GSBC 2025Q3

Good afternoon, and thank you for joining Great Southern Bancorp's Third Quarter 2025 Earnings Call. Today, we'll be discussing the company's results for the quarter ending September 30, 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 third quarter earnings release and other public filings. Joining me today are President and CEO, Joe Turner; and Chief Financial Officer, Rex Copeland. I'll now turn the call over to Joe.

All right. Thanks, Christina, and good afternoon to everyone. Thank you for joining us today. Our third quarter results reflect the continued strength and consistency of our core banking fundamentals and a solid earnings performance in what remains a competitive and dynamic environment. Core credit and operating results remained strong, supported by disciplined expense management, prudent loan underwriting and a stable deposit base. We reported net income of $17.8 million for the quarter or $1.56 per diluted common share. That was up from $16.5 million or $1.41 in the same period a year ago. The year-over-year increase in net income primarily reflects improved net interest income, no provision for credit losses and continued management of noninterest expense. These results demonstrate our ability to deliver consistent profitability while carefully structuring the balance sheet and maintaining a conservative risk profile. Net interest income totaled $50.8 million for the third quarter, an increase of $2.8 million or 5.8% compared to the $48 million reported in the same period a year ago. Our annualized net interest margin improved to 3.72% from 3.42% a year ago, reflecting stable loan yields, disciplined asset liability management and effective funding cost control in a highly competitive deposit environment. Core deposits held steady during the quarter, underscoring the strength of our customer relationships and the value of our community banking business. On the lending side, gross loans totaled $4.54 billion, which was a decline of $223 million or 4.7% from December 31, 2024. The decrease primarily reflects elevated commercial real estate and multifamily loan payoff, along with a reduction in outstanding construction loans as many projects were completed. Given our emphasis on balancing loan growth with appropriate pricing and loan structure, loan production in the quarter only partially offset the heightened payoff activity. Construction lending continues to show solid momentum with total unfunded construction commitments steady at approximately $600 million and monthly fundings of $30 million to $40 million. We remain focused on maintaining sound underwriting standards and disciplined credit practices, demonstrated through exceptional asset quality and negligible loan charge-offs. On the funding side, total deposits decreased $77.5 million almost exclusively in the broker deposit area. The deposit market remains highly competitive with sustained rate pressure in both core and broker deposit segments. We are proactively managing this dynamic by balancing rate discipline with customer retention, choosing to prioritize certain funding sources over others at times. Future repricing opportunities will be closely monitored as market rates and deposit competition continue to evolve. At September 30, 2025, nonperforming assets were $7.8 million, representing 0.14% of total assets and a $273,000 decrease from June 30, 2025. We did not record provision for credit losses on outstanding loans in the third quarter of 2025. These results highlight the continued strength of our loan portfolio and judicious risk management practices. Expense management remains a top priority as well. Noninterest expense for the third quarter of 2025 was $36.1 million, up from $33.7 million in the year-ago quarter. The year-over-year increase primarily was a result of higher legal and professional fees, upgrades in our core technologies and upgrades in our core technology system. In the third quarter of 2025, we achieved an efficiency ratio of 62.45%. As we look ahead to the remainder of 2025, we remain focused on maintaining strong positions related to credit quality, capital and liquidity. Even amidst ongoing competition and elevated funding costs, we are committed to delivering consistent long-term value for our shareholders. Let me now turn the call over to Rex Copeland for a detailed discussion of our financials.

All right. Thank you, Joe, and good afternoon, everyone. I'll provide a little more detailed review of our third quarter 2025 financial performance and how it compares to both the prior year period and the previous quarter. As mentioned, we reported net income of $17.8 million or $1.56 per diluted common share in the third quarter of this year compared to $16.5 million or $1.41 per diluted common share in the third quarter of 2024 and $19.8 million or $1.72 per diluted common share in the second quarter of 2025. The decline compared to the prior quarter was primarily the result of a decrease in noninterest income and a modest increase in noninterest expense. A couple of things in the second quarter this year, we had some significant nonrecurring income in the noninterest income category and also about $450,000, I believe, of interest income that was on some unbooked items. And so we did have those good news items in Q2. Net interest income was $50.8 million compared to $48 million in the third quarter of 2024 and $51.0 million in the second quarter of 2025. The annualized net interest margin was 3.72% compared to 3.42% in the year-ago quarter and 3.68% for Q2 of 2025. Interest income totaled $79.1 million compared to $83.8 million in the third quarter of 2024 and $81.0 million in the second quarter of 2025. The year-over-year decrease reflects a slightly lower interest-earning asset base, mainly due to a decrease in average loan balances, along with lower prime and SOFR market rates, which impacted interest rates on variable rate loans. The average yield on loans decreased 23 basis points to 6.21% from 6.44% in the prior year period. Interest expense for the third quarter of 2025 was $28.3 million compared to $35.8 million in the prior year period and $30.0 million in the linked quarter. The decrease from last year primarily reflects a lower cost of interest-bearing deposits and various borrowings as a result of FOMC rate cuts in late 2024 and September 2025. Interest expense also benefited from the absence of any interest on subordinated notes during the current quarter as those loans were redeemed in June 2025. The average rate paid on total interest-bearing liabilities decreased to 2.66% in the 2025 third quarter, down from 3.24% in the 2024 third quarter. The company recognized approximately $2 million in interest income related to the terminated interest rate swap during the third quarter of 2025. And as a reminder, this benefit has now concluded following the swaps originally scheduled maturity date of October 6, 2025. For the third quarter of 2025, noninterest income totaled $7.1 million compared to $7.0 million in the third quarter of 2024 and $8.2 million in the second quarter of 2025. The improvement from the prior year period was primarily driven by improvements in commissions on annuity sales and fees on loans but was partially offset by reductions in debit card and ATM fee income. The largest individual change in the various noninterest income categories compared to the year-ago quarter was a $206,000 increase in commission income. Total noninterest expense was $36.1 million compared to $33.7 million in the third quarter of 2024 and $35.0 million in the second quarter of 2025. The year-over-year increase of $2.4 million was primarily attributable to higher net occupancy and equipment expense, salaries and employee benefits, professional fees and expenses related to other real estate owned. A couple more comments on those things. Net occupancy and equipment expense increased $735,000 from the prior year quarter, largely due to higher computer licensing and support costs associated with enhancements to our core systems and disaster recovery infrastructure, which collectively increased by $637,000 compared to the third quarter of 2024. Salaries and employee benefits rose $636,000 year-over-year reflecting annual merit increases and staffing adjustments within our lending and operations areas. Legal, audit and other professional fees increased $439,000 from the third quarter of 2024, primarily due to higher legal expenses related to corporate matters and loan collection activities. Expenses on other real estate owned increased $394,000 from the prior year quarter primarily reflecting lower gains on sales of other real estate owned in the 2025 third quarter compared to some gains that we had in the 2024 period. Also, the prior period benefited from the gains on the property sales. Current quarter reflected net rental income from the office building added to foreclosed assets in the fourth quarter of 2024. Our efficiency ratio was 62.45% in the third quarter of 2025 compared to 61.34% in the third quarter of 2024 and 59.16% in the second quarter of 2025. We continue to emphasize disciplined cost control and operational efficiency, while strategically investing in areas that enhance our capabilities and position the company for sustained growth in the future. Turning now to the balance sheet. Total assets ended the quarter at $5.74 billion, down from $5.98 billion at the end of 2024 and $5.85 billion at June 30, 2025. Total net loans, excluding mortgage loans held for sale, decreased to $4.47 billion at September 30, 2025, compared to $4.69 billion at December 31, 2024, and $4.53 billion at June 30, 2025. The decrease compared to the previous year-end was primarily driven by decreases in construction loans, many of which were completed and moved to multifamily or commercial real estate categories. Multifamily loans and 1-to-4 family residential loans. While overall loan balances are expected to remain relatively stable through year-end, the unfunded portion of construction and commercial loan commitments remain strong and reflecting steady borrower activity within our markets. The bank's on-balance sheet liquidity remains consistent with cash and cash equivalents totaling $196.2 million at September 30, 2025. The company also has access to additional funding lines through the Federal Home Loan Bank and Federal Reserve pay totaling $1.47 billion. This availability reflects disciplined liquidity management amidst evolving market conditions and challenging funding cost dynamics. Total deposits were $4.53 billion as of September 30, 2025, reflecting a decrease of $77.5 million or 1.7% compared to December 31, 2024. The decrease was primarily driven by a decrease in brokered deposits of $92.1 million and non-brokered time deposits, which decreased by $52.1 million. This was partially offset by a $54.3 million increase in interest-bearing checking deposits and an increase of $12.4 million in noninterest-bearing checking deposits. As of September 30, 2025, we estimated uninsured deposits, excluding those of our consolidated subsidiaries, totaled approximately $742 million, representing roughly 16% of total deposits. Asset quality remained healthy in the third quarter with nonperforming assets representing 0.14% of total assets and nonperforming loans representing 0.04% of period-end loans. Both ratios were generally consistent with the prior quarter and the year-ago period. During the quarter ended September 30, 2025, the company did not record a provision for credit losses on its portfolio of outstanding loans compared to a provision expense of $1.2 million recorded in the third quarter of 2024. The company recorded a negative provision for unfunded commitments of $379,000 in the third quarter of 2025 compared to a negative provision of $63,000 in the same quarter last year. The allowance for credit losses as a percentage of total loans stood at 1.43% as of September 30, 2025, a slight increase from 1.41% at June 30. Our capital position remains strong, with total stockholders' equity increasing to $632.9 million at September 30, 2025, compared to $599.6 million at December 31, 2024. This represents 11% of total assets and a book value of $56.18 per common share. The $33.3 million increase from year-end 2024 was primarily driven by a $54.7 million in net income and a $4.2 million increase from stock option exercises, partially offset by $14.0 million in cash dividends declared and $30.0 million in common stock repurchases. The increase in stockholders' equity was also aided by an $18.5 million improvement in accumulated comprehensive losses on our available-for-sale investments and interest rate swaps. Our tangible common equity ratio improved to 10.9% at the end of the third quarter, up from 9.9% at December 31, 2024, reflecting the combined benefit of retained earnings and reduced unrealized losses on available-for-sale investment securities and interest rate swaps. We continue to operate from a position of strength, maintaining capital levels that are well in excess of regulatory requirements and supportive of our long-term growth and shareholder return objectives. As we shared on our last quarter's call, our Board of Directors approved a new stock repurchase authorization for up to 1 million additional shares, which became effective during the third quarter following the completion of our previous program. As of September 30, 2025, approximately 929,000 shares remain available for purchase under this most recent authorization. During the third quarter of 2025, we repurchased 165,000 shares of our common stock at an average price of $60.33 per share. Through the first 9 months of 2025, we repurchased 514,000 shares of our common stock at an average price of $57.89. Our Board of Directors also declared a regular quarterly cash dividend of $0.43 per common share representing an increase of $0.03 from the previous quarter. For the 9 months ended September 30, 2025, the Board declared regular quarterly dividends totaling $1.23 per common share. Overall, our balance sheet remains strong and well positioned for the current environment, underpinned by solid capital levels, healthy liquidity and consistent credit performance, providing support for long-term shareholder value. That concludes my remarks today. We are now ready to take your questions.

First question is kind of on the loan growth outlook. I think the comment was you hope to keep balances steady for the remainder of the year. Could you guys just talk a little bit about where you're seeing the best opportunities across your footprint? Maybe which regions are showing the most optimism for growth and maybe compare that against some of the slower ones?

Damon, I mean, I think there's opportunity really in kind of every pocket of our footprint. We're still seeing opportunities in Texas, Atlanta, certainly our St. Louis, Kansas City, our core markets, those would be some that I would highlight, although I think we're having origination requests kind of across the franchise. It's just that payoffs are elevated as well.

Got it. Okay. And then your credit quality has been exceptional. Kind of more broadly speaking in the industry, we've seen some kind of one-offs apparently that are popping up for a bunch of folks. Are there any segments of your portfolio where you might be seeing some signs of weakness?

No, I couldn't say that we're seeing anything broad enough to indicate general weakness. We occasionally encounter specific projects, like multifamily or retail, that lease up slowly. However, I view that as more specific to those individual projects rather than indicating any overall weakness. Regarding the two events I noticed, I'm not certain if that aligns with your concerns, but they involve a company with significant factoring relationships and a subprime lender, and we aren't engaged in those sectors at all. We remain focused on our core strengths in credit.

Got it. Okay. Appreciate that color. And then kind of along the lines of credit and outlook and we talk about provision a little bit. With the modest outlook for loan growth, it's probably fair to assume just a minimal provision just to kind of provide for any net growth that you do have, is that a reasonable way to look at it, correct?

I think so, and I guess if there was a net charge-off of some sort, we would probably cover that as well.

Right.

I understand. If I may ask one more question about rate sensitivity, we noticed a rate cut last month. What are your thoughts on the possibility of another 25 basis point cut or a couple of them later this year, and how is the margin positioned for that?

I mean from a margin perspective, I think we feel like we're pretty well positioned with that. The rate cut that happened in September has not so far really impacted us. I mean we've been pretty steady on net interest income and margin since that. Rate cuts generally, if they're pretty moderate and spaced out a little bit, shouldn't be harmful. I don't think. If you recall back several years ago when rates fell dramatically and went way down, that's when everybody, including us, kind of had some issues, maybe with losing some margin there for a while, took a while to gain it back. But overall, I don't think that minor and spaced out rate cuts would really be too impactful probably. Now remember, we know we're going to have the $2 million per quarter that we had been enjoying for a long time on that terminated swap is now over. So we obviously have that factored into the fourth quarter here and beyond.

Rex, concerning operating expenses, do you believe you can maintain them around the $36 million level? How should we approach this?

Yes. I mean I think some of the things in the occupancy category and equipment category that I mentioned, those are probably kind of built in now as we've made some enhancements to systems and things of that nature. Some of the other things related to maybe the legal and professional fees. Hopefully, those are kind of peak there and maybe come back down a little bit in future periods.

Yes. We try to point out anything we believe is unusual. As Rex mentioned, we did experience a higher level of legal fees than normal. However, we would not describe the elevated expenses in equipment or occupancy as unusual. Overall, it was a fairly typical quarter regarding noninterest expenses. We will implement standard merit increases for employees throughout the year, which are generally a couple of percent. Therefore, we can expect decent growth.

That makes sense. Joe or Rex, you mentioned the commission line item in fee income, and I've never seen that commission line item so high before. Is this a new level, or how should we think about commissions going forward?

Yes, it's not a significant dollar amount, around $566,000 for the quarter, which isn't very large. However, it is higher than what we've seen historically and has been elevated in the past few quarters. It's difficult to determine for sure since it relates to individual customers. If there's continued interest in the products, it might maintain that level, but there's no major program currently aimed at increasing additional income. Overall, we are at a higher level than we've been for some time, but I can't definitively say if that can be sustained.

All right. Thanks, everybody. Thanks for being on our call today, and we look forward to talking to you again in January. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.