Business Context and Reporting Period
Company: Great Southern Bancorp, Inc. (GSBC)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Business Overview: A one-bank holding company operating Great Southern Bank, providing financial services primarily in Missouri, Iowa, Kansas, Minnesota, Nebraska, and Arkansas, with commercial lending offices in several major U.S. cities.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income | $16.99 million | $18.32 million | $30.40 million | $38.78 million |
| Diluted EPS | $1.45 | $1.52 | $2.58 | $3.19 |
| Net Interest Income | $46.82 million | $48.14 million | $91.63 million | $101.33 million |
| Net Interest Margin | 3.43% | 3.56% | 3.38% | 3.77% |
| Non-Interest Income | $9.83 million | $7.77 million | $16.64 million | $15.66 million |
| Non-Interest Expense | $36.41 million | $34.72 million | $70.83 million | $69.18 million |
| Total Assets | $5.96 billion | $5.72 billion (Dec 2023) | N/A | |
| Total Loans (Net) | $4.63 billion | $4.59 billion (Dec 2023) | N/A | |
| Total Deposits | $4.62 billion | $4.72 billion (Dec 2023) | N/A | |
| Stockholders' Equity | $568.79 million | $571.83 million (Dec 2023) | N/A |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 7.3% year-over-year for Q2 and 21.6% year-over-year for the six-month period. The decline was driven primarily by a decrease in net interest income and an increase in non-interest expense.
- Net Interest Margin Compression: Net interest margin decreased 13 basis points for Q2 and 39 basis points for the six-month period compared to the prior year. This was caused by a 69 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 50 basis point increase in the yield on interest-earning assets.
- Deposit Outflow: Total deposits decreased $106.4 million (2.3%) from December 31, 2023, to June 30, 2024. Transaction accounts and retail certificates of deposit declined, while brokered deposits increased slightly.
- Loan Growth: Net loans increased $44.0 million (1.0%) from year-end 2023. Growth was led by other residential (multi-family) loans, offset by decreases in construction and commercial business loans.
- Non-Interest Income Surge: Non-interest income increased significantly due to a $2.7 million gain recorded from the termination of a Master Agreement with a third-party software vendor for a core banking platform conversion.
Guidance, Outlook, Risks, and Unusual Items
- Core Banking System Litigation: The Company terminated its agreement with a third-party vendor for a new core banking platform due to delays and disputes. Legal action was initiated in April 2024 to recover damages. The Company expects to continue operations with its current provider.
- Interest Rate Risk: Management models indicate that rising interest rates have a modestly positive impact on net interest income, while declining rates have a modestly negative impact. The Company has significant exposure to SOFR and Prime rate loans.
- Non-Performing Assets: Non-performing assets increased to $20.4 million (0.34% of total assets) from $11.8 million at year-end 2023. This increase was primarily due to a $9.3 million transfer of a multi-family loan to foreclosed assets.
- Dividends: The Company declared a quarterly dividend of $0.40 per share, consistent with the prior year.
- Stock Repurchases: The Company repurchased 124,600 shares in Q2 2024 and 236,962 shares YTD 2024. Approximately 490,000 shares remain available under the current authorization.
Investor Verification Checklist
- Core System Transition: Verify the status of the legal proceedings against the former software vendor and the timeline for any potential system migration or continued use of the legacy system.
- Deposit Stability: Monitor the trend of deposit outflows, specifically the shift from transaction accounts to higher-cost brokered deposits and the impact on future funding costs.
- Asset Quality: Review the specific details of the $9.3 million multi-family loan transferred to foreclosed assets and the $7.2 million commercial real estate loan added to non-performing loans.
- Interest Rate Sensitivity: Assess the Company's exposure to interest rate floors on variable-rate loans and the potential impact of anticipated Federal Reserve rate cuts on net interest margin.
- Unusual Income Items: Confirm that the $2.7 million gain from the software contract termination is a one-time event and not indicative of recurring non-interest income.