Great Southern Earnings Call: Strong Core, Weak Growth

Great Southern ((GSBC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Great Southern’s Earnings Call: Solid Results, Clouded by Growth Headwinds

Great Southern’s latest earnings call painted a picture of a bank in strong financial health, with higher earnings, expanding margins, robust capital and excellent credit quality, all supporting steady shareholder returns. At the same time, management was candid about meaningful headwinds: shrinking loan and deposit balances, the loss of swap-related income, rising technology and facilities costs, and a difficult environment for loan growth. The overall tone was constructive but cautious, with management emphasizing balance-sheet strength and disciplined execution over aggressive expansion.

Improved Profitability and Earnings Growth

Management highlighted another solid quarter and year of earnings growth. Fourth-quarter 2025 net income rose to $16.3 million, or $1.45 per diluted share, up from $14.9 million, or $1.27 per share, a year earlier. For the full year, net income climbed to $71.0 million, or $6.19 per diluted share, compared with $61.8 million, or $5.26 per share, in 2024. This performance underscores the bank’s ability to grow bottom-line results despite a smaller balance sheet and some income pressure from swap discontinuation and lower loan balances.

Net Interest Margin Expands Despite Lost Swap Income

A key positive was net interest margin (NIM) expansion. The annualized NIM improved to 3.70% in the fourth quarter of 2025 from 3.49% in the prior-year period, a 21-basis-point increase. This expansion was achieved even as the bank lost income from a discontinued interest rate swap and contended with lower average loan balances. Management credited proactive funding cost reductions and loan repricing for the improvement. Still, the discontinued swap reduced quarterly income by roughly $2 million, contributing to lower interest income of $73.4 million versus $82.6 million a year ago and leaving net interest income down about 0.7% year over year.

Credit Quality Remains a Standout Strength

Asset quality continues to be a major bright spot. Nonperforming assets were just $8.1 million at year-end 2025, representing a low 0.15% of total assets. The bank posted net recoveries of $22,000 in the fourth quarter versus net charge-offs of $155,000 in the same period of 2024, signaling continued strong borrower performance. Reflecting this, Great Southern did not record any provision for credit losses on outstanding loans for the entire year, underscoring management’s confidence in the existing loan book and the benign credit environment within its portfolio.

Capital Strength and Book Value Growth

Great Southern emphasized its solid capital position and book value growth. Stockholders’ equity increased to $636.1 million, up $36.6 million year over year, and now equals roughly 11.4% of total assets. Book value per common share rose to $57.50. Tangible common equity climbed to 11.2% of assets from 9.9% a year earlier, an improvement of about 130 basis points and well above regulatory minimums. This strengthened capital base gives the bank flexibility to absorb potential volatility, support organic growth when it emerges, and continue returning capital to shareholders.

Shareholder Returns: Buybacks and Dividends Stay Active

The company continued to return a meaningful amount of capital to shareholders in 2025. In the fourth quarter alone, Great Southern repurchased 241,000 shares at an average price of $59.33. For the full year, buybacks totaled 755,000 shares at an average price of $58.35. In addition, the board declared a regular quarterly dividend of $0.43 per share, bringing total dividends for 2025 to $1.66 per share. These actions signal confidence in the bank’s intrinsic value and earnings power, even as growth on the asset side of the balance sheet remains challenged.

Expenses Under Control but Efficiency Still an Issue

Noninterest expenses showed some discipline, but efficiency remains a key area to watch. Fourth-quarter 2025 noninterest expense was $36.0 million, down about $947,000, or 2.6%, from the year-ago quarter, aided by the absence of a nonrecurring $2 million charge booked in the prior year. As a result, the efficiency ratio improved to 63.89% from 65.43% in the fourth quarter of 2024. However, that efficiency ratio is still elevated and actually worsened from 62.45% in the linked quarter, highlighting ongoing sensitivity to both revenue levels and cost management.

Rising Technology and Facilities Costs

Within the expense base, technology and facilities costs are providing upward pressure. Net occupancy and equipment expense increased by about $1.2 million year over year, driven by higher computer license and support expenses, investments in disaster recovery capabilities, branch closure charges, and seasonal facility costs. While these outlays are partly strategic—aimed at improving resilience and operational infrastructure—they contribute to the elevated efficiency ratio and limit the benefit from cost reductions elsewhere.

Strong Liquidity and Wholesale Funding Capacity

Liquidity remains a strength for Great Southern. The bank ended the year with $189.6 million in cash and equivalents and approximately $1.63 billion of available wholesale borrowing capacity through the Federal Home Loan Bank and Federal Reserve channels. This combination provides significant balance-sheet flexibility to manage deposit flows, fund loan demand when it materializes, and navigate any potential market disruptions without having to chase high-cost deposits.

Loan Portfolio Contraction and Elevated Payoffs

Despite solid profitability, balance-sheet growth was a clear weak spot. Total net loans receivable fell to $4.36 billion at year-end 2025, down $333.5 million, or 7.1%, from the prior year. Management attributed this decline to elevated payoff activity across several categories, including multifamily residential, commercial construction, one- to four-family, and commercial business loans. In other words, borrowers are repaying or refinancing faster than the bank is originating new loans, creating a headwind for future interest income and overall asset growth.

Asset and Deposit Declines Reshape the Balance Sheet

Total assets contracted to $5.60 billion from $5.98 billion at the end of 2024, reflecting the loan runoff and a deliberate reshaping of funding. Deposits declined by $122.8 million, or 2.7%, to $4.48 billion. The drop was led by brokered deposits, which were reduced by about $108.7 million, and a $87.3 million decline in core retail certificates of deposit. These declines were partly offset by a $75 million increase in interest-bearing checking balances, suggesting some success in shifting the deposit mix toward more stable, relationship-based, and potentially lower-cost funding.

Swap Exit Pressures Revenue but NIM Holds Firm

The exit from a terminated interest rate swap weighed on top-line revenue, even as underlying margin trends improved. The discontinued swap cost the company roughly $2 million in quarterly income, contributing to the drop in total interest income to $73.4 million in the fourth quarter from $82.6 million a year earlier. Net interest income slipped by about $370,000, or 0.7%, year over year. Nevertheless, the margin improvement demonstrates that core banking operations are benefiting from careful pricing and funding decisions, partially offsetting the lost swap income.

Uncertainty Around Future Loan Growth

Management repeatedly emphasized that loan growth remains difficult to predict. Payoff activity has been outpacing new originations, and executives suggested that this dynamic could continue into 2026. While strong capital and liquidity give Great Southern the capacity to grow should demand improve, the current environment of elevated payoffs and cautious borrowers means that overall loan balances may remain under pressure. This uncertainty is a central caveat to the otherwise constructive outlook.

Provisioning for Unfunded Commitments

While credit performance on existing loans is very strong, the bank is prudently reserving for off-balance-sheet exposures. In the fourth quarter, Great Southern recorded an $882,000 provision for unfunded commitments, down from $1.6 million in the prior-year quarter. This reflects commitments such as undrawn lines of credit that could be funded if customers choose to borrow. The reduced but still positive provision signals ongoing vigilance regarding potential future draws, even in a currently benign credit environment.

Guidance and Strategic Priorities Amid a Challenging Growth Outlook

Looking ahead, management did not issue formal numerical guidance but laid out clear priorities and expectations. The bank aims to preserve its improved net interest margin—currently 3.70% in the fourth quarter—while protecting asset quality, controlling expenses, and deploying capital thoughtfully through continued dividends and share repurchases. Executives expect loan growth to remain challenging after net loans fell 7.1% over the past year to $4.36 billion, and they anticipate only modest upward pressure on expenses from annual salary resets and payroll-related costs, following fourth-quarter noninterest expense of $36.0 million and an efficiency ratio of 63.89%. They also underscored the strength of asset quality, with nonperforming assets at just 0.15% of assets and net recoveries in the quarter, alongside ample liquidity and capital—stockholders’ equity of $636.1 million, tangible common equity of 11.2%, cash of $189.6 million, and about $1.63 billion in available borrowing capacity—supporting continued buybacks and dividend payments.

In summary, Great Southern’s earnings call delivered a reassuring message on profitability, credit quality, capital strength, and shareholder returns, even as it acknowledged tough conditions for loan and balance-sheet growth. Margin expansion and disciplined cost control are helping to offset lost swap income and a contracting loan book, while strong liquidity and a conservative risk profile give the bank room to maneuver. For investors, the story is one of a well-capitalized, well-run institution positioned to weather growth headwinds and potentially benefit when lending conditions eventually improve, albeit with near-term expansion prospects likely to remain muted.