Great Southern Bancorp, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; comparisons are primarily with 2012. Great Southern is a Missouri-based bank holding company operating Great Southern Bank, with 96 banking centers in six states. Its core business is lending funded mainly by customer deposits.
Financial performance and condition
| Metric | 2013 | 2012 | Change / context |
|---|---|---|---|
| Total assets | $3.56 billion | $3.96 billion | Down 10.0% |
| Net loans | $2.44 billion | $2.32 billion | Up 5.2%; includes an $86.1 million multifamily loan purchase |
| Deposits | $2.81 billion | $3.15 billion | Down 10.9%, mainly from lower time deposits and selected transaction accounts |
| Total interest income | $178.8 million | $193.5 million | Down 7.6% |
| Net interest income | $159.6 million | $165.1 million | Down 3.4% |
| Net interest margin | 4.70% | 4.61% | Up 9 basis points; FDIC-acquired loan accretion contributed 104 basis points in 2013 |
| Provision for loan losses | $17.4 million | $43.9 million | Down 60.4% |
| Net income | $33.7 million | $48.7 million | Down 30.8%; 2012 included a $31.3 million InterBank acquisition gain |
| Net income available to common shareholders | $33.2 million | $48.1 million | Diluted EPS was $2.42 versus $3.54 |
| Noninterest income | $5.3 million | $46.0 million | Down 88.5%, chiefly reflecting the prior-year acquisition gain and acquisition-related amortization |
| Noninterest expense | $110.4 million | $112.6 million | Down 1.9%; efficiency ratio rose to 66.9% from 53.0% |
| Operating cash flow | $93.9 million | $146.9 million | Positive; investing activities provided $124.7 million and financing activities used $394.8 million |
| Stockholders’ equity | $380.7 million | $369.9 million | 10.7% of assets at year-end; tangible common equity/assets was 8.9% |
Credit, funding and liquidity
- Non-performing assets excluding FDIC-covered assets were $62.3 million, down from $72.6 million; non-performing loans were $19.9 million, down from $22.5 million. Foreclosed assets were $42.4 million, down from $50.1 million.
- Net charge-offs fell to $17.9 million from $44.4 million. The allowance for loan losses was $40.1 million, or 1.92% of loans excluding FDIC-covered loans, versus 2.21% in 2012.
- Troubled debt restructurings increased to $54.1 million from $46.8 million. Commercial real estate, construction, multifamily and other commercial lending together represented a substantial concentration of the portfolio.
- Cash and cash equivalents were $227.9 million, down from $404.1 million. The bank reported $91.7 million of unpledged securities, a $407.4 million FHLBank line and a $418.9 million Federal Reserve borrowing capacity; neither the Federal Reserve facility nor its borrowings were drawn at year-end.
- Year-end borrowings totaled $343.8 million, including $126.8 million of FHLBank advances, $135.0 million of customer repurchase agreements, a $50.0 million structured repo and $30.9 million of subordinated debentures. The loan-to-deposit ratio rose to 87.1% from 74.4%.
- The Bank and holding company were reported as well capitalized. Bank capital ratios were 14.2% Tier 1 risk-based, 15.4% total risk-based and 10.2% leverage; corresponding holding-company ratios were 15.6%, 16.9% and 11.3%.
Material changes, outlook and risks
- Loan growth was led by commercial real estate, multifamily, commercial business and consumer auto loans, partially offset by repayments of FDIC-acquired loans. Available-for-sale securities fell 31.2% to $555.3 million as repayments and sales helped fund lending and deposit outflows.
- FDIC-assisted acquired loan pools generated $35.2 million of interest income accretion in 2013, offset in part by $29.5 million of noninterest expense from reduced expected FDIC reimbursements; the net pretax impact was $5.8 million. Management expected $19.0 million of accretion income and $14.7 million of related noninterest expense in 2014. Actual results remain sensitive to estimated collections and loss-sharing terms.
- Management did not provide specific earnings guidance. It said overall loan growth was not expected to be significant at that time, anticipated modest increases in commercial real estate and construction lending as conditions improved, and expected 2014 loan-loss provisions to be below 2013 levels or similar to the second half of 2013.
- The company consolidated 12 offices and opened one Omaha banking center in 2013, reducing its network from 107 to 96. Management said deposit retention at consolidated locations exceeded expectations.
- In January 2014, Great Southern agreed to acquire Boulevard Bank customer accounts and branches representing approximately $104 million in deposits and $12 million in loans, subject to regulatory approval and expected to close in late March 2014. Management anticipated the Neosho transaction would be slightly accretive.
- Interest-rate risk, real estate and commercial-credit concentrations, deposit attrition, funding access, loan-loss estimates, FDIC loss-sharing compliance and expiration, regulatory changes and acquisition integration are principal risks. Management noted that rate floors applied to many prime-indexed loans and that modeled near-term interest-rate effects were expected to be limited.
- A Missouri customer class-action suit alleges overdraft fees violate state usury law. The case remained ongoing; management could not estimate the likelihood or amount of a material loss.
- The SBLF preferred stock carried a 1% dividend rate in 2013; the rate is scheduled to rise to 9% after four and one-half years from issuance, in March 2016, absent redemption. Redemption requires regulatory approval and is subject to program terms.
Important facts for investors to verify
- How much of earnings and margin depends on FDIC-acquired loan accretion, and how collections, clawback provisions and loss-share expirations may change that contribution.
- Whether deposit declines continue and whether cash, unpledged securities and available borrowing capacity remain adequate as the loan-to-deposit ratio rises.
- Whether improving charge-offs and non-performing assets persist, given higher troubled debt restructurings and material commercial real estate and construction exposure.
- The timing, regulatory approval, purchase economics and realized earnings impact of the Boulevard Bank transactions and other stated expansion plans.
- The cost and dividend restrictions associated with SBLF preferred stock, including the scheduled 2016 rate step-up, and the status of the overdraft-fee litigation.