Business Context and Reporting Period
Company: Great Southern Bancorp, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: The Company operates primarily through its subsidiary, Great Southern Bank, engaging in originating residential and commercial real estate loans, construction loans, and consumer loans. The Company also offers insurance, travel, and investment services. A defining event for the period was the FDIC-assisted acquisition of TeamBank, N.A. on March 20, 2009, which significantly expanded the Company's asset base and deposit portfolio.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Total Assets | $3,332,715 (Jun 30, 2009) | $3,332,715 (Jun 30, 2009) | $2,659,923 |
| Net Interest Income | $21,779 | $39,334 | N/A |
| Net Income (Loss) | $3,482 | $22,395 | N/A |
| Net Income Available to Common Shareholders | $2,641 | $20,729 | N/A |
| Diluted EPS | $0.19 | $1.51 | N/A |
| Provision for Loan Losses | $6,800 | $11,800 | N/A |
| Allowance for Loan Losses | $32,602 (Jun 30, 2009) | $32,602 (Jun 30, 2009) | $29,163 |
| Cash and Cash Equivalents | $405,267 (Jun 30, 2009) | $405,267 (Jun 30, 2009) | $167,920 |
| Total Deposits | $2,448,521 (Jun 30, 2009) | $2,448,521 (Jun 30, 2009) | $1,908,028 |
| Stockholders' Equity | $257,375 (Jun 30, 2009) | $257,375 (Jun 30, 2009) | $234,087 |
Material Changes vs. Prior Comparable Period
- Acquisition Impact: The March 2009 acquisition of TeamBank, N.A. drove a $672.8 million increase in total assets and a $540.5 million increase in deposits. This transaction resulted in a one-time gain of $28.8 million recorded in non-interest income for the six-month period.
- Profitability: Net income for the six months ended June 30, 2009, was $22.4 million, a significant turnaround from a net loss of $8.8 million in the same period in 2008. This improvement was primarily due to a $30.9 million decrease in the provision for loan losses and the acquisition gain.
- Loan Portfolio: Net loans increased by $151.8 million to $1.87 billion. While the acquisition added $222.6 million in loans, the legacy portfolio decreased by approximately $70.8 million, driven by a $77.5 million decline in construction loans.
- Non-Interest Expense: Expenses increased by $7.5 million (27.3%) for the six-month period compared to 2008. This was attributed to operating costs for the acquired TeamBank centers, increased FDIC insurance premiums (including a special assessment), and higher foreclosure-related expenses.
- Net Interest Margin (NIM): NIM decreased to 2.92% for the six months ended June 30, 2009, from 3.07% in the prior year, largely due to the investment of excess liquidity in low-yielding cash equivalents and securities.
Guidance, Outlook, Risks, and Unusual Items
- FDIC Loss Sharing: The acquired TeamBank assets are covered by a loss-sharing agreement where the FDIC reimburses 80% of the first $115 million in realized losses and 95% of losses exceeding that amount. An FDIC indemnification asset of $154.9 million was recorded.
- Capital Purchase Program (CPP): The Company participated in the Treasury's CPP, issuing $58.0 million in preferred stock. This participation restricts the Company from repurchasing common stock or increasing common dividends above $0.18 per share without Treasury consent until December 5, 2011, or repayment of the funds.
- Interest Rate Risk: The Company maintains a negative one-year interest rate sensitivity gap. With the Federal Funds rate at 0.25%, the Company has elected to keep its "Great Southern Prime Rate" at 5.00% to protect margins, though this exposes the company to refinancing risk as borrowers may seek lower rates elsewhere.
- Asset Quality: Non-performing assets (excluding FDIC-covered assets) decreased to $54.4 million (1.63% of total assets) from $65.9 million at year-end 2008. However, foreclosed assets increased to $42.9 million.
- Unusual Items: A $4.0 million other-than-temporary impairment loss on investment securities was recognized in the first quarter of 2009. Additionally, a $1.7 million special FDIC assessment was recorded in the second quarter.
Investor Verification Checklist
- Acquisition Integration: Verify the retention rate of TeamBank deposits (reported as 98% through June 30) and the timeline for operational system consolidation.
- FDIC Indemnification Asset: Review the assumptions used to value the $154.9 million FDIC indemnification asset and the projected timing of reimbursements.
- Loan Loss Provisions: Assess the adequacy of the allowance for loan losses ($32.6 million) given the elevated levels of foreclosed assets and the economic environment.
- Liquidity Management: Confirm the strategy for deploying the $405.3 million in cash and cash equivalents to improve net interest margin without compromising liquidity.
- Dividend Restrictions: Note the limitations on common stock repurchases and dividend increases imposed by the Treasury's Capital Purchase Program.