GSBC - NASDAQ

Good day, and thank you for standing by. Welcome to Great Southern Bancorp, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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.

Thank you. Good afternoon and thank you for joining Great Southern Bancorp’s first quarter 2025 earnings call. Today, we will be discussing the company's results for the quarter ending March 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 disclosures in the first 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.

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 first quarter 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 commons 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 driven by 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 our shareholders. Net interest income totaled $49.3 million in the first quarter of 2025 compared to $44.8 million in the first quarter of 2024, which was an increase of about 10%. Our net interest margin on a percentage basis remained solid at 3.57%, 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 first quarter 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 first quarter. 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 broker deposits fluctuate depending on our funding needs and the management of funding mixed between core deposits, broker 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 first quarter of 2025. We did not record a provision for credit losses on outstanding loans, representing an improvement of $500,000 from the first quarter of 2024. Additionally, the company also recognized a negative provision for losses on unfunded commitments of $348,000 in the first quarter compared to provision expense of $130,000 in the first quarter of 2024. As we continue to drive operational efficiency, expense management remains a top priority. Non-interest expenses were essentially flat in the first quarter 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 discipline 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.

All right. Thank you, Joe, and good afternoon, everyone. I'll now provide a little more detail on our first quarter 2025 financial performance and how it compares to both the first quarter last year and the previous linked quarter. For the quarter ended 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 first quarter and also up from $14.9 million or $1.27 per diluted share in the fourth quarter of 2024. Our net interest margin for the first quarter increased to 3.57% compared to 3.32% in the same period last year and 3.49% in the fourth quarter of 2024. We did note some additional interest recoveries in the March 2025 quarter that added about 5 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 funding costs. 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 first quarter. And 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 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 that benefit to interest income will cease. Noninterest income, for the quarter totaled $6.6 million, a decrease of $216,000 or 3.2% compared to the first quarter 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 fourth quarter of 2024, noninterest income decreased to $344,000, primarily due to seasonal declines in overdraft fees, debit card usage income, and net gains on mortgage loan sales. While noninterest income may experience some fluctuations, the overall performance demonstrates our continued ability to generate revenue through these noninterest products and services. Total noninterest expense for the quarter remained relatively consistent at $34.8 million, a small increase of $400,000, or 1.2%, from the first quarter of last year, and down about $2.1 million, or 5.8%, for the fourth quarter of 2024. The fourth quarter of 2024 did include a $2 million non-recurring item. The change compared to the prior year first quarter 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 first quarter 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 first quarter of 2025. Professional fees saw a significant decline to $1.0 million, down from $1.7 million in the prior year of first quarter, 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 first quarter 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. And then 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, brokerage 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 broker and other wholesale funding sources. Asset quality also remains 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 first quarter. And as I mentioned, the company also recorded a negative provision for losses on unfunded commitments of $348,000 in the first quarter of 2025 compared to $130,000 provision expense recorded in the first quarter of 2024 and a $1.6 million provision expense recorded in the fourth quarter of 2024 on unfunded commitments. Total net charge-offs for the 2025 first quarter fell to $56,000, down from $83,000 in the prior year first quarter. The allowance for credit losses as a percentage of total loans stood at 1.36% at the end of March of 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 first quarter of 2025 as a result of increased market values that are available for sale, investment securities, and interest rate swaps. And 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. And 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.

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Liesch from Piper Sandler Company.

Hey, good morning or good afternoon, I mean. The margin rose a little bit [Technical Difficulty] the one-time benefits, how do you think it's going to -- it should react here this quarter without any changes to Fed policy? There's still room for more [Technical Difficulty] especially with benefits on the funding side?

I'll start off on that one. I'd say on the funding side, the non-time accounts, we've reduced rates fairly significantly on some of those. I don't know that we have, like, 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. And sort of 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. And on the loan side or on the asset side, we've got -- we do have some fixed rate loans that continue to repay and those are typically at lower than current market rates. And so, as those repay, we are able to redeploy that into more current market yields. But 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.

Yes, I would point out on that piece, Andrew, we might look at the 10-K, 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 what the -- how far they'll reprice upward and you could do a lot of that work yourself and probably get pretty close.

Got it. And then 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?

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

We've got [indiscernible] in the ballpark of a couple of billion dollars of loans that are going to be tied to prime or SOFR and would move within -- immediately within a month of a repricing event like that from the Fed. We've got the interest rate swaps that would move and some [Multiple Speakers] on the other side. On the liability side.

And we've got a couple billion dollars of interest-bearing checking that some of -- a lot of which would move. So, I mean, I think we feel like we're pretty well-balanced. I think that's what we saw as rates came down.

Makes sense. And then on the loan side, has there been any commentary from your customers' perspective 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 [indiscernible] loan production?

I think activity is maybe down a little bit. And there is quite a bit of competition among banks for what loans there are. And so, there's not a lot of loans to start with. And as I said, quite a bit of competition for the few loans there are. So it's not a living environment where we would expect a lot of growth at all.

Got it. Very helpful, thanks for taking the questions. I'll step back.

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

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

It's actually at the beginning of the fourth quarter, so we'll still get the benefit through Q2 and all of Q3, and then like the first week in Q4 is when it drops off.

Okay, got it. Great. Okay, thank you. And then, 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'm just kind of wondering your thoughts on the buyback here going forward with growth being kind of slowed. Can we expect you to stay pretty active with the buyback?

Yes, I think we would expect to. I mean, maybe not more active than what we've been, but we feel like we've been fairly active.

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 both.

Yes. Okay. And then 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 like kind of modest growth off of this first quarter number without any -- there's no like material planned expenditures here coming in the next couple of quarters, are there?

No, not really. I mean -- we did have the -- it happens every year, but it happens in the first quarter. We had the $400,000 benefit to expenses in the first quarter, and we won't have that in the second quarter. But other than that, we didn't really highlight anything as being unusual. So, I mean, I think that's a fair assumption.

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

All right. Thanks, Damon.

Thank you. [Operator Instructions] At this time, I would now like to turn the conference back over to Joseph Turner for closing remarks.

Okay. Well, 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 second quarter. Thank you.