8-K: Great Southern Bancorp Reports Lower Q1 Earnings Amidst Interest Rate Pressures

Great Southern Bancorp's first quarter earnings decreased to $1.13 per diluted share, down from $1.67 in the same period last year, due to higher funding costs and competitive pressures.

Summary

• Great Southern Bancorp reported preliminary first quarter earnings of $1.13 per diluted common share, a decrease from $1.67 per share in the first quarter of 2023.
• Net income for the quarter was $13.4 million, compared to $20.5 million in the same period last year.
• Net interest income decreased by $8.4 million, or 15.7%, to $44.8 million due to increased funding costs and competition for deposits.
• The net interest margin decreased to 3.32% from 3.99% in the first quarter of 2023.
• Non-performing assets increased to $21.3 million, or 0.37% of total assets, up from $11.8 million, or 0.20% of total assets, at the end of 2023.
• Total outstanding loans decreased slightly by $3.4 million to $4.59 billion.
• The company repurchased approximately 112,000 shares at an average price of $51.44 during the quarter.
• The company's capital position remains strong, with a Tier 1 Leverage Ratio of 11.0% and a Total Capital Ratio of 15.1%.

Sentiment

Score: 4

Explanation: The sentiment is negative due to decreased earnings, reduced net interest income, and increased non-performing assets. The delay in the core banking system implementation and ongoing contractual disputes add to the negative outlook. However, the company's strong capital and liquidity positions provide some reassurance.

Positives

• The company's capital position remains strong, significantly exceeding regulatory thresholds.
• The company has ample sources of liquidity, with over $2.1 billion in available secured funding lines and on-balance sheet liquidity.
• The company's deposit base is diverse in terms of customer type and geography, with a relatively low level of uninsured deposits.
• The company continues to repurchase shares of its common stock, indicating confidence in its value.
• The company declared a $0.40 per common share dividend.

Negatives

• Net interest income decreased by $8.4 million, or 15.7%, compared to the first quarter of 2023.
• Net interest margin decreased to 3.32% from 3.99% in the first quarter of 2023.
• Non-performing assets increased by $9.5 million to $21.3 million.
• Total outstanding loans decreased slightly by $3.4 million.
• The company experienced higher deposit costs due to market interest rates and competitive pressures.
• The company's efficiency ratio increased to 66.68% from 56.42% in the same quarter last year.
• The company recorded a $929,000 expense in legal and professional fees related to core systems conversion.

Risks

• The company faces increased competition for deposits and higher market interest rates, which are increasing funding costs.
• The company's net interest income is being negatively impacted by interest rate swaps.
• The company's non-performing assets have increased, primarily in the other residential (multi-family) loan category.
• The company's core banking platform conversion has been put on hold due to contractual disputes with the vendor.
• The company's effective tax rate may fluctuate in future periods due to the level and timing of tax credit utilization and other factors.
• Challenging economic conditions could lead to increased losses in the loan portfolio and require additional credit loss provisions.

Future Outlook

The company expects its effective tax rate to be approximately 18.5% to 20.5% in future periods due to additional investment tax credits. The company also expects to continue operations with its current core banking provider while it addresses contractual disputes with the third-party vendor for the new core banking platform.

Management Comments

• Great Southern President and CEO Joseph W. Turner said, 'Our first quarter performance was steady as we continue to operate in an uncertain and challenging economic environment.'
• Turner added, 'As anticipated, total outstanding loan balances decreased slightly since the end of 2023.'

Industry Context

The results reflect broader industry trends of increased deposit costs and competitive pressures due to higher market interest rates. The company's challenges with interest rate swaps and non-performing assets are also common issues faced by banks in the current economic environment. The company's focus on maintaining strong capital and liquidity positions is consistent with industry best practices.

Comparison to Industry Standards

• Great Southern's net interest margin of 3.32% is lower than the average for many regional banks, which have seen margins compress due to rising deposit costs.
• The increase in non-performing assets to 0.37% of total assets is a concern, as the industry average is closer to 0.25%.
• The company's Tier 1 Leverage Ratio of 11.0% and Total Capital Ratio of 15.1% are above regulatory requirements, which is a positive compared to some peers.
• The company's efficiency ratio of 66.68% is higher than the industry average, indicating potential for cost improvements.
• Compared to peers like Commerce Bancshares (CBSH) and UMB Financial Corporation (UMBF), Great Southern's loan growth is weaker, and its net interest margin is lower.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and the potential for a lower share price.
• Employees may be affected by the uncertainty surrounding the core banking system conversion.
• Customers may experience no immediate impact, but the company's ability to innovate and compete could be affected by the core system issues.
• Creditors are likely to be reassured by the company's strong capital and liquidity positions.
• Suppliers may be impacted by the company's decision to put the core banking system conversion on hold.

Next Steps

• The company will continue to operate with its current core banking provider.
• The company will address contractual disputes with the third-party vendor for the new core banking platform.
• The company will host a conference call on April 18, 2024, to discuss first quarter 2024 preliminary earnings.
• The company's 2024 Annual Meeting of Stockholders will be held on May 8, 2024.

Key Dates

Keywords

earnings, net interest income, non-performing assets, loans, deposits, interest rates, capital, liquidity, banking, financial results