Great Southern Bancorp(GSBC) - 2020 Q3 - Quarterly Report

PART I Financial Statements This section presents Great Southern Bancorp's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2020, covering financial condition, income, comprehensive income, equity, and cash flows Consolidated Statements of Financial Condition Total assets increased to $5.44 billion by September 30, 2020, from $5.02 billion at year-end 2019, driven by loan and cash growth, with liabilities and equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5.44 billion | $5.02 billion | | Cash and cash equivalents | $338.3 million | $220.2 million | | Loans receivable, net | $4.41 billion | $4.15 billion | | Total Liabilities | $4.82 billion | $4.41 billion | | Deposits | $4.44 billion | $3.96 billion | | Short-term borrowings | $1.2 million | $228.2 million | | Subordinated notes | $148.2 million | $74.3 million | | Total Stockholders' Equity | $624.6 million | $603.1 million | Consolidated Statements of Income Net income for Q3 2020 decreased to $13.5 million from $19.7 million in Q3 2019, and for the nine months, it fell to $41.5 million from $55.7 million, primarily due to increased loan loss provisions Q3 2020 vs Q3 2019 Performance (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net Interest Income | $44.2 million | $45.9 million | | Provision for Loan Losses | $4.5 million | $2.0 million | | Net Income | $13.5 million | $19.7 million | | Diluted EPS | $0.96 | $1.38 | Nine Months 2020 vs 2019 Performance (in thousands, except per share data) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Net Interest Income | $132.6 million | $135.4 million | | Provision for Loan Losses | $14.4 million | $5.5 million | | Net Income | $41.5 million | $55.7 million | | Diluted EPS | $2.93 | $3.90 | Consolidated Statements of Comprehensive Income Comprehensive income decreased to $10.1 million in Q3 2020 from $28.6 million in Q3 2019, and to $64.9 million for the nine months from $87.1 million, mainly due to lower net income Comprehensive Income (in thousands) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | | | | Net Income | $13.5 million | $19.7 million | | Comprehensive Income | $10.1 million | $28.6 million | | Nine Months Ended Sep 30 | | | | Net Income | $41.5 million | $55.7 million | | Comprehensive Income | $64.9 million | $87.1 million | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $624.6 million by September 30, 2020, driven by $41.5 million in net income and $23.4 million in other comprehensive income, partially offset by dividends and repurchases - Key drivers for the change in stockholders' equity during the first nine months of 2020 were net income ($41.5 million), dividends declared (-$28.6 million), stock repurchases (-$15.9 million), and an increase in other comprehensive income ($23.4 million)[16] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $118.1 million for the nine months ended September 30, 2020, with $35.8 million from operations, $278.9 million used in investing, and $361.2 million provided by financing Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35.8 million | $64.2 million | | Net cash used in investing activities | ($278.9 million) | ($264.5 million) | | Net cash provided by financing activities | $361.2 million | $188.5 million | | Increase (Decrease) in Cash | $118.1 million | ($11.9 million) | Notes to Consolidated Financial Statements This section details accounting policies and financial statement items, including CECL adoption delay, investment securities, loan portfolio analysis, FDIC-assisted loans, fair value measurements, and derivatives - The company elected to delay the adoption of the new CECL accounting standard for credit losses, as permitted by the CARES Act. The financial statements are prepared under the existing incurred loss methodology[25] - Upon eventual adoption of CECL in Q4 2020, the company expects to increase its allowance for credit losses by $11-$14 million and create a liability for unfunded commitments of $7-$10 million, resulting in an after-tax decrease to retained earnings of $14-$18 million[26] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and operations, emphasizing the COVID-19 pandemic's impact on net income, loan loss provisions, net interest margin, and the company's response including PPP and loan modifications - Net income for Q3 2020 decreased 31.8% YoY to $13.5 million, primarily due to a 130.8% increase in the provision for loan losses and a 3.8% decrease in net interest income[237] - The company is actively participating in the Paycheck Protection Program (PPP), originating approximately 1,600 loans totaling $121 million as of September 30, 2020, and receiving $4.7 million in SBA fees[183] - In response to the COVID-19 pandemic, the company has provided extensive loan modifications. As of September 30, 2020, 495 commercial and consumer loans with an aggregate balance of $395.5 million remained in modified status[184][186] Comparison of Financial Condition Total assets grew by $427.9 million (8.5%) to $5.44 billion in the first nine months of 2020, primarily driven by increases in net loans and cash, funded by deposits and subordinated notes - Net loans increased by $259.8 million (6.3%) since year-end 2019, primarily in other residential (multi-family), commercial business (including $121 million of PPP loans), and one- to four-family residential loans[194] - Total deposits increased by $483.7 million (12.2%), with transaction accounts growing by $694.3 million while certificates of deposit decreased by $81.8 million[231] Results of Operations Net income for Q3 2020 decreased to $13.5 million from $19.7 million in Q3 2019, primarily due to lower net interest income, increased loan loss provisions, and higher non-interest expenses - Net interest margin for Q3 2020 was 3.36%, a 59 basis point decrease from 3.95% in Q3 2019, primarily due to lower yields on loans and other interest-earning assets caused by lower market interest rates[268] - The provision for loan losses increased to $4.5 million in Q3 2020 from $2.0 million in Q3 2019, reflecting worsening economic conditions from the COVID-19 pandemic[277] - Non-interest expense increased by $3.3 million in Q3 2020, driven by a $2.9 million rise in salaries and benefits, which included a $1.1 million special cash bonus to employees related to the pandemic[301] Non-performing Assets Non-performing assets (excluding FDIC-assisted) decreased by $2.7 million to $5.5 million at September 30, 2020, from $8.2 million at year-end 2019, driven by reductions in non-performing loans and foreclosed assets Non-Performing Assets (excluding FDIC-assisted) | Category | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Non-performing loans | $3.8 million | $4.5 million | | Foreclosed assets | $1.6 million | $3.7 million | | Total Non-performing assets | $5.5 million | $8.2 million | | % of Total Assets | 0.10% | 0.16% | Liquidity and Capital Resources The company maintains strong liquidity with over $1.5 billion in available secured lines and remains 'well capitalized', with stockholders' equity increasing to $624.6 million despite dividends and repurchases, further bolstered by a $75.0 million subordinated note issuance - The company has significant available liquidity, including a $1.13 billion line with the Federal Home Loan Bank and a $431.5 million line with the Federal Reserve Bank[327] - As of September 30, 2020, both the Company and the Bank were considered 'well capitalized' with all capital ratios significantly exceeding regulatory requirements. The Bank's Tier 1 leverage ratio was 11.5%[339][340] - During Q3 2020, the company repurchased 206,400 shares of its common stock at an average price of $37.39 per share[345][378] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by its Asset and Liability Committee, with $2.10 billion of its loan portfolio tied to LIBOR, partially mitigated by interest rate floors - The company's most significant market risk is interest rate risk, managed by the Asset and Liability Committee[355][361] - As of September 30, 2020, $2.10 billion of the loan portfolio is tied to one-month or three-month LIBOR, with $2.08 billion of that amount having interest rate floors[359] - In March 2020, the company terminated a $400 million notional interest rate swap, receiving a payment of $45.9 million. This was part of its interest rate risk management strategy[368] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective[369] - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2020[371] PART II Legal Proceedings The company is involved in various legal actions, but management believes their outcomes will not materially adversely affect its financial condition or operations - The company states that pending legal actions are not expected to have a material adverse effect on its business or financial condition[373] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2019 or Q2 2020 Form 10-Q were reported - No material changes to risk factors were reported for the quarter[374] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company repurchased 206,400 shares at $37.39 per share, with 76,311 shares remaining under the current plan, and a new 1 million share repurchase program authorized for October 2020 Share Repurchases - Q3 2020 | Month | Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | July 2020 | — | $— | | August 2020 | 7,600 | $38.82 | | September 2020 | 198,800 | $37.34 | | Total Q3 | 206,400 | $37.39 | - On October 21, 2020, the Board of Directors authorized a new stock repurchase program for up to 1,000,000 additional shares[379] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and Treasurer certifications required by Sarbanes-Oxley Act, and incorporates various corporate documents by reference - The report includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act Rules 13a-14(a) and Section 906[409]