8-K: Great Southern Bancorp Reports Solid Q3 Earnings, Reduces Non-Performing Assets

Great Southern Bancorp announced preliminary third-quarter earnings of $1.41 per diluted common share, alongside a significant reduction in non-performing assets.

Summary

• Great Southern Bancorp reported preliminary earnings of $1.41 per diluted common share for the third quarter of 2024, compared to $1.33 in the same period last year.
• Net income for the quarter was $16.5 million, up from $15.9 million in the third quarter of 2023.
• For the first nine months of 2024, earnings were $3.99 per diluted common share, down from $4.52 in the same period of 2023.
• The company's annualized return on average common equity was 11.10% for the quarter and 10.83% for the nine months.
• The annualized return on average assets was 1.11% for the quarter and 1.07% for the nine months.
• Net interest margin was 3.42% for the quarter and 3.39% for the nine months.
• Non-performing assets were reduced by $12.7 million during the quarter, primarily through the sale of three unrelated assets.
• Total outstanding loans increased by $121.7 million, or 2.7%, since the end of 2023, reaching $4.71 billion.
• Net interest income for the third quarter of 2024 increased by $1.2 million, or 2.6%, to $48.0 million compared to $46.7 million for the third quarter of 2023.
• Non-interest expenses decreased by $1.8 million to $33.7 million compared to the third quarter of 2023.
• Total stockholders' equity increased by $40.3 million year-to-date, reaching $612.1 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to solid earnings, a strong capital position, and a significant reduction in non-performing assets. However, there are some concerns about the decrease in net interest margin and the ongoing economic challenges.

Positives

• The company achieved a significant reduction in non-performing assets, indicating improved asset quality.
• Net interest income increased, showing positive performance in core banking activities.
• The company's capital position remains strong, exceeding regulatory thresholds.
• Total stockholders' equity increased, reflecting positive financial health.
• Non-interest expenses decreased, indicating improved operational efficiency.
• The company has ample liquidity with significant secured borrowing line availability and unpledged securities.

Negatives

• Earnings per diluted common share for the first nine months of 2024 decreased compared to the same period in 2023.
• Net interest margin decreased for the nine-month period compared to the previous year.
• The company recorded a $1.2 million provision for credit losses in the quarter.
• Overdraft and insufficient funds fees decreased, impacting non-interest income.
• Point-of-sale and ATM fees decreased, also impacting non-interest income.
• The company experienced net charge-offs of $1.5 million in both the three and nine months ended September 30, 2024.

Risks

• The company faces ongoing challenges in the broader economic and banking environment.
• Market conditions have increased deposit costs, impacting profitability.
• The company is exposed to fluctuations in interest rates and their impact on deposit costs and loan yields.
• There is a risk of increased losses in the loan portfolio due to challenging economic conditions.
• The company is involved in litigation with a former core banking platform vendor, which could result in costs and uncertainty.
• The company's effective tax rate may fluctuate in future periods due to various factors.

Future Outlook

The company expects the full effects of recent interest rate cuts by the Federal Reserve to become more apparent in the coming months and anticipates that replacement rates for maturing time deposits are likely to be approximately 3.50-4.20%. The company also expects its effective tax rate to be approximately 18.0% to 20.0% in future periods due to additional investment tax credits being utilized.

Management Comments

• Great Southern President and CEO Joseph W. Turner commented, 'Our third-quarter results reflect solid earnings and a strong balance sheet, despite ongoing challenges in the broader economic and banking environment.'
• Turner stated, 'These results highlight our ability to maintain stability and deliver consistent performance over the long term, even as we face ongoing macro pressures.'
• Turner noted, 'One of our important achievements this quarter was the significant reduction in non-performing assets, which decreased by $12.7 million.'
• Turner remarked, 'We view our capital position as very important and a strength of our Company.'
• Turner concluded, 'We remain focused on prudent loan portfolio management, controlling deposit costs, and leveraging our strengths to deliver sustainable growth.'

Industry Context

The results are being reported during a period of ongoing challenges in the broader economic and banking environment, including increased deposit costs and interest rate fluctuations. The company's focus on managing credit risk and maintaining a strong capital position is consistent with industry best practices during such times. The company also notes the impact of recent bank failures on depositor sentiment.

Comparison to Industry Standards

• Great Southern's return on average assets of 1.11% for the quarter is in line with the average performance of regional banks, but slightly lower than some top-performing institutions.
• The company's net interest margin of 3.42% is comparable to other banks of similar size, but the decrease from 3.66% for the nine-month period indicates pressure on profitability due to increased deposit costs.
• The reduction in non-performing assets is a positive sign, as many banks are facing challenges in this area due to economic uncertainty.
• The company's capital ratios are strong, exceeding regulatory thresholds, which is a positive indicator compared to industry benchmarks.
• The increase in total loans by 2.7% is a moderate growth rate, which is in line with the industry average, but some competitors may be experiencing higher growth rates in specific loan categories.
• The company's efficiency ratio of 61.34% for the quarter is better than many regional banks, indicating good cost management.

Management Changes

Legal Proceedings

• Great Southern initiated legal action against a third-party vendor for breach of contract related to a core banking platform migration.
• The third-party vendor filed a counterclaim alleging that Great Southern terminated the Master Agreement without cause.

Stakeholder Impact

• Shareholders will be impacted by the company's financial performance, dividend payouts, and share repurchases.
• Employees will be affected by the management changes and the company's overall financial health.
• Customers will be impacted by the company's ability to provide banking services and manage deposit rates.
• Creditors will be impacted by the company's liquidity and capital position.

Next Steps

• The company will host a conference call on October 17, 2024, to discuss the third-quarter earnings.
• Construction on the new banking center at Benton and Chestnut in Springfield, Mo. is anticipated to begin in the first quarter of 2025.
• The company will continue to monitor and manage its loan portfolio, deposit costs, and capital position.
• The company will continue informal settlement discussions with the third-party vendor regarding the terminated core banking platform agreement.

Key Dates

Keywords

earnings, non-performing assets, net interest income, loan portfolio, capital, liquidity, interest rates, banking, financial results, credit losses