GSBC 2025Q4

Good day, and thank you for standing by. Welcome to the Great Southern Bancorp's Fourth Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christina Maldonado. Please go ahead.

Good afternoon, and thank you for joining Great Southern Bancorp's Fourth Quarter 2025 Earnings Call. Today, we'll be discussing the company's results for the quarter and year ended December 31, 2025. Before we begin, I'd like to remind everyone that during this call, forward-looking statements may be made regarding the company's future events and financial performance. These statements are subject to various factors that could cause actual results to differ materially from those anticipated or projected. For a list of these factors, please refer to the forward-looking statements disclosure in the fourth quarter earnings release and other public filings. Joining me today are President and CEO, Joseph Turner; and Chief Financial Officer, Rex Copeland. I'll now turn the call over to Joe.

Thank you, Christina, and good afternoon to everyone on the call. We appreciate your participation today. Our fourth quarter and full year 2025 results demonstrate the sustained success of our core banking operations and our commitment to long-term tangible book value growth, even amid a volatile economic climate. Throughout the year, we focused on preserving net interest margin, ensuring credit quality, managing noninterest expenses, and opportunistically buying back our stock. In the fourth quarter, we reported net income of $16.3 million or $1.45 per diluted common share, up from $14.9 million or $1.27 per diluted common share in the same period last year. For the full year, net interest income was $71 million, while net income also totaled $71 million, equating to $6.19 per diluted common share. These results reflect resilient net interest income, strong asset quality, and effective management of assets and liabilities, despite ongoing competition for loans and deposits and various economic pressures. In the fourth quarter of 2025, net interest income reached $49.2 million, a decrease of $371,000 or 0.7% compared to the previous year. As you may recall, we lost income from a terminated swap during the fourth quarter, which accounted for most of that loss. This resulted in a quarterly impact of $2 million. Additionally, lower loan balances contributed to reduced interest income. However, effective management of funding costs helped lower interest expenses, partially offsetting the decline in interest income and leading to an expansion in net interest margin. Our margin increased to 3.70% this quarter from 3.49% in the comparable quarter last year. Core deposits remained stable, reflecting strong customer engagement and the resilience of our relationship-based banking model. Net loans receivable stood at $4.36 billion at year-end, down $333.5 million or 7.1% from the previous year, with declines observed across multifamily residential, commercial construction, one- to four-family, and commercial business loans. This decrease is mainly due to increased payoff activity as capital markets normalized during the year. While loan production remained active, we focused on maintaining a conservative underwriting stance, emphasizing pricing structure and borrower quality. Furthermore, construction lending maintained stability throughout the quarter and into 2025, backed by a solid amount of unfunded commitments. On the funding side, total deposits decreased by $122.8 million or 2.7%, primarily due to a decline of $108.7 million in the brokered category. We also experienced a drop of $87.3 million in our core CDs from our banking centers, which was largely offset by a $75 million increase in interest-bearing checking accounts. Deposit markets continue to be competitive across both core and brokered segments, and we are balancing pricing discipline with customer retention. We will keep monitoring repricing opportunities as interest rates and market dynamics evolve and will utilize non-deposit funding sources when suitable. Credit quality remains a strong point as we closed the year. Nonperforming assets for the fourth quarter totaled $8.1 million, representing 0.15% of assets. Compared to the previous quarter, nonperforming assets saw a slight increase of $319,000. We did not record any provisions for credit losses on outstanding loans in the fourth quarter of 2025, and we reported net recoveries of $22,000 for the quarter, compared to net charge-offs of $155,000 in the same quarter last year. For the entire year of 2025, we recorded recoveries of $11,000. This performance indicates stable borrower behavior and the effectiveness of our underwriting and portfolio monitoring practices. We prioritized expense management throughout the year. In the fourth quarter of 2025, noninterest expenses amounted to $36 million, down $947,000 or 2.6% year-over-year. This decline was largely due to the absence of a $2 million charge related to a contract settlement that occurred in the previous year. We also saw some increases in net occupancy and equipment expenses driven by investments in facilities and technology. For the fourth quarter of 2025, we reported an efficiency ratio of 63.89%. Looking ahead, our priorities will continue to center on maintaining strong capital and liquidity, supporting our customers and communities, preserving strong credit metrics, and deploying capital thoughtfully. While we may face challenges in loan growth and the economic situation may fluctuate, we are confident that our conservative approach and sound balance sheet management will provide long-term value for our stockholders. I will now hand the call over to Rex for a more in-depth review of our financial results.

Thank you, Joe, and good afternoon, everyone. I'll now provide a more detailed review of our fourth quarter and full year 2025 financial performance and how it compares to both the prior year period and the linked quarter. For the quarter ended December 31, 2025, we reported net income of $16.3 million or $1.45 per diluted common share compared to $14.9 million or $1.27 per diluted common share in the fourth quarter of 2024 and $17.8 million or $1.56 per diluted common share in the third quarter of 2025. For the full year, net income was $71.0 million or $6.19 per diluted common share compared to $61.8 million or $5.26 per diluted common share in the prior year. Net interest income totaled $49.2 million for the fourth quarter of 2025 compared to $49.5 million in the prior year quarter and $50.8 million in the third quarter of 2025. Interest income totaled $73.4 million for the fourth quarter of 2025 compared to $82.6 million in the fourth quarter of 2024 and $79.1 million in the third quarter of 2025. The year-over-year change primarily reflects the discontinuation of the previously terminated interest rate swap that Joe mentioned earlier, which was providing roughly $2 million in quarterly income prior to the fourth quarter. Also, along with that, we had lower average loan balances and lower average market interest rates in the fourth quarter of '25 compared to the fourth quarter of 2024. While market rates move lower, the impact on loan yields was somewhat moderated as cash flows from lower rate fixed-rate loans originated in prior years were redeployed into loans with comparatively higher rates. Interest expense totaled $24.3 million in the 2025 fourth quarter, reflecting continued reductions in deposit and borrowing costs as repricing dynamics moderated and wholesale funding remained well-managed. In addition, we repaid $75 million in subordinated debt in June of 2025, which resulted in $1.1 million in lower interest expense in the fourth quarter of 2025 compared to the fourth quarter of 2024. These reductions in funding costs mostly offset the downward pressure we saw on interest income. Our proactive loan pricing in conjunction with disciplined management of funding costs resulted in net interest margin expansion as we realized an annualized net interest margin of 3.70% in the 2025 fourth quarter compared to 3.49% annualized in the year-ago quarter. Noninterest income totaled $7.2 million for the fourth quarter of 2025 compared to $6.9 million in the prior year quarter and $7.1 million in the third quarter of 2025. The small increase in noninterest income was due primarily to a $289,000 increase in late charges and fees on loans resulting from the early payoff of primarily one commercial real estate loan in the 2025 fourth quarter. Total noninterest expense for the fourth quarter of 2025 was $36.0 million compared to $36.9 million in the fourth quarter of 2024 and $36.1 million in the third quarter of 2025. The year-over-year decline primarily reflects, as Joe mentioned earlier, the $2 million decrease in other operating expenses, which resulted from the litigation and contract matter that we spoke of earlier. These reductions were partially offset by a $1.2 million increase in net occupancy and equipment expense driven primarily by higher computer license and support costs related to core systems and disaster recovery enhancements, charges associated with branch closures and lease facility asset adjustments, and seasonal expenses related to things like snow removal and some adjustments to real estate taxes. Our efficiency ratio was 63.89% in the fourth quarter of 2025 compared to 65.43% in the fourth quarter of 2024 and 62.45% in the third quarter of 2025. Turning to the balance sheet items now. Total assets ended the year at $5.60 billion, down from $5.98 billion at the end of 2024 and $5.74 billion at September 30, 2025. Total net loans, excluding mortgage loans held for sale, totaled $4.36 billion at December 31, 2025, down from $4.69 billion at December 31, 2024, driven primarily by declines, as Joe mentioned, in multifamily, construction, one- to four-family residential, and commercial business loans. And while the loan demand remains selective, the pipeline of unfunded loan commitments remains solid with the largest portion related to the unfunded portion of booked construction loans. Liquidity remained strong at year-end with cash and cash equivalents totaling $189.6 million. In addition, the company maintained access to approximately $1.63 billion of additional borrowing capacity through the Home Loan Bank and the Federal Reserve Bank. Total deposits were $4.48 billion at December 31, 2025, reflecting a decrease of $122.8 million or 2.7% compared to December 31, 2024. The reduction was primarily driven by a decrease in brokered deposits of $109 million and a decrease in time deposits of $87 million. Those are retail time deposits, not brokered. This was partially offset, as Joe mentioned before, by increases in interest-bearing checking deposits, which totaled about $75 million. As of December 31, 2025, we estimated that uninsured deposits, excluding deposit accounts of the company's consolidated subsidiaries were approximately $720 million, representing roughly 16.1% of total deposits. Asset quality remained excellent, with nonperforming assets representing 0.15% of total assets at year-end, consistent with both the linked quarter and prior year quarter. During the fourth quarter of 2025, we recorded net recoveries of $22,000, an improvement from $155,000 in total net charge-offs recorded in the fourth quarter of 2024. For the full year 2025, we recorded net recoveries of $11,000. For the year ended December 31, 2025, we did not record a provision for credit losses on the portfolio of outstanding loans compared to a provision of $1.7 million recorded in 2024. In the fourth quarter of both 2024 and 2025, we did not record a provision for credit losses on the portfolio of outstanding loans. However, as a result of increased unfunded commitment balances, we recorded a provision for unfunded commitments of $882,000 in the 2025 fourth quarter, down from a $1.6 million provision recorded in the fourth quarter of 2024. Capital levels remained a key strength at year-end. Stockholders' equity was $636.1 million at December 31, 2025, an increase of $36.6 million from $599.6 million at the end of 2024. Stockholders' equity represented 11.4% of total assets, and book value per common share was $57.50 at year-end 2025. The increase in stockholders' equity over the prior year was driven primarily by full year earnings, improvements in unrealized losses on investment securities and interest rate swaps, and proceeds from stock option exercises, partially offset by cash dividends declared and common stock repurchased throughout the year. Tangible common equity increased to 11.2% at December 31, 2025, compared to 9.9% at year-end 2024, reflecting the combined impact of retained earnings and improved market valuations within the securities portfolio. We ended the year with capital levels well in excess of regulatory requirements, providing flexibility to support the balance sheet, return capital to shareholders, and navigate changing economic conditions. During the fourth quarter of 2025, we repurchased 241,000 shares of our common stock at an average price of $59.33. And during the full year 2025, we repurchased 755,000 shares of our common stock at an average price of $58.35. In the fourth quarter of 2025, our Board of Directors also declared a regular quarterly cash dividend of $0.43 per common share, consistent with the previous quarter. For the full year ended December 31, 2025, the Board declared regular quarterly cash dividends totaling $1.66 per common share. Overall, our balance sheet remains well positioned, supported by strong capital levels, ample liquidity, and a healthy loan portfolio. That concludes my remarks. We are now ready to take your questions.

Our first question is going to come from the line of Damon DelMonte with KBW.

First question just regarding the margin. A pleasant surprise this quarter. I think given the impact from the swap, we were expecting the margin to come down pretty substantially, but you were able to offset that, it looks like with some lower funding costs. So just kind of curious as to how you think about the margin here as we start off 2026.

I believe that up to this point, we have performed somewhat better than we anticipated in the fourth quarter. We managed to reduce some of our funding costs and are proactively addressing this through various funding sources, including deposits and wholesale funds. We're working on managing the cost side effectively. Additionally, on the interest income front, we are noticing that some of our loans, which were originated a few years ago at lower short-term fixed rates, are either renewing or being repaid, allowing us to reinvest those funds at higher current market rates. It's a blend of these factors at play. Of course, in the first quarter, there are fewer calendar days, which may not significantly impact the margin percentage but will likely result in a decrease in dollar terms due to the shorter number of days in the quarter.

Do you think you can manage it so that there's only a slight amount of compression? Or do you believe it can increase from here?

I’m not sure; maybe you can weigh in, Joe. I don’t think we should expect it to increase significantly.

Yes, I believe that until the Fed takes some action, our core CD portfolio, being a lagging indicator, may see some repricing and a reduction in interest expenses, but that segment constitutes a small portion of our deposits. Most of our deposits respond quickly to changes. Therefore, we have likely exhausted our options for improvement in the deposit portfolio, and significant enhancements are unlikely. Regarding the loan portfolio, as Rex mentioned, if there is any trend, it may lean slightly upward, but this would not significantly impact our overall net interest income. As we've stated, we do not provide guidance, but looking ahead to the fourth quarter, I do not foresee any substantial changes.

Okay. Got it. And then with respect to the outlook for loan growth, it sounds like you're continuing to have good production, pipelines are healthy, but you continue to face elevated payoffs. Do you expect those payoffs to slow down at all to a point where we can get some net growth here in 2026?

Yes. I think it's still going to be a challenging loan growth market for us because while there's good activity, it's not great, and there still are outsized loan portfolio or loan payoffs. So I think that's going to be our challenge going forward.

In the fourth quarter, we experienced a couple of unique short-term loans that we anticipated would pay off, including one significant loan. We also generated new loans and saw some growth. Some of these loans are construction projects that won’t fund immediately, while others were for existing projects, which we funded right away. As Joe mentioned, we expect some continuation of this trend, although I don’t have clear visibility on what may pay off. Our multifamily portfolio is substantial, and we observed most of the repayments there, aside from the one loan I noted in that sector. Therefore, it's difficult to determine the exact timing and scale of future developments.

Yes. It really is hard, Damon. I mean, we try to keep track of it. We try to guess, but it's sort of up to the borrowers. Some of them choose to maybe pay us off with a debt fund. Some of them choose to take a sale that's maybe at a lower price than they would be able to sell it for maybe a year or two down the road. So it's sort of the ball is in the borrower's court to a big extent. So it's really hard to give you any guidance on that.

Got it. And then if I could just ask one more question on expenses. Fourth quarter came in much better than what we were looking for. Should we kind of expect an uptick off of this quarter's level, just kind of given a reset with salaries and benefits and things of that nature?

Yes. I mean, I think that's fair.

We do have a lot of our employee base. A lot of those happened at the beginning of the year. Payroll taxes will reset. And generally, there will be some increase in that compared to the fourth quarter. So there are some factors, as you say, that play into that.

Our next question is going to come from the line of John Rodis with Janney.

Joe, just sort of back to the loan question from before. Loans were down 7% this year. I know payoffs are hard to predict, so I appreciate that. But do you think maybe you've seen at least the worst of it? Or do you think loans could be down a similar amount in '26?

It's just really hard to say, John. Obviously, I hope we've seen kind of the worst of it. We really like our loan portfolio. And we're working hard to originate stuff. So I hope that's kind of like a high watermark for paydowns. But because loan repayments is such a big part of the calculation, it's just hard to kind of guarantee that one way or the other.

I continue to originate loans, but we are also maintaining some pricing discipline and credit term discipline. We want to ensure that we keep our credit quality intact. There has been growth in new loan originations in 2025, although we have experienced payoffs that are slightly outpacing that growth.

Okay. That's helpful, Rex. Rex, just on the securities portfolio, how should we think about that going forward? It was down a little bit this year? What sort of cash flows do you expect for the year?

The portfolio is pretty much the same as it has been for most of the year, so not much has changed. Assuming rates remain relatively stable, we can expect similar payment types. With current rates being lower than they were at the beginning of 2025, there might be a slight increase in repayments. The majority of the portfolio, as detailed in our filings, consists of mortgage-backed securities, primarily agency products, along with some SBAs and municipal securities. Overall, most of it is agency pass-through types, generating some monthly payment streams, though not in large amounts. The portfolio primarily includes fixed-rate securities, so it won't fluctuate with changes in rates concerning yields. I don't anticipate any dramatic changes in 2026 unless rates decrease significantly, leading to a more substantial number of prepayments.

Okay. And as far as the cash flows, you're not really reinvesting right now, are you?

No, we've pretty much been taking the cash flows and reinvesting in loans.

Yes. Okay. Okay. Just one more question on the buybacks. You guys have been fairly active. And I think for the press release, you leave almost 700,000 shares currently. All things equal, would you expect to repurchase most of that this year?

Yes, we are pleased with our current stock price, John. It's slightly higher than it was in 2024, and our book value has also increased. Despite the recent increase in stock price, we're still trading at less than 115% of our book value, which we consider to be a good value, especially since we're not experiencing significant growth. It's a good use of our capital.

Yes. You've definitely got the capital to support it.

Thanks, John.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Joe Turner for closing remarks.

All right. We appreciate everybody being on the call today, and we'll look forward to talking to you in April. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.