John Rodis

John Rodis followed up on the loan growth discussion, asking President and CEO Joseph Turner if Great Southern Bancorp has seen the worst of the loan portfolio decline, given the 7% decrease in 2025.

Answer

President and CEO Joseph Turner expressed hope that the worst of the paydowns is over but reiterated the difficulty in guaranteeing future trends due to the significant impact of loan repayments. CFO Rex Copeland added that the company continues to originate new loans while maintaining pricing and credit discipline.

John Rodis followed up on the loan growth discussion, asking if the 7% decline in loans for 2025 represents the worst of it, or if a similar decline could be expected in 2026. He then inquired about the outlook for the securities portfolio, specifically regarding expected cash flows for 2026 and current reinvestment strategies. Lastly, Rodis asked about the company's plans for the remaining 700,000 shares authorized for repurchase, questioning if most of it would be executed in 2026.

Answer

President and CEO Joseph Turner expressed hope that the worst of the loan paydowns is over but acknowledged the difficulty in predicting future repayments due to borrower decisions. CFO Rex Copeland reiterated that while originations continue with discipline, payoffs outpaced growth in 2025. For the securities portfolio, Rex Copeland stated it remains stable, primarily mortgage-backed, with similar monthly payment streams, and cash flows are currently being reinvested into loans rather than new securities. Regarding share repurchases, Joseph Turner affirmed that the company views its stock as a good value (trading at less than 115% of book value) and sees buybacks as an effective use of capital, especially in a period of limited loan growth.

John Rodis asked about the sustainability of Great Southern Bancorp's operating expenses around the $36 million level and the future outlook for the elevated commission income line item in non-interest income.

Answer

CFO Rex Copeland indicated that some occupancy and equipment costs are now built-in, while legal and professional fees might decrease from their peak. President and CEO Joe Turner clarified that equipment and occupancy expenses were normal, with expected annual merit increases contributing a couple of percent to growth. Regarding commission income, Rex Copeland noted it's higher than historical levels due to individual customer activity, but its sustainability is uncertain as there's no specific program to drive it.

John Rodis asked for clarification on the sustainability of rental income from Other Real Estate Owned (OREO). He also analyzed the net interest margin (NIM), asking about the core margin outlook after accounting for interest recoveries, a sub-debt redemption, and the upcoming termination of an interest rate swap.

Answer

CFO Rex Copeland confirmed the year-over-year change in OREO expense was due to having income this quarter versus expenses last year, with no specific catch-up payment. CEO Joseph Turner added that future income depends on the property's rent roll. Regarding the NIM, Turner described the outlook as "pretty neutral with a slight tailwind" before the swap termination creates a headwind in Q4. Copeland noted potential positives from repricing maturing time deposits but reiterated the significant negative impact of the swap termination in Q4.

John Rodis inquired about the source of the linked-quarter increase in the 'other income' line item within fee income. He also asked for additional details on the single property that was moved to Other Real Estate Owned (OREO), specifically its location and market status.

Answer

Executive Joseph Turner explained that the increase in other income was primarily due to a $268,000 upfront fee from a back-to-back swap with a loan customer, noting it's a part of their business but not a regularly recurring event. Regarding the OREO, Turner identified it as an office property in Clayton, St. Louis, which he described as the strongest submarket in the area. He added that the bank is not in a hurry to sell the property as it is currently generating positive cash flow.

John Rodis questioned the low volume of share repurchases during the quarter, asking if it was a function of stock price. He also asked for CEO Joe Turner's big-picture thoughts on potential expansion into new markets or the company's appetite for M&A.

Answer

CEO Joseph Turner confirmed that the reduced buyback activity was primarily due to the stock's higher price during the quarter. CFO Rex Copeland added that they also took the opportunity to build their capital position. Regarding expansion, Turner stated that while no new loan production offices are on the drawing board, they are always open to the right opportunity. He expressed caution on whole-bank M&A, preferring to be selective, but did not rule it out entirely.

John Rodis followed up on the securities portfolio, asking if the $120 million runoff for 2026 would be reinvested and if the target of 12-15% of assets for the securities portfolio remains. He also inquired if the portfolio is expected to bottom out in 2027 and, in a follow-up to M&A discussions, asked about the bank's openness to acquiring a team of lenders and the potential cultural implications.

Answer

Gavin Mohr, EVP and CFO, confirmed no reinvestment of the $120 million securities runoff in 2026, with the 12-15% of assets target remaining, and anticipates reinvestment to begin in 2027 after the portfolio floors out. Brad Kessel, President and CEO, reiterated the 12-14% of total assets as the trigger for investment purchases. Regarding lender teams, Mr. Kessel stated the bank would be open to it despite it not being a historical pattern, while Joel Rahn, EVP, Head of Commercial Banking, noted such acquisitions are rare and the bank has had success building teams one banker at a time.

John Rodis followed up on the $120 million securities portfolio runoff, asking if any of it would be reinvested into the securities portfolio and if the target of 12-15% of assets for the securities portfolio remains. He also inquired about the company's openness to acquiring a team of lenders as part of its M&A strategy.

Answer

Gavin Mohr, EVP and CFO, confirmed no securities purchases are planned for 2026, with reinvestment anticipated to begin in 2027. Brad Kessel, President and CEO, reiterated that the 12-14% of total assets target for the securities portfolio still guides investment decisions. Regarding lender teams, Brad Kessel stated they would be open to it, though it hasn't been the historical pattern. Joel Rahn, EVP, Head of Commercial Banking, added that acquiring teams is rare, and they've had good success with a one-banker-at-a-time approach.

John Rodis of Janney Montgomery Scott LLC asked for specifics on the securities portfolio, including expected maturities for Q4 2024 and full-year 2025, and sought confirmation of the bank's long-term target for the securities-to-assets ratio.

Answer

EVP and CFO Gavin Mohr provided the figures, projecting approximately $25 million in securities maturities in Q4 2024 and around $120 million for the full year 2025, which is primarily from MBS amortization. He also confirmed that the bank's long-term target for the securities-to-assets ratio remains in the 12% to 15% range.

John Rodis of Janney Montgomery Scott asked for clarification on the other income line, questioning if the Q2 2025 level, which was boosted by a new Fed dividend, is a sustainable run rate for the second half of the year.

Answer

Executive Chairman & CEO Robert Franklin explained that while some components of other income can be lumpy, the key driver of the increase from Q1 to Q2 was the new Federal Reserve Bank dividend. He confirmed that this dividend is an ongoing benefit that will continue in perpetuity, suggesting a new, higher baseline for that income line.

John Rodis inquired about the expected trend for the securities portfolio in 2025, the outlook for the provision for credit losses, and what management considers a normalized net charge-off rate for the company.

Answer

CFO Paul Egge explained that the bank aims to keep its securities portfolio around 15-16% of the balance sheet. He stated the 2025 provision would cover loan growth relative to charge-offs, with an assumption of some credit normalization. For a normalized net charge-off rate, he indicated that while the bank has a history of low charge-offs, consensus expectations in the mid-teens (around 16 bps) are a prudent assumption.

Asked about the CEO's big-picture strategic focus for 2025, the company's perspective on M&A in the near term, and the specific amount of the bank-owned life insurance (BOLI) benefit recorded in the quarter.

Answer

The CEO's focus for 2025 is on investing in internal infrastructure to enhance the associate and customer experience. Regarding M&A, the company hopes to be a partner of choice for other banks, particularly in Kansas, and is working on improving its own performance metrics to make its stock an attractive currency for deals. The BOLI benefit was a little over $700,000 due to a death benefit.

John Rodis asked about CEO Abigail Wendel's strategic focus for 2025, the company's stance on M&A, and the specific amount of the bank-owned life insurance (BOLI) benefit recorded in the quarter.

Answer

CEO Abigail Wendel explained her primary focus for 2025 is investing in the company's infrastructure to improve the associate and customer experience, and better harnessing data. On M&A, she expressed a desire for it to play a role, aiming to improve fundamentals like the efficiency ratio to be an attractive partner, particularly within Kansas. CFO Mark Herpich clarified that the BOLI income included a death benefit of over $700,000.

John Rodis asked for clarification on the expected tax rate for 2025 and whether the 9-12% fee income growth guidance was based on a 2024 number that included or excluded the quarter's one-time gains.

Answer

Executive Kenneth Lovik provided a 2025 tax rate outlook, projecting it would start around 9% in Q1 and rise to 16-17% by Q4, for an annual average of 13-14%. He also confirmed that the 9-12% non-interest income growth guidance for 2025 should be calculated from a 2024 base that excludes the $4.7 million in one-time gains on FHLB advance repayments.

John Rodis of FIG Partners inquired about a minor credit quality migration, the drivers of the loan loss provision, and the company's capital deployment strategy regarding share buybacks versus M&A.

Answer

President and CEO Rex Smith clarified that the credit migration to substandard was an isolated event involving two specific loans and that the loan loss provision was primarily driven by strong loan growth. Regarding capital, Smith emphasized a preference for preserving capital for potential M&A opportunities in a favorable market over initiating share buybacks, aiming to maximize long-term shareholder value.