Great Southern Bancorp - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 diluted EPS was $1.27 and net income $14.9M, up year over year from $1.11 and $13.1M, respectively; net interest income rose 9.7% to $49.5M and NIM improved to 3.49% (vs. 3.30% YoY, 3.42% QoQ).
• Results included a non-recurring $2.0M litigation/contract dispute expense that reduced EPS by $0.13; excluding this, core profitability would have been modestly higher.
• Asset quality remained strong: NPAs were 0.16% of assets; a $6.0M non-performing CRE loan was transferred to OREO (Clayton, MO office), lifting foreclosed assets to ~$6.0M, while allowance stayed at 1.36% of loans.
• Liquidity and capital are robust (FHLB $1.06B, Fed $346.4M lines; TCE 9.9%; CET1 12.3%); deposit costs and mix are easing with recent Fed cuts, supporting NIM stability over the next 2–3 quarters per management.

What Went Well and What Went Wrong

What Went Well

• Net interest income and margin improved: NII up $4.4M YoY to $49.5M; NIM 3.49% vs. 3.30% YoY and 3.42% QoQ, driven by higher loan yields and funding cost management.
• Credit quality solid: NPAs fell YoY to $9.6M (0.16% of assets), NPLs 0.07%, and net charge-offs were just $155K in Q4; allowance for credit losses held at 1.36%.
• Management tone constructive: “We remain committed to managing our business prudently… in what we expect will be a challenging operating environment,” highlighting resilience and disciplined ALM strategy.

What Went Wrong

• Non-recurring expense hit: $2.0M litigation/contract dispute expense reduced EPS by $0.13 and lowered ROA/ROE (–10 bps ROA, –103 bps ROE).
• Deposit balances fell $91.9M in Q4 with declines across interest-bearing checking, non-interest-bearing checking, time, and brokered deposits; funding competition remains elevated.
• Efficiency ratio rose QoQ to 65.43% (from 61.34% in Q3), with non-interest expense up sequentially (including the $2.0M item).

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Great Southern Bancorp, Inc. fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer 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 start your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Zach McKeown. Please go ahead.

Zach McKeown (Head of Investor Relations)

Good afternoon, and thank you for joining Great Southern Bancorp fourth quarter 2024 earnings call. Today, we'll be discussing the company's results for the quarter and full year ending December 31st, 2024. 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, our President and CEO, Joe Turner, and Chief Financial Officer, Rex Copeland, are now turning the call over to Joe. Hey, Joe.

Joe Turner (President and CEO)

All right. Thanks, Zach. And good afternoon, everyone. We appreciate you joining us today for our fourth quarter earnings call. 2024 was a year of resilience and progress for Great Southern Bancorp. Despite facing a dynamic economic and banking environment, our team delivered solid results, reinforcing the strength of our business model and our long-term commitment to execution. For the year, we reported $61.8 million, or $5.26 a share. While this represents a slight decline from the prior year, it reflects our proactive management during a period marked by rising funding costs and heightened competition for deposits. These results underscore our ability to adapt, prioritize profitability, and continue creating value for our shareholders. In the fourth quarter, we reported net income of $14.9 million, or $1.27 per diluted common share.

Net interest margin was $3.49 for the quarter, reflecting an improvement from 3.3% in the fourth quarter of last year and 3.42% in the quarter ended September 30, 2024. Annualized return on average assets for the quarter was 1%, which is up slightly from the prior year's quarter, while annualized ROE, or return on average common equity, was 9.76%. As we did note in the earnings release, fourth quarter financial results were negatively impacted by non-recurring, non-interest expense items. This expense reduced annualized return on average common equity by 103 basis points and annualized return on average assets by 10 basis points. Looking ahead, we are confident in our long-term strategy and our ability to drive shareholder value and increase book value per share while continuing to deliver strong, consistent results.

Our loan portfolio growth was driven by sustained demand in key segments, with gross loans for the year increasing $100.5 million. Multifamily residential loans led the way, reflecting robust growth, while the loan pipeline for construction loans remained strong. Loan payoffs due to borrowers selling projects or refinancing debt were sporadic and somewhat muted in 2024 compared to previous years, given the interest rate environment. For more information about our loan portfolio, please refer to our quarterly loan portfolio presentation available on our investor relations site under the presentations link. The presentation provides helpful insights regarding our loan portfolio mix by type and geography. Our asset quality remained very strong, with non-performing assets at 0.16% of total assets at the end of the year. Non-performing loans to period end loans fell to 0.07%.

During the quarter ended December 31st, 2024, our provision for credit loss expense was $2.5 million higher than during the same quarter last year. In the 2024 fourth quarter, the company did not record a provision expense on its portfolio of outstanding loans compared to the $750,000 provision expense in the same period of 2023. In the 2024 fourth quarter, the company recorded a provision expense of $1.6 million on its unfunded loans compared to a negative provision expense of $1.7 million during Q4 of 2023. Our total net charge-offs for the fourth quarter fell to $155,000, down from $833,000 in the prior year quarter. The allowance for credit losses as a percentage of total loans stood at 1.36%. At December 31, 2024, it was the same thing at the end of the third quarter and 1.39% at the end of 2023.

We strengthened our capital position, increasing stockholders' equity by $27.7 million, while strategically repurchasing our stock. I think we spent maybe $15 million or so repurchasing our stock and about $18 million on our dividend, and of course, we also had a change to the downside in our mark-to-market by about $12 million, I think, so our continued capital management enabled us to return significant values to our shareholders through dividends and share repurchases. As we look ahead to 2025, our focus remains on disciplined growth, prudent balance sheet management, and sustainable value delivery for our shareholders. At Great Southern, we have consistently taken a long-term view of everything we do. As a result, we are excited about the opportunities ahead. We are also confident in our ability to navigate any challenges that may arise.

Lastly, I'd like to thank our team members for their dedication and our shareholders for their continued trust. Now I'll turn it over to Rex to provide more detail on our financial results.

Rex Copeland (CFO)

Thank you, Joe, and good afternoon, everyone. I'll provide a little deeper dive into some of our financial performance metrics here for the fourth quarter and the full year. I'll start with net interest income and margin. For the fourth quarter, we delivered net interest income of $49.5 million, a 9.7% increase compared to $45.1 million in the same quarter of 2023, and a 3.2% increase from $47.9 million in the third quarter of 2024. This improvement was primarily driven by higher loan income and yields, as well as strategic management of funding costs. For the full year, our net interest income totaled $189.1 million, reflecting a slight decline of 2.1% compared to the previous year. This decline reflects the impact of ongoing elevated deposit costs, which continued increasing until the latter part of 2024, but have now begun to decline.

Our net interest margin for the fourth quarter increased to 3.49% compared to 3.30% in the same period last year and 3.42% in the third quarter of 2024. Our margin stability, despite the challenging deposit rate environment, underscores our disciplined approach to balance sheet management and strategic actions to effectively manage funding costs. For the full year, the margin stood at 3.42%, down from 3.57% in 2023, reflecting the impact of elevated funding costs. Average loan yields rose to 6.30% for the year, while the cost of interest-bearing liabilities increased to 3.11%. We do not currently see any significant catalyst to drive the net interest margin significantly higher or lower from the fourth quarter level in the coming two to three quarters.

We have a significant amount of time deposits maturing in the first quarter of 2025, which we expect will renew at slightly lower rates than their current rate. However, as a reminder, we will lose the benefit of the terminated interest rate swap after the third quarter 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 the benefit to interest income will cease. Total deposits at December 31st, 2024, were $4.61 billion, down $91.9 million from the previous quarter. The decline was driven by reductions across multiple deposit categories, including interest-bearing checking, brokered deposits, and retail time deposits. These changes reflect the ongoing competitive environment for deposits, which we monitor closely to ensure stability and growth.

Our liquidity position remains strong, with $195.8 million in cash and cash equivalents and access to additional funding lines through the Federal Home Loan Bank and the Federal Reserve, totaling $1.60 billion. We remain well-positioned to address both current and future funding needs. We have successfully replaced brokered deposits as they mature and expect this trend to continue for upcoming maturities. We've actively managed our funding sources to optimize costs and support long-term stability. Earlier in the rate cycle, as interest rates were rising, we replaced maturing lower rate time deposits with higher rate time deposits to remain competitive. However, with recent rate cuts in 2024, we are now replacing maturing higher rate time deposits with funding at comparatively lower rates. This transition reflects an important shift in the interest rate environment, allowing us to reduce overall funding costs.

Time deposit market rates have begun to decline following the Federal Reserve's rate cuts in late 2024, which we anticipate will ease funding cost pressures somewhat moving forward. As mentioned before, loan growth remains strong, with total net loans increasing over $100 million, or 2.2% year-over-year, to $4.69 billion at year-end. This growth was driven by a $607.2 million increase in multifamily residential loans, which offset declines in other categories, including a $358.7 million decrease in outstanding construction loan balances as primarily multifamily projects in construction transitioned to completion. Importantly, our loan pipeline expanded in the fourth quarter, particularly in construction, signaling continued future demand. Asset quality mentioned somewhat previously before, but non-performing assets declined $2.2 million during the year to $9.6 million, or 0.16% of total assets at year-end 2024. We mentioned the net charge-off levels already.

For the quarter and then for the year, net charge-offs in 2024 were $1.6 million, up a little bit from $1.1 million in 2023. We also mentioned the allowance for credit losses was 1.36% of total loans. Foreclosed assets increased $6 million from the end of 2023 as a single-office real estate asset accounted for 100% of the total foreclosed real estate asset balance at December 31st, 2024. A little bit more on non-interest income and expenses. For the full year, non-interest income totaled $30.6 million, largely unchanged from the prior year. In the fourth quarter, non-interest income was $6.9 million, up $371,000 compared to the prior year's fourth quarter. This increase was primarily driven by increased net gains on loan sales and other income, partially offset by decreased overdraft fees. On the expense side, non-interest expenses for the year were $141.5 million, which was consistent with 2023.

For the fourth quarter, non-interest expenses totaled $36.9 million, which included the $2.0 million expense that was mentioned previously. Excluding that item, our expenses reflected discipline cost management and continued investment in technology and operational areas. For the years ended December 31st, 2024, and 2023, the company's effective tax rate was 18.1% and 20.6%, respectively. These effective rates were below the statutory federal rate of 21%, primarily due to the utilization of certain investment tax credits and the company's tax-exempt investments and loans, which reduced the company's effective tax rate. The company's current effective tax rate, both combined federal and state, is expected to range from approximately 18%-20% in future periods, primarily due to the aforementioned investment tax credits that we began utilizing additional portions of in 2024, and I'll conclude with capital and stockholders' return.

From a capital perspective, our stockholders' equity increased by $27.7 million-$599.6 million at year-end, which represents 10% of our total assets. This increase was primarily driven by net income of $61.8 million and stock option exercises adding $11.9 million to equity, partially offset by $18.7 million in declared cash dividends and $15.2 million in share repurchases. Unrealized losses on investment securities and interest rate swaps decreased stockholders' equity by another $11.9 million in 2024. Our tangible common equity ratio at the end of the year was 9.9%. That concludes my remarks. At this time, we are now ready for questions.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. We also ask that you wait for your name and company to be announced before you proceed with your question. One moment while we compile the Q&A roster. Our first question today will be coming from the line of Andrew Liesch.

Hey, good afternoon. Thanks for taking the questions. Just want to talk on the margin commentary here. Kind of surprised that it's not a little more optimistic, just given that we had a couple of rate cuts. And it's not just the CDs where you saw improvement in cost of funding. So do you think maybe the bias could be slightly higher for the next couple of quarters before the swap benefit rolls away?

Rex Copeland (CFO)

There's a couple of things going on with it. I don't know that like I said, I think we said in here, we don't really see a big catalyst moving the number tremendously from the fourth quarter number. We will have some benefit, we believe, from CD maturities. And we should have a little bit of benefit, although it's not a large volume of fixed-rate loans that will probably reprice, and a lot of those should reprice a little bit higher for the most part as they do reprice. It's going to depend a lot, I think, Andrew, on the deposit and funding mix and whether or not we have any runoff in non-interest-bearing checking and things of that nature. So I don't know that I've got a big bias in moving off the number a whole lot either way, frankly, but.

Got it. I guess, what are you seeing locally in deposit competition for interest-bearing demand and savings and money market accounts? Because the rates on those accounts came down nicely this last quarter, and with some more cuts in the fourth quarter, I'm just curious if there's any market improvement there with demand.

I think, I mean, most of our markets are remaining fairly competitive. And it's not like every bank across the board, but there's enough banks within each market that are moving rates a little bit or keeping rates a little bit higher. We've been able to reduce some of those rates, and I think we have done so fairly prudently. With any additional rate cuts from the Fed, we do have some negotiated rates in there that we should be able to reduce. Absent that, we may be able to reduce a little, but not necessarily significantly. And some of the other products that are in there, there just are more normal rates. We have been working those rates down a little bit, but some of the competition is kind of dictating a slow go on that.

Gotcha. All right. That's helpful. And then just a quick question on expenses here. If I take out that $2 million or right around $35 million for the quarter, is that a good jumping-off point for the first quarter, maybe with some seasonally higher payroll taxes and bonus accruals, and then an uptick in the second quarter for merit increases? Is that the right way to look at the overall expense base?

Yeah. I mean, there was nothing else that we called out in the earnings release. So I think that's reasonable. And then we will have a fair amount of just normal like you said, there's going to be the seasonal payroll tax matters and maybe some incentives and bonus things. But there'll be we have a lot of people that are on an annual merit increase, and a lot of those occur at the beginning of the year. So there'll be some things that will flow through the first quarter for that as well.

Got it. Thank you so much for taking the questions. I'll step back.

Thank you.

Operator (participant)

Thank you. If you'd like to ask a question, please press star one one on your telephone. One moment for our next question, and our next question will be coming from the line of Damon DelMonte.

Hey, good afternoon, guys. Hope you're all doing well.

Rex Copeland (CFO)

Hey, David.

Hi. Just wanted to start off a little bit about loan growth. There was no provision for loans this quarter. It was for unfunded commitments. So just wondering if you could talk a little bit about the closing activity during the quarter and kind of how you see that funding over the next four quarters or so?

You're talking about how the unfunded will fund?

Yes. Yes. Exactly.

I think generally our unfunded funds may be between $50 and $70 million a month. So there'll be $150 million or so of that fund. But we generally will have repayments at that level or pretty close to it. So I don't know that our loan portfolio will necessarily grow a ton in 2025. And some of the more recent loans that we've closed, but they're construction deals or things like that, they won't start funding for a little while. But like Joe said, we've got stuff in the pipeline that is funding at some clip every month. But the more recent stuff may take a couple of quarters, maybe. Maybe at least one or one and 0.5x.

Joe Turner (President and CEO)

Yeah. I mean, the borrowers have to fund their equity first. So on most construction deals, we're getting enough equity that it takes maybe seven to nine months of borrowers funding their equity before we'll fund anything on our loan.

Got it. Okay. So I mean, this last year, you guys had around a little bit over 2% annualized growth. I mean, do you think you could at least get to that level in 2025 of net growth?

Rex Copeland (CFO)

Yeah. I mean, we don't give, as you know, Damon, forward guidance as to loan growth, but I think we aren't telling you anything any different this year about growth in our loan portfolio than we were telling you last year, and it'll just depend also on if there's a big uptick in early repayments and things like that, where people are refinancing projects or selling projects or things, so as you guys we talked before, and you guys know, in 2024 that wasn't particularly robust. It was kind of slow for repayments, stuff like that, but depending on how people view 2025, if they want to get something done with their projects, there may be a little bit more of that, but right now, I mean, we don't have any clarity to that right now.

Gotcha. Okay. And then as far as kind of circling back to the margin, I think you had mentioned, Rex, about some fixed-rate loans that would be repricing during the course of the year. Roughly how much in the way of fixed-rate loans would be repricing, and what's kind of the pickup between current yields on those and then the reprice levels?

Some of it will be repriced. I don't really have a good breakdown of the dollar amount on that off the top of my head.

Joe Turner (President and CEO)

We do, Damon. We do have a good table on that. And I know in the 10-K, and do we have it in the Qs as well?

Rex Copeland (CFO)

No.

Joe Turner (President and CEO)

Okay.

Rex Copeland (CFO)

We just have it not in the but there should be a good table with exactly what you're looking for coming out at the beginning of March. And if you look at last year's 10-K, there's two tables. There's a maturity table and a repricing table in there. The repricing table is probably what you want to look at mostly because that'll show you what is projected to reprice in each of these coming years.

Joe Turner (President and CEO)

It tells you what the current rate is on it, and you can sort of estimate what it'll reprice to.

Rex Copeland (CFO)

So some of it's going to be that the loans will stay on the books and just reprice. Other pieces of it will be that they'll pay off or pay down, and we'll take those funds and either put them back into new loans that are fixed rate at a higher rate or put them into variable rate loans. So it's hard to tell you exactly what the net rate change would be depending on where we place those funds. But it should be, for the most part, I would say. I think that overall fixed-rate portfolio is the overall rate on that in its entirety is probably a little over 4% or something or thereabouts.

Joe Turner (President and CEO)

Yeah. It should definitely be positive.

Got it. Okay. Great. I think, yeah, that's all that I had. So thank you for taking my questions.

Rex Copeland (CFO)

Thanks.

Operator (participant)

Thank you. One moment for the next question. And our next question will be coming from the line of John Rodis. Your line is open.

Hey, guys. Good afternoon.

Rex Copeland (CFO)

Hey, John.

Hey. I guess most of my questions have been asked and answered. But just on the fee income side, the other line item was up, I guess, $2,300,000 linked quarter. Anything unusual in that other line item?

Yeah. John, I think we mentioned in there that we do a program where we have back-to-back swaps with loan customers. And in some of those cases, if we do those and the customer wants to do a swap, then we initiate that, and then we get an upfront fee on that. And so that was the lion's share of that increase in the fourth quarter. It's about $268,000, I believe.

Okay. I see that in the text now. Sorry about that.

Yeah. So that's okay. That's a part of our business, but it's not something that happens all the time, so.

Yeah. Okay. And then either Joe or Rex, just can you add any more color? The one property here in Missouri that went to other real estate OREO, what market, anything like that?

Joe Turner (President and CEO)

Yeah. We've covered that before, haven't we?

Rex Copeland (CFO)

I can't remember for sure if we have, but.

Joe Turner (President and CEO)

Yeah. I mean, it's an office property in St. Louis. It's specifically in Clayton, so although office generally is not strong, Clayton is probably the strongest in St. Louis, and it's a decent property, but I would think, John, it's going to take us a little while to sell it.

Okay. Okay. Have you marketed it yet or probably not?

Yeah. We're starting to market it. We're more getting our arms around the property and trying to figure out when's going to be the best time. I mean, we're not in a huge hurry to sell it. It's actually producing fair cash flow for us right now. So it's not a terrible problem at all. So we're trying. It's kind of figuring out, okay, is this the right time to strike, or should we wait and let things in office improve a little bit?

Yeah. No, you're right. Clayton's obviously a good market, so it makes sense. Okay. Thanks, guys.

Operator (participant)

Thank you. There are no more questions in the queue. And I would like to go ahead and turn the call back over to John, excuse me, Joseph Turner, for closing remarks. Please go ahead.

Joe Turner (President and CEO)

All right. Thanks very much for joining us. We'll look forward to talking to you after our first quarter 2025 results come out. Thank you.

Operator (participant)

Thank you all for joining today's conference call. You may now disconnect.