Great Southern Bancorp, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Great Southern Bancorp is a one-bank holding company operating Great Southern Bank, which serves customers primarily in Missouri and nearby states and originates commercial loans in additional markets. This unaudited filing covers the three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Dollar amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Interest income | $77.4 | Up 8.3% from $71.5 in Q1 2023 |
| Net interest income | $44.8 | Down 15.7% from $53.2 |
| Net interest margin | 3.32% | Down 67 basis points from 3.99% |
| Non-interest income | $6.8 | Down 13.7% from $7.9 |
| Non-interest expense | $34.4 | Approximately unchanged from $34.5 |
| Net income / diluted EPS | $13.4 / $1.13 | Net income down 34.5%; diluted EPS was $1.67 in Q1 2023 |
| Dividend declared per share | $0.40 | Unchanged from Q1 2023 |
| Total assets / net loans | $5,777.2 / $4,586.3 | Assets down $35.2; net loans down $3.4 from year-end |
| Deposits / cash and equivalents | $4,773.4 / $171.4 | Deposits up $51.7; cash down $39.9 from year-end |
| Stockholders’ equity | $565.2 | Down $6.7 from year-end; 9.8% of assets |
Interest expense rose 78.3% to $32.6 million, with deposit expense up $13.0 million, as funding costs increased faster than asset yields. Average loan yield increased to 6.13% from 5.76%, while the average rate paid on deposits rose to 2.89% from 1.62%. The efficiency ratio worsened to 66.68% from 56.42%.
Operating cash flow was negative $26.9 million, versus positive $15.2 million in Q1 2023; investing activities provided $13.5 million and financing activities used $26.5 million. Cash and cash equivalents ended the quarter at $171.4 million. Management said liquidity sources were ample. Available secured lines at March 31 included $1,227.2 million from the FHLBank and $391.9 million from the Federal Reserve; unpledged AFS and HTM securities were $317.9 million and $26.8 million, respectively.
Changes, funding, and credit quality
- Deposits increased 1.1%. Transaction accounts grew $60.4 million, while retail certificates of deposit declined $32.7 million. Brokered deposits rose to $685.5 million, including $300 million of floating-rate IntraFi funds. About 15% of deposits were uninsured excluding consolidated subsidiaries; the figure was about 32% including them and collateralized deposits.
- The Bank borrowed $180 million through the Federal Reserve Bank Term Funding Program in January, at a fixed 4.83% rate, maturing in January 2025 and secured primarily by HTM securities. It used the funds mainly to repay FHLBank overnight borrowings. Subordinated notes were $74.7 million and subordinated debentures were $25.8 million at quarter-end.
- Nonperforming loans increased to $21.3 million from $11.7 million at year-end, mainly reflecting a $9.6 million multifamily loan secured by a Texas student-housing project; it was foreclosed in April, and management did not expect a material charge-off. Nonperforming assets were 0.37% of total assets, versus 0.20% at year-end. Potential problem loans were $7.4 million.
- The allowance for loan losses was $65.1 million, or 1.40% of loans, compared with $64.7 million and 1.39% at year-end. Q1 loan provision was $0.5 million; net charge-offs were $83,000. Management considered the allowance adequate but noted that worsening conditions or changed assessments could require additional provisions.
- Loan balances were nearly flat overall. Multifamily loans grew $98.2 million, partly offset by declines in commercial business, commercial real estate, construction, and one- to four-family residential loans. Commercial real estate and construction lending remain areas to monitor.
- AFS securities were $465.3 million, with $61.1 million of gross unrealized losses; management attributed the declines to interest rates, not credit deterioration. HTM securities had fair value of $167.8 million versus carrying value of $193.4 million, a $25.6 million unrealized loss not reflected in reported equity.
Outlook, risks, contingencies, and unusual items
- No earnings or revenue guidance was provided. Management expected its effective tax rate to be approximately 18.5%–20.5% in future periods, primarily reflecting anticipated investment tax credits.
- Management’s interest-rate models indicate modestly positive net interest income sensitivity to rising rates and modestly negative sensitivity to falling rates; relatively small rate changes are not expected to materially affect NII over the next 12 months. Deposit competition and repricing costs remain pressures. The filing notes that a rate cut could reduce income on the substantial floating-rate loan portfolio.
- Commercial real estate conditions are mixed. Management discussed office-sector weakness, elevated vacancy and potential property-value declines, alongside risks from multifamily oversupply in some markets. These conditions could affect borrowers, collateral values, provisions and loan performance.
- On April 24, 2024, after missed conversion milestones and unresolved disputes, the Company terminated its core-banking-system agreement and filed suit in federal court against the vendor, seeking damages for alleged breach and related conduct. Great Southern expects to continue with its current core provider. The outcome and potential recovery are uncertain.
- The Company corrected immaterial classification errors in the Q1 2023 cash-flow statement; the corrections did not affect other financial statements or previously reported earnings, assets, liabilities, or equity.
- Equity declined partly due to a $10.0 million increase in accumulated other comprehensive loss, reflecting lower securities and cash-flow-hedge values, plus $5.8 million of share repurchases, $4.7 million of declared dividends, and a $0.2 million retained-earnings reduction on adoption of ASU 2023-02. The Bank remained well capitalized, with a 13.0% CET1 ratio and 14.3% total risk-based capital ratio.
- Other disclosed risks include interest-rate and liquidity exposure, deposit competition and reliance on brokered funding, credit and real-estate conditions, cybersecurity, regulation, and litigation. Management reported effective disclosure controls as of March 31, 2024 and no material changes in internal control over financial reporting during the quarter.
Key facts investors should verify
- Whether the rise in nonperforming loans—particularly multifamily and commercial real estate exposures—leads to further deterioration, charge-offs, or higher provisions.
- How deposit pricing, brokered-funding levels, uninsured deposits, and the 2025 BTFP maturity affect funding costs and liquidity.
- Whether net interest margin stabilizes as asset yields and deposit costs reprice, and the future earnings effect of the Company’s interest-rate swaps.
- The scale and duration of securities valuation losses, including the HTM fair-value shortfall, and any effect on capital or funding flexibility.
- Developments in the core-system vendor litigation, transition plans, costs, and operational risks; the filing does not provide a clear estimate of potential damages or recovery.
- Whether the expected tax-rate range and $0.40-per-share dividend are sustained; future dividend decisions remain subject to Board review and capital needs.