April 2009. Located in Creve Coeur, Mo., the
full-service banking center will complement a loan production office and a
Great Southern Travel office already in operation in this market. Construction
will be underway soon on a second banking center in the Lee's Summit, Mo.,
market, a suburb of Kansas City. The banking center should be completed in
late 2009 and will enhance access and service to Lee's Summit-area customers.
Great Southern opened its first Lee's Summit retail location in 2006.
Great Southern is participating in the FDIC's Temporary Liquidity
Guarantee Program (TLGP), which consists of two basic components: (1) the
Transaction Account Guarantee Program and (2) the Debt Guarantee Program.
Through the Transaction Account Guarantee Program, Great Southern is
purchasing additional FDIC insurance coverage for its customers. Great
Southern customers with noninterest-bearing deposit accounts, Lawyer's Trust
Accounts, 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, through
December 31, 2009. 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, which was recently increased from $100,000 to
$250,000 per depositor.
The Debt Guarantee Program, which guarantees newly issued senior unsecured
debt of banks and thrifts, could be utilized by the Company in the future. At
present, the Company has no senior unsecured debt currently outstanding.
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 December 31, 2008, was $11.44.
Great Southern offers a broad range of banking, investment, insurance and
travel services to customers and clients. Headquartered in Springfield, Mo.,
Great Southern operates 39 banking centers and 180 ATMs in Missouri. The
Company also serves lending needs through loan production offices in Overland
Park, Kan., Rogers, Ark., and St. Louis.
http://www.greatsouthernbank.com
Forward-Looking Statements
When used in future filings 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 twelve
months ended December 31, 2008, and 2007, are not necessarily indicative of
the results of operations, which may be expected for any future period.
Selected Financial Condition Data:
December 31, December 31, September 30,
2008 2007 2008
(Dollars in thousands)
Total assets $2,659,923 $2,431,732 $2,527,912
Loans receivable, gross 1,746,159 1,838,853 1,795,962
Allowance for loan losses 29,163 25,459 29,379
Foreclosed assets, net 32,659 20,399 32,810
Available-for-sale securities,
at fair value 647,648 425,028 505,715
Deposits 1,908,028 1,763,146 1,854,474
Total borrowings 500,030 461,517 485,569
Total stockholders' equity 234,087 189,871 168,784
Common stockholders' equity 178,507 189,871 168,784
Non-performing assets 65,861 55,874 66,035
Three Months Ended Twelve Months Ended Three Months Ended
December 31, December 31, September 30,
2008 2007 2008 2007 2008
Selected Operating
Data: (Dollars in thousands)
Interest
income $35,786 $40,733 $144,814 $163,871 $35,024
Interest
expense 18,544 22,934 73,231 92,466 16,657
Net interest
income 17,242 17,799 71,583 71,405 18,367
Provision for
loan losses 5,000 1,350 52,200 5,475 4,500
Non-interest
income 6,309 6,915 28,144 29,419 1,789
Non-interest
expense 13,383 13,726 55,706 51,707 14,650
Provision
(credit) for
income taxes 1,399 3,199 (3,751) 14,343 182
Net income
(loss) $3,769 $6,439 $(4,428) $29,299 $824
Net income
(loss)
available to
common
shareholders $3,527 $6,439 $(4,670) $29,299 $824
At or For The At or For The At or For The
Three Months Ended Twelve Months Ended Three Months Ended
December 31, December 31, September 30,
2008 2007 2008 2007 2008
Per Common Share:
Net income (loss)
(fully diluted) $.26 $.48 $(.35) $2.15 $.06
Book value $13.34 $14.17 $13.34 $14.17 $12.61
Earnings
Performance
Ratios:
Annualized return
on average
assets 0.58% 1.08% (0.18)% 1.25% .13%
Annualized
return on
average
stockholders'
equity 8.80% 13.47% (2.47)% 15.78% 1.90%
Net interest
margin 2.80% 3.13% 3.01% 3.24% 3.13%
Net interest
margin excluding
hedge acctg.
entries 2.90% 3.22% 3.14% 3.29% 3.15%
Average interest
rate spread 2.56% 2.62% 2.74% 2.71% 2.87%
Efficiency
ratio 56.83% 55.54% 55.86% 51.28% 72.68%
Non-interest
expense to
average total
assets 1.90% 2.24% 2.07% 2.18% 2.07%
Asset Quality
Ratios:
Allowance for
loan losses to
period-end
loans 1.66% 1.38% 1.66% 1.38% 1.63%
Non-performing
assets to
period-end
assets 2.48% 2.30% 2.48% 2.30% 2.61%
Non-performing
loans to
period-end
loans 1.90% 1.92% 1.90% 1.92% 1.84%
Annualized net
charge-offs to
average loans 1.16% .44% 2.63% .35% .51%
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except number of shares)
December 31, December 31, September 30,
2008 2007 2008
------------- ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Cash $135,043 $79,552 $56,020
Interest-bearing deposits in
other financial institutions 32,877 973 67,008
---------- ---------- ----------
Cash and cash equivalents 167,920 80,525 123,028
Available-for-sale securities 647,678 425,028 505,715
Held-to-maturity securities
(fair value $1,422 - December
2008; $1,508 - December 2007) 1,360 1,420 1,360
Mortgage loans held for sale 4,695 6,717 5,184
Loans receivable, net of
allowance for loan losses of
$29,163 - December 2008;
$25,459 - December 2007 1,716,996 1,813,394 1,766,583
Interest receivable 13,287 15,441 12,103
Prepaid expenses and other
assets 14,179 14,904 17,666
Foreclosed assets held for
sale, net 32,659 20,399 32,810
Premises and equipment, net 30,030 28,033 29,954
Goodwill and other intangible
assets 1,687 1,909 1,737
Investment in Federal Home
Loan Bank stock 8,333 13,557 8,448
Refundable income taxes 7,048 1,701 7,252
Deferred income taxes 14,051 8,704 16,072
--------- --------- ----------
Total Assets $2,659,923 $2,431,732 $2,527,912
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,908,028 $1,763,146 $1,854,474
Securities sold under reverse
repurchase agreements with
customers 215,261 143,721 229,274
Federal Home Loan Bank
advances 120,472 213,867 122,847
Structured repurchase
agreements 50,000 -- 50,000
Short-term borrowings 83,368 73,000 52,519
Subordinated debentures issued
to capital trust 30,929 30,929 30,929
Accrued interest payable 9,225 6,149 8,882
Advances from borrowers for
taxes and insurance 334 378 1,232
Accounts payable and accrued
expenses 8,219 10,671 8,971
--------- --------- ----------
Total Liabilities 2,425,836 2,241,861 2,359,128
--------- --------- ----------
Stockholders' Equity:
Capital stock
Serial preferred stock,
$.01 par value; authorized
1,000,000 shares; issued
and outstanding December
2008 - 58,000 shares 55,580 -- --
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding
December 2008 - 13,380,969
shares; December 2007 -
13,400,197 shares 134 134 134
Stock warrants; December
2008 - 909,091 shares 2,452 -- --
Additional paid-in capital 19,81