Great Southern Bancorp, Inc. — FY2021 Form 10-K
Business and reporting period. Great Southern Bancorp is the holding company for Great Southern Bank, a regional bank operating 93 banking centers across six states, with additional commercial loan offices. The filing reports the fiscal year ended December 31, 2021; quarterly figures below are unaudited. The bank primarily makes real-estate, construction, commercial-business and consumer loans.
Financial performance and condition
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Interest income | $198.7 million | $217.7 million |
| Net interest income | $177.9 million | $177.1 million |
| Net interest margin | 3.37% | 3.49% |
| Noninterest income | $38.3 million | $35.1 million |
| Noninterest expense | $127.6 million | $123.2 million |
| Net income / diluted EPS | $74.6 million / $5.46 | $59.3 million / $4.21 |
| Operating cash flow | $85.0 million | $46.0 million |
| Total assets | $5.45 billion | $5.53 billion |
| Net loans | $4.02 billion | $4.31 billion |
| Deposits | $4.55 billion | $4.52 billion |
| Stockholders’ equity | $616.8 million | $629.7 million |
- Net interest margin declined 12 basis points. Lower loan yields and a shift toward lower-yielding cash and securities pressured asset returns; substantially lower deposit costs helped offset this.
- The allowance for credit losses was $60.8 million, or 1.49% of loans, versus $55.7 million at year-end 2020. FY2021 included a $6.7 million provision credit on loans, partly offset by a $939,000 provision for unfunded commitments. Net recoveries were $116,000.
- Nonperforming loans were $5.4 million, 0.13% of loans; nonperforming assets were $6.0 million, or 0.11% of assets. Year-over-year comparison is affected by CECL adoption and the inclusion of acquired loans in 2021.
- Cash and cash equivalents were $717.3 million; unpledged securities were $406.8 million. Available lines were $756.5 million at the FHLBank and $352.4 million at the Federal Reserve. No FHLBank advances were outstanding at year-end.
- Year-end borrowings and other interest-bearing liabilities totaled $238.7 million, including $137.1 million in reverse repurchase agreements, $74.0 million in subordinated notes and $25.8 million in subordinated debentures. The Company redeemed $75 million of subordinated notes in August 2021.
- The Bank’s regulatory capital ratios were 14.1% CET1, 14.1% Tier 1, 15.4% total capital and 11.9% leverage; it was categorized as well-capitalized. Loans-to-deposits were 88.2%.
- Cash flow was positive from operations ($85.0 million) and investing ($190.7 million), and negative from financing ($122.2 million). Cash increased $153.5 million during the year.
Material changes and unusual items
- Net income rose 25.8% from 2020, primarily because the loan-loss provision shifted from $15.9 million expense to a $6.7 million credit. Net interest income increased only 0.4%.
- Net loans fell 6.7%, led by repayments in multifamily, commercial real estate, commercial business and auto loans; construction and one- to four-family residential balances increased. Deposits rose 0.8%, as transaction accounts grew while time deposits and brokered deposits declined.
- FY2021 results included $5.3 million in consulting expense and a core-systems contract termination fee related to the technology review. Reported efficiency ratio was 59.03%; excluding these items, management reported 56.57%.
- CECL adoption on January 1, 2021 increased the loan allowance by $11.6 million and established an $8.7 million unfunded-commitment liability, reducing retained earnings by $14.2 million after tax.
- Fourth-quarter 2021 net income was $15.3 million and diluted EPS was $1.14, compared with $17.8 million and $1.28 in fourth-quarter 2020.
- FY2021 dividends declared were $1.40 per share, compared with $2.36 in 2020, which included a $1.00 special dividend. The Company repurchased 715,397 shares during 2021.
Outlook, commentary and risks
- The filing does not provide a specific earnings or revenue forecast. Management said it expected the combined federal and state effective tax rate to be approximately 20.5%–21.5% in future periods.
- Management’s interest-rate models indicated that rising rates would generally benefit net interest income and falling rates would generally hurt it, while smaller rate moves were not expected to have a significant first-year effect. Results remain sensitive to deposit pricing, loan floors and rate movements.
- Credit concentration is a key risk: commercial real estate, commercial construction, multifamily and other commercial loans together represented about 78% of the loan portfolio. Unfunded construction commitments were approximately $1.05 billion; total unused lines and loan commitments were about $1.51 billion.
- COVID-19 uncertainty, economic conditions, commercial property performance, interest-rate and LIBOR transition risks, competition, funding availability, cybersecurity and regulatory changes could affect results. At year-end, eight modified consumer and mortgage loans totaling $1.2 million remained under pandemic-related terms; no modified commercial loans remained.
- The Company had approximately $4.0 million of potential Missouri tax exposure related to 2014–2015 tax years and was contesting the matter. Management did not expect pending or threatened litigation to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls.
- Subsequent events included a February 2022 $300 million interest-rate swap and the opening of a Phoenix commercial loan office. Management also cited anticipated Federal Reserve rate increases as a market expectation, not company guidance.
Important facts for investors to verify
- Whether the allowance and unfunded-commitment reserves remain appropriate as credit conditions and the CRE/construction portfolio evolve.
- The timing and cash-funding implications of construction commitments, credit lines and time-deposit maturities.
- Whether deposit growth and mix can be sustained without materially higher funding costs, and how rate changes affect loan yields given interest-rate floors.
- Whether the $5.3 million technology-related expense is genuinely nonrecurring and whether the planned core-system transition delivers expected benefits and costs.
- The outcome and potential financial impact of the Missouri tax dispute, and progress in transitioning LIBOR-linked contracts.
- Capital and shareholder-return capacity after the subordinated-note redemption, share repurchases and dividend payments.