KBRA Affirms Ratings for Great Southern Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Springfield, Missouri-based Great Southern Bancorp, Inc. (NASDAQ: GSBC) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Great Southern Bank (“the bank”). The Outlook for all long-term ratings is Stable.

The ratings are supported by GSBC’s earnings profile with an ROAA above 1% since 2015 (5-year average: 1.37%), driven by a favorable NIM reflective of earning asset yields though counterbalanced by elevated risk weighted density and overall balance sheet leverage. However, KBRA recognizes the limitations within the earnings mix as noninterest income has represented 15%-20% of total revenue for the last 5 years, slightly lower than peer averages. Additionally, the company also has a durable and defensible retail deposit franchise that benefits from a consistently sizeable NIB deposit component (~35% of total deposits), although at a somewhat higher cost than many regional peers as the total cost of deposits was 1.45% as of 1Q23. Since 2017, GSBC has exhibited sound asset quality metrics, highlighted by an improving NPA ratio, standing below 7 bps in 1Q23. The company’s credit management is considered conservative and recent credit trends have been generally positive, including declining levels of classified and criticized loans, accounting for nearly 1% of loans as of 1Q23. Additionally, GSBC’s loss absorbing capacity continues to be higher than many regional peers with reserve levels near 1.40% of loans, as dictated by CECL. The company has sustained a slightly below peer capital profile over time (10.9% CET1 as of 1Q23). KBRA views the need to retain capital as necessary given the elevated investor CRE exposure (411% at 1Q23), which exceeds regulatory guidance, as well as moderately elevated C&D exposure. Moreover, GSBC has a leading market share in legacy midwestern markets and is growing competitive positions in newer, economically diverse MSAs. The company reflects a favorable liquidity and contingency funding profile, highlighted by FHLB availability totaling ~15% of total assets alone, as well as other balance sheet liquidity including cash and unpledged securities, covering uninsured deposits by 3x. KBRA recognizes the highly experienced management team and its long track record of exceptional asset quality through credit cycles, reflecting disciplined underwriting and relatively conservative policy limits.

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