Great Southern Bancorp, Inc. — FY 2023 Form 10-K
Business context and reporting period. The filing reports the fiscal year ended December 31, 2023, with comparisons primarily to FY 2022. Great Southern is a bank holding company operating Great Southern Bank, a regional lender headquartered in Springfield, Missouri, with 89 banking centers across six states and commercial lending offices in several additional markets.
Financial performance and condition
- Profitability: Net income was $67.8 million, down 10.7% from $75.9 million. Diluted EPS was $5.61 versus $6.02; return on average assets was 1.19% versus 1.38%, and return on average equity was 12.31% versus 13.44%.
- Revenue, margins and costs: Interest income increased 30.8% to $296.8 million, but interest expense rose 278.7% to $103.6 million. Net interest income declined 3.2% to $193.2 million, and net interest margin fell 23 basis points to 3.57%. Non-interest income decreased 11.9% to $30.1 million; non-interest expense increased 5.7% to $141.0 million. The efficiency ratio rose to 63.16% from 57.05%.
- Loans and credit: Net loans increased 1.8% to $4.59 billion. The allowance for credit losses was $64.7 million, or 1.39% of loans, unchanged as a percentage year over year. Net charge-offs increased to $1.1 million from $274,000. Non-performing loans rose to $11.7 million from $3.7 million, or 0.25% of loans versus 0.08%. Management considered the allowance adequate at year-end.
- Assets, deposits and liquidity: Total assets increased 2.3% to $5.81 billion; deposits increased 0.8% to $4.72 billion. Cash and cash equivalents were $211.3 million, up $42.8 million. The year-end loan-to-deposit ratio was 97.33%. Uninsured deposits were reported at $1.53 billion, including deposits of consolidated subsidiaries; excluding those subsidiary accounts, approximately 13% of deposits were uninsured.
- Funding and debt: Brokered deposits increased $250.0 million to $661.5 million, and overnight FHLBank borrowings rose to $251.0 million from $88.5 million. Total borrowings and other interest-bearing liabilities were $423.8 million. The Company also had $25.8 million of subordinated debentures and $74.6 million of subordinated notes.
- Capital and shareholder returns: Stockholders’ equity was $571.8 million, up from $533.1 million; tangible common equity to tangible assets was 9.7%. The Bank was well-capitalized, with a 13.1% CET1 ratio and 14.3% total capital ratio. The Company declared $1.60 per share in dividends and repurchased 449,622 shares for $23.3 million.
- Cash flow: Operating activities provided $80.7 million; investing activities used $88.2 million; financing activities provided $50.3 million. Cash and cash equivalents increased $42.8 million during the year.
Material changes versus FY 2022
- Higher loan yields supported a $69.9 million increase in interest income, but deposit and borrowing costs rose sharply; deposit interest expense alone increased $68.1 million.
- Loan growth was modest overall. Multi-family loans increased approximately $160 million, while construction loans decreased $61 million. The unfunded portion of closed construction loans declined to $695.4 million from $1.41 billion.
- Non-performing loans increased by $8.1 million, primarily reflecting commercial real estate loans, including an office-property relationship. Classified substandard loans rose to $19.1 million from $5.2 million; special-mention loans totaled $26.7 million, compared with none in 2022.
- Available-for-sale securities were $478.2 million at fair value, with $54.2 million of gross unrealized losses. Held-to-maturity securities had $23.8 million of gross unrealized losses; those losses are not reflected in reported equity.
- The company corrected immaterial prior-period cash-flow statement classification errors for 2022 and 2021. The corrections did not affect the other financial statements or previously reported earnings.
Outlook, risks and unusual items
- No earnings or revenue guidance was provided. Management expects its effective tax rate to be approximately 20.5%–21.5% in future periods. Interest-rate models indicated a modestly positive net-interest-income effect from rising rates and a modestly negative effect from falling rates; actual results depend on deposit pricing, funding mix and asset repricing.
- Credit exposure is concentrated in real estate and construction: 89.5% of loans were real-estate-related, and management disclosed that commercial real estate loans exceeded the supervisory concentration threshold. Commercial and residential construction, commercial real estate, multi-family and other commercial loans together represented approximately 77.1% of the portfolio. Office-sector weakness, elevated rates, vacancies, refinancing needs and borrower cash flows are important risks.
- Funding costs and deposit competition remain pressures. Brokered deposits and FHLBank borrowing increased, and $1.19 billion of retail and brokered time deposits was scheduled to mature in 2024. Management estimated replacement rates of approximately 4.00%–4.50% for time deposits maturing over the next year.
- After year-end, the Bank borrowed $180 million under the Federal Reserve’s BTFP at 4.83% for one year, primarily to repay FHLBank overnight borrowings. The borrowing is secured mainly by held-to-maturity securities. The Bank also closed its Tulsa loan-production office in February 2024 and consolidated a Springfield banking center in January 2024.
- The planned core-system conversion was delayed from the third quarter of 2023 to mid-2024, and the Company reported unresolved contractual disputes with its vendor and no meaningful progress toward resolution. The Company expects to continue using its current core system in the meantime.
- Interest-rate swaps reduced loan interest income by $17.6 million in 2023. The company also recognized $8.1 million of income from the amortization of a gain on a terminated 2020 swap. Certain brokered-deposit swaps were terminated after year-end.
- FORVIS, LLP issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter. Management reported no material cybersecurity incidents in the last fiscal year.
Important facts for investors to verify
- Whether deposit costs, brokered funding and FHLBank borrowing continue to pressure net interest margin and earnings.
- Performance and collateral values for commercial real estate and construction exposures, particularly office, multi-family and larger borrower relationships; also monitor non-performing, classified and special-mention loans.
- Liquidity and uninsured-deposit trends, time-deposit renewals, available borrowing capacity and the use and repayment of the $180 million BTFP borrowing.
- The effect of unrealized securities losses, including held-to-maturity losses excluded from reported equity, under changing interest rates or funding needs.
- Resolution of the core-system vendor dispute, the timing and execution of any conversion, and related costs or operational disruptions.
- The cash-flow statement corrections, loan-loss assumptions and significant estimates, as well as the timing and sustainability of dividends and share repurchases.