Great Southern Bancorp : 34th Annual Meeting of Stockholders Presenter Scripts

34th Annual Meeting of Stockholders (Virtual)

Wednesday, May 10, 2023

10 a.m. CDT

Presenter Scripts

Kelly Polonus - Chief Communications & Marketing Officer

100th Year - SLIDE

Good morning, this is Kelly Polonus with Great Southern. Thank you for joining us for the Great Southern Bancorp, Inc., virtual Annual Meeting of Stockholders. We appreciate your interest and support of our Company. We are ready to get started. It's my pleasure to introduce President and CEO Joe Turner.

Joe Turner - President & CEO

Joe Turner - SLIDE

Thank you, Kelly. Welcome to our annual meeting. I'm pleased to be here representing our more than 1,100 Great Southern associates to report on our Company's performance and activities in 2022 and for the first quarter of 2023, with the current year marking our 100-year anniversary.

Before we get started with our presentation, I want to recognize our Board of Directors. Each of our directors brings his or her unique background and expertise, which contributes to our Company's continued success. We appreciate their continued guidance, engagement and support. I'll introduce each Board member, who is also joining us virtually.

William Turner - SLIDE

Kevin Ausburn - SLIDE

Julie Brown - SLIDE

Tom Carlson - SLIDE

Steve Edwards - SLIDE

Larry Frazier - SLIDE

Debra Hart - SLIDE

Doug Pitt - SLIDE

Earl Steinert - SLIDE

Meeting Presenters - SLIDE

Joining me today are four of my colleagues - Chief Financial Officer Rex Copeland, Chief Lending Officer John Bugh, Chief Retail Banking Officer Kris Conley, and Chief Communications and Marketing Officer Kelly Polonus. I will provide a brief introduction and then turn the meeting over to my colleagues for their presentations.

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2022 - A Solid Performance - SLIDE

As we look back to 2022, it is only fitting to begin by thanking our more than 1,100 associates for their remarkable work in serving our customers, communities, and each other. Our sharp focus on our customers' needs and our commitment to building long-term relationships in a challenging economic landscape were central in making 2022 an extraordinary year for our Company.

We are pleased to share that we ended 2022 in a strong financial position, giving us a sound posture for the economic headwinds and market forces we are now facing in 2023. Our first quarter performance was solid as we navigated through a rather tumultuous time for the banking industry, especially during the last month of the quarter. The bank failures that occurred on the east and west coasts created turmoil and understandably focused attention on certain operational practices in those banks and others. During the intense media focus on these failures and worry about potential deposit run-off in the banking system, I'm pleased to report that operating conditions were stable for Great Southern and, we believe, for most other banks in our market areas. The banks that failed were proven to be outliers having significantly high levels of uninsured deposits and undiversified deposit bases. We are fortunate in this country that our banking system is sound, resilient and well-capitalized.

It is times like these that underscore the importance of operating our Company with a long-term view. Our commitment over the years to manage for the long-term has produced many strengths that we rely on heavily in turbulent times - our dedicated and talented team of associates, our culture of resilience, our pride in service excellence, our conservative business practices and our strong financial position. We continually work on building and nurturing these strengths as a foundation for our long-term success.

In 2022, we remained focused on our core strategic objectives, which included attracting and expanding customer relationships, developing our associates, managing risk, sustaining a strong credit discipline and driving a culture of continuous improvement. You'll see in our presentations this morning that 2022 was a very busy year - full of activities to further enhance our Company and how we serve our customers. You'll see that we had a strong focus on our retail banking and commercial lending delivery channels, while we navigated the effects of a rapidly-increasing interest rate environment.

I'll now turn the meeting over to Rex Copeland, who will discuss our financial results - again a reflection of our associates' hard work and dedication.

Rex Copeland - Chief Financial Officer

Key Trends - SLIDE

Good morning. As Joe said earlier, our overall financial performance in 2022 was strong, and we've gotten off to a solid start in 2023, with the recognition that there is uncertainty as we move ahead.

This slide summarizes our growth trends in assets, loans and deposits for the past five years and first quarter 2023.

Assets: Generally, since 2018, total assets have increased. In 2022, our total assets increased by about $231 million to $5.7 billion, mainly due to strong loan growth during most of the year. During the first quarter 2023, the Company's total assets also increased by about $88 million to $5.8 billion. This asset growth was primarily attributed to net increases in outstanding loan balances and cash and cash equivalents.

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Loans: We had an outstanding year of loan growth in 2022. Net outstanding loans increased about $495 million to $4.5 billion from the end of 2021 to the end of 2022. In the first quarter 2023, we experienced a $64 million increase in net loans compared to the end of 2022. As John Bugh will report later, loan production significantly decreased beginning in the fourth quarter of 2022 and that trend has continued into 2023.

Deposits: I will give just a brief overview of our deposit trends, as Kris Conley will provide more information in his presentation. You can see the significant increase in deposits in 2020, which was when government pandemic stimulus programs were initiated and customers began parking their cash in checking accounts, due to economic uncertainty. Deposits increased by approximately $133 million to $4.7 billion during 2022. At the end of the first quarter in 2023, our deposits totaled $4.8 billion, but there have been some changes in deposit mix.

Profitability - SLIDE

This slide provides a summary of the Company's performance on several profitability metrics over the last five years and the first quarter of 2023.

For our net income, you can see that in 2021 we rebounded nicely from the 2020 level. In 2020, the Company increased loan loss provisions to build our reserves for potential credit losses, in anticipation of a difficult economic environment, due to the COVID-19 pandemic. Fortunately, credit losses did not actually materialize in 2020 or later years, and the build of reserves for credit losses was released throughout 2021. In the full year 2022, we earned $75.9 million, or $6.02 per diluted common share. Higher net interest income primarily drove the increase from 2021 to 2022. Our earnings in the first quarter of 2023 were $20.5 million, or $1.67 per diluted common share. Earnings in the first quarter of 2023 versus the first quarter of 2022 included higher net interest income and a negative provision for unfunded loan commitments.

At the bottom of this slide are profitability ratios generally used as measurements in the banking industry.

Our ROATCE, or return on average tangible common equity ratio, has in recent years primarily been between the 12% and 13% range. We saw a decline in this ratio in 2020 because of decreased earnings, for the reasons I just mentioned. In 2022, the annualized ratio returned to more normal levels, based on strong net income, and in the first quarter of 2023 the annualized ratio increased to 15.39%, due to increased net income and stable equity.

The ROAA, or the return on average assets, is an important profitability ratio, indicating the profit a company earns related to its assets. An ROAA above 1% is considered favorable in the banking industry. Over the last five years, our return on assets has been good. The ROAA declined in 2020, due to decreased earnings as we mentioned. For the first quarter 2023, our ROAA was 1.43% annualized, reflective of rising interest rates, low credit costs and fairly stable operating expenses.

We continue to focus on our efficiency ratio, which is non-interest expense divided by the sum of net interest income and non-interest income. The efficiency ratio for the year ended December 31, 2022, was 57.05% compared to 59.03% for 2021. The higher efficiency ratio during 2021 was primarily due to a significant one-time IT consulting and contract expense incurred in December 2021. The efficiency ratio during the first quarter of 2023 improved somewhat to 56.42%, primarily due to an increase in net interest income, partially offset by an increase in non-interest expense.

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Core Net Interest Margin - SLIDE

Our core net interest margin was relatively stable in 2018 and 2019. In that timeframe market interest rates were generally rising and were at relatively higher levels in 2018 and 2019 compared to 2020 and 2021. We experienced core margin compression in 2020 as market interest rates declined dramatically, due to the COVID-19 pandemic. The core net interest margin remained lower in 2021, due to low market interest rates.

In 2022, the core margin increased significantly, in response to the Federal Reserve's aggressive increase in interest rates and changes in the asset mix. As of its meeting of May 3, 2023, the Federal Reserve has raised interest rates by a total of 500 basis points, or 5.00 percent, since the central bankers began raising interest rates in March of 2022.

The core margin during the first quarter of 2023 was 3.99%, and was flat compared to fourth quarter of 2022, with higher deposit costs offsetting higher loan yields. As we have stated before, generally a rising interest rate environment, particularly short-term rates, should positively impact our net interest income as floating rate loans reprice upward with increases in market rates. However, we expect positive impacts to be significantly offset by increases in funding costs, which we expect will ramp up further in the first half of 2023 as fixed rate deposits mature and reprice higher, and net interest settlements on forward-starting interest rate swaps begin in May 2023.

Liquidity Sources - SLIDE

This slide provides a look at the Company's liquidity sources since 2018. Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner. The Company's primary sources of funds are customer deposits, FHLBank advances, other borrowings, loan repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. From time to time, we have chosen not to pay rates on deposits as high as the rates paid by certain competitors and, when believed to be appropriate, supplement deposits with less expensive or differently structured alternative sources of funds.

Our liquidity position is resilient with readily-available funding sources. At the end of March 2023, available secured funding lines through the FHLBank and Federal Reserve Bank and on-balance sheet liquidity exceeded $2.0 billion. As a result of the Company's ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its borrowers' credit needs. These sources of liquidity levels improved further in April 2023.

Securities Portfolio - SLIDE

The Company's securities portfolio, consisting of available-for-sale and held-to-maturity securities, is shown as of March 31, 2023, on this slide. The portfolio is a relatively small percentage of the Company's assets, but plays an important part in asset/liability management and liquidity management.

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Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. The amortized book value of the available-for-sale securities portfolio was $546.8 million, or 8.6% of total assets at March 31, 2023. The fair value was $493.3 million at that time.

Held-to-maturity securities, which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Unrealized gains and losses on this securities portfolio are notrecorded, net of related income tax effects, in stockholders' equity. At March 31, 2023, held-to-maturity securities were $200.4 million, or 3.5% of total assets at March 31, 2023. The amount of the unrealized loss, net of taxes, on this portfolio was equal to 2.8% of total stockholders' equity and would not have a material negative impact on our regulatory capital ratios if it were included.

Capital - SLIDE

This next slide looks at our common stockholders' equity, which includes our small amount of intangible assets, and our book value per outstanding share since 2013 and through March 31, 2023. The slide also includes the Company's regulatory capital ratios, which continue to be substantially above regulatory well- capitalized thresholds.

Strong capital is a priority for our Company. Winners in banking are those that have strong capital and are thus able to take advantage of the opportunities that may arise. We recognize that our common equity level of capital is generally high compared to the industry averages. Today's environment underscores the reason why we follow conservative capital management strategies and how important that we think it is.

Stockholders' equity decreased $83.7 million, from $616.8 million at December 31, 2021 to $533.1 million at December 31, 2022. Although reduced, capital levels remained strong. Accumulated other comprehensive income decreased $86.1 million during the year ended December 31, 2022, primarily due to decreases in the fair value of available-for-sale investment securities and the fair value of cash flow hedges. Stockholders' equity also decreased due to repurchases of the Company's common stock totaling $61.8 million and dividends declared on common stock of $19.3 million. Partially offsetting these decreases were net income of $75.9 million for the year ended December 31, 2022, and a $7.7 million increase in stockholders' equity due to stock option exercises.

In the first quarter of 2023, stockholders' equity increased $22.4 million, from $533.1 million at December 31, 2022 to $555.5 million at March 31, 2023. Accumulated other comprehensive loss decreased $11.9 million during the three months ended March 31, 2023, primarily due to increases in the fair value of available-for-sale investment securities and the fair value of cash flow hedges. Stockholders' equity also increased due to net income of $20.5 million in the period. Partially offsetting these increases were repurchases of the Company's common stock totaling $5.6 million and dividends declared on common stock of $4.9 million.

Of special note on this slide is the rather significant increase in book value per common share since 2013. Our book value of $45.78 per common share at March 31, 2023, has nearly doubled since the end of 2013. This increased book value is reflective of strong capital management, including opportunistic stock repurchases that we'll discuss shortly.

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