Great Southern Bancorp - Earnings Call - Q1 2025

Executive Summary

• EPS $1.47, net income $17.2M; strong YoY and QoQ growth driven by higher net interest income, lower deposit costs, and a negative provision on unfunded commitments.
• EPS beat Wall Street by ~$0.20 (consensus $1.27*) and revenue modestly beat ($56.27M actual* vs $55.53M consensus*) — aided ~5bps by interest recoveries and ~$2M quarterly swap accretion through Q3.
• Net interest margin expanded to 3.57% (+25bps YoY, +8bps QoQ); efficiency improved to 62.27% as legal/professional fees fell vs last year.
• Deposits rose $152.5M QoQ with brokered +$123.3M, while uninsured deposits remained ~14% of total; liquidity lines >$1.5B plus $337M of unpledged securities support flexibility.
• Capital strong (TCE ~10.1%, CET1 12.4%); board approved new repurchase authorization of up to 1.0M shares after ~173K shares repurchased in Q1 at $58.38, reinforcing shareholder return catalysts.

Note: Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• “Net interest income totaled $49.3M… up ~10% YoY; NIM 3.57%” — margin expansion on lower deposit rates and better loan/securities yields; ~5bps uplift from recoveries.
• Credit quality remained strong: NPAs 0.16% of assets; NPLs 0.07%; net charge-offs only $56K; no provision on loans and a negative provision on unfunded commitments of $348K.
• Management quote: “Our balance sheet remains well positioned… tangible common equity ratio of 10.1% and approximately $2 billion of secured available lines and on-balance sheet liquid assets”.

What Went Wrong

• Noninterest income declined modestly YoY (-$216K to $6.6M), with softer overdraft fees and gains on loan sales vs prior year.
• Loan growth muted QoQ (gross loans essentially flat); management noted competitive lending environment and limited demand, tempering near-term growth expectations.
• Swap accretion benefit (~$2M per quarter) ends in early Q4’25, creating a foreseeable headwind to run-rate net interest income absent offsets.

Transcript

Operator (participant)

Thank you for standing by. Welcome to Great Southern Bancorp Q1 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Tryka, Investor Relations. Please go ahead.

Jeff Tryka (Managing Director)

Thank you. Good afternoon, and thank you for joining Great Southern Bancorp's Q1 2025 Earnings Call. Today, we will be discussing the company's results for the quarter ending March 31st, 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 disclosures in the Q1 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.

Joseph Turner (President and CEO)

Okay. Thanks, Jeff, and good afternoon. I also would like to welcome all of you and thank you for joining us on our call today. Our Q1 results reflect the strength of our core banking franchise and the continued resilience of our earnings in a dynamic operating environment amid ongoing economic and financial sector challenges. We reported net income of $17.2 million or $1.47 per diluted common share, up from $13.4 million or $1.13 per share in the same quarter a year ago. The improvement in net income this quarter compared to the year-ago quarter was primarily higher Net Interest Income reflecting stronger loan and investment yields and lower funding costs. Additionally, we recorded a negative provision for credit losses of $348,000 this quarter compared to a provision of $630,000 in the year-ago quarter. This reflects the continued credit strength across our portfolio.

Our disciplined approach to expense management and our commitment to maintaining a stable, diversified deposit base have further reinforced our financial foundation. Together, these results underscore the strength and resilience of our business model, positioning us well to continue delivering long-term value for Net Interest Income totaled $49.3 million in the Q1 of 2025 compared to $44.8 million in the Q1 of 2024, which was an increase of about 10%. Our net interest margin on a percentage basis remained solid at 357.25 basis points higher than our year-ago quarter. We continue to operate with a conservative credit posture and a focus on long-term relationship banking, which has enabled us to maintain margin stability despite ongoing deposit cost pressures and a more measured pace of growth. In terms of lending, our loan portfolio remained essentially flat.

It was at $4.76 billion at the end of the year and roughly flat here, up 2.2% from where we were at the end of the Q1 of 2024. Within our portfolio, the largest categories continue to be multifamily at $1.59 billion and commercial real estate at $1.49 billion. We've also remained focused on construction lending, which totals $475 million at the end of the Q1. Outstanding construction loan balances may fluctuate quarter to quarter as projects move through various stages of the completion process. Importantly, we continue to maintain a healthy pipeline of unfunded balances on construction loans, reflecting our continued presence in this segment. On the funding side, deposits increased 3.3% from the end of 2024 to $4.76 billion, with increases in brokered as well as inflows in our core checking balances.

While some shifts from non-interest-bearing to interest-bearing accounts have occurred, we've effectively managed total deposit costs while maintaining customer retention. Our balances of brokered deposits fluctuate depending on our funding needs and the management of funding mix between core deposits, brokered deposits, and other wholesale funds based upon the relative interest rates and desired duration of funds. From a credit quality standpoint, our metrics remain very strong. Non-performing assets remain minimal, consistent with prior quarters, and net charge-offs were negligible in the Q1 of 2025. We did not record a provision for credit losses on outstanding loans, representing an improvement of $500,000 from the Q1 of 2024. Additionally, the company also recognized a negative provision for losses on unfunded commitments of $348,000 in the Q1 compared to provision expense of $130,000 in the Q1 of 2024.

As we continue to drive operational efficiency, expense management remains a top priority. Non-interest expenses were essentially flat in the Q1 year-over-year at $34.8 million, despite our investments this quarter in technology, infrastructure, and personnel. We also saw a reduction of legal and professional expenses that were elevated last year as we were supporting our core conversion efforts. We continue to maintain a favorable efficiency ratio, reflecting our disciplined approach to cost control. As 2025 progresses, we remain focused on execution, protecting margin, proactively managing credit, supporting relationship-based loan growth, and investing strategically in our people, systems, and communities. Despite some economic and market uncertainty, our balance sheet and capital levels are strong, and our team is committed to delivering value through all parts of the cycle. Let me now turn the call over to Rex for a detailed discussion of the financials.

Rex A. Copeland (Treasurer and CFO)

All right. Thank you, Joe, and good afternoon, everyone. I'll now provide a little more detail on our Q1 2025 financial performance and how it compares to both the Q1 last year and the previous linked quarter. For the quarter ending March 31, 2025, we reported net income of $17.2 million, or $1.47 per diluted common share, compared to $13.4 million, or $1.13 per diluted common share in the 2024 Q1, and also up from $14.9 million, or $1.27 per diluted share in the Q4 of 2024. Our net interest margin for the Q1 increased to 3.57% compared to 3.32% in the same period last year and 3.49% in the Q4 of 2024. We did note some additional interest recoveries in the March 2025 quarter that added about five basis points to our net interest margin.

Despite the pressures from a challenging and competitive deposit rate environment, our margin performance reflects our careful balance sheet management and strategic approach to controlling Net Interest Income for the quarter increased to $49.3 million, reflecting both higher interest income and reduced interest expense. Interest income rose to $80.2 million, representing a 3.7% increase compared to the prior year Q1. That was supported by improved loan yields and continued growth in interest-earning assets. Interest expense declined to $30.9 million, a decrease of 5.1% year-over-year, driven primarily by a $3 million, or 11% reduction in deposit-related costs, reflecting lower market interest rates and disciplined funding cost management. This was partially offset by an increase in interest expense on short-term borrowings, which rose $1.4 million due to changes in our funding mix.

As a reminder, we will lose the benefit of the terminated interest rate swap after the Q3 of 2025. We expect to continue realizing approximately $2 million per quarter in interest income from the terminated swap through the first three quarters of 2025, after which that benefit to interest income will cease. Non-interest income for the quarter totaled $6.6 million, a decrease of $216,000, or 3.2%, compared to the Q1 last year. We experienced small decreases in commissions, overdraft fees, and net gains on mortgage loan sales, partially offset by small increases in debit card usage income and late charges and fees on loans. Compared to the Q4 of 2024, non-interest income decreased $344,000, primarily due to seasonal declines in overdraft fees, debit card usage income, and net gains on mortgage loan sales.

While non-interest income may experience some fluctuations, the overall performance demonstrates our continued ability to generate revenue through these non-interest products and services. Total non-interest expense for the quarter remained relatively consistent at $34.8 million, a small increase of $400,000, or 1.2%, from the Q1 of last year and down about $2.1 million, or 5.8%, from the Q4 of 2024. The Q4 of 2024 did include a $2 million non-recurring item. The change compared to the prior year Q1 was primarily due to increases in salaries and employee benefits and net occupancy and equipment expenses, which were partially offset by reductions in legal and professional fees. Salaries and benefits totaled $20.1 million, up approximately $473,000, or 2.4%, from the Q1 of last year, driven mostly by merit increases.

Net occupancy and equipment expense was $8.5 million, an increase of $694,000, or 8.9%, largely due to ongoing investments in systems, hardware, and software infrastructure, and higher expenses for snow removal in the Q1 of 2025. Professional fees saw a significant decline to $1.0 million, down from $1.7 million in the prior year Q1, primarily due to discontinued use of consultants working on the proposed core systems conversion. During the quarter, we also benefited from expense reimbursements related to our debit card activities at approximately $433,000, which effectively helped offset our overall marketing and advertising expenses in the quarter. As a result, our efficiency ratio for the quarter ended March 31, 2025, was 62.27%, an improvement compared to 66.68% recorded in the Q1 of 2024. Overall, we remain committed to managing costs effectively through continuous optimization of our operations and streamlining of expenditures.

At the same time, we are making strategic investments in key areas that will drive long-term growth and enhance our competitive position. Finally, I'll turn to the balance sheet, some items on that. Total assets ended the quarter at $5.99 billion, up from $5.78 billion one year ago and up slightly from $5.98 billion at December 31, 2024. Net loans held steady at $4.69 billion compared to the end of 2024, as loan demand remained relatively stable and we maintained our disciplined approach to credit underwriting. Cash and cash equivalents at the end of March totaled $217.2 million. The company also has access to additional funding lines through the Federal Home Loan Bank and the Federal Reserve Bank, totaling $1.54 billion, reflecting enhanced liquidity management and prudent positioning in response to evolving market conditions and funding dynamics.

As a result, we remain well-positioned to address both current and future funding needs. Total deposits stood at $4.76 billion at the end of March, representing a $152.5 million increase, or 3.3%, compared to December 31, 2024. Growth during the period was driven by a $33.5 million increase in interest-bearing checking balances, largely attributable to certain money market accounts. Non-interest-bearing deposits also rose by $9.7 million. These gains were partially offset by a $14.1 million decline in time deposits generated through our banking center and corporate services networks. Meanwhile, brokered deposits increased by $123.3 million, reflecting our ability to access and attract diversified funding sources versus other wholesale funds in a competitive environment. Deposit mix continued to shift modestly away from retail CDs toward brokered and other wholesale funding sources. Asset quality also remained strong, with non-performing assets of 0.16% of total assets at quarter end.

Non-performing loans to period-end loans were 0.07%. During the quarter ended March 31, 2025, the company did not record a provision for credit losses on its outstanding loan portfolio compared to $500,000 of expense recorded in last year's Q1. As we mentioned, the company also recorded a negative provision for losses on unfunded commitments of $348,000 in the Q1 of 2025, compared to $130,000 provision expense recorded in the Q1 of 2024, and a $1.6 million provision expense recorded in the Q4 of 2024 on unfunded commitments. Total net charge-offs for the 2025 Q1 fell to $56,000, down from $83,000 in the prior year Q1. The allowance for credit losses as a percentage of total loans stood at 1.36% at the end of March 2025, and that was consistent with the ratio at the end of 2024.

Our capital position remains healthy, with total shareholder equity increasing to $613 million from $600 million at December 31, 2024. At March 31, 2025, this represents 10.2% of total assets and a book value of $53.03 per common share. The increase was primarily driven by $17.2 million in net income and a $1.2 million increase from stock option exercises, partially offset by cash dividends declared on the company's common stock of $4.6 million and common stock repurchases of $10.2 million. Our total capital also increased $10.2 million in the Q1 of 2025 as a result of increased market values of our available-for-sale investment securities and interest rate swaps. Tangible common equity stands at approximately 10.1% of total assets at the end of March. We continue to operate well above all regulatory capital requirements.

Finally, I'll also mention that our board of directors did approve a new stock repurchase authorization of up to another 1 million shares once our existing authorization is complete. We had approximately 270,000 shares remaining on that existing program at the end of March 2025. Overall, we remain confident in the strength and resilience of our balance sheet, supported by strong capital, ample liquidity, a stable credit portfolio, and a deposit strategy that remains responsive to the broader interest rate environment. With that, we are now ready for your questions.

Operator (participant)

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Liesch from Piper Sandler Companies.

Andrew Liesch (Senior Equity Research Analyst)

Hey, Good morning, or Good afternoon. The margin rose a little bit for the one-time benefits. How do you think it should react here this quarter without any changes to Fed policy? Is there still room for more expansion, especially with benefits on the funding side?

Rex A. Copeland (Treasurer and CFO)

I'll start off on that one. I'd say on the funding side, on the non-time accounts, we've reduced rates fairly significantly on some of those. Don't know that we have lots of room on that. We do have maturities of CDs coming up here, and we kind of pointed that out in the earnings release that we've got several million dollars that will be coming up in the next three months, six months, etc. The replacement rates that we anticipate right now, based on what we're seeing in the marketplace today, there might be a little benefit that could come our way on that, but it doesn't look like it's going to be substantial. On the loan side, or on the asset side, we do have some fixed-rate loans that continue to repay, and those are typically at lower than current market rates.

As those repay, we are able to redeploy that into more current market yields. I would say that's a pretty slow process as far as repayments and maturities that occur. There are some that happen month by month, but it's not big chunks that move the needle immediately, for sure.

Joseph Turner (President and CEO)

Yeah, I would point out on that piece, Andrew, we might look at the 10K because there is a good disclosure in there about repricing loans, and you'll be able to see the yield on loans that are going to reprice, and you can sort of make assumptions as to how far they'll reprice upward. You could do a lot of that work yourself and probably get pretty close.

Andrew Liesch (Senior Equity Research Analyst)

Got it. Can you remind us how the balance sheet should react if we get any rate cuts from the Fed here in the second half of the year?

Joseph Turner (President and CEO)

Yeah, we feel like our overall interest rate risk posture, we're pretty neutral. I do think if there was a 50 basis point rate cut, immediately it could be a little bit negative, but we should pick back up pretty quickly. I don't even think immediately it would be dramatically negative. It might just be a little bit negative.

Rex A. Copeland (Treasurer and CFO)

We've got maybe in the ballpark of a couple of billion dollars of loans that are going to be tied to prime or SOFR and would move immediately or within a month of a repricing event like that from the Fed. We've got the interest rate swaps that would move and some.

Joseph Turner (President and CEO)

That's on the other side.

Rex A. Copeland (Treasurer and CFO)

On the other side, yeah, on the liability side.

Joseph Turner (President and CEO)

We have a couple billion dollars of interest-bearing checking that a lot of which would move. We feel like we're pretty well balanced. That's what we saw as rates came down.

Andrew Liesch (Senior Equity Research Analyst)

Makes sense. On the loan side, has there been any commentary from your customers with respect to pausing investments or with respect to the economic uncertainty, anything that they're cautious on right now, or is this just more steady as she goes with loan production?

Joseph Turner (President and CEO)

Activity is maybe down a little bit, and there is quite a bit of competition among banks for what loans there are. There is not a lot of loans to start with. As I said, quite a bit of competition for the few loans there are. It is not a lending environment where we would expect a lot of growth at all.

Andrew Liesch (Senior Equity Research Analyst)

Got it. Very hot. Thanks for taking the questions. I'll step back.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Damon DelMonte from KBW.

Damon DelMonte (Managing Director and Equity Research Analyst)

Hey, good afternoon, guys. Hope you're both doing well. Just wanted to circle back on the margin. Rex, you had said the benefit from the swap termination expires in the Q3. Is that correct? You said that's about a $2 million per quarter benefit?

Rex A. Copeland (Treasurer and CFO)

Yeah, it's actually at the beginning of the Q4. We'll still get the benefit through Q2 and all of Q3, and then the first week in Q4 is when it drops off.

Damon DelMonte (Managing Director and Equity Research Analyst)

Okay, got it. Great. Okay, thank you. Just kind of curious, with growth being somewhat tepid and strong capital on the balance sheet you guys have and the quarterly growth in capital, you guys bought back, I think, 173,000 shares this quarter. You made a comment about the new authorization. I guess kind of wondering your thoughts on the buyback here going forward. With growth being kind of slow, can we expect you to stay pretty active with the buyback?

Joseph Turner (President and CEO)

Yeah, we would expect to. Maybe not more active than what we've been, but we feel like we've been fairly active.

Rex A. Copeland (Treasurer and CFO)

It depends on the price and the number of shares that are available out there, of course, but where we're trading at today is not much different than book.

Damon DelMonte (Managing Director and Equity Research Analyst)

Yep. Got it. Okay. Lastly, on expenses, obviously a strong focus on controlling expenses and balancing where you spend money and where you can save money. Is it reasonable to think kind of—I know you don't give guidance, but kind of modest growth off of this Q1 number without any—there's no material planned expenditures here coming in the next couple of quarters, are there?

Joseph Turner (President and CEO)

No, not really. It happens every year, but it happens in the Q1. We had the $400,000. We had the $400,000 benefit to expenses in the Q1, and we won't have that in the Q2. Other than that, we didn't really highlight anything as being unusual. That's a fair assumption.

Damon DelMonte (Managing Director and Equity Research Analyst)

Got it. Okay. That's all that I had. Thank you very much.

Joseph Turner (President and CEO)

All right. Thanks, Damon.

Operator (participant)

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. At this time, I would now like to turn the conference back over to Joseph Turner for closing remarks.

Joseph Turner (President and CEO)

Okay. Again, we want to thank everybody for being on our call today, and we'll look forward to talking to you at the end of the Q2. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.