8-K: Great Southern Bancorp Reports Q3 Earnings Amid Hedge Accounting Adjustment

Great Southern Bancorp announced preliminary third quarter 2026 earnings of $1.27 per diluted share, impacted by a non-cash hedge accounting adjustment, with adjusted earnings at $1.50 per share.

Summary

• Great Southern Bancorp reported preliminary third quarter 2026 diluted earnings per common share of $1.27, resulting in $14.0 million in net income. This is a decrease from $1.56 per diluted share ($17.8 million net income) in the third quarter of 2025.
• The decrease was primarily attributed to a non-cash hedge accounting adjustment of approximately $3.5 million (pre-tax), which reduced non-interest income by $4.1 million and increased interest income by $504,000.
• Excluding this adjustment, the adjusted net income for the third quarter of 2026 was $16.5 million, or $1.50 per diluted common share.
• Annualized return on average common equity was 8.68% (10.24% excluding adjustment), return on average assets was 0.99% (1.17% excluding adjustment), net interest margin was 3.75%, and the efficiency ratio was 67.57% (63.68% excluding adjustment).
• Total net loans decreased by 2.5% to $4.25 billion from $4.36 billion at the end of 2025, driven by reductions in commercial real estate and multi-family loans.
• Non-performing assets increased to $10.5 million (0.18% of total assets) from $8.1 million (0.15% of total assets) at the end of 2025.
• The company completed the consolidation of nine banking centers and eliminated 66 positions, expecting this to improve pre-tax income by $2.3-$2.7 million annually starting in Q4 2026.
• The Board of Directors approved a new stock repurchase program of up to one million shares.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral to slightly negative quarter due to a reported net income decrease, largely attributed to a non-cash accounting adjustment, though underlying operational performance appears stable.

Positives

• Excluding the non-cash hedge accounting adjustment, adjusted net income was $16.5 million, or $1.50 per diluted share, indicating solid underlying operational performance.
• Annualized net interest margin improved slightly to 3.75% from 3.72% in the prior year's third quarter.
• The company's capital position remained strong, significantly exceeding regulatory well-capitalized thresholds.
• Core non-interest-bearing checking balances grew $29 million in the first nine months of 2026.
• Asset quality remained strong with non-performing loans at 0.03% of total loans and no provision for credit losses on loans recorded for the quarter or year-to-date.
• The company is implementing operational efficiencies through branch consolidations and workforce reductions, expected to yield $2.3-$2.7 million in annual pre-tax income improvement.
• A new stock repurchase program of up to one million shares was approved, signaling confidence and a commitment to returning value to shareholders.
• The company purchased approximately $400 million of fixed-rate agency mortgage-backed securities and collateralized mortgage obligations to mitigate interest rate risk.

Negatives

• Reported net income decreased by 21.1% to $14.0 million ($1.27 per diluted share) from $17.8 million ($1.56 per diluted share) in the third quarter of 2025.
• The reported results were negatively impacted by a non-cash hedge accounting adjustment of approximately $3.5 million (pre-tax).
• Total net loans decreased by 2.5% to $4.25 billion from $4.36 billion at the end of 2025, primarily due to decreases in commercial real estate and multi-family loans.
• Non-performing assets increased by $2.4 million to $10.5 million (0.18% of total assets) compared to the end of 2025.
• The efficiency ratio increased to 67.57% from 62.45% in the prior year's third quarter, indicating higher operating costs relative to revenue.
• Non-interest income decreased significantly by 51.7% to $3.4 million from $7.1 million in the prior year, largely due to the hedge accounting adjustment.
• Other real estate owned increased to $20.4 million, primarily reflecting the reclassification of closed banking center properties.

Risks

• Factors that could cause actual results to differ materially from forward-looking statements include changes in economic conditions, fluctuations in interest rates, potential recession, impact of bank failures, slower economic growth, risks of lending and investing activities, realized or unrealized losses on securities, ability to access cost-effective funding, fluctuations in real estate values, technological changes, cyber-attack risks, legislative or regulatory changes, changes in accounting policies, regulatory examinations, costs of litigation, competition, and natural disasters.
• The company noted that if challenging economic conditions persist or worsen, or if management's assessment of the loan portfolio changes, additional provisions for credit losses may be required, which could adversely impact future financial performance.
• The company expects that the operational efficiencies from branch consolidations and workforce reductions will be partially offset by customer deposit attrition, potentially impacting anticipated pre-tax income improvement.
• The narrower spread on the newly purchased investment securities is expected to modestly reduce the company's overall net interest margin percentage in future periods.

Future Outlook

The company remains focused on protecting asset quality, executing thoughtful operational improvements, and building long-term value for its stockholders. Expected operational efficiencies from branch consolidations are anticipated to begin improving pre-tax income in the fourth quarter of 2026. The company expects its effective tax rate to be approximately 18.0% to 19.5% in future periods.

Management Comments

• "Our third quarter results demonstrate the durability of our core banking franchise and the consistency of our operating model."
• "As discussed above, third quarter 2026 results were negatively impacted by a non-cash hedge accounting adjustment recorded during the period. Excluding this non-cash adjustment, net income was $16.5 million, or $1.50 per diluted common share."
• "Net interest income in the third quarter of 2026 remained solid at $50.3 million, driven by active asset-liability management and pricing discipline on deposits and earning assets."
• "While net interest income generation remains an ongoing priority, credit and pricing discipline will continue to serve as the governing factors in our approach to long-term stockholder returns."
• "Asset quality remained very strong."
• "Operating discipline remained a primary focus, with non-interest expense of $36.3 million in the 2026 third quarter."
• "Great Southerns capital and liquidity metrics remain very strong as we move into the final quarter of the year."
• "Looking ahead, we remain focused on protecting asset quality, executing thoughtful operational improvements, and building long-term value for our stockholders."

Industry Context

StockSavvy.ai notes that the banking sector is navigating a complex environment with fluctuating interest rates and evolving regulatory landscapes. Great Southern Bancorp's results reflect these pressures, particularly the impact of hedge accounting adjustments, which are common in financial institutions managing interest rate risk. The strategic purchase of investment securities to mitigate future interest rate declines is a common practice among banks seeking to stabilize net interest margins.

Comparison to Industry Standards

• The reported net interest margin of 3.75% is comparable to regional banks, though specific peer comparisons would require a detailed analysis of banks of similar size and business mix.
• The efficiency ratio of 67.57% is on the higher side compared to many well-managed regional banks, which often aim for ratios below 60%. The company expects this to improve with recent cost-saving initiatives.
• The tangible common equity to tangible assets ratio of 10.4% is generally considered healthy for a bank, meeting or exceeding typical regulatory requirements and industry benchmarks for well-capitalized institutions.
• The increase in non-performing assets to 0.18% of total assets, while still low, warrants monitoring as it is slightly above the previous quarter's 0.17% and year-end 2025's 0.15%.

Related Party Transactions

• Joseph W. Turner, President and CEO, is the son of William V. Turner, Chairman of the Board, and the brother of Julie Turner Brown, a fellow director.

Stakeholder Impact

• Shareholders: The decrease in reported earnings and the impact of the hedge accounting adjustment may negatively affect investor sentiment in the short term. However, the approved stock repurchase program and expected operational efficiencies aim to enhance shareholder value.
• Employees: The consolidation of nine banking centers resulted in the elimination of 66 positions, impacting affected employees.
• Customers: Customers of the consolidated banking centers will need to utilize alternative nearby locations or digital services. The remodel of the Sioux City banking center aims to improve customer experience with updated technology and extended hours.
• Creditors: The company's strong capital position and liquidity metrics suggest continued ability to meet financial obligations.

Next Steps

• The company expects operational efficiencies from branch consolidations and workforce reductions to begin improving non-interest expense run-rate in the fourth quarter of 2026.
• The company will continue to focus on protecting asset quality, executing operational improvements, and building long-term value.
• The company will host a conference call on October 22, 2026, to discuss third quarter 2026 preliminary earnings.
• The Board of Directors approved a new stock repurchase program of up to one million shares, which will succeed the existing program.

Key Dates

Recommendation

The reported earnings decline, despite being influenced by a non-cash adjustment, combined with an increase in non-performing assets and a higher efficiency ratio, suggests a cautious approach. While underlying operations appear stable and cost-saving measures are in place, the negative impact of accounting adjustments and slight deterioration in asset quality warrant a 'hold' rating until performance trends stabilize and the benefits of operational changes become clearer.

Keywords

Great Southern Bancorp, Third Quarter Earnings, Hedge Accounting, Net Interest Income, Loan Portfolio, Asset Quality, Capital Ratios, Stock Repurchase