8-K: Great Southern Bancorp Reports Lower Q4 and Full Year Earnings Amidst Challenging Rate Environment

Great Southern Bancorp's preliminary fourth quarter earnings decreased to $1.11 per diluted share, and full year earnings decreased to $5.61 per diluted share, impacted by higher deposit costs and non-recurring expenses.

Summary

• Great Southern Bancorp reported preliminary earnings of $1.11 per diluted share for the fourth quarter of 2023, down from $1.84 in the same period of 2022.
• Full year 2023 earnings were $5.61 per diluted share, compared to $6.02 in 2022.
• The company's net interest income for the fourth quarter decreased by $9.5 million, or 17.3%, to $45.1 million compared to the same period in 2022.
• Net interest margin for the fourth quarter was 3.30%, down from 3.99% in the fourth quarter of 2022.
• Total outstanding loans increased by $82.8 million, or 1.8%, to $4.59 billion at the end of 2023.
• Non-performing assets increased to $11.8 million, or 0.20% of total assets, up from $3.7 million, or 0.07% of total assets, at the end of 2022.
• The company experienced net charge-offs of $1.1 million for the year ended December 31, 2023.
• Total stockholders' equity increased by $38.7 million during 2023, reaching $571.8 million.
• The company repurchased approximately 450,000 shares of its common stock during 2023 at an average price of $51.38.
• The company's Tier 1 Leverage Ratio was 11.0%, Common Equity Tier 1 Capital Ratio was 11.9%, Tier 1 Capital Ratio was 12.4%, and Total Capital Ratio was 15.2% as of December 31, 2023.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positives like strong capital and liquidity, but the negative trends in earnings, net interest income, and asset quality, along with the core system conversion delay, lead to a negative sentiment.

Positives

• Total stockholders' equity increased by $38.7 million during 2023.
• The company's capital position remained strong, significantly exceeding regulatory thresholds.
• The company has ample sources of liquidity, including secured borrowing lines and unpledged securities.
• The company repurchased approximately 450,000 shares of its common stock during 2023.
• The company launched a new and improved digital mobile banking application in November 2023.
• The company declared a $0.40 per common share dividend in the fourth quarter of 2023, and $1.60 per common share for all of 2023.

Negatives

• Net interest income decreased by $9.5 million in the fourth quarter of 2023 compared to the fourth quarter of 2022.
• Net interest margin decreased to 3.30% for the fourth quarter of 2023, down from 3.99% in the same period of 2022.
• Non-performing assets increased to $11.8 million at the end of 2023, up from $3.7 million at the end of 2022.
• The company experienced net charge-offs of $1.1 million for the year ended December 31, 2023.
• The company incurred $918,000 in legal and professional fees, $441,000 in employee bonuses, and $320,000 in other operating expenses related to non-recurring items.
• Point-of-sale and ATM fees decreased by $621,000 compared to the prior year period.
• Overdraft and insufficient funds fees decreased by $327,000 compared to the prior year period.
• Non-interest expense increased by $1.9 million in the fourth quarter of 2023 compared to the fourth quarter of 2022.
• The company experienced a $200,000 reduction in Point-of-Sale fee income due to a new debit card processor.

Risks

• The company faces challenges from competition for deposits and higher market interest rates.
• The company's net interest income is negatively impacted by interest rate swaps.
• There is a risk of further increases in deposit costs.
• The company's core systems conversion has been delayed and faces contractual disputes with the vendor.
• The company's non-performing assets have increased, primarily in the commercial real estate loan category.
• The company's loan pipeline has decreased significantly compared to the end of 2022.
• The company's effective tax rate may fluctuate in future periods.
• The company has unrealized losses on its portfolio of held-to-maturity investment securities.

Future Outlook

The company expects its effective tax rate to remain near the statutory federal tax rate, approximately 20.5% to 21.5% in future periods. The company also expects a negative impact of approximately $2.7 million from interest rate swaps in the first quarter of 2024.

Management Comments

• Great Southern President and CEO Joseph W. Turner said, 'As expected, our fourth quarter results reflected a persistent and challenging operating landscape.'
• Turner added, 'As expected, total outstanding loan balances grew by nearly $83 million since the end of 2022.'
• Turner continued, 'The Company's capital and liquidity positions remain strong.'

Industry Context

The results reflect a challenging environment for banks, with increased competition for deposits and higher funding costs due to rising interest rates. This is a common trend across the banking industry, particularly for regional banks.

Comparison to Industry Standards

• The decrease in net interest margin is consistent with the challenges faced by many banks in the current interest rate environment, where deposit costs are rising faster than loan yields.
• The increase in non-performing assets is a concern, but the company's capital ratios remain strong, which is a positive sign compared to some other banks facing similar asset quality issues.
• The company's efficiency ratio of 70.17% for the quarter ended December 31, 2023, is higher than the 55.13% for the same quarter in 2022, indicating increased operating costs. This is a common trend in the industry as banks invest in technology and face higher labor costs.
• The company's tangible common equity ratio of 9.7% is a good indicator of financial strength, and is comparable to other well-capitalized regional banks.
• The company's liquidity position, with $2.1 billion in available secured funding lines and on-balance sheet liquidity, is strong compared to some other regional banks that have faced liquidity concerns.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and the potential for continued challenges in the current interest rate environment.
• Employees may be impacted by the ongoing core systems conversion and any potential changes in operations.
• Customers will benefit from the new mobile banking application, but may be impacted by the consolidation of a retail banking center.
• Creditors will be impacted by the company's strong capital and liquidity positions.

Next Steps

• The company will continue to operate with its current core banking provider while resolving contractual disputes with the new system vendor.
• The company will continue to monitor and manage its loan portfolio and credit quality.
• The company will host a conference call on January 23, 2024, to discuss fourth quarter 2023 preliminary earnings.

Key Dates

Keywords

earnings, net interest income, net interest margin, loans, deposits, non-performing assets, capital, liquidity, interest rate swaps, core systems conversion