10-Q: Great Southern Bancorp Reports Strong Q2 Earnings
Quarterly Report
Great Southern Bancorp announced a significant increase in net income and earnings per share for the second quarter and first half of 2025, driven by improved net interest income and reduced expenses.
Summary
- Net income for the three months ended June 30, 2025, increased by 16.5% to $19.786 million, up from $16.988 million in the same period of 2024.
- Basic earnings per common share rose to $1.73 for Q2 2025, an 18.5% increase from $1.46 in Q2 2024.
- For the six months ended June 30, 2025, net income grew by 21.6% to $36.946 million, compared to $30.395 million in the prior year.
- Net interest income for Q2 2025 increased by 8.9% to $50.963 million, with the net interest margin expanding by 25 basis points to 3.68%.
- Total assets decreased by 2.1% to $5.854 billion at June 30, 2025, from $5.981 billion at December 31, 2024.
- Net outstanding loans decreased by $156.1 million to $4.534 billion, primarily due to decreases in construction, commercial real estate, and commercial business loans, partially offset by an increase in other residential (multi-family) loans.
- Total deposits increased by 1.7% to $4.684 billion, driven by a $61.2 million increase in brokered deposits, which offset a decrease in retail certificates of deposit.
- The company repaid $180.0 million in Federal Reserve Bank Term Funding Program (BTFP) borrowings and redeemed $75.0 million in subordinated notes during the period.
- Total stockholders' equity increased by 3.8% to $622.368 million, with the tangible common equity to tangible assets ratio improving to 10.48% from 9.87%.
- Non-performing assets decreased by 15.6% to $8.1 million at June 30, 2025, with non-performing loans falling by 44.4% to $2.0 million.
- The efficiency ratio improved to 59.16% for Q2 2025 and 60.67% for the six months ended June 30, 2025, indicating better cost management.
Sentiment
Score: 8
Explanation: The company reported strong financial results with significant increases in net income and EPS, improved net interest margin, and enhanced efficiency. Asset quality improved with reduced non-performing assets, and capital levels remain robust. Strategic debt repayments and ongoing share repurchases further bolster shareholder value. While loan growth was muted, the overall performance indicates a well-managed and resilient institution.
Positives
- Net income and earnings per share saw substantial year-over-year growth for both the quarter and six-month periods.
- Net interest income and net interest margin improved significantly, reflecting effective interest rate management and lower funding costs.
- Non-interest expense decreased, contributing to higher profitability and an improved efficiency ratio.
- Non-performing assets and non-performing loans decreased, indicating strong asset quality and effective credit risk management.
- Total stockholders' equity and the tangible common equity to tangible assets ratio increased, demonstrating enhanced capital strength.
- The company maintained a 'well capitalized' status, with capital ratios exceeding regulatory minimums.
- Repayment of $180.0 million in BTFP borrowings and redemption of $75.0 million in subordinated notes reduced interest-bearing liabilities and associated interest expense.
- Cash and cash equivalents increased by 25.6%, enhancing liquidity.
Negatives
- Total assets decreased by 2.1%, primarily due to a reduction in the loan portfolio.
- Net outstanding loans decreased by $156.1 million, with notable declines in construction, commercial real estate, and commercial business loans.
- Non-interest income decreased by 16.5% for the quarter and 11.0% for the six-month period, largely due to a one-time gain in the prior year related to a terminated software vendor agreement.
- Retail certificates of deposit decreased by $18.1 million due to competition for these types of deposits.
- Interest rate swaps continue to have a negative impact on net interest income if market interest rates remain near or above current levels.
- The company still holds unrealized losses on its held-to-maturity investment securities, totaling $19.3 million at June 30, 2025, which are not included in total capital.
Risks
- Expected revenues, cost savings, earnings accretion, synergies, and other benefits from merger and acquisition activities might not be realized as anticipated.
- Changes in economic conditions, including inflation, potential recession, and fluctuations in interest rates, could adversely affect business.
- Impact of bank failures or adverse developments at other banks on investor and depositor sentiment.
- Risks of lending and investing activities, including changes in loan delinquencies, write-offs, and estimates of allowance for credit losses.
- Possibility of realized or unrealized losses on securities held in the investment portfolio.
- Ability to access cost-effective funding and maintain sufficient liquidity.
- Fluctuations in real estate values and both residential and commercial real estate market conditions.
- Ability to adapt successfully to technological changes and protect against cyber-attacks or system failures.
- Legislative or regulatory changes that adversely affect the business.
- Changes in accounting policies and practices or accounting standards.
- Results of examinations by regulators, potentially leading to business limitations, increased allowance for credit losses, or capital requirements.
- Costs and effects of litigation, including settlements and judgments.
- Competition in the financial services industry.
- Natural disasters, war, terrorist activities, or civil unrest and their effects on economic and business environments.
- Increased risk due to relatively high concentration of commercial and residential construction, commercial real estate, other residential (multi-family), and other commercial loans.
- Exceeding thresholds defined in interagency guidance on commercial real estate concentrations, potentially incurring additional expense or slowing growth in certain CRE lending categories.
Future Outlook
Real GDP in 2025 is projected to rise 1.5%, an increase from prior forecasts, with growth moderating slightly in 2026 and 2027. Financial markets anticipate further methodical decreases in Federal Funds interest rates in 2025. The company expects rising interest rates to have a modestly positive impact on net interest income, while declining rates are expected to have a mostly neutral impact. Income from a terminated interest rate swap will cease after October 6, 2025. The effective tax rate is expected to be between 18.0% and 20.0% in future periods. Technology updates and advancements are expected to continue into 2026, and a new banking center is scheduled for completion in Q4 2025.
Management Comments
- Management believes the declines in fair value for the company's available-for-sale debt securities are not credit related.
- Management believes the allowance for credit losses is adequate to cover losses inherent in the Bank's loan portfolio at June 30, 2025, based on recent reviews and current economic conditions.
- Management does not believe any of the company's goodwill or other intangible assets were impaired as of June 30, 2025.
- Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the company's common stock would contribute to the overall growth of stockholder value.
Industry Context
The U.S. economy continues to navigate post-pandemic conditions, with the Federal Reserve having aggressively raised rates through mid-2023 before implementing decreases in late 2024, stabilizing the Federal Funds rate at 4.50% by June 2025. Inflation, as measured by Core PCE, remains slightly above the Federal Reserve's 2% target. The national unemployment rate has slightly decreased, indicating a stable labor market. The housing market shows mixed signals, with existing-home sales decreasing but median prices rising year-over-year, and new home construction still recovering from the 2007-2008 crisis due to cost and supply issues. The multi-family market is experiencing strong demand and declining vacancies, particularly in Southern and Southwestern markets. The office and industrial real estate markets face challenges, with office vacancies rising and industrial vacancies at a decade-long high, influenced by remote work trends and shifts in consumer spending. The retail market is seeing increased store closures due to e-commerce competition and rising costs. The company's performance reflects these broader trends, with a focus on managing interest rate risk and maintaining strong capital amidst a competitive deposit environment.
Comparison to Industry Standards
- The company's net interest margin improvement to 3.68% (Q2 2025) and 3.63% (YTD Q2 2025) is strong, especially given the competitive deposit environment and Federal Reserve rate cuts in late 2024, suggesting effective asset-liability management compared to peers facing margin compression.
- The decrease in non-performing assets to 0.14% of total assets at June 30, 2025, and a 44.4% reduction in non-performing loans, indicates superior asset quality management relative to general industry trends where some banks might see an uptick in delinquencies due to economic pressures.
- The company's capital ratios (e.g., CET1 of 13.1%, Tier 1 leverage of 11.2%) significantly exceed the 'well capitalized' thresholds (6.5% and 5.0% respectively), positioning it favorably against global benchmarks and providing a strong buffer against potential economic downturns, unlike some institutions that faced capital concerns in early 2023.
- The improved efficiency ratio (59.16% for Q2 2025) demonstrates effective cost control, which is a key differentiator in a banking sector focused on operational optimization.
- The company's conservative underwriting standards, such as minimal originations of oneto four-family residential loans with LTVs above 90% and few exceptions above 100%, are consistent with or more conservative than industry norms, mitigating risk in its loan portfolio.
- While the overall loan portfolio decreased, the growth in other residential (multi-family) loans aligns with the strong demand observed in the U.S. multi-family market, indicating strategic focus on a resilient segment.
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Accounting Standard Adoption | Adopted ASU 2023-02, 'Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,' effective January 1, 2024, resulting in a $223,000 reduction of retained earnings. | 2024-01-01 | Improved accounting and disclosures for investments in tax credit structures; not a material impact on consolidated financial statements but affected retained earnings. |
| Accounting Standard Effectiveness | ASU No. 2023-07, 'Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,' became effective for annual financial statements in 2024, expanding disclosure requirements for significant segment expenses. | 2024-01-01 | Enhanced transparency in segment reporting, requiring more detailed expense disclosures. |
| Accounting Standard Effectiveness | ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' becomes effective for the fiscal year ending December 31, 2025, requiring additional income tax disclosures. | 2025-12-31 | Will require more detailed disclosures on income tax rate reconciliation and significant reconciling items. |
| Accounting Standard Effectiveness | ASU No. 2024-03, 'Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,' becomes effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. | 2026-12-15 | Will require new financial statement disclosures in tabular format, disaggregating information about prescribed expense categories; not expected to have a material impact on financial statements but will affect disclosures. |
Legal Proceedings
- One litigation matter in which the Bank is a defendant has been set for trial later in the third quarter of 2025. The plaintiffs allege a breach of fiduciary duty.
- Management believes the Bank will prevail in this matter and that any loss should be indemnified, in whole or in part, or shared by others.
Stakeholder Impact
- Shareholders: Benefited from increased net income, higher earnings per share, increased stockholders' equity, and ongoing common stock repurchase programs, indicating strong returns and capital management.
- Customers: Will benefit from continued investment in technology updates and the construction of a new 'next-generation' banking center, offering enhanced services and convenience.
- Employees: Experienced normal annual merit increases in salaries and employee benefits, indicating stable compensation practices.
- Creditors: The redemption of subordinated notes and strong capital ratios demonstrate the company's financial health and ability to meet its obligations.
Next Steps
- Continue technology updates and advancements, with completions expected beginning in Q3 2025 and continuing into 2026.
- Complete construction of the new banking center in Springfield, Mo., by Q4 2025.
- Address one litigation matter set for trial later in Q3 2025.
- Accrete interest income from the terminated interest rate swap through its original contractual termination date of October 6, 2025.
- Implement the new stock repurchase program after the existing program's remaining shares are repurchased.
- Continue to monitor regional, national, and global economic indicators to inform strategic decisions.
Key Dates
| Date | Description |
|---|---|
| 2008-12-16 | Federal Reserve Board (FRB) last changed interest rates before December 2015. |
| 2009-03-20 | Purchase and Assumption Agreement with FDIC for TeamBank, N.A. |
| 2009-09-04 | Purchase and Assumption Agreement with FDIC for Vantus Bank. |
| 2011-10-07 | Purchase and Assumption Agreement with FDIC for Sun Security Bank. |
| 2012-04-27 | Purchase and Assumption Agreement with FDIC for Inter Savings Bank, FSB. |
| 2013-04-04 | Registrant's 2013 Equity Incentive Plan filed. |
| 2013-06-20 | Form of incentive stock option award agreement under 2013 plan filed. |
| 2014-06-20 | Purchase and Assumption Agreement with FDIC for Valley Bank. |
| 2015-01-01 | Basel III regulatory capital rules effective for the Company and the Bank. |
| 2015-12-16 | FRB implemented first rate increase since September 29, 2006. |
| 2016-12-14 | Start of a series of eight 0.25% FRB rate increases through December 31, 2018. |
| 2018-03-27 | Registrant's 2018 Omnibus Incentive Plan filed. |
| 2018-05-01 | Economic Growth, Regulatory Relief, and Consumer Protection Act enacted. |
| 2018-06-15 | Form of incentive/non-qualified stock option award agreement under 2018 plan filed. |
| 2018-10-01 | Company entered into a $400 million interest rate swap transaction. |
| 2019-07-01 | Start of a series of 0.25% FRB rate decreases through October 2019. |
| 2019-11-04 | Amended and Restated Employment Agreements for William V. Turner and Joseph W. Turner. |
| 2019-12-31 | Federal Funds rate stood at 1.75%. |
| 2020-03-03 | FRB decreased interest rates by 0.50% in response to COVID-19 pandemic. |
| 2020-03-05 | Amendment No. 1 to Joseph W. Turner's employment agreement. |
| 2020-03-16 | FRB decreased interest rates by 1.00% in response to COVID-19 pandemic. |
| 2020-03-01 | Company and swap counterparty mutually agreed to terminate $400 million interest rate swap. |
| 2020-06-10 | Company completed public offering and sale of $75.0 million subordinated notes. |
| 2020-06-12 | Indenture and First Supplemental Indenture for subordinated notes filed. |
| 2021-03-01 | American Rescue Plan enacted. |
| 2021-11-01 | Federal Reserve began tapering quantitative easing (QE). |
| 2021-11-17 | Amendment No. 1 to William V. Turner's employment agreement and Amendment No. 2 to Joseph W. Turner's employment agreement. |
| 2021-12-31 | Federal Funds rate was 0.25%. |
| 2022-03-01 | Company entered into a $300 million interest rate swap transaction. |
| 2022-03-09 | Federal Reserve conducted its final open market purchase. |
| 2022-04-01 | Company entered into a naming rights agreement with Missouri State University. |
| 2022-07-01 | Company entered into two additional $200 million interest rate swap transactions. |
| 2022-11-01 | Company's Board of Directors authorized the purchase of up to one million shares of common stock. |
| 2022-12-31 | Federal Funds rate was 4.50%. |
| 2023-02-01 | Company entered into interest rate swap transactions to hedge fixed rate brokered deposits. |
| 2023-04-01 | November 2022 stock repurchase program became effective. |
| 2023-12-31 | Federal Funds rate was 5.50%. |
| 2024-01-01 | Adoption of ASU 2023-02, resulting in a $223,000 reduction of retained earnings. |
| 2024-01-01 | Company terminated brokered deposit swaps, receiving a net settlement payment of $26,500. |
| 2024-01-01 | Bank borrowed $180.0 million under the Federal Reserve Bank Term Funding Program (BTFP). |
| 2024-03-01 | $300 million interest rate swap reached its contractual termination date. |
| 2024-09-01 | Start of a series of FRB rate decreases through December 2024. |
| 2024-12-31 | Federal Funds rate was 4.50%. |
| 2025-01-01 | BTFP borrowing repaid in full upon maturity. |
| 2025-03-01 | Construction of the new banking center at 723 N. Benton in Springfield, Mo., began. |
| 2025-04-01 | Company's Board of Directors approved a new stock repurchase program. |
| 2025-06-15 | Company redeemed all $75.0 million aggregate principal amount of its subordinated notes. |
| 2025-06-30 | End of the quarterly reporting period. |
| 2025-07-01 | The One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. |
| 2025-07-01 | The $0.40 per share dividend declared as of June 30, 2025, was paid to stockholders. |
| 2025-10-06 | Original contractual termination date of the $400 million interest rate swap, after which no further interest income will be realized from it. |
| 2025-12-31 | ASU 2023-09 becomes effective for the Company. |
| 2026-12-15 | ASU 2024-03 is effective for annual periods beginning after this date. |
| 2027-12-15 | ASU 2024-03 is effective for interim periods beginning after this date. |
| 2028-05-01 | Termination date of two $200 million interest rate swaps entered into in July 2022. |
| 2034-12-31 | Remaining federal affordable housing tax credits are expected to be utilized through this year. |
Recommendation
strong buyThe company's Q2 2025 results demonstrate robust financial health, marked by significant increases in net income and EPS, coupled with an expanding net interest margin and improved efficiency. The balance sheet is strong, evidenced by decreasing non-performing assets and capital ratios well above regulatory requirements. Strategic actions like debt repayment and ongoing share repurchases underscore a commitment to shareholder value. Despite a slight contraction in the overall loan portfolio, growth in multi-family loans and a healthy pipeline of unfunded commitments suggest future opportunities. The company's conservative lending practices and ample liquidity provide a solid foundation for sustained performance, making it an attractive investment.
Keywords
Banking, Financial Services, Regional Bank, Commercial Real Estate, Residential Lending, Deposits, Net Interest Income, Earnings, Capital Ratios, Loan Portfolio, SEC Filing, 10-Q, Missouri, Iowa, Kansas, Minnesota, Arkansas, Nebraska
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