Great Southern Bancorp, Inc. Reports Preliminary Second Quarter Earnings of $0.79 Per Diluted Common Share

PR Newswire

SPRINGFIELD, Mo., July 28, 2014 /PRNewswire/ --

Preliminary Financial Results for the Second Quarter and First Half of 2014:

  • FDIC-Assisted Acquisition: On June 20, 2014, Great Southern Bank entered into a purchase and assumption agreement with the FDIC to purchase certain assets and assume all of the deposits of Valley Bank, a full-service bank headquartered in Moline, Ill., with significant operations in Iowa. The transaction resulted in a preliminary one-time gain of $10.8 million (pre-tax) based upon the initial estimated fair value of the assets acquired and liabilities assumed.
  • Asset Quality: Non-performing assets and potential problem loans, excluding those covered by FDIC loss sharing agreements and those acquired in the FDIC-assisted transaction with Valley Bank, which are not covered by a loss sharing agreement, totaled $72.3 million at June 30, 2014, a decrease of $17.0 million from $89.3 million at December 31, 2013 and a decrease of $6.1 million from $78.4 at March 31, 2014. Non-performing assets were $51.8 million, or 1.32% of total assets, at June 30, 2014, compared to $62.3 million, or 1.75% of total assets at December 31, 2013. Net charge-offs were $1.6 million for the three months ended June 30, 2014, compared to $3.5 million for the three months ended March 31, 2014.
  • Total Loans: Total gross loans, excluding acquired covered loans, acquired non-covered loans and mortgage loans held for sale, increased $212.9 million, or 10.2%, from December 31, 2013 to June 30, 2014, primarily in the areas of commercial real estate loans, consumer loans, construction loans, commercial business loans and other residential loans. Net decreases in the loan portfolios acquired in 2009, 2011 and 2012 totaled $22.8 million in the six months ended June 30, 2014. The net carrying value of the loans acquired in the Valley Bank transaction was $159.7 million at June 30, 2014.
  • Net Interest Income:  Net interest income for the second quarter of 2014 increased $1.5 million to $40.0 million compared to $38.5 million for the second quarter of 2013. Net interest margin was 4.69% for the quarter ended June 30, 2014, compared to 4.39% for the second quarter in 2013 and 4.66% for the quarter ended March 31, 2014.  These changes were primarily the result of variations in the yield accretion on acquired loans due to changes in expected cash flows in the 2014 period when compared to the second quarter 2013 period. The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 107 basis points for the quarter ended June 30, 2014, 88 basis points for the quarter ended June 30, 2013, and 97 basis points for the quarter ended March 31, 2014.  For further discussion on the additional yield accretion of the discount on acquired loan pools, see the "Net Interest Income" section of this release.
  • Capital:  After the Valley Bank transaction, the capital position of the Company continues to be strong, significantly exceeding the "well capitalized" thresholds established by regulators. On a preliminary basis, as of June 30, 2014, the Company's Tier 1 leverage ratio was 11.0%, Tier 1 risk-based capital ratio was 14.2%, and total risk-based capital ratio was 15.4%. 
  • Significant Unusual Income and Expense Items:  In addition to the gain related to the Valley Bank acquisition, there were several other significant unusual income and expense items recorded during the three months ended June 30, 2014.  Investment securities were sold at a gain of $569,000.  Certain FHLB advances and other borrowings were repaid prior to maturity resulting in expense of $7.4 million included in non-interest expense.  The carrying value of one foreclosed asset property was reduced by $940,000 by a charge through non-interest expense.  Various expenses totaling $600,000 related to the Valley Bank transaction were included in non-interest expense.  Impairments of receivables related to InterBank and Vantus Bank assets totaling $650,000 were included in non-interest expense.

Great Southern Bancorp, Inc. (GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended June 30, 2014, were $0.79 per diluted common share ($10.9 million available to common shareholders) compared to $0.59 per diluted common share ($8.1 million available to common shareholders) for the three months ended June 30, 2013. 

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Preliminary earnings for the six months ended June 30, 2014, were $1.42 per diluted common share ($19.6 million available to common shareholders) compared to $1.19 per diluted common share ($16.3 million available to common shareholders) for the six months ended June 30, 2013. 

For the quarter ended June 30, 2014, annualized return on average common equity was 13.02%, annualized return on average assets was 1.17%, and net interest margin was 4.69%, compared to 10.20%, 0.84% and 4.39%, respectively, for the quarter ended June 30, 2013.  For the six months ended June 30, 2014, annualized return on average common equity was 11.86%; annualized return on average assets was 1.07%; and net interest margin was 4.68% compared to 10.38%, 0.84% and 4.57%, respectively, for the six months ended June 30, 2013. 

President and CEO Joseph W. Turner commented, "In the second quarter, we welcomed former Valley Bank customers and associates as we entered into our fifth FDIC-assisted acquisition. This acquisition supports our long-term strategy of strengthening our presence in the Des Moines area and provides entry into a new market, the attractive Quad Cities metro area. This transaction, unlike our previous FDIC-assisted transactions, does not provide loss share coverage for the loans acquired and the bargain purchase gain is smaller than those recorded in previous transactions.  However, future earnings related to the acquired Valley operations are expected to be meaningful.

"The former Valley Bank franchise had an impressive non-time deposit base of $187 million. Since the acquisition, banking center customer deposits have remained stable and the current retention rate is about 97%.  In addition, higher-yielding Internet CDs of $114 million were assumed, with the expectation that these deposits will be redeemed early by account holders. We have the option to reduce the rates on these deposits to market rates and have elected to do so. To date, approximately two-thirds of these deposits have been redeemed by the account owner.

"We are pleased with our overall financial performance in the second quarter. Second quarter earnings were $0.79 per diluted common share as compared to $0.59 in the same period in 2013. Our core net interest margin remains stable. The Company experienced continued loan growth and improved credit quality. Total loans, excluding covered loans, loans acquired in the Valley Bank transaction and mortgage loans held for sale, increased significantly from the end of last quarter. Non-performing assets and potential problem loans, excluding those covered by FDIC loss sharing agreements, totaled $72.3 million at June 30, 2014, a decrease of $6.1 million from $78.4 million at March 31, 2014."

Turner continued, "Also of note in the second quarter, certain FHLB advances and other borrowings totaling $130 million were repaid prior to their maturity, resulting in a one-time $7.4 million charge (pre-tax). In future periods the repayment of these borrowings should provide improvement in net interest income.  The interest cost related to these borrowings for the next twelve months would have been $4.7 million, with total interest cost to maturity of $9.4 million based on the remaining terms."

Selected Financial Data:


(In thousands, except per share data)

Three Months Ended
June 30,


Six Months Ended
June 30,


2014


2013


2014


2013

Net interest income

$         39,971


$         38,501


$         77,938


$         80,634

Provision for loan losses

1,462


3,671


3,154


11,896

Non-interest income

10,631


2,327


11,555


5,250

Non-interest expense

34,399


26,712


60,293


52,633

Provision for income taxes

3,687


2,221


6,174


4,737

Net income

$         11,054


$           8,224


$         19,872


$         16,618









Net income available to common shareholders

$         10,909


$           8,079


$         19,582


$         16,328

Earnings per diluted common share

$             0.79


$             0.59


$             1.42


$             1.19









FDIC-ASSISTED ACQUISITION

On June 20, 2014, Great Southern Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (FDIC) to acquire certain loans and other assets and assume all of the deposits of Valley Bank, a full-service bank headquartered in Moline, Ill., with significant operations in Iowa.    Valley Bank operated 13 locations – six locations in the Quad Cities market area and seven in central Iowa, primarily in the Des Moines market area. Great Southern already operates six banking centers in the central Iowa/Des Moines region.  Assets with a fair value of approximately $378.7 million were acquired, including $165.1 million of loans, $88.5 million of investment securities, $109.4 million of cash and cash equivalents, $10.9 million of premises and $2.1 million of other assets. Liabilities with a fair value of $367.9 million were assumed, including $366.0 million of deposits and $1.9 million of other liabilities. A customer-related core deposit intangible asset of $2.8 million was also recorded.

Under the agreement with the FDIC, Great Southern assumed the deposits of Valley Bank at no premium. Additionally, Great Southern purchased the loans, a high percentage of which are performing, at an overall discount of approximately $37 million. The FDIC retained a portion of the loans and all of the other real estate owned in the transaction and there is no loss sharing agreement between the FDIC and Great Southern.

The Company recorded a preliminary one-time gain of $10.8 million (pre-tax) based upon the initial estimated fair value of the assets acquired and liabilities assumed in accordance with FASB ASC 805, Business Combinations, during the quarter ended June 30, 2014. FASB ASC 805 allows a measurement period of up to one year to adjust initial fair value estimates as of the acquisition date. The Company will continue to evaluate the fair value estimates and, if necessary, they may be adjusted during the measurement period. Additional income may be recognized in future periods as loans are collected from customers, but we cannot estimate the timing of this income due to the variables associated with this transaction. Based on the level of discounts and the nature of the loans acquired, none of the acquired Valley Bank loans are 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.

A portion of the bargain purchase gain arose from the fair values estimated for the core deposit intangible ($2.8 million) and a premium recorded on the acquired loan portfolio related to the yield expected on the portfolio compared to current market rates for similar loan portfolios ($2.0 million).  The core deposit intangible will be amortized to non-interest expense over seven years.  The fair value yield adjustment will be amortized as a reduction to interest income over the estimated life of the various loan pools.  Both of these will be non-cash expense items.

The former Valley Bank franchise is operating under the Great Southern name. The Company expects to convert the Valley Bank operational systems into Great Southern's systems on October 24, 2014, which will allow all Great Southern and former Valley Bank customers to conduct business at any banking center throughout the Great Southern six-state retail franchise. Upon completion of the operational conversion, back office operations will be consolidated.  The Company anticipates purchasing most of the real estate, furniture and fixtures of the branch locations currently being operated by Valley Bank from the FDIC, but consolidation of part of the former Valley Bank network is anticipated. The Company expects to close the Moline banking center and Altoona, Iowa, banking center prior to the systems conversion in October. In addition, the leased banking center in Ames, Iowa, will be relocated prior to systems conversion to a purchased former bank facility, which is expected to provide Ames customers better service and access.  The exact cost of the real estate and personal property to be acquired as part of this transaction will be determined at a later date based on current appraisals, but the Company expects the cost to be in the range of $11-15 million ($10.9 million of which has already been paid by the Company).

NET INTEREST INCOME

Net interest income for the second quarter of 2014 increased $1.5 million to $40.0 million compared to $38.5 million for the second quarter of 2013. Net interest margin was 4.69% in the second quarter of 2014, compared to 4.39% in the same period of 2013, an increase of 30 basis points.  The average interest rate spread was 4.58% for the three months ended June 30, 2014, compared to 4.31% for the three months ended June 30, 2013. For the three months ended June 30, 2014, the net interest margin increased 3 basis points compared to the net interest margin of 4.66% in the three months ended March 31, 2014. 

The Company's net interest margin has been significantly impacted by additional yield accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in the 2009, 2011 and 2012 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 have increased, based on payment histories and reduced loss expectations of the loan pools. This resulted in increased income that was spread on a level-yield basis over the remaining expected lives of the loan pools. The increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as indemnification assets. Therefore, the expected indemnification assets have also been reduced each quarter since the fourth quarter of 2010, resulting in adjustments to be amortized on a comparable basis over the remainder of the loss sharing agreements or the remaining expected lives of the loan pools, whichever is shorter. The positive impact to net interest income and net interest margin was higher in the quarter ended June 30, 2014, compared to the quarter ended March 31, 2014.  Additional estimated cash flows, primarily related to the Sun Security Bank and InterBank loan portfolios, were recorded in the quarter ended June 30, 2014.  The impact of these adjustments on the Company's financial results for the reporting periods presented is shown below:                                                                                                                                       


Three Months Ended



June 30, 2014


June 30, 2013



(In thousands, except basis points data)


Impact on net interest income/net interest margin (in basis points)

$              9,085


   107 bps


$              7,663


   88 bps


Non-interest income

(7,469)




(6,628)




Net impact to pre-tax income

$              1,616




$              1,035










Six Months Ended



June 30, 2014


June 30, 2013



(In thousands, except basis points data)


Impact on net interest income/net interest margin (in basis points)

$            16,988


   102 bps


$            18,096


   103 bps


Non-interest income

(13,805)




(14,963)




Net impact to pre-tax income

$              3,183




$              3,133




Because these adjustments will be recognized over the remaining lives of the loan pools and the remainder of the loss sharing agreements, respectively, they will impact future periods as well. The remaining accretable yield adjustment that will affect interest income is $33.3 million and the remaining adjustment to the indemnification assets, including the effects of the clawback liability related to InterBank, that will affect non-interest income (expense) is $(28.9) million. Of the remaining adjustments, we expect to recognize $13.6 million of interest income and $(11.4) million of non-interest income (expense) during the remainder of 2014.  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 increased 11 basis points when compared to the year-ago quarter, and decreased 7 basis points when compared to the first quarter of 2014.  The Company generally continues to experience slightly decreasing yields on loans and investments, excluding the yield accretion income discussed above.  In many cases, new loans originated are at rates which are lower than the rates on existing loans and loans being paid down or paid off.  During the three months ended June 30, 2014, there were approximately $142 million in loan repayments at a weighted average interest rate of 4.82%.  New loan activity during the same three month period totaled approximately $207 million, at a weighted average interest rate of 4.33%.  Deposit costs have decreased slightly as some time deposits continue to mature and renew at lower rates, but the positive impact of this has diminished as market rates for such deposits are no longer declining.

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

NON-INTEREST INCOME

For the quarter ended June 30, 2014, non-interest income increased $8.3 million to $10.6 million when compared to the quarter ended June 30, 2013, primarily as a result of the following items:

  • Initial gain recognized on business acquisition: The Company recognized a preliminary one-time gain of $10.8 million (pre-tax) on the FDIC-assisted acquisition of Valley Bank, which occurred on June 20, 2014.
  • Net realized gains on sales of available-for-sale securities: Gains on sales of available-for-sale securities increased $472,000 compared to the prior year quarter. This was primarily due to the sale of all of the Company's Small Business Administration securities in June 2014, which produced a gain of $569,000.

Partially offsetting the increase in non-interest income was a decrease in the following items:

  • Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $7.2 million for the quarter ended June 30, 2014, compared to $5.7 million for the quarter ended June 30, 2013. The amortization expense for the quarter ended June 30, 2014, was made up of the following items: $7.5 million of amortization expense related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios, $423,000 of amortization of the clawback liability and $153,000 of impairment of the indemnification asset for Vantus Bank. The impairment was recorded because the Company does not expect resolution of certain items related to commercial foreclosed assets prior to the expiration of the non-single-family loss sharing agreement for Vantus Bank. Partially offsetting the expense was income from the accretion of the discount related to the indemnification assets for all of the acquisitions of $416,000 and $419,000 of other loss share income items.
  • Gains on sales of single-family loans: Gains on sales of single-family loans decreased $1.0 million compared to the prior year quarter. This was due to a decrease in originations of fixed-rate loans due to higher fixed rates on these loans in the 2014 period which resulted in fewer loans being originated to refinance existing debt. Loans originated are subsequently sold in the secondary market.
  • Change in interest rate swap fair value: The Company recorded expense of $(130,000) during the 2014 quarter due to the decrease in the interest rate swap fair value related to its matched book interest rate derivatives program. This compares to income of $347,000 recorded during the three months ended June 30, 2013.

For the six months ended June 30, 2014, non-interest income increased $6.3 million to $11.6 million when compared to the six months ended June 30, 2013, primarily as a result of the following items:

  • Initial gain recognized on business acquisition: The Company recognized a preliminary one-time gain of $10.8 million (pre-tax) on the FDIC-assisted acquisition of Valley Bank, which occurred on June 20, 2014.
  • Net realized gains on sales of available-for-sale securities: Gains on sales of available-for-sale securities increased $511,000 compared to the prior year period. This was primarily due to the sale of all of the Company's Small Business Administration securities in June 2014, which produced a gain of $569,000.

Partially offsetting the increase in non-interest income was a decrease in the following items:

  • Amortization of income related to business acquisitions: The net amortization expense related to business acquisitions was $13.6 million for the six months ended June 30, 2014, compared to $11.6 million for the six months ended June 30, 2013. The amortization expense for the six months ended June 30, 2014, was made up of the following items: $13.8 million of amortization expense related to the changes in cash flows expected to be collected from the FDIC-covered loan portfolios, $742,000 of amortization of the clawback liability and $503,000 of impairment of the indemnification asset for Vantus Bank. The impairment was recorded because the Company does not expect resolution of certain items related to commercial foreclosed assets prior to the expiration of the non-single-family loss sharing agreement for Vantus Bank. Offsetting the expense was income from the accretion of the discount related to the indemnification assets for all of the acquisitions of $1.4 million.
  • Gains on sales of single-family loans: Gains on sales of single-family loans decreased $1.9 million compared to the prior year period for the same reasons discussed above.
  • Change in interest rate swap fair value: The Company recorded expense of $(233,000) during the 2014 period due to the decrease in the interest rate swap fair value related to its matched book interest rate derivatives program. This compares to income of $408,000 recorded during the six months ended June 30, 2013.

NON-INTEREST EXPENSE

For the quarter ended June 30, 2014, non-interest expense increased $7.7 million to $34.4 million when compared to the quarter ended June 30, 2013, primarily as a result of the following items:

  • Other Operating Expenses: Other operating expenses increased $7.8 million, to $9.8 million, in the quarter ended June 30, 2014 compared to the prior year quarter primarily due to $7.4 million in prepayment penalties paid as the Company elected to repay $130 million of its FHLB advances and structured repo borrowings prior to their maturity. The interest cost related to these borrowings for the next twelve months would have been $4.7 million, with total interest cost to maturity of $9.4 million based on the remaining terms. The Company elected to utilize some of its existing liquidity, as well as liquid assets arising from the Valley Bank transaction, and securities sales for the repayment of these borrowings.
  • Foreclosure-related expenses: Expenses on foreclosed assets were relatively unchanged for the three months ended June 30, 2014, when compared to the three months ended June 30, 2013. However, in the 2014 period the Company recorded a $940,000 write-down of the carrying value of one foreclosed asset. The 2013 period expenses were due primarily to increases in the write-downs of carrying values of foreclosed assets and losses on sales of assets.
  • Valley Bank acquisition expenses: The Company incurred approximately $605,000 of additional expenses during the quarter related to the FDIC-assisted acquisition of Valley Bank. Those expenses included approximately $300,000 of compensation expense, approximately $120,000 of legal, audit and other professional fees expense, and approximately $150,000 of travel, meals and other expenses related to due diligence for the transaction and similar costs incurred from the June 20 closing date through the end of June.

For the six months ended June 30, 2014, non-interest expense increased $7.7 million to $60.3 million when compared to the six months ended June 30, 2013, primarily as a result of the following items:

  • Other Operating Expenses: Other operating expenses increased $7.7 million, to $11.5 million for the six months ended June 30, 2014. The reasons for the increase are the same as those described in the section above for the quarter ended June 30, 2014.
  • Foreclosure-related expenses: Expenses on foreclosed assets were relatively unchanged for the six months ended June 30, 2014, when compared to the six months ended June 30, 2013. The reasons for the level of expenses are the same as those described in the section above for the quarter ended June 30, 2014.
  • Valley Bank acquisition expenses: The Company incurred approximately $605,000 of additional expenses during the quarter related to the FDIC-assisted acquisition of Valley Bank. The reasons for the level of expenses are the same as those described in the section above for the quarter ended June 30, 2014.

The Company's efficiency ratio for the quarter ended June 30, 2014, was 67.98% compared to 65.43% for the same quarter in 2013.  The efficiency ratio for the six months ended June 30, 2014, was 67.37% compared to 61.28% for the same period in 2013.  The increase in the ratio in the 2014 three and six-month periods was primarily due to increases in non-interest expense, primarily due to the acquisition, foreclosed asset write-downs and the early repayment of certain borrowings previously described.  There were partially offsetting increases in non-interest income resulting from the initial gain recognized on the Valley Bank acquisition.  The Company's ratio of non-interest expense to average assets increased from 2.73% and 2.66% for the three and six months ended June 30, 2013, respectively, to 3.64% and 3.24% for the three and six months ended June 30, 2014, respectively.  The increase in the current period ratios was primarily due to the increase in other operating expenses in the 2014 periods compared to the 2013 periods due to the penalties paid for prepayment of borrowings and other non-interest expenses as discussed above.  Average assets for the quarter ended June 30, 2014, decreased $129 million, or 3.3%, from the quarter ended June 30, 2013.  Average assets for the six months ended June 30, 2014, decreased $232 million, or 5.9%, from the six months ended June 30, 2013.  The decreases in average assets in the three and six month periods were primarily due to decreases in investment securities, interest earning deposits at the Federal Reserve Bank and FDIC indemnification assets, offset by increases in loans due to acquisitions and organic loan growth. 

INCOME TAXES

In the three months ended March 31, 2014, the Company elected to early-adopt FASB ASU No. 2014-01, which amends FASB ASC Topic 323, Investments – Equity Method and Joint Ventures. This Update impacts the Company's accounting for investments in flow-through limited liability entities which manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in the Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The Company has significant investments in such qualified affordable housing projects that meet the required conditions.  The Company's adoption of this Update did not result in any material impact on the Company's financial position or results of operations, except that the investment amortization expense, which previously was included in Other Non-interest Expense in the Consolidated Statements of Income, is now included in Provision for Income Taxes in the Consolidated Statements of Income presented. As a result, there was no change in Net Income for the periods covered in this release.  In addition, there was no cumulative effect adjustment to Retained Earnings.

For the three and six months ended June 30, 2014, the Company's effective tax rate was 25.0% and 23.7%, respectively, which was lower than the statutory federal tax rate of 35%, due primarily to the effects of the tax credits utilized and to tax-exempt investments and tax-exempt loans which reduced the Company's effective tax rate.  In future periods, the Company expects its effective tax rate typically will be 20-25% of pre-tax net income, assuming it continues to maintain or increase its use of investment tax credits. The Company's effective tax rate may fluctuate as it is impacted by the level and timing of the Company's utilization of tax credits and the level of tax-exempt investments and loans and the overall level of pretax income.  At this time, the Company expects to utilize a larger amount of tax credits in 2014 than it did in 2013.

CAPITAL

As of June 30, 2014, total stockholders' equity was $399.6 million (10.2% of total assets).  As of June 30, 2014, common stockholders' equity was $341.6 million (8.7% of total assets), equivalent to a book value of $24.96 per common share.  Total stockholders' equity at December 31, 2013, was $380.7 million (10.7% of total assets). As of December 31, 2013, common stockholders' equity was $322.8 million (9.1% of total assets), equivalent to a book value of $23.60 per common share.  At June 30, 2014, the Company's tangible common equity to total assets ratio was 8.5%, compared to 8.9% at December 31, 2013. The tangible common equity to total risk-weighted assets ratio was 11.4% and 12.3% at June 30, 2014, and December 31, 2013, respectively.

As of June 30, 2014, 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 a preliminary basis, as of June 30, 2014, the Company's Tier 1 leverage ratio was 11.0%, Tier 1 risk-based capital ratio was 14.2%, and total risk-based capital ratio was 15.4%. On June 30, 2014, and on a preliminary basis, the Bank's Tier 1 leverage ratio was 9.7%, Tier 1 risk-based capital ratio was 12.5%, and total risk-based capital ratio was 13.8%.

Great Southern Bancorp, Inc. is a participant in the U.S. Treasury's Small Business Lending Fund (SBLF).  Through the SBLF, in August 2011, the Company issued a new series of preferred stock totaling $57.9 million to the Treasury.  The dividend rate on the SBLF preferred stock for the second quarter of 2014 was 1.0% and the dividend rate will remain at 1.0% until the first quarter of 2016.

PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES

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, and internal as well as external reviews.  Based on the Company's current assessment of these factors and their expected impact on the loan portfolio, management believes that provision expenses and net charge-offs for 2014 will likely continue to be less than those for 2013, or similar to the latter half of 2013.  However, the levels of non-performing assets, potential problem loans, loan loss provisions and net charge-offs fluctuate from period to period and are difficult to predict.

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 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. Additional procedures provide for 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 provision for loan losses for the quarter ended June 30, 2014, decreased $2.2 million to $1.5 million when compared with the quarter ended June 30, 2013.  The provision for loan losses for the six months ended June 30, 2014, decreased $8.7 million to $3.2 million when compared with the six months ended June 30, 2013.  At June 30, 2014, the allowance for loan losses was $38.1 million, a decrease of $2.0 million from December 31, 2013.  Total net charge-offs were $1.6 million and $4.0 million for the quarters ended June 30, 2014, and 2013, respectively.  Two relationships made up $939,000 of the net charge-off total for the quarter ended June 30, 2014.  Total net charge-offs were $5.2 million and $12.4 million for the six months ended June 30, 2014, and 2013, respectively.  The decrease in net charge-offs and provision for loan losses in the three and six months ended June 30, 2014, were consistent with our expectations, as indicated in previous filings.  General market conditions, and more specifically, real estate absorption rates and unique circumstances related to individual borrowers and projects also contributed to the level of provisions and charge-offs.  As properties were categorized as potential problem loans, non-performing loans or foreclosed assets, evaluations were made of the values of these assets with corresponding charge-offs as appropriate.

The Bank's allowance for loan losses as a percentage of total loans, excluding loans covered by the FDIC loss sharing agreements, was 1.54%, 1.92% and 2.08% at June 30, 2014, December 31, 2013, and June 30, 2013, respectively. Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at June 30, 2014, based on recent reviews of the Company's loan portfolio and current economic conditions. If economic conditions were to deteriorate or management's assessment of the loan portfolio were to change, it is possible that additional loan loss provisions would be required, thereby adversely affecting future results of operations and financial condition.

ASSET QUALITY

Former TeamBank, Vantus Bank, Sun Security Bank and InterBank non-performing assets, including foreclosed assets, are not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets below due to the respective loss sharing agreements with the FDIC, which cover at least 80% of principal losses that may be incurred in these portfolios for the applicable terms under the agreements.  At June 30, 2014, there were no material non-performing assets that were previously covered, and are now not covered, under the TeamBank non-single-family loss sharing agreement.  Former Valley Bank loans are also excluded from the totals and the discussion of non-performing loans, potential problem loans and foreclosed assets below, although they are not covered by a loss sharing agreement.  Former Valley Bank loans are accounted for in pools and were recorded at their fair value at the time of the acquisition as of June 20, 2014; therefore, these loan pools are analyzed rather than the individual loans.  In addition, FDIC-supported TeamBank, Vantus Bank, Sun Security Bank and InterBank assets were initially recorded at their estimated fair values as of their acquisition dates of March 20, 2009, September 4, 2009, October 7, 2011, and April 27, 2012, respectively.  The overall performance of the FDIC-covered loan pools acquired in 2009, 2011 and 2012 has been better than original expectations as of the acquisition dates.

The loss sharing agreement for the non-single-family portion of the loans acquired in the TeamBank transaction ended on March 31, 2014.  Any additional losses in that non single-family portfolio will not be eligible for loss sharing coverage. At this time, the Company does not expect any material losses in this non single-family loan portfolio, which totaled $31.3 million at June 30, 2014.

As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions that occur from time to time and other factors specific to a borrower's circumstances, the level of non-performing assets will fluctuate. 

Non-performing assets, excluding FDIC-covered non-performing assets and other FDIC-assisted acquired assets, at June 30, 2014, were $51.8 million, a decrease of $10.5 million from $62.3 million at December 31, 2013.  Non-performing assets, excluding FDIC-covered non-performing assets and other FDIC-assisted acquired assets, as a percentage of total assets were 1.32% at June 30, 2014, compared to 1.75% at December 31, 2013. 

Compared to December 31, 2013, non-performing loans decreased $6.2 million to $13.7 million at June 30, 2014, and foreclosed assets decreased $4.3 million to $38.1 million at June 30, 2014.  Commercial real estate loans comprised $7.0 million, or 51.4%, of the total $13.7 million of non-performing loans at June 30, 2014, an increase of $422,000 from March 31, 2014.  Non-performing one-to four-family residential loans comprised $3.3 million, or 23.8%, of total non-performing loans at June 30, 2014, a decrease of $582,000 from March 31, 2014.  Non-performing other commercial loans decreased $1.1 million in the three months ended June 30, 2014, and were $2.0 million, or 14.9%, of total non-performing loans at June 30, 2014. 

Compared to December 31, 2013, potential problem loans decreased $6.4 million to $20.6 million at June 30, 2014.  Compared to March 31, 2014, potential problem loans decreased $1.9 million, or 8.5%. This decrease was due to $5.0 million in loans being removed from potential problem loans due to improvements in the credits, $845,000 in loans transferred to the non-performing category and $262,000 in payments, partially offset by the addition of $4.1 million of loans to potential problem loans.

Activity in the non-performing loans category during the quarter ended June 30, 2014, was as follows:


Beginning
Balance,
April 1


Additions to
Non-Performing


Removed
from Non-Performing


Transfers
to Potential
Problem
Loans


Transfers to
Foreclosed
Assets


Charge-Offs


Payments


Ending
Balance,
June 30


(In thousands)

















One- to four-family construction

$              —


$           —


$               —


$                 —


$                —


$              —


$                —


$              —

Subdivision construction

1,303





(688)


(309)


(2)


304

Land development

373


41




(21)


(79)


(11)


303

Commercial construction








One- to four-family residential

3,834


1,336


(76)


(240)


(997)


(200)


(405)


3,252

Other residential








Commercial real estate

6,607


1,987


(1,200)




(25)


(340)


7,029

Commercial business

3,104


23


(799)




(89)


(198)


2,041

Consumer

565


316



(12)



(12)


(124)


733

















Total

$       15,786


$      3,703


$        (2,075)


$          (252)


$          (1,706)


$           (714)


$         (1,080)


$       13,662

















At June 30, 2014, the non-performing commercial real estate category included 10 loans, four of which were added during the quarter.  The largest relationship in this category, which was added in a previous quarter, totaled $2.7 million, or 37.9%, of the total category, and is collateralized by a hotel.  The non-performing one- to four-family residential category included 42 loans, nine of which were added during the quarter.  The non-performing commercial business category included eight loans, one of which was added during the quarter.  The largest relationship in this category, which was added in 2013, totaled $1.8 million, or 89.5% of the total category, and is collateralized by an assignment of annual assessments generated by a Community Improvement District for the associated real estate. 

Activity in the potential problem loans category during the quarter ended June 30, 2014, was as follows:


Beginning
Balance,
April 1


Additions to
Potential
Problem


Removed
from
Potential
Problem


Transfers to
Non-Performing


Transfers to
Foreclosed
Assets


Charge-Offs


Payments


Ending
Balance,
June 30


(In thousands)

















One- to four-family construction

$              —


$               —


$               —


$               —


$               —


$               —


$               —


$               —

Subdivision construction

650


560



(2)




(11)


1,197

Land development

10,857



(5,000)






5,857

Commercial construction








One- to four-family residential

2,194


1,858



(711)




(14)


3,327

Other residential

1,957







(1)


1,956

Commercial real estate

5,770


1,490



(126)




(227)


6,907

Commercial business

816


232







1,048

Consumer

223


56



(6)



(5)


(9)


259

















Total

$       22,467


$         4,196


$       (5,000)


$          (845)


$               —


$              (5)


$          (262)


$       20,551

















At June 30, 2014, the commercial real estate category of potential problem loans included six loans, three of which were added during the current quarter.  The largest relationship in this category, which was added during a previous quarter, had a balance of $4.9 million, or 71.5% of the total category.  The relationship is collateralized by properties located near Branson, Mo. The land development category of potential problem loans included three loans, all of which were added during previous quarters.  The largest relationship in this category totaled $3.8 million, or 65.6% of the total category, and is collateralized by property in the Branson, Mo. area.  The one- to four-family residential category of potential problem loans included 29 loans, 13 of which were added during the current quarter.  Of the 13 new loans added during the current quarter, nine of those loans were to the same borrower.  The other residential category of potential problem loans included one loan which was added in a previous quarter, and is collateralized by properties located in the Branson, Mo., area.  The subdivision construction category of potential problem loans included eight loans, five of which were added during the current quarter.  The largest relationship in this category had a balance of $280,000, or 23.4% of the total category, as is collateralized by property in southwest Missouri.  The commercial business category of potential problem loans included six loans, two of which were added in the current quarter.  The largest relationship in this category had a balance of $660,000, or 63.0% of the total category, and is collateralized by automobiles and land. 

Activity in foreclosed assets, excluding $6.1 million in foreclosed assets covered by FDIC loss sharing agreements and $2.0 million in properties which were not acquired through foreclosure, during the quarter ended June 30, 2014, was as follows:


Beginning
Balance,
April 1


Additions


ORE Sales


Capitalized
Costs


ORE Write-Downs


Ending
Balance,
June 30






(In thousands)



















One-to four-family construction

$               —


$             —


$              —


$              —


$                —


$               —

Subdivision construction

10,963


688


(1,357)




10,294

Land development

16,730


34


(220)



(941)


15,603

Commercial construction

2,132






2,132

One- to four-family residential

1,371


1,137


(802)




1,706

Other residential

3,678




34



3,712

Commercial real estate

4,551



(489)




4,062

Commercial business

77



(4)



(14)


59

Consumer

618


674


(737)




555













Total

$      40,120


$       2,533


$      (3,609)


$             34


$            (955)


$      38,123













At June 30, 2014, the land development category of foreclosed assets included 30 properties, the largest of which was located in northwest Arkansas and had a balance of $2.3 million, or 14.7% of the total category.  Of the total dollar amount in the land development category of foreclosed assets, 47.4% and 32.0% was located in northwest Arkansas and in the Branson, Mo., area, respectively, including the largest property previously mentioned.  One property located in the Branson, Mo., area accounted for $940,000 of the charge-offs for the land development category.  The subdivision construction category of foreclosed assets included 33 properties, the largest of which was located in the St. Louis, Mo. metropolitan area and had a balance of $2.9 million, or 28.5% of the total category.  Of the total dollar amount in the subdivision construction category of foreclosed assets, 19.2% and 14.7% is located in Branson, Mo. and Springfield, Mo., respectively. The commercial real estate category of foreclosed assets included 10 properties, the largest of which was located in the St. Louis, Mo. metropolitan area and had a balance of $1.4 million, or 34.5% of the total category.  The other residential category of foreclosed assets included 15 properties, 12 of which were all part of the same condominium community, which was located in Branson, Mo. and had a balance of $2.2 million, or 59.6% of the total category.  Of the total dollar amount in the other residential category of foreclosed assets, 81.1% was located in the Branson, Mo., area, including the largest properties previously mentioned. 

BUSINESS INITIATIVES

Several initiatives are underway related to the Company's banking center network, including those referenced in the above "FDIC-assisted Acquisition" section. Two new banking centers were opened in June 2014.  A new banking center began operating in Fayetteville, Ark., a part of the Northwest Arkansas region and home to the University of Arkansas. This opening represents the second office in Northwest Arkansas, the other located in nearby Rogers, Ark.  A new office was also opened in Ferguson, Mo., representing the eighth banking center in the St. Louis metropolitan area.

As previously announced in conjunction with our Neosho, Mo.–based Boulevard Bank transaction, one of our banking centers in Neosho, Mo., was closed in June and relocated directly across the street into a banking center acquired in the Boulevard Bank transaction.  In September 2014, two banking centers are expected to close - one each in Lamar, Mo., and Johnston, Iowa.  Both of these offices were leased and were underutilized.

The Company recently purchased a 20,000-square-foot former bank office building in Leawood, Johnson County, Kan., a suburb of the Kansas City metropolitan market area. Scheduled to be open for business in mid-2015, the office will house the commercial lending group, currently located in nearby Overland Park, Kan., and a retail banking center. 

www.GreatSouthernBank.com

Forward-Looking Statements

When used in documents filed or furnished by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or stockholder 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, (i) non-interest expense reductions from the Great Southern banking center consolidation might be less than anticipated and the costs of the consolidation and impairment of the value of the affected premises might be greater than expected; (ii) expected cost savings, synergies and other benefits from the Company's merger and acquisition activities, including but not limited to the recently completed Valley Bank FDIC-assisted transaction, might not be realized within the anticipated time frames or at all, the amount of the gain the Company ultimately recognizes from the recently completed Valley Bank FDIC-assisted transaction might be materially different from the preliminary gain recorded, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (iii) changes in economic conditions, either nationally or in the Company's market areas; (iv) fluctuations in interest rates; (v) 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; (vi) the possibility of other-than-temporary impairments of securities held in the Company's securities portfolio; (vii) the Company's ability to access cost-effective funding; (viii) fluctuations in real estate values and both residential and commercial real estate market conditions; (ix) demand for loans and deposits in the Company's market areas; (x) legislative or regulatory changes that adversely affect the Company's business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing regulations, and the overdraft protection regulations and customers' responses thereto; (xi) monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xii) results of examinations of the Company and Great Southern by their regulators, including the possibility that the regulators may, among other things, require the Company to increase its allowance for loan losses or to write-down assets; (xiii) the uncertainties arising from the Company's participation in the Small Business Lending Fund program, including uncertainties concerning the potential future redemption by us of the U.S. Treasury's preferred stock investment under the program, including the timing of, regulatory approvals for, and conditions placed upon, any such redemption; (xiv) costs and effects of litigation, including settlements and judgments; and (xv) competition. The Company wishes to advise readers that the factors listed above and other risks described from time to time in the Company's other filings with the SEC 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 six months ended June 30, 2014, and 2013 and the three months ended March 31, 2014, are not necessarily indicative of the results of operations which may be expected for any future period. 

 


June 30,

December 31,


2014

2013

 Selected Financial Condition Data:

(In thousands)




    Total assets

$         3,912,902

$       3,560,250

    Loans receivable, gross

2,832,428

2,482,641

    Allowance for loan losses

38,082

40,116

    Other real estate owned, net

46,226

53,514

    Available-for-sale securities, at fair value

569,030

555,281

    Deposits

3,201,728

2,808,626

    Total borrowings

281,456

343,795

    Total stockholders' equity

399,551

380,698

    Common stockholders' equity

341,608

322,755

    Non-performing assets (excluding FDIC-covered assets)

51,785

62,303

 


Three Months Ended


Six Months Ended


Three Months
Ended


June 30,


June 30,


March 31,


2014


2013


2014


2013


2014

Selected Operating Data:

(Dollars in thousands, except per share data)











    Interest income

$         44,384


$         43,481


$         86,679


$         90,837


$         42,294

    Interest expense

4,413


4,980


8,741


10,203


4,328

    Net interest income

39,971


38,501


77,938


80,634


37,966

    Provision for loan losses

1,462


3,671


3,154


11,896


1,691

    Non-interest income

10,631


2,327


11,555


5,250


924

    Non-interest expense

34,399


26,712


60,293


52,633


25,894

    Provision for income taxes

3,687


2,221


6,174


4,737


2,487

       Net income

$         11,054


$           8,224


$         19,872


$         16,618


$           8,818

       Net income available to common shareholders

$         10,909


$           8,079


$         19,582


$         16,328


$           8,673











 


At or For the Three
Months Ended


At or For the Six
Months Ended


At or For the
Three Months
Ended


June 30,


June 30,


March 31,


2014


2013


2014


2013


2014

Per Common Share:

(Dollars in thousands, except per share data)











    Net income (fully diluted)

$           0.79


$           0.59


$           1.42


$           1.19


$           0.63

    Book value

$         24.96


$         23.23


$         24.96


$         23.23


$         24.24











Earnings Performance Ratios:










    Annualized return on average assets

1.17%


0.84%


1.07%


0.84%


0.96%

    Annualized return on average common stockholders' equity

13.02%


10.20%


11.86%


10.38%


10.66%

    Net interest margin

4.69%


4.39%


4.68%


4.57%


4.66%

    Average interest rate spread

4.58%


4.31%


4.57%


4.50%


4.55%

    Efficiency ratio

67.98%


65.43%


67.37%


61.28%


66.58%

    Non-interest expense to average total assets

3.64%


2.73%


3.24%


2.66%


2.83%











Asset Quality Ratios:





    Allowance for loan losses to period-end loans (excluding covered loans)

1.54%


2.08%


1.54%


2.08%


1.76%

    Non-performing assets to period-end assets

1.32%


1.85%


1.32%


1.85%


1.48%

    Non-performing loans to period-end loans

0.48%


1.03%


0.48%


1.03%


0.62%

    Annualized net charge-offs to average loans

0.29%


0.83%


0.47%


1.29%


0.66%

 

Great Southern Bancorp, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except number of shares)



June 30,

2014


December 31,

 2013


March 31,

2014

Assets












     Cash

$          130,760


$              96,167


$             98,646

     Interest-bearing deposits in other financial institutions

69,838


131,758


299,736

     Federal funds sold

22,628



               Cash and cash equivalents

223,226


227,925


398,382







     Available-for-sale securities

569,030


555,281


532,110

     Held-to-maturity securities

450


805


805

     Mortgage loans held for sale

9,605


7,239


6,770

     Loans receivable (1), net of allowance for loan losses of $38,082  – June 2014; $40,116 -  December 2013 and $38,275  – March 2014

2,790,774


2,439,530


2,513,985

     FDIC indemnification asset

58,352


72,705


65,592

     Interest receivable

11,685


11,408


10,547

     Prepaid expenses and other assets

68,466


72,904


74,612

     Other real estate owned (2), net

46,226


53,514


49,963

     Premises and equipment, net

118,649


104,534


104,630

     Goodwill and other intangible assets

8,385


4,583


5,923

     Federal Home Loan Bank stock

8,054


9,822


9,333







               Total Assets

$       3,912,902


$        3,560,250


$       3,772,652







Liabilities and Stockholders' Equity












   Liabilities






     Deposits

$       3,201,728


$        2,808,626


$       3,016,047

     Federal Home Loan Bank advances

91,686


126,757


126,260

     Securities sold under reverse repurchase agreements with customers

157,683


134,981


128,179

     Structured repurchase agreements


50,000


50,000

     Short-term borrowings

1,158


1,128


1,207

     Subordinated debentures issued to capital trust

30,929


30,929


30,929

     Accrued interest payable

1,096


1,099


966

     Advances from borrowers for taxes and insurance

7,026


3,721


6,510

     Accounts payable and accrued expenses

16,230


18,502


18,606

     Current and deferred income taxes

5,815


3,809


4,113

               Total Liabilities

3,513,351


3,179,552


3,382,817







   Stockholders' Equity






     Capital stock






         Serial preferred stock - SBLF, $.01 par value; authorized 1,000,000 shares; issued and outstanding June 2014, December 2013 and March 2014 – 57,943 shares

57,943


57,943


57,943

         Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding June 2014 – 13,684,680 shares; December 2013 – 13,673,709 shares and March 2014 – 13,691,595 shares

137


137


137

     Additional paid-in capital

20,093


19,567


19,850

     Retained earnings

314,503


300,589


306,685

     Accumulated other comprehensive gain

6,875


2,462


5,220

               Total Stockholders' Equity

399,551


380,698


389,835







               Total Liabilities and Stockholders' Equity

$       3,912,902


$        3,560,250


$       3,772,652









(1)

At June 30, 2014, December 31, 2013, and March 31, 2014, includes loans, net of discounts, totaling $332.0 million, $386.2 million and $375.2 million, respectively, which are subject to FDIC support through loss sharing agreements.  As of June 30, 2014, also includes $31.3 million of non- single-family loans acquired in the Team Bank transaction, which are no longer covered by the FDIC loss sharing agreement.  In addition, as of June 30, 2014, includes $159.7 million of loans, net of discounts, acquired in the Valley Bank transaction, which are not covered by FDIC loss sharing agreements, but were recorded at fair value at the time of the acquisition. 

(2)

At June 30, 2014, December 31, 2013, and March 31, 2014, includes foreclosed assets, net of discounts, totaling $6.1 million, $9.0 million and $7.7 million, respectively, which are subject to FDIC support through loss sharing agreements.

 


Great Southern Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)



Three Months Ended


Six Months Ended


Three Months
Ended


June 30,


June 30,


March 31,


2014


2013


2014


2013


2014

Interest Income










     Loans

$           41,412


$          39,362


$          80,721


$          82,140


$           39,308

     Investment securities and other

2,972


4,119


5,958


8,697


2,986


44,384


43,481


86,679


90,837


42,294

Interest Expense










     Deposits

2,752


3,263


5,413


6,789


2,660

     Federal Home Loan Bank advances

1,010


989


1,984


1,963


975

     Short-term borrowings and repurchase agreements

512


588


1,069


1,170


557

     Subordinated debentures issued to capital trust

139


140


275


281


136


4,413


4,980


8,741


10,203


4,328











Net Interest Income

39,971


38,501


77,938


80,634


37,966

Provision for Loan Losses

1,462


3,671


3,154


11,896


1,691

Net Interest Income After Provision for Loan Losses

38,509


34,830


74,784


68,738


36,275











Noninterest Income










     Commissions

344


350


626


678


281

     Service charges and ATM fees

4,728


4,644


8,896


9,071


4,168

     Net gains on loan sales

608


1,628


1,157


3,057


549

     Net realized gains on sales and impairments of available-for-sale securities

569


97


642


131


73

     Late charges and fees on loans

265


201


579


501


314

     Net change in interest rate swap fair value

(130)


347


(233)


408


(103)

     Initial gain recognized on business acquisition

10,805



10,805



     Accretion (amortization) of income related to business acquisitions

(7,210)


(5,694)


(13,598)


(11,561)


(6,388)

     Other income

652


754


2,681


2,965


2,030


10,631


2,327


11,555


5,250


924











Noninterest Expense










     Salaries and employee benefits

13,470


13,078


26,487


26,300


13,017

     Net occupancy expense

5,210


5,100


10,614


10,235


5,403

     Postage

844


871


1,637


1,664


793

     Insurance

953


957


1,879


2,121


926

     Advertising

438


691


1,169


1,166


731

     Office supplies and printing

367


323


657


629


290

     Telephone

681


803


1,417


1,490


736

     Legal, audit and other professional fees

908


948


1,841


1,750


934

     Expense on foreclosed assets

1,342


1,355


2,192


2,410


850

     Partnership tax credit

427


632


880


995


453

     Other operating expenses

9,759


1,954


11,520


3,873


1,761


34,399


26,712


60,293


52,633


25,894











Income Before Income Taxes

14,741


10,445


26,046


21,355


11,305

Provision for Income Taxes

3,687


2,221


6,174


4,737


2,487

Net Income

11,054


8,224


19,872


16,618


8,818











Preferred Stock Dividends and Discount Accretion

145


145


290


290


145











Net Income Available to Common Shareholders

$           10,909


$           8,079


$          19,582


$          16,328


$             8,673






















Three Months Ended


Six Months Ended


Three Months
Ended


June 30,


June 30,


March 31,


2014


2013


2014


2013


2014

Earnings Per Common Share










     Basic

$               0.80


$               0.59


$               1.43


$               1.20


$               0.63

     Diluted

$               0.79


$               0.59


$               1.42


$               1.19


$               0.63











Dividends Declared Per Common Share

$               0.20


$               0.18


$               0.40


$               0.36


$               0.20











 


Average Balances, Interest Rates and Yields

The following tables present, for the periods indicated, the total dollar amounts of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.  Average balances of loans receivable include the average balances of non-accrual loans for each period.  Interest income on loans includes interest received on non-accrual loans on a cash basis.  Interest income on loans includes the amortization of net loan fees, which were deferred in accordance with accounting standards.  Fees included in interest income were $590,000 and $822,000 for the three months ended June 30, 2014, and 2013, respectively.  Fees included in interest income were $1.2 million and $1.6 million for the six months ended June 30, 2014, and 2013, respectively.  Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes.

 


June 30,
2014(1)


Three Months Ended
June 30, 2014


Three Months Ended
June 30, 2013




Average




Yield/


Average



Yield/


Yield/Rate


Balance


Interest


Rate


Balance


Interest

Rate


(Dollars in thousands)

Interest-earning assets:














Loans receivable:














  One- to four-family residential

4.79%


$456,554


$10,236


8.99%


$479,566


$7,859


6.57%

  Other residential

4.58


356,701


5,233


5.88


304,649


5,970


7.86

  Commercial real estate

4.56


898,858


11,842


5.28


808,550


11,863


5.88

  Construction

4.32


231,718


2,627


4.55


208,126


3,811


7.35

  Commercial business

4.80


283,555


3,882


5.49


258,432


3,732


5.79

  Other loans

5.64


365,441


6,947


7.63


288,170


5,463


7.60

  Industrial revenue bonds

5.50


46,762


645


5.53


50,503


664


5.27















     Total loans receivable

4.86


2,639,589


41,412


6.29


2,397,996


39,362


6.58















Investment securities

2.66


542,415


2,867


2.12


801,811


3,988


2.00

Other interest-earning assets

0.22


237,091


105


0.18


320,881


131


0.16















     Total interest-earning assets

4.38


3,419,095


44,384


5.21


3,520,688


43,481


4.95

Non-interest-earning assets:














  Cash and cash equivalents



88,038






85,306





  Other non-earning assets



275,525






305,930





     Total assets



$3,782,658






$3,911,924



















Interest-bearing liabilities:














  Interest-bearing demand and savings

0.20


$1,468,150


806


0.22


$1,604,920


973


0.24

  Time deposits

0.80


990,641


1,946


0.79


1,084,494


2,290


0.85

  Total deposits

0.45


2,458,791


2,752


0.45


2,689,414


3,263


0.49

  Short-term borrowings and repurchase agreements

0.03


199,633


512


1.03


255,843


588


0.92

  Subordinated debentures issued to capital trust

1.79


30,929


139


1.80


30,929


140


1.82

  FHLB advances

1.76


135,054


1,010


3.00


126,836


989


3.13















     Total interest-bearing liabilities

0.49


2,824,407


4,413


0.63


3,103,022


4,980


0.64

Non-interest-bearing liabilities:














  Demand deposits



541,222






406,674





  Other liabilities



19,615






21,930





     Total liabilities



3,385,244






3,531,626





Stockholders' equity



397,414






380,298





     Total liabilities and stockholders' equity



$3,782,658






$3,911,924



















Net interest income:














Interest rate spread

3.89%




$39,971


4.58%




$38,501


4.31%

Net interest margin*







4.69%






4.39%

Average interest-earning assets to average interest-bearing liabilities



121.1%






113.5%



















______________

*Defined as the Company's net interest income divided by average total interest-earning assets.

(1)

The yield/rate on loans at June 30, 2014, does not include the impact of the adjustments to the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See "Net Interest Income" for a discussion of the effect on results of operations for the three months ended June 30, 2014.

 


June 30,
2014(1)


Six Months Ended
June 30, 2014


Six Months Ended
June 30, 2013




Average




Yield/


Average




Yield/


Yield/Rate


Balance


Interest


Rate


Balance


Interest


Rate


(Dollars in thousands)

Interest-earning assets:














Loans receivable:














  One- to four-family residential

4.79%


$448,136


$19,357


8.71%


$490,761


$17,401


7.15%

  Other residential

4.58


356,293


10,550


5.97


311,531


12,195


7.89

  Commercial real estate

4.56


884,700


23,722


5.41


796,587


25,031


6.34

  Construction

4.32


221,454


5,232


4.76


207,956


8,219


7.97

  Commercial business

4.80


277,331


7,466


5.43


248,885


7,269


5.89

  Other loans

5.64


347,539


13,111


7.61


285,118


10,488


7.42

  Industrial revenue bonds

5.50


46,333


1,283


5.58


55,035


1,537


5.63















     Total loans receivable

4.86


2,581,786


80,721


6.30


2,395,873


82,140


6.91















Investment securities

2.66


550,525


5,775


2.12


811,528


8,471


2.10

Other interest-earning assets

0.22


228,448


183


0.16


347,300


226


0.13















     Total interest-earning assets

4.38


3,360,759


86,679


5.20


3,554,701


90,837


5.15

Non-interest-earning assets:














  Cash and cash equivalents



90,172






86,347





  Other non-earning assets



272,729






314,765





     Total assets



$3,723,660






$3,955,813



















Interest-bearing liabilities:














  Interest-bearing demand and savings

0.20


$1,423,822


1,576


0.22


$1,618,507


2,156


0.27

  Time deposits

0.80


983,977


3,837


0.79


1,125,990


4,633


0.83

  Total deposits

0.45


2,407,799


5,413


0.45


2,744,497


6,789


0.50

  Short-term borrowings and repurchase agreements

0.03


204,416


1,069


1.06


257,909


1,170


0.92

  Subordinated debentures issued to capital trust

1.79


30,929


275


1.79


30,929


281


1.83

  FHLB advances

1.76


130,779


1,984


3.06


126,716


1,963


3.12















     Total interest-bearing liabilities

0.49


2,773,923


8,741


0.63


3,160,051


10,203


0.65

Non-interest-bearing liabilities:














  Demand deposits



535,786






396,125





  Other liabilities



20,846






21,449





     Total liabilities



3,330,555






3,577,625





Stockholders' equity



393,105






378,188





     Total liabilities and stockholders' equity



$3,723,660






$3,955,813



















Net interest income:














Interest rate spread

3.89%




$77,938


4.57%




$80,634


4.50%

Net interest margin*







4.68%






4.57%

Average interest-earning assets to average interest-bearing liabilities



121.2%






112.5%






______________

*Defined as the Company's net interest income divided by average total interest-earning assets.

(1)

The yield/rate on loans at June 30, 2014, does not include the impact of the adjustments to the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See "Net Interest Income" for a discussion of the effect on results of operations for the six months ended June 30, 2014.

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