Great Southern Bancorp, Inc. Reports Preliminary Third Quarter Earnings of $1.38 Per Diluted Common Share

Preliminary Financial Results and Other Matters for the Quarter and Nine Months Ended September 30, 2019: 

  • Significant Unusual Income or Expense Item: During the three months ended September 30, 2019, the Company recorded the following unusual items: (1) the Company reduced FDIC insurance expense by $309,000 as the Company received a credit for prior premiums paid as the FDIC deposit insurance fund surpassed a specified level; and (2) the Company made valuation write-downs totaling $280,000 on two foreclosed asset relationships. 
  • Total Loans:  Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $65.3 million, or 1.4%, from December 31, 2018, to September 30, 2019.  This increase was primarily in commercial real estate loans, owner occupied one- to four-family residential loans and other residential (multi-family) loans.  These increases were partially offset by decreases in construction loans and consumer auto loans.  Total gross loans increased $23.1 million from June 30, 2019. The FDIC-acquired loan portfolios had net decreases totaling $25.6 million during the nine months ended September 30, 2019.  Outstanding net loan receivable balances increased $167.7 million, from $3.99 billion at December 31, 2018 to $4.16 billion at September 30, 2019, and increased $44.2 million from June 30, 2019.
  • Asset QualityNon-performing assets and potential problem loans, excluding those acquired in FDIC-assisted transactions (which are accounted for and analyzed as loan pools rather than individual loans), totaled $13.4 million at September 30, 2019, a decrease of $7.5 million from $20.9 million at June 30, 2019.  Non-performing assets at September 30, 2019 were $9.0 million (0.18% of total assets), down $6.9 million from $15.9 million (0.33% of total assets) at June 30, 2019. 
  • Net Interest Income:  Net interest income for the third quarter of 2019 increased $2.9 million to $45.9 million compared to $43.0 million for the third quarter of 2018.  Net interest income was $44.9 million for the second quarter of 2019.  Net interest margin was 3.95% for the quarter ended September 30, 2019, compared to 4.02% for the third quarter of 2018 and 3.97% for the quarter ended June 30, 2019. The decrease in net interest margin compared to the second quarter of 2019 was due to a slight increase in the average interest rates paid on deposits and a decrease in the yield on investment securities and other interest-earning assets.  The positive impact on net interest margin from the additional yield accretion on acquired loan pools that was recorded during the period was 20, 14 and 12 basis points for the quarters ended September 30, 2019, September 30, 2018, and June 30, 2019, respectively.  For further discussion of the additional yield accretion of the discount on acquired loan pools, see “Net Interest Income.”
  • Capital:  The capital position of the Company continues to be strong, significantly exceeding the thresholds established by regulators.  On a preliminary basis, as of September 30, 2019, the Company’s Tier 1 Leverage Ratio was 11.7%, Common Equity Tier 1 Capital Ratio was 11.7%, Tier 1 Capital Ratio was 12.2%, and Total Capital Ratio was 14.7%. 

SPRINGFIELD, Mo., Oct. 16, 2019 (GLOBE NEWSWIRE) — Great Southern Bancorp, Inc. (NASDAQ:GSBC), the holding company for Great Southern Bank, today reported that preliminary earnings for the three months ended September 30, 2019, were $1.38 per diluted common share ($19.7 million available to common shareholders) compared to $1.57 per diluted common share ($22.5 million available to common shareholders) for the three months ended September 30, 2018.  During the three months ended September 30, 2018, the Company sold its branches and related deposits in Omaha, Neb., resulting in pretax income of $7.25 million ($7.4 million gain less $165,000 of transaction expenses for that period.  The impact of this item, after the effect of the full tax rate for the Company, increased earnings per common share by approximately $0.39 in the 2018 period.

Preliminary earnings for the nine months ended September 30, 2019, were $3.90 per diluted common share ($55.7 million available to common shareholders) compared to $3.49 per diluted common share ($49.8 million available to common shareholders) for the nine months ended September 30, 2018.  The increase in earnings was primarily driven by increased net interest income.

For the quarter ended September 30, 2019, annualized return on average common equity was 13.46%, return on average assets was 1.61%, and net interest margin was 3.95%, compared to 17.80%, 1.99% and 4.02%, respectively, for the quarter ended September 30, 2018.  For the nine months ended September 30, 2019, annualized return on average common equity was 13.28%, return on average assets was 1.54%, and net interest margin was 3.99%, compared to 13.51%, 1.49% and 3.96%, respectively, for the nine months ended September 30, 2018. 

President and CEO Joseph W. Turner commented, “Overall third quarter results were solid.  Return on average assets and return on common equity were very favorable at 1.61% and 13.46%, respectively. Our efficiency ratio of 52.63% improved from the second quarter of 2019, reflecting net interest income increases and our sustained focus on expense containment. Capital remains strong and our book value per share continues to grow. We were pleased to increase the third quarter dividend by two cents to $0.34 per share.

“Reported net interest margin was 3.95% in the third quarter of 2019, compared to 3.97% in the second quarter of 2019 and 4.02% in the 2018 third quarter. Compared to the 2019 second quarter, compression in our margin was caused primarily by unchanged average interest rates on deposits and borrowings and slightly lower yields on investment securities and other interest-earning assets. LIBOR interest rates continue to decrease and that puts some pressure on our loan yields.  We continue to see strong pricing competition for loans and deposits in most of our markets.”  

Turner continued, “We experienced moderate loan growth during the quarter. Outstanding net loan receivable balances grew by $168 million from the end of 2018, and increased $44 million from June 30, 2019. Total gross loan balances, which include unfunded loans, increased $65 million from the end of 2018, and grew $23 million from the end of the second quarter of 2019. Loan growth was primarily in commercial real estate loans, one- to four-family residential loans and multi-family loans. Our loan pipeline continues to be strong across the franchise.  Asset quality metrics remain very sound and classified assets are at low levels. In the June 30, 2019, quarter, we reported a small spike in non-performing loans related to one borrower relationship. During the third quarter, this matter was mostly resolved after all collateral was obtained and approximately 90% of it was sold.”

Selected Financial Data:

(In thousands, except per share data) Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2019     2018     2019     2018
Net interest income $ 45,924   $ 42,985   $ 135,449   $ 123,636
Provision for loan losses   1,950     1,300     5,500     5,200
Non-interest income   8,655     14,604     23,263     28,998
Non-interest expense   28,725     28,309     85,602     86,537
Provision for income taxes   4,172     5,464     11,890     11,076
Net income and net income available to common shareholders $ 19,732   $ 22,516   $ 55,720   $ 49,821
                       
Earnings per diluted common share $ 1.38   $ 1.57   $ 3.90   $ 3.49
                       

NET INTEREST INCOME

Net interest income for the third quarter of 2019 increased $2.9 million to $45.9 million compared to $43.0 million for the third quarter of 2018.  Net interest margin was 3.95% in the third quarter of 2019, compared to 4.02% in the same period of 2018, a decrease of seven basis points.  For the three months ended September 30, 2019, the net interest margin decreased two basis points compared to the net interest margin of 3.97% in the three months ended June 30, 2019.  The decrease in the margin from the prior year third quarter was primarily the result of an increase in the average interest rates paid on deposits and other borrowings, partially offset by higher yields on loans, including an increase in the additional yield accretion recognized in conjunction with updated estimates of the fair value of the acquired loan pools compared to the prior year period, and slightly higher yields on interest-earning deposits at the Federal Reserve Bank.  The decrease in the margin from the three months ended June 30, 2019, was primarily due to a slight increase in the average interest rates paid on deposits and a decrease in the average yield on investment securities and other interest-earning assets. The average interest rate spread was 3.61% for the three months ended September 30, 2019, compared to 3.76% for the three months ended September 30, 2018 and 3.64% for the three months ended June 30, 2019.

Net interest income for the nine months ended September 30, 2019 increased $11.8 million to $135.4 million compared to $123.6 million for the nine months ended September 30, 2018.  Net interest margin was 3.99% for the nine months ended September 30, 2019, compared to 3.96% for the same period of 2018, an increase of three basis points.  The average interest rate spread was 3.66% for the nine months ended September 30, 2019, compared to 3.74% for the nine months ended September 30, 2018.

In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.  The notional amount of the swap is $400 million with a termination date in October 2025.  Under the terms of the swap, the Company receives a fixed rate of interest of 3.018% and pays a floating rate of interest equal to one-month USD-LIBOR.  The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly.  The initial floating rate of interest was set at 2.277%, with monthly adjustments to the floating rate occurring after that time.  To the extent that the fixed rate continues to exceed one-month USD-LIBOR, the Company will receive net interest settlements, which will be recorded as loan interest income.  If one-month USD-LIBOR exceeds the fixed rate of interest in future periods, the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans.  The Company recorded loan interest income related to this swap transaction of $801,000 and $1.9 million, respectively, in the three and nine months ended September 30, 2019.

The Company’s net interest margin has been positively impacted by significant additional yield accretion recognized in conjunction with updated estimates of the fair value of the loan pools acquired in the FDIC-assisted transactions. On an ongoing basis, the Company estimates the cash flows expected to be collected from the acquired loan pools. For each of the loan portfolios acquired, the cash flow estimates increased during the current and prior periods presented below, based on payment histories and reduced credit loss expectations. This resulted in increased income that has been spread, on a level-yield basis, over the remaining expected lives of the loan pools (and, therefore, has decreased over time).  Additional estimated cash flows (reclassification of discounts from non-accretable to accretable) totaling approximately $5.1 million and $10.4 million were recorded in the three and nine months ended September 30, 2019, respectively, related to these loan pools. 

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

  Three Months Ended  
  September 30, 2019   September 30, 2018  
   
  (In thousands, except basis points data)
Impact on net interest income/ net interest margin (in basis points) $ 2,251   20 bps   $ 1,424   14 bps  
Net impact to pre-tax income $ 2,251       $ 1,424      
     
                     
  Nine Months Ended  
  September 30, 2019   September 30, 2018  
   
  (In thousands, except basis points data)
Impact on net interest income/ net interest margin (in basis points) $ 5,162   15 bps   $ 3,652   12 bps  
Net impact to pre-tax income $ 5,162       $ 3,652      
                     

Because the balance of these adjustments will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well.  The remaining accretable yield adjustment that will affect interest income is $7.9 million.  Of the remaining adjustments affecting interest income, we expect to recognize $1.8 million of interest income during the remainder of 2019.  Additional adjustments may be recorded during the remainder of 2019 from the FDIC-assisted transactions, as the Company continues to estimate expected cash flows from the acquired loan pools. 

Excluding the impact of the additional yield accretion, net interest margin for the three and nine months ended September 30, 2019, decreased 13 basis points when compared to the three months ended September 30, 2018; and remained unchanged when compared to the nine months ended September 30, 2018.  The compression in our margin during the three months ended September 30, 2019, was caused primarily by higher average interest rates on deposits and borrowings and slightly lower yields on loans due to lower LIBOR interest rates.

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 September 30, 2019, non-interest income decreased $5.9 million to $8.7 million when compared to the quarter ended September 30, 2018, primarily as a result of the following items:

  • Gain on sale of business units: On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb., metropolitan market. The Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate, fixed assets and ATMs. The Company recorded a pre-tax gain of $7.4 million on the sale during the 2018 quarter. 
  • Other income:  Other income increased $1.0 million compared to the prior year quarter.  The Company recognized approximately $510,000 in income related to interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties.  The Company also recognized approximately $184,000 in income related to the exit of certain tax credit partnerships in 2019.  In addition, the Company recognized approximately $329,000 more in income from new debit card contracts than was recognized in the prior year period.  These contracts became effective at the beginning of 2019.
  • Net gains on loan sales:  Net gains on loan sales increased $604,000 compared to the prior year quarter.  The increase was due to an increase in originations of fixed-rate loans during the 2019 period compared to the 2018 period.  Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market.  In 2019, the Company began originating SBA loans with the purpose of selling the guaranteed portion in the secondary market.  During the 2019 third quarter, a net gain on sale of $108,000 was recorded related to SBA loan sales.
  • Commissions:  Commissions income decreased $136,000 compared to the prior year quarter.  The decrease was due to annuity sales that were approximately 25% lower in the 2019 period compared to the 2018 period.

For the nine months ended September 30, 2019, non-interest income decreased $5.7 million to $23.3 million when compared to the nine months ended September 30, 2018, primarily as a result of the following items:

  • Gain on sale of business units: On July 20, 2018, the Company closed on the sale of four banking centers in the Omaha, Neb., metropolitan market. The Bank sold branch deposits of approximately $56 million and sold substantially all branch-related real estate, fixed assets and ATMs. The Company recorded a pre-tax gain of $7.4 million on the sale during the 2018 period.
  • Other income:  Other income increased $2.4 million compared to the prior year period.  This increase was primarily due to gains totaling $677,000 in the 2019 period from the sale of, or recovery of, receivables and assets that were acquired several years ago in FDIC-assisted transactions.  In addition, the Company recognized approximately $1.1 million more in income as a result of the new debit card contracts noted previously.  The Company recognized approximately $565,000 in income related to interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties in the 2019 period compared to $47,000 in the 2018 period.  The Company also recognized approximately $184,000 in income related to the exit of certain tax credit partnerships in 2019. 
  • Service charges and ATM fees:  Service charges and ATM fees decreased $304,000 compared to the prior year period.  This decrease was primarily due to a decrease in overdraft and insufficient funds fees on customer accounts due to decreased levels of such activity. 
  • Net gains on loan sales:  Net gains on loan sales increased $207,000 compared to the prior year period. This increase was primarily due to an increase in originations of fixed-rate loans during the 2019 period as discussed above and the Company’s origination of SBA loans with the purpose of selling the guaranteed portion in the secondary market.  During the period, a net gain on sale of $108,000 was recorded related to SBA loan sales.

NON-INTEREST EXPENSE

For the quarter ended September 30, 2019, non-interest expense increased $416,000 to $28.7 million when compared to the quarter ended September 30, 2018, primarily as a result of the following items:

  • Salaries and employee benefits:  Salaries and employee benefits increased $665,000 from the prior year quarter.  The increase was due to staffing additions in the new loan production offices opened in Atlanta and Denver in late 2018, and due to annual employee compensation increases. 
  • Insurance:  Insurance expense decreased $343,000 from the prior year quarter. This decrease was primarily due to a decrease in FDIC deposit insurance premiums.  The Bank has a credit with the FDIC for a portion of premiums previously paid to the deposit insurance fund. The deposit insurance fund balance was sufficient to cause no premium to be due for the three months ended September 30, 2019. The Bank’s remaining credit balance should be sufficient to result in no deposit insurance premiums for the next two quarters, provided the deposit insurance fund balance remains at a sufficient level under the banking regulations.
  • Acquired deposit intangible asset amortization:  Acquired deposit intangible amortization expense decreased $123,000 in the quarter ended September 30, 2019 compared to the prior year quarter.  The Company generally amortizes its acquired deposit intangibles over a period of seven years.  The amortization of the intangible related to the InterBank acquisition was completed during the first quarter of 2019 and the amortization of the intangible related to the Sun Security Bank acquisition was completed during the third quarter of 2018.

For the nine months ended September 30, 2019, non-interest expense decreased $935,000 to $85.6 million when compared to the nine months ended September 30, 2018, primarily as a result of the following items:

  • Expense on other real estate owned and repossessions:  Expense on other real estate owned and repossessions decreased $2.7 million compared to the prior year period primarily due to higher valuation write-downs of certain foreclosed assets and higher levels of expense related to consumer repossessions in the prior year period.  During the 2018 period, valuation write-downs of certain foreclosed assets totaled approximately $3.6 million, while valuation write-downs in the 2019 period totaled approximately $724,000.  
  • Acquired deposit intangible asset amortization:  Acquired deposit intangible amortization expense decreased $335,000 in the nine months ended September 30, 2019 compared to the prior year period.  The Company generally amortizes its acquired deposit intangibles over a period of seven years, as described above. 
  • Insurance:  Insurance decreased $335,000 from the prior year quarter. This decrease was primarily due to a decrease in FDIC deposit insurance premiums, as described above.
  • Salaries and employee benefits:  Salaries and employee benefits increased $2.2 million from the prior year period.  The increase was due to staffing additions in the new loan production offices opened in Atlanta and Denver in late 2018, and due to annual employee compensation increases. 

The Company’s efficiency ratio for the quarter ended September 30, 2019, was 52.63% compared to 49.16% for the same quarter in 2018.  The efficiency ratio for the nine months ended September 30, 2019, was 53.94% compared to 56.70% for the same period in 2018.  The higher efficiency ratio in the 2019 three-month period was primarily due to a decrease in non-interest income due to the gain on sale of certain branches and deposits in the 2018 period, partially offset by an increase in net interest income.  The improvement in the ratio in the 2019 nine-month period was primarily due to an increase in net interest income and a decrease in non-interest expense, primarily related to a decrease in expenses on other real estate owned and repossessions, partially offset by a decrease in non-interest income due to the gain on sale of certain branches and deposits in the 2018 period.  The Company’s ratio of non-interest expense to average assets was 2.34% and 2.37% for the three and nine months ended September 30, 2019, respectively, compared to 2.50% and 2.58% for the three and nine months ended September 30, 2018, respectively.  The decreases in the current three month and nine month period ratios were primarily due to an increase in average assets in the 2019 periods compared to the 2018 periods.  Average assets for the quarter ended September 30, 2019, increased $382.7 million, or 8.4%, from the quarter ended September 30, 2018, primarily due to increases in loans receivable and investment securities.  Average assets for the nine months ended September 30, 2019, increased $354.4 million, or 7.9%, from the nine months ended September 30, 2018, primarily due to increases in loans receivable and investment securities. 

INCOME TAXES

On December 22, 2017, H.R.1, originally known as the Tax Cuts and Jobs Act (the “TCJ Act”), was signed into law. Among other things, the TCJ Act permanently lowered the corporate federal income tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018.  The Company currently expects its effective tax rate (combined federal and state) to be approximately 17.0% to 18.5% in 2019 and future years, mainly as a result of the TCJ Act.

For the three months ended September 30, 2019 and 2018, the Company’s effective tax rate was 17.5% and 19.5%, respectively.  For the nine months ended September 30, 2019 and 2018, the Company’s effective tax rate was 17.6% and 18.2%, respectively.  These effective rates were lower than the statutory federal tax rates of 21%, due primarily to the utilization of certain investment tax credits and to tax-exempt investments and tax-exempt loans, which reduced the Company’s effective tax rate.  The Company’s effective tax rate may fluctuate in future periods 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 pre-tax income.  The Company’s effective income tax rate is currently expected to continue to be less than the statutory rate due primarily to the factors noted above.

CAPITAL

As of September 30, 2019, total stockholders’ equity and common stockholders’ equity were each $596.8 million (12.0% of total assets), equivalent to a book value of $41.98 per common share.  Total stockholders’ equity and common stockholders’ equity at December 31, 2018, were each $532.0 million (11.4% of total assets), equivalent to a book value of $37.59 per common share.  At September 30, 2019, the Company’s tangible common equity to tangible assets ratio was 11.9%, compared to 11.2% at December 31, 2018.  Included in stockholders’ equity at September 30, 2019 and December 31, 2018, were unrealized gains (net of taxes) on the Company’s available-for-sale investment securities and cash flow hedges (interest rate swap) totaling $41.1 million and $9.6 million, respectively.  This increase in unrealized gains primarily resulted from lower market interest rates which increased the fair value of the derivatives and investment securities.

On a preliminary basis, as of September 30, 2019, the Company’s Tier 1 Leverage Ratio was 11.7%, Common Equity Tier 1 Capital Ratio was 11.7%, Tier 1 Capital Ratio was 12.2%, and Total Capital Ratio was 14.7%.  On September 30, 2018, and on a preliminary basis, the Bank’s Tier 1 Leverage Ratio was 12.2%, Common Equity Tier 1 Capital Ratio was 12.8%, Tier 1 Capital Ratio was 12.8%, and Total Capital Ratio was 13.6%. 

During the three months ended September 30, 2019, the Company did not repurchase any shares of its common stock.

LOANS

Total gross loans (including the undisbursed portion of loans), excluding FDIC-assisted acquired loans and mortgage loans held for sale, increased $65.3 million, or 1.4%, from December 31, 2018, to September 30, 2019.  This increase was primarily in commercial real estate loans ($123 million), owner occupied one- to four-family residential loans ($68 million) and other residential (multi-family) loans ($56 million).  These increases were partially offset by decreases in construction loans ($81 million), consumer auto loans ($79 million) and commercial business loans ($17 million).  Total gross loans increased $23.1 million from June 30, 2019. The FDIC-acquired loan portfolios had net decreases totaling $26 million during the nine months ended September 30, 2019.  Outstanding net loan receivable balances increased $167.7 million, from $3.99 billion at December 31, 2018 to $4.16 billion at September 30, 2019, and increased $44.2 million from June 30, 2019.

Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):

  September
2019
June
2019
March
2019
December
2018
December
2017
December
2016
Closed loans with unused available lines            
Secured by real estate (one- to four-family) $ 152,828   $ 153,871   $ 154,400   $ 150,948   $ 133,587   $ 123,433
Secured by real estate (not one- to four-family)   20,003     13,237     10,450     11,063     10,836     26,062
Not secured by real estate – commercial business   92,095     80,887     83,520     87,480     113,317     79,937
                                   
Closed construction loans with unused
  available lines
                                 
Secured by real estate (one-to four-family)   38,323     28,023     33,818     37,162     20,919     10,047
Secured by real estate (not one-to four-family)   773,375     818,047     831,155     906,006     718,277     542,326
                                   
Loan Commitments not closed                                  
Secured by real estate (one-to four-family)   55,989     49,694     36,945     24,253     23,340     15,884
Secured by real estate (not one-to four-family)   176,138     110,647     134,607     104,871     156,658     119,126
Not secured by real estate – commercial business   4,535     4,535         405     4,870     7,022
                                   
  $ 1,313,286   $ 1,258,941   $ 1,284,895   $ 1,322,188   $ 1,181,804   $ 923,837
                                   

For further information about the Company’s loan portfolio, please see the quarterly loan portfolio presentation available on the Company’s Investor Relations website under “Presentations.” 

PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES

Management records a provision for loan losses in an amount it believes is 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.  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 maintains various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and 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, financial analysis, 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 September 30, 2019 was $2.0 million compared with $1.3 million for the quarter ended September 30, 2018.  The provision for loan losses for the nine months ended September 30, 2019 was $5.5 million compared with $5.2 million for the nine months ended September 30, 2018.  At September 30, 2019 and December 31, 2018, the allowance for loan losses was $40.4 million and $38.4 million, respectively.  Total net charge-offs were $798,000 and $1.4 million for the three months ended September 30, 2019 and 2018, respectively.  During the quarter ended September 30, 2019, $402,000 of the $798,000 of net charge-offs were in the consumer auto category. Total net charge-offs were $3.5 million and $4.2 million for the nine months ended September 30, 2019 and 2018, respectively.  During the nine months ended September 30, 2019, $2.0 million of the $3.5 million of net charge-offs were in the consumer auto category. In addition, two unrelated commercial loan relationships were responsible for $560,000 of the total net charge-offs during the first nine months of 2019.  In response to a more challenging consumer credit environment, the Company tightened its underwriting guidelines on automobile lending in the latter part of 2016.  Management took this step in an effort to improve credit quality in the portfolio and reduce delinquencies and charge-offs.  This action also resulted in a lower level of origination volume and, as such, the outstanding balance of the Company’s automobile loans continued to decline in the nine months ended September 30, 2019.  We expect to see more rapid reductions in the automobile loan outstanding balance as we determined in February 2019 to cease providing indirect lending services to automobile dealerships.  At September 30, 2019, indirect automobile loans totaled approximately $131 million.  We expect this total balance will be largely paid off in the next two to four years.  General market conditions and unique circumstances related to individual borrowers and projects contributed to the level of provisions and charge-offs.  Collateral and repayment evaluations of all assets categorized as potential problem loans, non-performing loans or foreclosed assets were completed with corresponding charge-offs or reserve allocations made as appropriate.   

In June 2017, the loss sharing agreements for Inter Savings Bank were terminated.  In April 2016, the loss sharing agreements for Team Bank, Vantus Bank and Sun Security Bank were terminated.  Loans acquired from the FDIC related to Valley Bank did not have a loss sharing agreement.  All acquired loans were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date.  These loan pools are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition.  Techniques used in determining risk of loss are similar to those used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics.  Review of the acquired loan portfolio also includes review of financial information, collateral valuations and customer interaction to determine if additional reserves are warranted.

The Bank’s allowance for loan losses as a percentage of total loans, excluding FDIC-acquired loans, was 0.99%, 0.98% and 0.97% at September 30, 2019, December 31, 2018 and June 30, 2019, respectively.  Management considers the allowance for loan losses adequate to cover losses inherent in the Bank’s loan portfolio at September 30, 2019, based on recent reviews of the Bank’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 the Company’s future results of operations and financial condition.

ASSET QUALITY

Former TeamBank, Vantus Bank, Sun Security Bank, InterBank and Valley Bank non-performing assets, including foreclosed assets and potential problem loans, are not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets below. These assets were initially recorded at their estimated fair values as of their acquisition dates and are accounted for in pools. Therefore, these loan pools are analyzed rather than the individual loans.  The performance of the loan pools acquired in each of the five transactions has been better than expectations as of the acquisition dates. 

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

Non-performing assets, excluding all FDIC-assisted acquired assets, at September 30, 2019 were $9.0 million, a decrease of $2.8 million from $11.8 million at December 31, 2018 and a decrease of $6.9 million from $15.9 million at June 30, 2019.  Non-performing assets, excluding all FDIC-assisted acquired assets, as a percentage of total assets were 0.18% at September 30, 2019, compared to 0.25% at December 31, 2018 and 0.33% at June 30, 2019. 

Compared to December 31, 2018, non-performing loans decreased $1.6 million to $4.7 million at September 30, 2019, and foreclosed assets decreased $1.2 million to $4.3 million at September 30, 2019.  Compared to June 30, 2019, non-performing loans decreased $6.7 million to $4.7 million at September 30, 2019, and foreclosed assets decreased $177,000 to $4.3 million at September 30, 2019.  Non-performing one- to four-family residential loans comprised $1.5 million, or 31.7%, of the total non-performing loans at September 30, 2019, a decrease of $53,000 from June 30, 2019. Non-performing commercial business loans comprised $1.2 million, or 26.7%, of the total non-performing loans at September 30, 2019, a decrease of $114,000 from June 30, 2019.  Non-performing consumer loans comprised $1.2 million, or 26.2%, of the total non-performing loans at September 30, 2019, a decrease of $44,000 from June 30, 2019.  Non-performing commercial real estate loans comprised $637,000, or 13.6%, of the total non-performing loans at September 30, 2019, a decrease of $3.0 million from June 30, 2019.  Non-performing construction and land development loans comprised $83,000, or 1.8%, of the total non-performing loans at September 30, 2019, a decrease of $3.5 million from June 30, 2019.

Compared to June 30, 2019, potential problem loans decreased $565,000 to $4.4 million at September 30, 2019.  The decrease during the quarter was primarily due to $552,000 in payments.

Activity in the non-performing loans category during the quarter ended September 30, 2019, was as follows:

 

 

Beginning
Balance,

July 1
Additions to
Non-
Performing
Removed
from Non-
Performing
Transfers
to Potential
Problem
Loans
Transfers to
Foreclosed
Assets and
Repossessions
Charge-Offs Payments Ending
Balance,
September 30
  (In thousands)
                 
One- to four-family construction $   $   $     $   $     $     $     $
Subdivision construction                                      
Land development   3,556     42               (3,498 )           (17 )     83
Commercial construction                                      
One- to four-family residential   1,532     429               (290 )           (192 )     1,479
Other residential                                      
Commercial real estate   3,675         (118 )         (2,900 )           (20 )     637
Commercial business   1,359                         (91 )     (23 )     1,245
Consumer   1,266     421               (64 )     (215 )     (186 )     1,222
                                                       
Total $ 11,388   $ 892   $ (118 )   $   $ (6,752 )   $ (306 )   $ (438 )   $ 4,666
                                                       

At September 30, 2019, the non-performing commercial business category included three loans, none of which were added during the current quarter.  The largest relationship in this category, which was added during 2018, totaled $1.1 million, or 86.3% of the total category.  This relationship is collateralized by an assignment of an interest in a real estate project.  The non-performing one- to four-family residential category included 21 loans, four of which were added during the current quarter.  The largest relationship in the category totaled $292,000, or 19.7% of the total category.  This balance is primarily related to a single-family property in Springfield, Missouri.  The non-performing consumer category included 111 loans, 27 of which were added during the current quarter, and the majority of which are indirect used automobile loans.

The decrease in non-performing loans during the three months ended September 30, 2019, primarily related to one borrower relationship.  This relationship totaled approximately $6.7 million at June 30, 2019.  This relationship was represented in the non-performing land development, commercial real estate and one- to four-family categories.  During July 2019, the borrower deeded the properties to the Bank in lieu of foreclosure and in the quarter ended September 30, 2019, the land development and commercial real estate assets were sold. 
Activity in the potential problem loans category during the quarter ended September 30, 2019, was as follows:

  Beginning
Balance,

July 1
Additions to
Potential
Problem
Removed
from
Potential
Problem
Transfers to
Non-
Performing
Transfers to
Foreclosed
Assets and
Repossessions
Charge-Offs Payments Ending
Balance,
September 30
  (In thousands)
                 
One- to four-family construction $   $   $   $   $   $     $     $
Subdivision construction                                  
Land development                                  
Commercial construction                                  
One- to four-family residential   840     8                       (22 )     826
Other residential                                  
Commercial real estate   3,809                           (475 )     3,334
Commercial business   37                     (21 )     (16 )    
Consumer   319                           (39 )     280
                                                   
Total $ 5,005   $ 8   $   $   $   $ (21 )   $ (552 )   $ 4,440
                                                   

At September 30, 2019, the commercial real estate category of potential problem loans included two loans, one of which was added during the first quarter of 2019.  The largest relationship in this category (added during 2018), which totaled $1.9 million, or 57.0% of the total category, is collateralized by a mixed use commercial retail building.  Payments were current on this relationship at September 30, 2019. The second largest relationship in the category (added during the first quarter 2019), which totaled $1.4 million, or 43.0% of the total category, is collateralized by a commercial retail building.  Payments were current at September 30, 2019 and a principal payment of $400,000 was received in July 2019.  The one- to four-family residential category of potential problem loans included 17 loans, one of which was added during the current quarter. The consumer category of potential problem loans included 31 loans, none of which were added during the current quarter.   

Activity in foreclosed assets and repossessions during the quarter ended September 30, 2019, excluding $1.1 million in foreclosed assets related to loans acquired in FDIC-assisted transactions and $2.0 million in properties which were not acquired through foreclosure, was as follows:

  Beginning
Balance,

July 1
Additions ORE and
Repossession
Sales
Capitalized
Costs
ORE and
Repossession
Write-Downs
Ending
Balance,
September 30
  (In thousands)
             
One-to four-family construction $   $   $     $   $     $
Subdivision construction   918         (236 )     73           755
Land development   2,584     3,498     (3,208 )         (280 )     2,594
Commercial construction                          
One- to four-family residential       290           20           310
Other residential                          
Commercial real estate       2,900     (2,900 )              
Commercial business                          
Consumer   999     1,006     (1,340 )               665
                                       
Total $ 4,501   $ 7,694   $ (7,684 )   $ 93   $ (280 )   $ 4,324
                                       

At September 30, 2019, the land development category of foreclosed assets included six properties, the largest of which was located in the Branson, Mo. area and had a balance of $768,000, or 29.6% of the total category.  Of the total dollar amount in the land development category of foreclosed assets, 49.2% was located in the Branson, Mo. area, including the largest property previously mentioned.  The subdivision construction category of foreclosed assets included four properties, the largest of which was located in the Branson, Mo. area and had a balance of $350,000, or 46.4% of the total category.  Of the total dollar amount in the subdivision construction category of foreclosed assets, 82.1% is located in Branson, Mo., including the largest property previously mentioned.  The one- to four-family category of foreclosed assets included one property that was added during the quarter with a balance of $310,000.  This asset was included in the $6.7 million relationship discussed above under Non-Performing Loans.  The amount of additions and sales in the consumer loans category are due to a higher volume of repossessions of automobiles, which generally are subject to a shorter repossession process.  The Company experienced increased levels of delinquencies and repossessions in indirect and used automobile loans throughout 2016 and 2017.  The level of delinquencies and repossessions in indirect and used automobile loans generally decreased in 2018 and to date in 2019.  The large additions and sales items in the land development and commercial real estate categories are related to the $6.7 million relationship discussed above under Non-Performing Loans.

BUSINESS INITIATIVES

The Company’s retail banking center network continues to evolve. In September 2019, the Company consolidated its Ames, Iowa, banking center into its North Ankeny, Iowa office. The Company entered the Ames market with only one banking center through an FDIC-assisted acquisition in 2014.  An agreement has been executed to sell the Ames office building and the transaction is expected to close during the fourth quarter 2019. 

During the third quarter of 2019, a Business Banking initiative was implemented to increase the Company’s focus on serving the lending needs of business owners. The Business Banking group works with established operating businesses by providing lines of credit, equipment loans, and commercial real estate loans, as well as cash management and depository services.    

The Company will host a conference call on Thursday, October 17, 2019, at 2:00 p.m. Central Time (3:00 p.m. Eastern Time) to discuss third quarter 2019 preliminary earnings. Individuals interested in listening to the conference call may dial 1.833.832.5121 and enter the passcode 5455169. The call will be available live or in a recorded version at the Company’s Investor Relations website, http://investors.greatsouthernbank.com.  

Headquartered in Springfield, Mo., Great Southern offers a broad range of banking services to customers. The Company operates 97 retail banking centers in Missouri, Iowa, Kansas, Minnesota, Arkansas and Nebraska and commercial lending offices in Atlanta, Chicago, Dallas, Denver, Omaha, Neb., and Tulsa, Okla. The common stock of Great Southern Bancorp, Inc. is listed on the Nasdaq Global Select Market under the symbol “GSBC.”

www.GreatSouthernBank.com

Forward-Looking Statements

When used in this press release and in other documents filed or furnished by Great Southern Bancorp, Inc. (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) expected revenues, cost savings, earnings accretion, synergies and other benefits from the Company’s  merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (ii) changes in economic conditions, either nationally or in the Company’s market areas; (iii) fluctuations in interest rates; (iv) 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; (v) the possibility of other-than-temporary impairments of securities held in the Company’s securities portfolio; (vi) the Company’s ability to access cost-effective funding; (vii) fluctuations in real estate values and both residential and commercial real estate market conditions; (viii) demand for loans and deposits in the Company’s market areas; (ix) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the marketplace; (x) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber-attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (xi) legislative or regulatory changes that adversely affect the Company’s business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing regulations, the overdraft protection regulations and customers’ responses thereto and the Tax Reform Legislation; (xii) changes in accounting principles, policies or guidelines; (xiii) monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xiv) results of examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to limit its business activities, changes its business mix, increase its allowance for loan losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; (xv) costs and effects of litigation, including settlements and judgments; and (xvi) competition. The Company wishes to advise readers that the factors listed above and other risks described from time to time in documents filed or furnished by the Company 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 the dates and for the periods indicated.  Financial data at all dates and 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 at and for such unaudited dates and periods have been included.  The results of operations and other data for the three and nine months ended September 30, 2019 and 2018, and the three months ended June 30, 2019, are not necessarily indicative of the results of operations which may be expected for any future period. 

  September 30, December 31,
    2019   2018
Selected Financial Condition Data: (In thousands)
     
Total assets $ 4,972,160 $ 4,676,200
Loans receivable, gross   4,203,885   4,034,810
Allowance for loan losses   40,406   38,409
Other real estate owned, net   7,444   8,440
Available-for-sale securities, at fair value   349,020   243,968
Deposits   3,935,154   3,725,007
Total borrowings   393,627   397,594
Total common stockholders’ equity   596,770   531,977
Non-performing assets (excluding FDIC-assisted transaction assets)   8,990   11,780
  Three Months Ended Nine Months Ended Three Months
Ended
  September 30, September 30, June 30,
    2019     2018     2019     2018     2019
Selected Operating Data: (Dollars in thousands, except per share data)
           
Interest income $ 60,187   $ 52,982   $ 176,267   $ 149,808   $ 58,723
Interest expense   14,263     9,997     40,818     26,172     13,802
Net interest income   45,924     42,985     135,449     123,636     44,921
Provision for loan losses   1,950     1,300     5,500     5,200     1,600
Non-interest income   8,655     14,604     23,263     28,998     7,157
Non-interest expense   28,725     28,309     85,602     86,537     28,383
Provision for income taxes   4,172     5,464     11,890     11,076     3,720
Net income and net income available to common shareholders $ 19,732   $ 22,516   $ 55,720   $ 49,821   $ 18,375
                             
  At or For the Three
Months Ended
At or For the Nine
Months Ended
At or For the
Three Months
Ended
  September 30, September 30, June 30,
    2019     2018     2019     2018     2019  
Per Common Share: (Dollars in thousands, except per share data)
           
Net income (fully diluted) $ 1.38   $ 1.57   $ 3.90   $ 3.49   $ 1.28  
Book value $ 41.98   $ 35.90   $ 41.98   $ 35.90   $ 40.30  
                               
Earnings Performance Ratios:                              
Annualized return on average assets   1.61%     1.99%     1.54%     1.49%     1.52%  
Annualized return on average
  common stockholders’ equity
  13.46%     17.80%     13.28%     13.51%     13.24%  
Net interest margin   3.95%     4.02%     3.99%     3.96%     3.97%  
Average interest rate spread   3.61%     3.76%     3.66%     3.74%     3.64%  
Efficiency ratio   52.63%     49.16%     53.94%     56.70%     54.50%  
Non-interest expense to average total assets   2.34%     2.50%     2.37%     2.58%     2.35%  
                               
Asset Quality Ratios:                              
Allowance for loan losses to period-end loans
  (excluding covered/previously covered loans)
  0.99%     1.00%     0.99%     1.00%     0.97%  
Non-performing assets to period-end assets   0.18%     0.35%     0.18%     0.35%     0.33%  
Non-performing loans to period-end loans   0.11%     0.16%     0.11%     0.16%     0.27%  
Annualized net charge-offs to average loans   0.08%     0.14%     0.11%     0.14%     0.10%  

Great Southern Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except number of shares)

  September 30,
2019
December 31,
 2018
June 30,
2019
Assets      
Cash $ 105,068   $ 110,108   $ 99,567
Interest-bearing deposits in other financial institutions   85,809     92,634     81,805
Cash and cash equivalents   190,877     202,742     181,372
                 
Available-for-sale securities   349,020     243,968     305,649
Mortgage loans held for sale   10,819     1,650     11,106
Loans receivable (1), net of allowance for loan losses of $40,406  – September 2019; $38,409 – December 2018; $39,254  – June 2019   4,156,703     3,989,001     4,112,455
Interest receivable   13,701     13,448     14,351
Prepaid expenses and other assets   82,218     55,336     76,241
Other real estate owned and repossessions (2), net   7,444     8,440     7,107
Premises and equipment, net   141,227     132,424     143,473
Goodwill and other intangible assets   8,386     9,288     8,675
Federal Home Loan Bank stock   11,765     12,438     11,093
Current and deferred income taxes       7,465    
                 
Total Assets $ 4,972,160   $ 4,676,200   $ 4,871,522
                 
Liabilities and Stockholders’ Equity                
Liabilities                
Deposits $ 3,935,154   $ 3,725,007   $ 3,888,536
Securities sold under reverse repurchase agreements with customers   102,569     105,253     98,632
Short-term borrowings   191,116     192,725     168,636
Subordinated debentures issued to capital trust   25,774     25,774     25,774
Subordinated notes   74,168     73,842     74,059
Accrued interest payable   3,119     3,570     4,209
Advances from borrowers for taxes and insurance   10,405     5,092     10,550
Accounts payable and accrued expenses   27,048     12,960     26,499
Current and deferred income taxes   6,037         2,318
Total Liabilities   4,375,390     4,144,223     4,299,213
                 
Stockholders’ Equity                
Capital stock                
Preferred stock, $.01 par value; authorized 1,000,000 shares; issued and outstanding September 2019, December 2018 and June 2019– -0- shares          
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding September 2019 – 14,214,054 shares; December 2018 – 14,151,198 shares; June 2019 – 14,201,616 shares   142     142     142
Additional paid-in capital   32,085     30,121     31,603
Retained earnings   523,493     492,087     508,427
Accumulated other comprehensive gain   41,050     9,627     32,137
Total Stockholders’ Equity   596,770     531,977     572,309
                 
Total Liabilities and Stockholders’ Equity $ 4,972,160   $ 4,676,200   $ 4,871,522
                 

(1) At September 30, 2019, December 31, 2018 and June 30, 2019, includes loans, net of discounts, totaling $141.7 million, $167.6 million and $151.1 million, respectively, which were acquired in FDIC-assisted transactions and are accounted for under ASC 310-30.
(2) At September 30, 2019, December 31, 2018 and June 30, 2019, includes foreclosed assets, net of discounts, totaling $1.1 million, $1.4 million and $1.3 million, respectively, which were acquired in FDIC-assisted transactions.  In addition, at September 30, 2019, December 31, 2018 and June 30, 2019, includes $2.0 million, $1.6 million and $1.3 million of properties which were not acquired through foreclosure, but are held for sale.

Great Southern Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)

  Three Months Ended   Nine Months Ended
  Three Months
Ended
  September 30,   September 30,   June 30,
    2019     2018     2019       2018     2019  
Interest Income              
Loans $ 57,226   $ 51,063   $ 167,552     $ 144,447   $ 55,771  
Investment securities and other   2,961     1,919     8,715       5,361     2,952  
    60,187     52,982     176,267       149,808     58,723  
Interest Expense                                
Deposits   11,792     7,352     33,844       19,058     11,582  
Federal Home Loan Bank advances       1,192           2,964      
Short-term borrowings and repurchase agreements   1,123     177     2,904       385     859  
Subordinated debentures issued to capital trust   253     252     787       692     267  
Subordinated notes   1,095     1,024     3,283       3,073     1,094  
    14,263     9,997     40,818       26,172     13,802  
                                 
Net Interest Income   45,924     42,985     135,449       123,636     44,921  
Provision for Loan Losses   1,950     1,300     5,500       5,200     1,600  
Net Interest Income After Provision for Loan Losses   43,974     41,685     129,949       118,436     43,321  
                                 
Noninterest Income                                
Commissions   173     309     670       868     163  
Service charges and ATM fees   5,619     5,458     15,887       16,191     5,309  
Net gains on loan sales   1,021     417     1,645       1,438     376  
Net realized gains on sales of available-for-sale securities       2     10       2      
Late charges and fees on loans   364     466     1,066       1,240     356  
Gain (loss) on derivative interest rate products   (101 )   5     (169 )     53     (44 )
Gain on sale of business units       7,414           7,414      
Other income   1,579     533     4,154       1,792     997  
    8,655     14,604     23,263       28,998     7,157  
                                 
Noninterest Expense                                
Salaries and employee benefits   15,827     15,162     46,895       44,731     15,428  
Net occupancy expense   6,613     6,551     19,462       19,234     6,449  
Postage   792     843     2,342       2,544     784  
Insurance   339     682     1,667       2,002     662  
Advertising   794     589     2,162       1,892     842  
Office supplies and printing   258     255     743       789     226  
Telephone   904     827     2,645       2,339     839  
Legal, audit and other professional fees   681     875     2,023       2,373     630  
Expense on other real estate and repossessions   603     498     1,642       4,376     419  
Partnership tax credit investment amortization   91     91     274       484     91  
Acquired deposit intangible asset amortization   289     412     902       1,237     289  
Other operating expenses   1,534     1,524     4,845       4,536     1,724  
    28,725     28,309     85,602       86,537     28,383  
                                 
Income Before Income Taxes   23,904     27,980     67,610       60,897     22,095  
Provision for Income Taxes   4,172     5,464     11,890       11,076     3,720  
                                 
Net Income and Net Income Available to Common Shareholders $ 19,732   $ 22,516   $ 55,720     $ 49,821   $ 18,375  
                                 
Earnings Per Common Share                                
Basic $ 1.39   $ 1.59   $ 3.93     $ 3.53   $ 1.29  
Diluted $ 1.38   $ 1.57   $ 3.90     $ 3.49   $ 1.28  
                                 
Dividends Declared Per Common Share $ 0.34   $ 0.32   $ 1.73     $ 0.88   $ 0.32  
                                 

Average Balances, Interest Rates and Yields

The following table presents, 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.  Net fees included in interest income were $1.0 million and $919,000 for the three months ended September 30, 2019 and 2018, respectively.  Net fees included in interest income were $3.1 million and $2.5 million for the nine months ended September 30, 2019 and 2018, respectively. Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes.

  September
30, 2019(1)
Three Months Ended
September 30, 2019
  Three Months Ended
September 30, 2018
    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 4.20%   $ 542,892   $ 7,153   5.23%     $ 453,090   $ 5,939   5.20%  
Other residential 5.08     814,326     11,074   5.40       782,595     10,163   5.15  
Commercial real estate 4.93     1,471,431     19,236   5.19       1,330,088     16,427   4.90  
Construction 5.36     730,027     10,814   5.88       593,540     8,272   5.53  
Commercial business 5.08     253,225     3,316   5.20       291,038     3,689   5.03  
Other loans 5.85     369,704     5,423   5.82       485,647     6,283   5.13  
Industrial revenue bonds 4.86     14,770     210   5.64       19,829     290   5.80  
                                       
Total loans receivable 5.11     4,196,375     57,226   5.41       3,955,827     51,063   5.12  
                                       
Investment securities 3.23     342,277     2,534   2.94       193,390     1,425   2.92  
Other interest-earning assets 2.02     79,344     427   2.13       97,739     494   2.01  
                                       
Total interest-earning assets 4.90     4,617,996     60,187   5.17       4,246,956      52,982   4.95  
Non-interest-earning assets:                                      
Cash and cash equivalents       93,293                 97,033            
Other non-earning assets       202,361                 186,994            
Total assets     $ 4,913,650               $ 4,530,983            
                                       
Interest-bearing liabilities:                                      
Interest-bearing demand and                                      
savings 0.55   $ 1,501,697     2,030   0.54     $ 1,506,907     1,523   0.40  
Time deposits 2.21     1,728,620     9,762   2.24       1,376,907     5,829   1.68  
Total deposits 1.43     3,230,317     11,792   1.45       2,883,814     7,352   1.01  
Short-term borrowings and repurchase agreements 1.36     289,222     1,123   1.54       141,864     177   0.49  
Subordinated debentures issued to
capital trust
3.85     25,774     253   3.90       25,774     252   3.88  
Subordinated notes 5.90     74,119     1,095   5.86       73,791     1,024   5.51  
FHLB advances                 216,674     1,192   2.18  
                                       
Total interest-bearing liabilities 1.53     3,619,432     14,263   1.56       3,341,917     9,997   1.19  
Non-interest-bearing liabilities:                                      
Demand deposits       670,158                 660,629            
Other liabilities       37,754                 22,428            
Total liabilities       4,327,344                 4,024,974            
Stockholders’ equity       586,306                 506,009            
Total liabilities and stockholders’ equity     $ 4,913,650               $ 4,530,983            
                                       
Net interest income:                                      
Interest rate spread 3.37%         $ 45,924   3.61%           $ 42,985   3.76%  
Net interest margin*                 3.95%                 4.02%  
Average interest-earning assets to average interest-bearing liabilities       127.6%                 127.1%            
                                       

*Defined as the Company’s net interest income divided by average total interest-earning assets.
(1)   The yield on loans at September 30, 2019, 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 September 30, 2019.

  September
30, 2019(1)
Nine Months Ended
September 30, 2019
  Nine Months Ended
September 30, 2018
    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 4.20%   $ 518,758   $ 20,097   5.18%   $ 440,769   $ 16,544   5.02%  
Other residential 5.08     815,008     33,334   5.47     755,536     28,349   5.02  
Commercial real estate 4.93     1,424,595     55,235   5.18     1,302,940     46,753   4.80  
Construction 5.36     704,074     31,573   6.00     555,708     22,007   5.29  
Commercial business 5.08     259,021     10,066   5.20     288,579     10,592   4.91  
Other loans 5.85     403,176     16,576   5.50     511,735     19,170   5.01  
Industrial revenue bonds 4.86     14,970     671   5.99     22,056     1,032   6.25  
                                     
Total loans receivable 5.11     4,139,602     167,552   5.41     3,877,323     144,447   4.98  
                                     
Investment securities 3.23     310,227     7,201   3.10     189,686     4,026   2.84  
Other interest-earning assets 2.02     87,193     1,514   2.32     105,831     1,335   1.69  
                                     
Total interest-earning assets 4.90     4,537,022     176,267   5.19     4,172,840     149,808   4.80  
Non-interest-earning assets:                                    
Cash and cash equivalents       92,208               98,879            
Other non-earning assets       191,296               194,441            
Total assets     $ 4,820,526             $ 4,466,160            
                                     
Interest-bearing liabilities:                                    
Interest-bearing demand and                                    
savings 0.55   $ 1,491,255     5,723   0.51   $ 1,548,273     4,268   0.37  
Time deposits 2.21     1,711,692     28,121   2.20     1,331,098     14,790   1.49  
Total deposits 1.43     3,202,947     33,844   1.41     2,879,371     19,058   0.88  
Short-term borrowings and repurchase agreements 1.36     264,111     2,904   1.47     127,696     385   0.40  
Subordinated debentures issued to
capital trust
3.85     25,774     787   4.08     25,774     692   3.59  
Subordinated notes 5.90     74,012     3,283   5.93     73,752     3,073   5.57  
FHLB advances               198,778     2,964   1.99  
                                     
Total interest-bearing liabilities 1.53     3,566,844     40,818   1.53     3,305,371     26,172   1.06  
Non-interest-bearing liabilities:                                    
Demand deposits       661,446               648,257            
Other liabilities       32,620               20,678            
Total liabilities       4,260,910               3,974,306            
Stockholders’ equity       559,616               491,854            
Total liabilities and stockholders’ equity     $ 4,820,526             $ 4,466,160            
                                     
Net interest income:                                    
Interest rate spread 3.37%         $ 135,449   3.66%         $ 123,636   3.74%  
Net interest margin*                 3.99%               3.96%  
Average interest-earning assets to average interest-bearing liabilities       127.2%               126.2%            

______________
*Defined as the Company’s net interest income divided by average total interest-earning assets.
(1)   The yield on loans at September 30, 2019, 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 nine months ended September 30, 2019.

NON-GAAP FINANCIAL MEASURES

This document contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include core net interest income, core net interest margin and the tangible common equity to tangible assets ratio.

We calculate core net interest income and core net interest margin by subtracting the impact of adjustments regarding changes in expected cash flows related to pools of loans we acquired through FDIC-assisted transactions from reported net interest income and net interest margin. Management believes that core net interest income and core net interest margin are useful in assessing the Company’s core performance and trends, in light of the fluctuations that can occur related to updated estimates of the fair value of the loan pools acquired in the 2009, 2011, 2012 and 2014 FDIC-assisted transactions.

In calculating the ratio of tangible common equity to tangible assets, we subtract period-end intangible assets from common equity and from total assets.  Management believes that the presentation of this measure excluding the impact of intangible assets provides useful supplemental information that is helpful in understanding our financial condition and results of operations, as it provides a method to assess management’s success in utilizing our tangible capital as well as our capital strength.  Management also believes that providing a measure that excludes balances of intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers.  In addition, management believes that this is a standard financial measure used in the banking industry to evaluate performance.

These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to other similarly titled measures as calculated by other companies.

Non-GAAP Reconciliation:  Core Net Interest Income and Core Net Interest Margin

  Three Months Ended Nine Months Ended
  September 30, September 30,
    2019     2018     2019     2018  
  (Dollars in thousands) (Dollars in thousands)
Reported net interest income/ margin $ 45,924   3.95%   $ 42,985   4.02%   $ 135,449   3.99%   $ 123,636   3.96%  
Less:  Impact of FDIC-acquired loan accretion adjustments   2,251   0.20     1,424   0.14     5,162   0.15     3,652   0.12  
Core net interest income/ margin $ 43,673   3.75%   $ 41,561   3.88%   $ 130,287   3.84%   $ 119,984   3.84%  
                                         

Non-GAAP Reconciliation:  Ratio of Tangible Common Equity to Tangible Assets         

  September 30, December 31,
    2019     2018  
  (Dollars in thousands)
Common equity at period end $ 596,770   $ 531,977  
Less:  Intangible assets at period end   8,386     9,288  
Tangible common equity at period end  (a) $ 588,384   $ 522,689  
             
Total assets at period end $ 4,972,160   $ 4,676,200  
Less:  Intangible assets at period end   8,386     9,288  
Tangible assets at period end (b) $ 4,963,774   $ 4,666,912  
             
Tangible common equity to tangible assets (a) / (b)   11.85%     11.20%  
             

Kelly Polonus, Great Southern, (417) 895-5242 
[email protected]

Investar Holding Corporation Announces Acquisition Approvals

BATON ROUGE, La., Oct. 16, 2019 (GLOBE NEWSWIRE) — Investar Holding Corporation (the “Company”) (Nasdaq:ISTR), the holding company of Investar Bank, National Association (“Investar Bank”), today announced that necessary shareholder and regulatory approvals have been obtained for its previously announced pending acquisition of Bank of York, York, Alabama (“Bank of York”). The Company also provided an update regarding expected timeframes to complete the acquisition.

On July 30, 2019, the Company announced that it and Investar Bank had entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Bank of York. At June 30, 2019, Bank of York had approximately $99.5 million in assets, $46.0 million in net loans, $82.3 million in deposits, and $11.2 million in stockholders’ equity. Bank of York is an Alabama state bank, offering a full range of banking and financial services to individual and corporate customers. Its operations in Alabama include a main office in York, a branch in Livingston, and loan production office in Tuscaloosa, which is expected to be converted into a full-service branch at some point after the closing of the transaction, subject to Investar Bank’s receipt of the necessary regulatory approvals for that branch.

Under the terms of the Merger Agreement, the Company will pay a total amount of cash merger consideration to shareholders of Bank of York equal to $15.0 million. Bank of York will also be permitted under the Merger Agreement to make regular and special pre-closing cash distributions to its shareholders in an aggregate amount of approximately $1.0 million.

Bank of York shareholders approved the acquisition at a shareholder meeting held on October 16, 2019. No vote of the shareholders of the Company is required to complete the transaction. Completion of the acquisition remains subject to the satisfaction or waiver of other customary closing conditions under the terms of the Merger Agreement. Upon satisfaction of all closing conditions, the Company anticipates it will close the Bank of York acquisition on or about November 1, 2019. Branch and operating system conversions are currently scheduled to be completed in the second quarter of 2020.

About Investar

Investar Holding Corporation, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association. The Company had total assets of approximately $2.0 billion as of June 30, 2019. Investar Bank currently operates 21 branches serving southeast Louisiana, and three branches serving southeast Texas.

Forward-Looking Statements

This press release may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon current expectations and assumptions about our business that are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from those described in this press release. You should not rely on forward-looking statements as a prediction of future events. Additional information regarding factors that could cause actual results to differ materially from those discussed in any forward-looking statements are described in reports and registration statements we file with the SEC, including our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, copies of which are available on the Investar internet website http://www.InvestarBank.com.

We disclaim any obligation to update any forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may be based except as required by law.

Contact:
Investar Holding Corporation
Chris Hufft
Chief Financial Officer
(225) 227-2215
[email protected]

Eldorado Gold Reports Preliminary Third Quarter 2019 Results

VANCOUVER, British Columbia, Oct. 16, 2019 (GLOBE NEWSWIRE) — Eldorado Gold Corporation (“Eldorado” or “the Company”) (TSX: ELD) (NYSE: EGO) today reports its preliminary third quarter 2019 results.

Preliminary Third Quarter Results

  • Total gold production was 101,596 ounces for the third quarter and 276,376 ounces year to date. Guidance for 2019 remains unchanged.
  • Recent test results from Kisladag confirm that recoveries from leaching deeper material over 250 day cycles support an extension of mine life beyond the Company’s current three year guidance. Waste stripping to support a mine life extension will commence prior to the end of October 2019. Test work is still ongoing to determine the ultimate heap leach recovery of this material and thus the ultimate length of the mine life extension. Waste stripping over the remainder of 2019 is expected to minimize production interruptions in 2020 and beyond. Estimated expenditure for waste stripping in 2019 is $4 million.
  • Production at Olympias was lower than plan.  During the third quarter measures to increase production volumes were continued in key areas of the operation and will support the ramp up towards 2020 and beyond.  These measures included increased capital development resources and other operational improvement initiatives.
 
Gold Production
  Q3 2019 Q3 2018 YTD 2019
Total      
Production (oz) 101,596 84,783 276,376
Kisladag      
Production (oz) 35,885 34,070 89,204
Efemcukuru      
Production (oz) 25,733 24,493 77,524
Olympias      
Production (oz) 7,941 12,790 24,793
Lamaque      
Production (oz) (a) 32,037 13,430 84,855
(a) Includes pre-commercial production
 

About Eldorado Gold

Eldorado is a gold and base metals producer with mining, development and exploration operations in Turkey, Canada, Greece, Romania, Serbia, and Brazil. The Company has a highly skilled and dedicated workforce, safe and responsible operations, a portfolio of high-quality assets, and long-term partnerships with local communities. Eldorado’s common shares trade on the Toronto Stock Exchange (TSX: ELD) and the New York Stock Exchange (NYSE: EGO).

Contacts

Investor Relations
Peter Lekich
Manager Investor Relations
604.687.4018 or 1.888.353.8166
[email protected]

Media
Louise Burgess
Director Communications & Government Relations
604.687.4018 or 1.888.353.8166
[email protected]

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward looking statements and forward looking information within the meaning of applicable Canadian and U.S. securities laws. Often, but not always, forward-looking statements and forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements or information herein include, but are not limited to expectations regarding meeting annual guidance, extension of mine life at Kisladag, waste stripping at Kisladag, and improved production at Olympias.

Forward-looking statements and forward-looking information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. We have made certain assumptions about the forward-looking statements and information and even though our management believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that the forward-looking statement or information will prove to be accurate. Furthermore, should one or more of the risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements or information. These risks, uncertainties and other factors include, among others, the following: discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries; mining operational and development risk; litigation risks; regulatory restrictions, including environmental regulatory restrictions and liability; risks of sovereign investment; currency fluctuations; speculative nature of gold exploration; global economic climate; dilution; share price volatility; competition; loss of key employees; additional funding requirements; and defective title to mineral claims or property, as well as those factors discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors” in the Company’s Annual Information Form & Form 40-F dated March 29, 2019.

There can be no assurance that forward-looking statements or information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, you should not place undue reliance on the forward-looking statements or information contained herein. Except as required by law, we do not expect to update forward-looking statements and information continually as conditions change and you are referred to the full discussion of the Company’s business contained in the Company’s reports filed with the securities regulatory authorities in Canada and the U.S.

Scientific and technical information contained in this press release was reviewed and approved by Paul Skayman, FAusIMM, Chief Operating Officer for Eldorado Gold Corporation, and a “qualified person” under NI 43-101.

Targa Resources Corp. Announces Quarterly Dividends

HOUSTON, Oct. 16, 2019 (GLOBE NEWSWIRE) — Targa Resources Corp. (“TRC”, “Targa” or the “Company”) (NYSE: TRGP) announced its quarterly dividend on common shares and its quarterly dividend on Series A preferred shares with respect to the third quarter of 2019.

TRC announced today that its board of directors has declared a quarterly cash dividend of 91.00¢ per share, or $3.64 per common share on an annualized basis, for the third quarter of 2019. This cash dividend will be paid November 15, 2019 on all outstanding common shares to holders of record as of the close of business on November 1, 2019.

TRC also announced today that its board of directors has declared a quarterly cash dividend of $23.75 per Series A preferred share for the third quarter of 2019.  This cash dividend will be paid November 14, 2019 on all outstanding Series A preferred shares to holders of record as of the close of business on November 1, 2019.

About Targa Resources Corp.

Targa Resources Corp. is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. Targa owns, operates, acquires and develops a diversified portfolio of complementary midstream energy assets. The Company is primarily engaged in the business of: gathering, compressing, treating, processing, transporting and selling natural gas; storing, fractionating, treating, transporting and selling natural gas liquids (“NGL(s)”) and NGL products, including services to LPG exporters; and gathering, storing, terminaling and selling crude oil.

The principal executive offices of Targa are located at 811 Louisiana, Suite 2100, Houston, TX 77002 and their telephone number is 713-584-1000.

For more information please go to www.targaresources.com.

Forward-Looking Statements

Certain statements in this press release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Targa expects, believes or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties, factors and risks, many of which are outside Targa’s control, which could cause results to differ materially from those expected by management of Targa.  Such risks and uncertainties include, but are not limited to, the timing and extent of changes in commodity prices, interest rates and demand for services, the level and success of crude oil and natural gas drilling around assets, the timing and success of business development efforts, ability to access the capital markets, the amount of collateral required to be posted from time to time in transactions, success in risk management activities, the credit risk of customers, changes in laws and regulations, weather and other uncertainties. These and other applicable uncertainties, factors and risks are described more fully in Targa’s Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. Targa undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Contact the Company’s investor relations department by email at [email protected] or by phone at (713) 584-1133.

Sanjay Lad
Senior Director, Finance & Investor Relations

Jennifer Kneale
Chief Financial Officer

Wintrust Financial Corporation Reports Record Third Quarter 2019 Net Income of $99.1 million and Year-to-Date Net Income of $269.7 million

ROSEMONT, Ill., Oct. 16, 2019 (GLOBE NEWSWIRE) — Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced net income of $99.1 million or $1.69 per diluted common share for the third quarter of 2019, an increase in diluted earnings per common share of 22.5% compared to the prior quarter and 7.6% compared to the third quarter of 2018. The Company recorded net income of $269.7 million or $4.60 per diluted common share for the first nine months of 2019 compared to net income of $263.5 million or $4.50 per diluted common share for the same period of 2018.

Highlights of the Third Quarter of 2019:
Comparative information to the second quarter of 2019

  • Total assets increased by $1.3 billion or 15% on an annualized basis.
  • Total loans increased by $406 million or 6% on an annualized basis.
  • Total deposits increased by $1.2 billion or 17% on an annualized basis, the increase was net of a $552 million reduction in brokered deposits.
  • Mortgage banking production revenue increased by $12.8 million as mortgage loans originated for sale totaled $1.4 billion in the third quarter of 2019 as compared to $1.2 billion in the second quarter of 2019.
  • Net interest income decreased by $1.3 million as a 25 basis point decline in net interest margin was partially offset by a $1.7 billion increase in average earning assets.
  • The net overhead ratio declined by 24 basis points to 1.40%, effectively offsetting the impact of the net interest margin decline.
  • Recorded net charge-offs of $9.4 million in the third quarter of 2019 as compared to $22.3 million in the second quarter of 2019. The $9.4 million includes $4.0 million of additional net charge-offs related to the three non-performing credits disclosed in the second quarter of 2019.
  • The ratio of non-performing assets to total assets declined by two basis points to 0.38%.

Other highlights of the third quarter of 2019

  • Total period end loans were $364 million higher than average total loans in the current quarter.
  • Loans to deposits ratio ended the period at 89.6%.
  • Recorded a $3.9 million reduction to FDIC insurance expense related to assessment credits received from the FDIC.
  • Recorded a reduction in value of mortgage servicing rights related to changes in fair value model assumptions, net of derivative contract activity held as an economic hedge, of $4.0 million.
  • Recorded acquisition related costs of $1.3 million in the third quarter of 2019 as compared to $238,000 in the second quarter of 2019.

Expansion activity

  • Opened two new branches in the city of Chicago.
  • Completed the previously announced acquisition of STC Bancshares Corp., the parent company of STC Capital Bank, early in the fourth quarter of 2019. STC Capital Bank had approximately $190 million in loans and approximately $244 million in deposits as of June 30, 2019.
  • Announced an agreement to acquire SBC, Incorporated, the parent company of Countryside Bank, which is expected to close in the fourth quarter of 2019. Countryside Bank had approximately $420 million in loans and approximately $511 million in deposits as of June 30, 2019.

Edward J. Wehmer, President and Chief Executive Officer, commented, “Wintrust reported record net income of $99.1 million for the third quarter of 2019, up from $81.5 million in the second quarter of 2019. The Company experienced strong balance sheet growth as total assets were $1.3 billion higher than the prior quarter end and $4.8 billion higher than at the third quarter of 2018. The third quarter was characterized by strong balance sheet growth, decreased net interest margin, increased mortgage banking revenue, improved credit quality, and a continued focus to increase franchise value in our market area.”

Mr. Wehmer continued, “The Company experienced significant growth in retail deposits demonstrating the value of our local brand and branch network. We are pleased to now have the largest deposit base in the Chicago market area among locally headquartered banks. Total deposits increased by $1.2 billion in the third quarter of 2019 which was net of a reduction of $552 million in brokered deposits to optimize our funding base. Non-brokered deposits now comprise approximately 96% of total deposits. Additionally, the Company grew total loans by $406 million with growth diversified across various loan portfolios including the commercial real estate, commercial premium finance receivables, life insurance premium finance receivables and residential real estate portfolios. We remain aggressive in growing quality assets that meet our standards and will seek to fund that by expanding deposit market share and household penetration.”

Mr. Wehmer commented, “Net interest margin declined by 25 basis points in the third quarter of 2019 as compared to the second quarter of 2019 primarily due to downward repricing of variable rate loans and increased levels of interest bearing cash. However, net interest income only decreased slightly as compared to the prior quarter due to growth in earning assets. We expect to begin to realize the benefit of declining deposit rates in the fourth quarter of 2019 as this typically lags changes in the interest rate environment. We plan to deploy the excess liquidity gathered in the third quarter of 2019 to enhance net interest income and also believe that the announced acquisitions will be accretive to net interest margin. As always, we will strive to grow without a commensurate increase in expenses and will primarily measure that with the net overhead ratio which improved to 1.40%, or by 24 basis points in the third quarter compared to the prior quarter.”

Mr. Wehmer noted, “Our mortgage banking business production increased in the current quarter as loan volumes originated for sale increased to $1.4 billion from $1.2 billion in the second quarter of 2019.  The favorable increase in origination volumes was primarily a result of increased refinancing activity due to the declining interest rate environment. Additionally, production margin expanded due to strategic efforts to enhance our origination channel mix. Declining long-term interest rates also contributed to a $7.2 million reduction in our mortgage servicing rights portfolio related to payoffs and paydowns as well as a $4.0 million reduction due to changes in fair value assumptions, net of hedging gain.  However, those declines were more than offset by capitalization of retained servicing rights of $14.0 million in the current quarter. We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area. We believe that the mortgage rate outlook bodes well for mortgage origination demand in future quarters.”

Commenting on credit quality, Mr. Wehmer stated, “Overall credit quality metrics improved in the third quarter of 2019. The Company recorded net charge-offs of $9.4 million in the third quarter of 2019 as compared to $22.3 million in the second quarter of 2019.  The $9.4 million includes $4.0 million of additional net charge-offs (which were substantially reserved for in prior quarters) related to the three non-performing credits disclosed in the second quarter of 2019 and represents a return to lower levels of net charge-offs. These three credits are substantially resolved and are not expected to materially impact future quarters. The ratio of non-performing assets as a percent of total assets declined by two basis points to a historically low level of 0.38%.  We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit.”

Turning to the future, Mr. Wehmer stated, “We have experienced significant franchise growth in 2019 and believe that our opportunities for both internal and external growth remain consistently strong. We plan to continue our steady and measured approach to achieve our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and continuing to increase shareholder value. Evaluating strategic acquisitions, like the recently completed acquisition of STC Bancshares Corp. and the announced acquisition of SBC, Incorporated, as well as focusing on organic branch growth will continue to be a part of our overall growth strategy with the goal of becoming Chicago’s bank and Wisconsin’s bank.”

The graphs below illustrate certain highlights of the third quarter of 2019.
http://ml.globenewswire.com/Resource/Download/0c9b01f4-86a2-4cf4-a4bc-2e30aca663de

SUMMARY OF RESULTS:

BALANCE SHEET

Total assets grew by $1.3 billion in the third quarter of 2019 primarily due to an $823.7 million increase in interest bearing deposits with banks and $405.5 million of loan growth.  There were no material additions to the Company’s investment portfolio during the current quarter due to the lack of acceptable financial returns given the current interest rate environment. The Company believes that the $2.3 billion of interest bearing deposits with banks held as of September 30, 2019 is more than sufficient liquidity to operate its business plan. Excess liquidity is expected to be deployed in future quarters to enhance net interest income.

Total liabilities grew by $1.2 billion in the third quarter of 2019 primarily comprised of a $1.2 billion increase in total deposits.   The Company successfully leveraged its retail deposit base in the third quarter of 2019 to generate new deposits. In addition, the total deposit growth was net of a $552 million reduction in brokered deposits. Management believes in substantially funding the Company’s balance sheet with core deposits and utilizes brokered or wholesale funding sources as appropriate to manage its liquidity position as well as for interest rate risk management purposes. Non-brokered deposits now comprise approximately 96% of total deposits.

For more information regarding changes in the Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 4 in this report.

NET INTEREST INCOME

For the third quarter of 2019, net interest income totaled $264.9 million, a decrease of $1.3 million as compared to the second quarter of 2019 and an increase of $17.3 million as compared to the third quarter of 2018. The $1.3 million decrease in net interest income in the third quarter of 2019 compared to the second quarter of 2019 was attributable to a $16.3 million decrease due to a reduction in net interest margin partially offset by a $12.1 million increase related to balance sheet growth and a $2.9 million increase from one more day in the quarter.

Net interest margin was 3.37% (3.39% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2019 compared to 3.62% (3.64% on a fully taxable-equivalent basis, non-GAAP) during the second quarter of 2019 and 3.59% (3.61% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2018. The 25 basis point decrease in net interest margin in the third quarter of 2019 as compared to the second quarter of 2019 was attributable to a 21 basis point decline in the yield on earnings assets and a five basis point increase in the rate paid on interest bearing liabilities, partially offset by a one basis point increase in the net free funds contribution.  The 21 basis point decline in the yield on earning assets in the current quarter as compared to the second quarter of 2019 was primarily due to a 14 basis point decline in the yield on loans along with the impact of a higher average balance of interest bearing cash. The five basis point increase in the rate paid on interest bearing liabilities in the current quarter as compared to the prior quarter is primarily due to a six basis point increase on the rate paid on interest bearing deposits largely due to retail deposit promotions.

For the first nine months of 2019, net interest income totaled $793.0 million, an increase of $82.2 million as compared to the first nine months of 2018. Net interest margin was 3.56% (3.58% on a fully taxable-equivalent basis, non-GAAP) for the first nine months of 2019 compared to 3.58% (3.60% on a fully taxable-equivalent basis, non-GAAP) for the first nine months of 2018.

For more information regarding net interest income, see Tables 5 through 10 in this report.

ASSET QUALITY

The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded lending-related commitments (separate liability account) relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The provision for credit losses may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit).

Net charge-offs as a percentage of average total loans, in the third quarter of 2019 totaled 15 basis points on an annualized basis compared to 36 basis points on an annualized basis in the second quarter of 2019 and eight basis points on an annualized basis in the third quarter of 2018.  Net charge-offs totaled $9.4 million in the third quarter of 2019, a $12.8 million decrease from $22.3 million in the second quarter of 2019 and a $4.8 million increase from $4.7 million in the third quarter of 2018. The $9.4 million of net charge-offs in the current quarter includes $4.0 million of additional net charge-offs (which were substantially reserved for in prior quarters) related to the three non-performing credits disclosed in the second quarter of 2019 and represents a return to lower levels of net charge-offs. These three credits are substantially resolved and are not expected to materially impact future quarters. The provision for credit losses totaled $10.8 million for the third quarter of 2019 compared to $24.6 million for the second quarter of 2019 and $11.0 million for the third quarter of 2018.  For more information regarding net charge-offs, see Table 11 in this report.

Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. There can be no assurances, however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for credit losses will be dependent upon management’s assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans and other factors.

As part of the regular quarterly review performed by management to determine if the Company’s allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans and consumer, niche and purchased loans. A summary of the allowance for loan losses calculated for the loan components in both the core loan portfolio and the consumer, niche and purchased loan portfolio as of September 30, 2019 and June 30, 2019 is shown on Table 12 of this report.

As of September 30, 2019, $51.1 million of all loans, or 0.2%, were 60 to 89 days past due and $134.2 million, or 0.5%, were 30 to 59 days (or one payment) past due. As of June 30, 2019, $54.9 million of all loans, or 0.2%, were 60 to 89 days past due and $129.1 million, or 0.5%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at September 30, 2019 that are current with regard to the contractual terms of the loan agreement represent 97.8% of the total home equity portfolio. Residential real estate loans at September 30, 2019 that are current with regards to the contractual terms of the loan agreements comprise 98.4% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. In accordance with accounting guidance, credit deterioration on purchased loans is recorded as a credit discount at the time of purchase. In addition to the $161.8 million of allowance for loan losses, there was $6.8 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30 that is available to absorb credit losses as of September 30, 2019.

The ratio of non-performing assets to total assets was 0.38% as of September 30, 2019, compared to 0.40% at June 30, 2019, and 0.52% at September 30, 2018. Non-performing assets, excluding PCI loans, totaled $132.0 million at September 30, 2019, compared to $133.5 million at June 30, 2019 and $155.8 million at September 30, 2018. Non-performing loans, excluding PCI loans, totaled $114.3 million, or 0.44% of total loans, at September 30, 2019 compared to $113.4 million, or 0.45% of total loans, at June 30, 2019 and $127.2 million, or 0.55% of total loans, at September 30, 2018. Other real estate owned (“OREO”) of $17.5 million at September 30, 2019 decreased $2.3 million compared to $19.8 million at June 30, 2019 and decreased $10.8 million compared to $28.3 million at September 30, 2018. Management is pursuing the resolution of all non-performing assets. At this time, management believes reserves are appropriate to absorb inherent losses and OREO is appropriately valued at the lower of carrying value or fair value less estimated costs to sell. For more information regarding non-performing assets, see Table 14 in this report.

NON-INTEREST INCOME

Wealth management revenue decreased by $140,000 during the third quarter of 2019 as compared to the second quarter of 2019 primarily due to decreased brokerage commissions. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by the Chicago Deferred Exchange Company.

Mortgage banking revenue increased by $13.5 million in the third quarter of 2019 as compared to the second quarter of 2019 primarily as a result of higher production revenues and an increase in the fair value of the mortgage servicing rights portfolio in the third quarter of 2019.  Production revenue increased by $12.8 million in the third quarter of 2019 as compared to the second quarter of 2019 primarily due to an increase in origination volumes as a result of increased refinancing activity.  The percentage of origination volume from refinancing activities was 52% in the third quarter of 2019 as compared to 37% in the second quarter of 2019. Additionally, production margin improved from 2.59% in the second quarter of 2019 to 3.01% in the third quarter of 2019 primarily due to a favorable shift in origination channel mix. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.

During the third quarter of 2019, the fair value of the mortgage servicing rights portfolio increased as retained servicing rights led to the capitalization of $14.0 million partially offset by negative fair value adjustments of $4.1 million and a reduction in value of $7.2 million due to payoffs and paydowns of the existing portfolio. The Company purchased an option at the beginning of the third quarter of 2019 to economically hedge a portion of the potential negative fair value changes recorded in earnings related to its mortgage servicing rights portfolio. The option was exercised during the current quarter resulting in a net gain of $82,000 which was recorded in mortgage banking revenue.

The net gains recognized on investment securities in the third quarter of 2019 and second quarter of 2019, respectively, were primarily due to gains on investment securities that were called and unrealized gains recognized on equity securities held by the Company.

Other non-interest income increased by $3.4 million in the third quarter of 2019 as compared to the second quarter of 2019 primarily due to increased income from investments in partnerships and interest rate swaps.

For more information regarding non-interest income, see Tables 15 and 16 in this report.

NON-INTEREST EXPENSE

Salaries and employee benefits expense increased by $7.3 million in the third quarter of 2019 as compared to the second quarter of 2019. The $7.3 million increase is comprised of an increase of $2.7 million in salaries expense, $3.8 million in commissions and incentive compensation and $782,000 in benefits expense. The increase in salaries expense is primarily due to increased staffing as the Company grows and acquisition related expenses. Commissions and incentive compensation increased in the current quarter primarily related to the increased volume of mortgage originations for sale. The increase in benefits expense relates primarily to increases in employee insurance expense in the current quarter.

Equipment expense totaled $13.3 million in the third quarter of 2019, an increase of $555,000 as compared to the second quarter of 2019. The increase in the current quarter relates primarily to increased software licensing expenses.

Advertising and marketing expenses in the third quarter of 2019 increased by $530,000 as compared to the second quarter of 2019 primarily related to higher corporate sponsorship costs as well as increased spending related to deposit generation and brand awareness to grow our loan and deposit portfolios. The level of marketing expenditures depends on the timing of sponsorship programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

FDIC insurance expense totaled $148,000 in the third quarter of 2019, a decrease of $4.0 million as compared to the second quarter of 2019. The decrease in the current quarter relates primarily to FDIC assessment credits received by the 15 Wintrust affiliate banks.

Professional fees expense totaled $8.0 million in the third quarter of 2019, an increase of $1.8 million as compared to the second quarter of 2019. The increase in the current quarter relates primarily to increased fees on consulting services and legal fees. Professional fees include legal, audit, and tax fees, external loan review costs, consulting arrangements and normal regulatory exam assessments.

For more information regarding non-interest expense, see Table 17 in this report.

INCOME TAXES

The Company recorded income tax expense of $35.5 million in the third quarter of 2019 compared to $28.7 million in the second quarter of 2019 and $30.9 million in the third quarter of 2018. The effective tax rates were 26.36% in the third quarter of 2019 compared to 26.06% in the second quarter of 2019 and  25.13% in the third quarter of 2018. During the first nine months of 2019, the Company recorded income tax expense of $93.7 million compared to $89.0 million for the first nine months of 2018. The effective tax rates were 25.78% for the first nine months of 2019 and 25.24% for the first nine months of 2018.

The year-to-date effective tax rates were impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $1.7 million in the first nine months of 2019 and $3.7 million in the first nine months of 2018. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company’s shared-based awards vest, and will fluctuate throughout the year based on the Company’s stock price and timing of employee stock option exercises and vesting of other share-based awards.

BUSINESS UNIT SUMMARY

Community Banking

Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the third quarter of 2019, this unit generated significant retail deposit growth.  However, the banking segment also experienced net interest margin compression in part due to current market conditions.

Mortgage banking revenue increased from $37.4 million for the second quarter of 2019 to $50.9 million for the third quarter of 2019. Services charges on deposit accounts totaled $10.0 million in the third quarter of 2019 an increase of $695,000 as compared to the second quarter of 2019 primarily due to higher account analysis fees. The Company’s gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.2 billion to $1.3 billion at September 30, 2019. When adjusted for the probability of closing, the pipelines were estimated to be approximately $730 million to $810 million at September 30, 2019.

Specialty Finance

Through its specialty finance unit, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries and accounts receivable financing, value-added, out-sourced administrative services, and other services. In the third quarter of 2019, the specialty finance unit experienced higher revenue primarily as a result of increased volumes within its insurance premium financing receivables portfolio. Originations within the insurance premium financing receivables portfolio were $2.4 billion during the third quarter of 2019 and average balances increased by $446.4 million as compared to the second quarter of 2019. The increase in average balances primarily resulted in a $6.5 million increase in interest income attributed to the insurance premium finance receivables portfolio. The Company’s leasing business grew during the third quarter of 2019, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $98.0 million to $1.5 billion at the end of the third quarter of 2019. Revenues from the Company’s out-sourced administrative services business increased to $1.1 million in the third quarter of 2019 as compared to $1.0 million in the second quarter of 2019.

Wealth Management

Through four separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, tax-deferred like-kind exchange services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue decreased by $140,000 in the third quarter of 2019 compared to the second quarter of 2019, totaling $24.0 million in the current period. At September 30, 2019, the Company’s wealth management subsidiaries had approximately $26.1 billion of assets under administration, which included $3.3 billion of assets owned by the Company and its subsidiary banks, representing a $188.4 million increase from the $25.9 billion of assets under administration at June 30, 2019. The increase in the third quarter of 2019 was primarily due to increased business.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Acquisitions

On May 24, 2019, the Company completed the Oak Bank Acquisition. Through this business combination, the Company acquired Oak Bank’s one banking location in Chicago, Illinois, as well as approximately $223.8 million in assets, including approximately $126.1 million in loans, and approximately $161.2 million in deposits. The Company recorded goodwill of $10.7 million on the acquisition.

On December 14, 2018, the Company acquired Elektra Holding Company, LLC (“Elektra”), the parent company of Chicago Deferred Exchange Company, LLC (“CDEC”). CDEC is a provider of Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.  CDEC has successfully facilitated more than 8,000 like-kind exchanges in the past decade for taxpayers nationwide.  These transactions typically generate customer deposits during the period following the sale of the property until such proceeds are used to purchase a replacement property.  The Company recorded goodwill of $37.6 million on the acquisition.

On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of American Enterprise Bank (“AEB”). Through this asset acquisition, the Company acquired approximately $164.0 million in assets, including approximately $119.3 million in loans, and approximately $150.8 million in deposits.

On August 1, 2018, the Company completed its acquisition of Chicago Shore Corporation (“CSC”). CSC was the parent company of Delaware Place Bank. Through this business combination, the Company acquired Delaware Place Bank’s one banking location in Chicago, Illinois as well as approximately $282.8 million in assets, including approximately $152.7 million in loans, and approximately $213.1 million in deposits. The Company recorded goodwill of $26.6 million on the acquisition.

On January 4, 2018, the Company acquired iFreedom Direct Corporation DBA Veterans First Mortgage (“Veterans First”) with assets including mortgage-servicing-rights on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. The Company recorded goodwill of $9.1 million on the acquisition.

WINTRUST FINANCIAL CORPORATION
Key Operating Measures

Wintrust’s key operating measures and growth rates for the third quarter of 2019, as compared to the second quarter of 2019 (sequential quarter) and third quarter of 2018 (linked quarter), are shown in the table below:

            % or(4)
basis point  (bp) change from
2nd Quarter
2019
  % or
basis point  (bp)
change from
3rd Quarter
2018
  Three Months Ended  
(Dollars in thousands, except per share data) Sep 30, 2019   Jun 30, 2019   Sep 30, 2018  
Net income $ 99,121     $ 81,466     $ 91,948   22   %   8   %
Net income per common share – diluted 1.69     1.38     1.57   22       8    
Net revenue (1) 379,989     364,360     347,493   4       9    
Net interest income 264,852     266,202     247,563   (1 )     7    
Net interest margin 3.37 %   3.62 %   3.59 % (25 ) bp   (22 ) bp
Net interest margin – fully taxable equivalent (non-GAAP) (2) 3.39     3.64     3.61   (25 )     (22 )  
Net overhead ratio (3) 1.40     1.64     1.53   (24 )     (13 )  
Return on average assets 1.16     1.02     1.24   14       (8 )  
Return on average common equity 11.42     9.68     11.86   174       (44 )  
Return on average tangible common equity (non-GAAP) (2) 14.36     12.28     14.64   208       (28 )  
At end of period                    
Total assets $ 34,911,902     $ 33,641,769     $ 30,142,731   15   %   16   %
Total loans (5) 25,710,171     25,304,659     23,123,951   6       11    
Total deposits 28,710,379     27,518,815     24,916,715   17       15    
Total shareholders’ equity 3,540,325     3,446,950     3,179,822   11       11    
  1. Net revenue is net interest income plus non-interest income.  
  2. See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance measure/ratio.  
  3. The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s average total assets. A lower ratio indicates a higher degree of efficiency.  
  4. Period-end balance sheet percentage changes are annualized.  
  5. Excludes mortgage loans held-for-sale.  

Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company’s website at www.wintrust.com by choosing “Financial Reports” under the “Investor Relations” heading, and then choosing “Financial Highlights.”

WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights  

  Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
Sep 30,
2019
  Sep 30,
2018
Selected Financial Condition Data (at end of period):
       
Total assets $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731        
Total loans (1) 25,710,171     25,304,659     24,214,629     23,820,691     23,123,951        
Total deposits 28,710,379     27,518,815     26,804,742     26,094,678     24,916,715        
Junior subordinated debentures 253,566     253,566     253,566     253,566     253,566        
Total shareholders’ equity 3,540,325     3,446,950     3,371,972     3,267,570     3,179,822        
Selected Statements of Income Data:      
Net interest income $ 264,852     $ 266,202     $ 261,986     $ 254,088     $ 247,563   $ 793,040     $ 710,815  
Net revenue (2) 379,989     364,360     343,643     329,396     347,493   1,087,992     991,657  
Net income 99,121     81,466     89,146     79,657     91,948   269,733     263,509  
Net income per common share – Basic 1.71     1.40     1.54     1.38     1.59   4.65     4.57  
Net income per common share – Diluted 1.69     1.38     1.52     1.35     1.57   4.60     4.50  
Selected Financial Ratios and Other Data:      
Performance Ratios:      
Net interest margin 3.37 %   3.62 %   3.70 %   3.61 %   3.59 % 3.56 %   3.58 %
Net interest margin – fully taxable equivalent (non-GAAP) (3) 3.39     3.64     3.72     3.63     3.61   3.58     3.60  
Non-interest income to average assets 1.35     1.23     1.06     0.99     1.34   1.22     1.31  
Non-interest expense to average assets 2.74     2.87     2.79     2.78     2.87   2.80     2.87  
Net overhead ratio (4) 1.40     1.64     1.72     1.79     1.53   1.58     1.56  
Return on average assets 1.16     1.02     1.16     1.05     1.24   1.11     1.23  
Return on average common equity 11.42     9.68     11.09     10.01     11.86   10.74     11.71  
Return on average tangible common equity (non-GAAP) (3) 14.36     12.28     14.14     12.48     14.64   13.60     14.47  
Average total assets $ 33,954,592     $ 32,055,769     $ 31,216,171     $ 30,179,887     $ 29,525,109   $ 32,418,875     $ 28,640,380  
Average total shareholders’ equity 3,496,714     3,414,340     3,309,078     3,200,654     3,131,943   3,407,398     3,064,396  
Average loans to average deposits ratio 90.6 %   93.9 %   92.7 %   92.4 %   92.2 % 92.4 %   94.2 %
Period-end loans to deposits ratio 89.6     92.0     90.3     91.3     92.8        
Common Share Data at end of period:      
Market price per common share $ 64.63     $ 73.16     $ 67.33     $ 66.49     $ 84.94        
Book value per common share 60.24     58.62     57.33     55.71     54.19        
Tangible book value per common share (non-GAAP) (3) 49.16     47.48     46.38     44.67     44.16        
Common shares outstanding 56,698,429     56,667,846     56,638,968     56,407,558     56,377,169        
Other Data at end of period:      
Tier 1 leverage ratio (5) 8.8 %   9.1 %   9.1 %   9.1 %   9.3 %      
Risk-based capital ratios:                        
Tier 1 capital ratio (5) 9.7     9.6     9.8     9.7     10.0        
Common equity tier 1 capital ratio(5) 9.3     9.2     9.3     9.3     9.5        
Total capital ratio (5) 12.4     12.4     11.7     11.6     12.0        
Allowance for credit losses (6) $ 163,273     $ 161,901     $ 159,622     $ 154,164     $ 151,001        
Non-performing loans 114,284     113,447     117,586     113,234     127,227        
Allowance for credit losses to total loans (6) 0.64 %   0.64 %   0.66 %   0.65 %   0.65 %      
Non-performing loans to total loans 0.44     0.45     0.49     0.48     0.55        
Number of:                        
Bank subsidiaries 15     15     15     15     15        
Banking offices 174     172     170     167     166        
  1. Excludes mortgage loans held-for-sale.   
  2. Net revenue includes net interest income and non-interest income.  
  3. See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance measure/ratio.  
  4. The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.  
  5. Capital ratios for current quarter-end are estimated.  
  6. The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments.  

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

  (Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
(In thousands) 2019   2019   2019   2018   2018
Assets                                      
Cash and due from banks $ 448,755     $ 300,934     $ 270,765     $ 392,142     $ 279,936  
Federal funds sold and securities purchased under resale agreements 59     58     58     58     57  
Interest bearing deposits with banks 2,260,806     1,437,105     1,609,852     1,099,594     1,137,044  
Available-for-sale securities, at fair value 2,270,059     2,186,154     2,185,782     2,126,081     2,164,985  
Held-to-maturity securities, at amortized cost 1,095,802     1,191,634     1,051,542     1,067,439     966,438  
Trading account securities 3,204     2,430     559     1,692     688  
Equity securities with readily determinable fair value 46,086     44,319     47,653     34,717     36,414  
Federal Home Loan Bank and Federal Reserve Bank stock 92,714     92,026     89,013     91,354     99,998  
Brokerage customer receivables 14,943     13,569     14,219     12,609     15,649  
Mortgage loans held-for-sale 464,727     394,975     248,557     264,070     338,111  
Loans, net of unearned income 25,710,171     25,304,659     24,214,629     23,820,691     23,123,951  
Allowance for loan losses (161,763 )   (160,421 )   (158,212 )   (152,770 )   (149,756 )
Net loans 25,548,408     25,144,238     24,056,417     23,667,921     22,974,195  
Premises and equipment, net 721,856     711,214     676,037     671,169     664,469  
Lease investments, net 228,647     230,111     224,240     233,208     199,241  
Accrued interest receivable and other assets 1,087,864     1,023,896     888,492     696,707     700,568  
Trade date securities receivable     237,607     375,211     263,523      
Goodwill 584,315     584,911     573,658     573,141     537,560  
Other intangible assets 43,657     46,588     46,566     49,424     27,378  
Total assets $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731  
Liabilities and Shareholders’ Equity                  
Deposits:                  
Non-interest bearing $ 7,067,960     $ 6,719,958     $ 6,353,456     $ 6,569,880     $ 6,399,213  
Interest bearing 21,642,419     20,798,857     20,451,286     19,524,798     18,517,502  
 Total deposits 28,710,379     27,518,815     26,804,742     26,094,678     24,916,715  
Federal Home Loan Bank advances 574,847     574,823     576,353     426,326     615,000  
Other borrowings 410,488     418,057     372,194     393,855     373,571  
Subordinated notes 435,979     436,021     139,235     139,210     139,172  
Junior subordinated debentures 253,566     253,566     253,566     253,566     253,566  
Trade date securities payable 226                  
Accrued interest payable and other liabilities 986,092     993,537     840,559     669,644     664,885  
Total liabilities 31,371,577     30,194,819     28,986,649     27,977,279     26,962,909  
Shareholders’ Equity:                  
Preferred stock 125,000     125,000     125,000     125,000     125,000  
Common stock 56,825     56,794     56,765     56,518     56,486  
Surplus 1,574,011     1,569,969     1,565,185     1,557,984     1,553,353  
Treasury stock (6,799 )   (6,650 )   (6,650 )   (5,634 )   (5,547 )
Retained earnings 1,830,165     1,747,266     1,682,016     1,610,574     1,543,680  
Accumulated other comprehensive loss (38,877 )   (45,429 )   (50,344 )   (76,872 )   (93,150 )
Total shareholders’ equity 3,540,325     3,446,950     3,371,972     3,267,570     3,179,822  
Total liabilities and shareholders’ equity $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731  

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

  Three Months Ended Nine Months Ended
(In thousands, except per share data) Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
  Sep 30,
2019
  Sep 30,
2018
Interest income                                                       
Interest and fees on loans $ 314,277     $ 309,161     $ 296,987     $ 283,311     $ 271,134     $ 920,425     $ 761,191  
Mortgage loans held-for-sale 3,478     3,104     2,209     3,409     5,285     8,791     12,329  
Interest bearing deposits with banks 10,326     5,206     5,300     5,628     5,423     20,832     11,462  
Federal funds sold and securities purchased under resale agreements 310                     310     1  
Investment securities 24,758     27,721     27,956     26,656     21,710     80,435     60,726  
Trading account securities 20     5     8     14     11     33     29  
Federal Home Loan Bank and Federal Reserve Bank stock 1,294     1,439     1,355     1,343     1,235     4,088     3,988  
Brokerage customer receivables 164     178     155     235     164     497     488  
Total interest income 354,627     346,814     333,970     320,596     304,962     1,035,411     850,214  
Interest expense                          
Interest on deposits 76,168     67,024     60,976     55,975     48,736     204,168     110,578  
Interest on Federal Home Loan Bank advances 1,774     4,193     2,450     2,563     1,947     8,417     9,849  
Interest on other borrowings 3,466     3,525     3,633     3,199     2,003     10,624     5,400  
Interest on subordinated notes 5,470     2,806     1,775     1,788     1,773     10,051     5,333  
Interest on junior subordinated debentures 2,897     3,064     3,150     2,983     2,940     9,111     8,239  
Total interest expense 89,775     80,612     71,984     66,508     57,399     242,371     139,399  
Net interest income 264,852     266,202     261,986     254,088     247,563     793,040     710,815  
Provision for credit losses 10,834     24,580     10,624     10,401     11,042     46,038     24,431  
Net interest income after provision for credit losses 254,018     241,622     251,362     243,687     236,521     747,002     686,384  
Non-interest income                          
Wealth management 23,999     24,139     23,977     22,726     22,634     72,115     68,237  
Mortgage banking 50,864     37,411     18,158     24,182     42,014     106,433     112,808  
Service charges on deposit accounts 9,972     9,277     8,848     9,065     9,331     28,097     27,339  
Gains (losses) on investment securities, net 710     864     1,364     (2,649 )   90     2,938     (249 )
Fees from covered call options     643     1,784     626     627     2,427     2,893  
Trading gains (losses), net 11     (44 )   (171 )   (155 )   (61 )   (204 )   166  
Operating lease income, net 12,025     11,733     10,796     10,882     9,132     34,554     27,569  
Other 17,556     14,135     16,901     10,631     16,163     48,592     42,079  
Total non-interest income 115,137     98,158     81,657     75,308     99,930     294,952     280,842  
Non-interest expense                          
Salaries and employee benefits 141,024     133,732     125,723     122,111     123,855     400,479     357,966  
Equipment 13,314     12,759     11,770     11,523     10,827     37,843     31,426  
Operating lease equipment depreciation 8,907     8,768     8,319     8,462     7,370     25,994     20,843  
Occupancy, net 14,991     15,921     16,245     15,980     14,404     47,157     41,834  
Data processing 6,522     6,204     7,525     8,447     9,335     20,251     26,580  
Advertising and marketing 13,375     12,845     9,858     9,414     11,120     36,078     31,726  
Professional fees 8,037     6,228     5,556     9,259     9,914     19,821     23,047  
Amortization of other intangible assets 2,928     2,957     2,942     1,407     1,163     8,827     3,164  
FDIC insurance 148     4,127     3,576     4,044     4,205     7,851     13,165  
OREO expense, net 1,170     1,290     632     1,618     596     3,092     4,502  
Other 24,138     24,776     22,228     19,068     20,848     71,142     60,502  
Total non-interest expense 234,554     229,607     214,374     211,333     213,637     678,535     614,755  
Income before taxes 134,601     110,173     118,645     107,662     122,814     363,419     352,471  
Income tax expense 35,480     28,707     29,499     28,005     30,866     93,686     88,962  
Net income $ 99,121     $ 81,466     $ 89,146     $ 79,657     $ 91,948     $ 269,733     $ 263,509  
Preferred stock dividends 2,050     2,050     2,050     2,050     2,050     6,150     6,150  
Net income applicable to common shares $ 97,071     $ 79,416     $ 87,096     $ 77,607     $ 89,898     $ 263,583     $ 257,359  
Net income per common share – Basic $ 1.71     $ 1.40     $ 1.54     $ 1.38     $ 1.59     $ 4.65     $ 4.57  
Net income per common share – Diluted $ 1.69     $ 1.38     $ 1.52     $ 1.35     $ 1.57     $ 4.60     $ 4.50  
Cash dividends declared per common share $ 0.25     $ 0.25     $ 0.25     $ 0.19     $ 0.19     $ 0.75     $ 0.57  
Weighted average common shares outstanding 56,690     56,662     56,529     56,395     56,366     56,627     56,268  
Dilutive potential common shares 773     699     699     892     918     724     912  
Average common shares and dilutive common shares 57,463     57,361     57,228     57,287     57,284     57,351     57,180  

TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES

                    % Growth From
(Dollars in thousands) Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
Dec 31,
2018 (1)
  Sep 30,
2018
Balance:                        
Commercial $ 8,195,602     $ 8,270,774     $ 7,994,191     $ 7,828,538     $ 7,473,958   6 %   10 %
Commercial real estate 7,448,667     7,276,244     6,973,505     6,933,252     6,746,774   10     10  
Home equity 512,303     527,370     528,448     552,343     578,844   (10 )   (11 )
Residential real estate 1,218,666     1,118,178     1,053,524     1,002,464     924,250   29     32  
Premium finance receivables – commercial 3,449,950     3,368,423     2,988,788     2,841,659     2,885,327   29     20  
Premium finance receivables – life insurance 4,795,496     4,634,478     4,555,369     4,541,794     4,398,971   7     9  
Consumer and other 89,487     109,192     120,804     120,641     115,827   (35 )   (23 )
Total loans, net of unearned income $ 25,710,171     $ 25,304,659     $ 24,214,629     $ 23,820,691     $ 23,123,951   11 %   11 %
Mix:                        
Commercial 32 %   33 %   33 %   33 %   32 %      
Commercial real estate 29     29     29     29     29        
Home equity 2     2     2     2     3        
Residential real estate 5     4     4     4     4        
Premium finance receivables – commercial 13     13     12     12     12        
Premium finance receivables – life insurance 19     18     19     19     19        
Consumer and other 0     1     1     1     1        
Total loans, net of unearned income 100 %   100 %   100 %   100 %   100 %      
  1. Annualized.

TABLE 2: COMMERCIAL AND COMMERCIAL REAL ESTATE LOAN PORTFOLIOS

  As of September 30, 2019
(Dollars in thousands) Balance   % of
Total
Balance
  Nonaccrual   > 90 Days
Past Due
and Still
Accruing
  Allowance
For Loan
Losses
Allocation
Commercial:                  
Commercial, industrial and other $ 5,150,567     32.9 %   $ 34,397     $     $ 51,463  
Franchise 914,774     5.9     3,752         8,308  
Mortgage warehouse lines of credit 314,697     2.0             2,481  
Asset-based lending 1,045,869     6.7     5,782         8,445  
Leases 754,163     4.8             2,069  
PCI – commercial loans (1) 15,532     0.1         382     361  
Total commercial $ 8,195,602     52.4 %   $ 43,931     $ 382     $ 73,127  
Commercial Real Estate:                  
Construction $ 850,575     5.4 %   $ 1,030     $     $ 9,405  
Land 175,386     1.1     994         4,801  
Office 996,931     6.4     8,158         10,066  
Industrial 1,009,680     6.5     100         7,021  
Retail 1,004,720     6.4     7,174         6,718  
Multi-family 1,291,825     8.3     690         12,504  
Mixed use and other 2,002,267     12.8     3,411         14,370  
PCI – commercial real estate (1) 117,283     0.7         4,992     53  
Total commercial real estate $ 7,448,667     47.6 %   $ 21,557     $ 4,992     $ 64,938  
Total commercial and commercial real estate $ 15,644,269     100.0 %   $ 65,488     $ 5,374     $ 138,065  
                   
Commercial real estate – collateral location by state:                  
Illinois $ 5,654,827     75.9 %            
Wisconsin 744,577     10.0              
Total primary markets $ 6,399,404     85.9 %            
Indiana 193,350     2.6              
Florida 80,120     1.1              
Arizona 62,657     0.8              
California 67,999     0.9              
Other 645,137     8.7              
Total commercial real estate $ 7,448,667     100.0 %            
  1. Purchased credit impaired (“PCI”) loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

TABLE 3: DEPOSIT PORTFOLIO MIX AND GROWTH RATES

                    % Growth From
(Dollars in thousands) Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
Dec 31,
2018 (1)
  Sep 30,
2018
Balance:                        
Non-interest bearing $ 7,067,960     $ 6,719,958     $ 6,353,456     $ 6,569,880     $ 6,399,213   10 %   10 %
NOW and interest bearing demand deposits 2,966,098     2,788,976     2,948,576     2,897,133     2,512,259   3     18  
Wealth management deposits (2) 2,795,838     3,220,256     3,328,781     2,996,764     2,520,120   (9 )   11  
Money market 7,326,899     6,460,098     6,093,596     5,704,866     5,429,921   38     35  
Savings 2,934,348     2,823,904     2,729,626     2,665,194     2,595,164   14     13  
Time certificates of deposit 5,619,236     5,505,623     5,350,707     5,260,841     5,460,038   9     3  
Total deposits $ 28,710,379     $ 27,518,815     $ 26,804,742     $ 26,094,678     $ 24,916,715   13 %   15 %
Mix:                        
Non-interest bearing 25 %   24 %   24 %   25 %   26 %      
NOW and interest bearing demand deposits 10     10     11     11     10        
Wealth management deposits (2) 10     12     12     12     10        
Money market 25     24     23     22     22        
Savings 10     10     10     10     10        
Time certificates of deposit 20     20     20     20     22        
Total deposits 100 %   100 %   100 %   100 %   100 %      
  1. Annualized.
  2. Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wintrust Investments, CDEC, trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.

TABLE 4: TIME CERTIFICATES OF DEPOSIT MATURITY/RE-PRICING ANALYSIS
As of September 30, 2019

(Dollars in thousands) CDARs &
Brokered
Certificates
  of Deposit (1)
  MaxSafe
Certificates
  of Deposit (1)
  Variable Rate
Certificates
  of Deposit (2)
  Other Fixed
Rate Certificates
  of Deposit (1)
  Total Time
Certificates of
Deposit
  Weighted-Average
Rate of Maturing
Time Certificates
  of Deposit (3)
1-3 months $     $ 32,568     $ 91,118     $ 701,268     $ 824,954     1.66 %
4-6 months     27,147         845,167     872,314     2.01  
7-9 months     11,048         1,155,153     1,166,201     2.18  
10-12 months     18,177         529,793     547,970     1.92  
13-18 months     15,977         733,072     749,049     2.36  
19-24 months 1,000     9,714         1,128,392     1,139,106     2.62  
24+ months     5,042         314,600     319,642     2.30  
Total $ 1,000     $ 119,673     $ 91,118     $ 5,407,445     $ 5,619,236     2.17 %
  1. This category of certificates of deposit is shown by contractual maturity date.
  2. This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis.
  3. Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

TABLE 5: QUARTERLY AVERAGE BALANCES

  Average Balance for three months ended,
  Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,  
  2019     2019     2019     2018     2018  
(In thousands) $ 1,960,898     $ 893,332     $ 897,629     $ 1,042,860     $ 998,004  
Interest-bearing deposits with banks and cash equivalents (1)                            
Investment securities (2) 3,410,090     3,653,580     3,630,577     3,347,496     3,046,272  
FHLB and FRB stock