Operator: Good day, and thank you for standing by. Welcome to the Great Southern Bancorp Q3 2026 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Christina Maldonado. Please go ahead.
Christina Maldonado: Thank you. Good afternoon, and thank you for joining Great Southern Bancorp's Q3 2026 earnings call. Today, we will be discussing the company's results for the quarter ended 30 September 2026. Before we begin, I would 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 earnings release and other public filings. Joining me today are President and CEO, Joe Turner, and Chief Financial Officer, Rex Copeland. I will now turn the call over to Joe.
Joe Turner: Okay, thanks, Christina, and good afternoon to everyone on the call. We appreciate you being with us today. Our Q3 results demonstrate the durability of our core banking franchise and the consistency of our operating model. During the quarter, we remained focused on our core disciplines, prioritizing prudent balance sheet management, maintaining strict credit standards, and controlling non-interest expense. In Q3 2026, we reported net income of $14 million or $1.27 per common share. The results this quarter were impacted by a non-cash hedge accounting adjustment, which Rex will discuss further. Excluding this hedge accounting adjustment, our operating net income was $16.5 million or $1.50 per diluted common share. Net interest income in Q3 remained solid at $50.3 million, down slightly from the $50.8 million in the year ago quarter.
Joe Turner: This comparison reflects the absence in 2026 of the approximately $2 million of quarterly interest income from a previously terminated swap that concluded in October of 2025. Despite this headwind, disciplined asset management and active pricing on deposits and earning assets allowed for the expansion of our margin to 3.75% from 3.72% in Q3 2025. During the quarter, we also took advantage of higher market yields, adding approximately $400 million of fixed rate agency mortgage-backed securities and collateralized mortgage obligations. These purchases were funded primarily through variable rate FHLB borrowings, helping mitigate downside risks from potential future interest rate reductions. While the narrower spread on this balance sheet trade will modestly reduce our overall net interest margin percentage going forward, it is accretive to our net interest income.
Joe Turner: Net interest income generation remains an ongoing priority, but credit and pricing discipline will continue to govern our approach to growing long-term stockholder value. Turning to our loan portfolio, period-end balances continued to be heavily influenced by borrower repayments and refinancing activity. Elevated payoff activity in commercial real estate and multifamily loans led to a $59.3 million decline in net loans compared to 30 June 2026. Compared to 31 December 2025, net loan balances decreased $108.4 million to $4.25 billion. Despite these payoffs, our broader lending pipeline remains robust, with total commitments expanding to $1.2 billion at 30 September, including $641 million of unfunded commitments related to closed construction loans.
Joe Turner: On the funding side, total deposits decreased $232.1 million during the quarter, primarily reflecting the intentional runoff of $211.8 million in brokered deposits. Our core customer relationships remain strong, with non-interest bearing checking expanding by $29.3 million year to date. As loan balances have moderated, we intentionally allowed higher cost brokered deposits to run off without replacement, utilizing lower cost FHLB borrowings instead, allowing for reduced interest expense and overall balance sheet flexibility. From a credit quality standpoint, our metrics remain excellent. Total non-performing assets at the end of the Q3 represented 0.18% of total assets compared to 0.17% at 30 June, and non-performing loans were 0.03% of total loans.
Joe Turner: Net charge-offs were $397,000 for the quarter, and we did not record a provision for credit losses on our outstanding portfolio. The provision you saw in our income statement related to our unfunded commitments. Other real estate owned increased $20.4 million, primarily reflecting the reclassification of $11.1 million in closed banking center properties held for sale following our branch consolidations, rather than credit-related foreclosures. For our foreclosed properties, independent appraisals continue to support our carrying values, and we do not anticipate any aggregate loss upon their ultimate disposition. Similarly, we do not expect an aggregate loss on the disposition of our former banking centers facilities either at this time. Expense discipline remains a priority for our bank, with non-interest expense decreasing to $36.3 million compared to the $38.2 million in the Q2 of 2026.
Joe Turner: The Q2 expense amount was more than normal due to the charge for the banking center closures. As of 1 October, we completed the consolidation of the nine banking centers and the elimination of 66 positions across various divisions in our company. As affected employees remain in their roles through the end of the Q3, the associated cost savings will begin to be realized in the Q4. Ultimately, we believe this will allow for better alignment with our customers' banking preferences, along with our continued pursuit of operational efficiencies as technology and delivery channels evolve. As we move through the remainder of 2026, we remain focused on protecting asset quality, executing thoughtful operational improvements, and consistently building long-term value for our stockholders. The lending and funding environments remain competitive, but we are navigating this landscape from a position of strength.
Joe Turner: With that, I will turn the call over to Rex for a more detailed discussion of the financials.
Rex Copeland: All right. Thank you, Joe, and good afternoon, everyone. I will provide a little more detail on our Q3 2026 financial performance and how it compares to both prior year quarter and the linked Q2. As we mentioned, for the quarter ended 30 September 2026, we reported preliminary net income of $14.0 million, or $1.27 per diluted common share, compared to $17.8 million, or $1.56 per diluted common share in the Q3 2025, and $15.8 million, or $1.43 per diluted common share in the linked Q2 2026. Excluding the non-cash hedge accounting adjustment, non-GAAP net income was $16.5 million, or $1.50 per diluted common share. During the Q3 2026, the company identified historical periods in which variable rate loan balances meeting the original cash flow hedge designation criteria were insufficient to support the full designated notional amount of its interest rate swaps.
Rex Copeland: Accordingly, portions of the swaps were not eligible to receive hedge accounting during those periods. Consequently, historical fair value changes and settlements previously recorded in accumulated other comprehensive income were reclassified to earnings. These historical adjustments resulted in a one-time non-cash charge to the income statement of approximately $3.5 million pre-tax, comprised of a $4.1 million reduction in non-interest income and a $504,000 increase in interest income. Including a benefit to interest income described below, the net pre-tax impact of $3.3 million, approximately $2.5 million after tax or $0.23 per diluted share, had zero impact on total stockholders' equity or cash balances in the Q3 2026. Subsequent to the $3.5 million earnings reclassification that we just talked about, the company adopted ASU 2025-09, allowing for the redesignation of its two existing interest rate swaps.
Rex Copeland: This redesignation resulted in an offsetting increase in interest income of $279,000 in the Q3 2026 and approximately $170,000 per month increase in interest income will be realized through April 2028. Consequently, the $3.5 million charge to income in the Q3 2026 will be entirely recovered through interest income over the remaining life of the redesignated interest rate swaps. Net interest income for the quarter totaled $50.3 million, compared to $50.8 million in the Q3 2025 and $49.5 million in the Q2 2026. Compared to the prior year quarter, net interest income declined by $504,000, driven primarily by the absence in 2026 of approximately $2 million of quarterly interest income from a previously terminated swap that concluded in October 2025.
Rex Copeland: Additionally, lower average loan balances and lower market interest rates, which impacted yields on variable rate loans, were mostly offset by lower interest expense on deposits, disciplined funding cost management, and additional interest income from investment securities purchased during the quarter. As Joe mentioned, we purchased approximately $400 million of fixed rate agency mortgage-backed securities and collateralized mortgage obligations in Q3. These securities have an expected effective duration of approximately 5 to 6 years, with final maturities primarily in 2032 and 2033 for about $150 million of these securities, and in 2028 for about $100 million of these securities. These securities have an expected weighted average yield between 4.80% and 5%.
Rex Copeland: While this leverage trade generated positive net interest income, the spread is narrower than our core earning assets and is expected to modestly reduce our overall reported net interest margin percentage in future quarters, while providing meaningful downside protection should market interest rates decline significantly. Compared to the linked Q2 2026, net interest income increased $776,000. A portion of this increase was aided by one additional calendar day in Q3 and investment portfolio additions alongside the initial interest income accretion recognized from our redesignated interest rate swaps. Net interest margin was 3.75% for Q3, compared to 3.72% in the prior year quarter and 3.76% in Q2 2026. Non-interest income for the quarter was $3.4 million, compared to $7.1 million in Q3 2025 and $7.4 million in Q2 2026.
Rex Copeland: The year-over-year decrease was driven by the $4.1 million hedge accounting adjustment discussed previously. Partially offsetting this was a $240,000 increase in late charges and fees on loans totaling $429,000, primarily due to $282,000 in prepayment penalties collected on two commercial loans that paid off during the quarter. Other income also included $116,000 in origination fees from a back-to-back interest rate swap on a new commercial real estate loan. Commission income totaled $486,000 in Q3 2026, reflecting continued customer demand for fixed annuity products. Total non-interest expense was $36.3 million, compared to $36.1 million in Q3 2025, and down $1.9 million from $38.2 million in Q2 2026. That sequential decrease reflects the non-recurrence of the $2.1 million charge in branch consolidation and severance recorded in Q2 2026.
Rex Copeland: Salaries and employee benefits decreased $565,000 compared to the prior year quarter to $19.6 million, reflecting lower incentive accruals, staffing adjustments in some lending areas, and lower expected severance payouts. Net occupancy and equipment expense increased $428,000 compared to the prior year quarter to $9.3 million, primarily due to a $434,000 increase in computer licensing and core support expenses as our planned investments in core systems and data security continue to cycle online. As Joe noted earlier, our consolidation of nine banking centers and the elimination of other positions across the company were completed by 1 October. The banking center consolidations and workforce reductions are expected to result in approximately $4.4 million to $4.8 million in non-interest expense savings beginning in Q4 2026.
Rex Copeland: These savings are expected to be partially offset by some customer deposit attrition in the affected locations over time, which will likely be replaced by higher cost alternative funding sources. These actions combined are expected to result in approximately $2.3 million to $2.7 million in annual pre-tax income improvement beginning in Q4 of this year. Our efficiency ratio for the quarter was 67.57% and normalizes to 63.69% when excluding the hedge accounting adjustment. For income taxes, the company's effective tax rate for the three months ended 30 September 2026, was approximately 16.3% compared to 19.7% in the same period in 2025. Through the first nine months of 2026, the effective tax rate was 16.9% compared to 19.4% in the prior year period.
Rex Copeland: The lower effective tax rate in Q3 was driven by our usual tax credits and higher allowable tax deductions resulting from employee stock option exercises. Going forward, we continue to expect our combined federal and state effective tax rate to range generally from 18% to 19.5% in future periods. Moving on to the balance sheet, total assets ended the quarter at approximately $5.82 billion, up from $5.52 billion at 30 June, primarily reflecting the $400 million investment portfolio increase. Gross loans receivable stood at $4.32 billion. Total net loans, excluding mortgages loans held for sale, were $4.25 billion, down $59.3 million sequentially and down $108.4 million from 31 December 2025.
Rex Copeland: Over the first nine months of the year, net loans decreased by 2.5%, driven by repayments in commercial real estate, which was down $95.8 million net, and multifamily, which was down $105.6 million net, partially offset by an $83 million expansion in construction balances. As Joe highlighted, repayments on our loan portfolio are difficult to predict and may continue to drive volatility in our loan balances in future quarters. However, our origination activity remains healthy as our pipeline of unfunded loan commitments expanded to $1.20 billion, led by $640.8 million in unfunded construction commitments on loans which are already closed. On the funding side, total deposits ended the quarter at approximately $4.07 billion, down $232.1 million from 30 June 2026. Given the pricing and term advantage of FHLB borrowings, we intentionally allowed higher cost brokered balances to mature without replacement.
Rex Copeland: These brokered maturities constituted $211.8 million of the $232.1 million deposit reduction in Q3. Excluding this planned runoff, non-brokered deposits remained relatively stable during the quarter. Our deposit mix consisted of $2.22 billion in interest-bearing checking, $870.8 million in non-interest-bearing checking, $618.6 million in time deposits, and $363.8 million in brokered deposits at 30 September. Uninsured deposits, excluding our internal deposit balances, are estimated at $686.2 million or 16.9% of total deposits. At 30 September 2026, secured borrowing line availability at the Federal Home Loan Bank and Federal Reserve Bank was $1.10 billion and $370.9 million, respectively, alongside cash and cash equivalents of $161.7 million. From asset quality perspective, overall performance remained strong. Non-performing assets and potential problem loans combined totaled $11.9 million.
Rex Copeland: Non-performing assets were $10.5 million or 0.18% of total assets compared to $9.4 million or 0.17% of assets at 30 June 2026, and $8.1 million or 0.15% of total assets at 31 December 2025. Non-performing loans were $1.19 million or 0.03% of total loans, while potential problem loans closed the quarter at $1.43 million. Net charge-offs were $397,000 in Q3 2026 or an annualized rate of 0.04% of average loans. During both the three and nine months ended 30 September 2026, we did not record a provision expense on our outstanding loan portfolio, but recognized a provision for unfunded commitments of $674,000 in Q3 2026 due to growth in the commitment pipeline. The bank's allowance for credit losses was stable at 1.47% of total loans.
Rex Copeland: Overall, our core credit metrics continued to reflect our longstanding focus on disciplined risk management and a portfolio that is performing well. Other real estate owned increased $14.4 million from 31 December 2025 to $20.4 million at 30 September. As Joe highlighted, $11.1 million of this increase represented the nine closed retail banking centers held for sale now following our branch consolidations. Total foreclosed properties stood at $9.3 million, consisting primarily of an office building at $7.0 million, where we capitalized $479,000 in safety and fire suppression upgrades in the quarter, and a multifamily property at $2.3 million, where we capitalized $490,000 in property improvements. Independent appraisals continue to support these carrying values on both assets. Our capital position remained a key strength.
Rex Copeland: Total stockholders' equity at 30 September 2026, was $612.5 million, representing 10.5% of total assets and a book value of $56.97 per common share, compared to $636.1 million or $57.50 per common share at 31 December 2025. The decline in stockholders' equity was primarily a function of higher market interest rates, resulting in a $33.2 million increase in the unrealized losses captured in our AOCI portion of equity. Outside of the AOCI impact, capital in the nine-month period was supported by $47.3 million of net income and $13.8 million from stock issued or option exercises, partially offset by $14.0 million in dividends declared on common stock and $37.5 million in common stock buybacks. Throughout the first nine months of the year, we have repurchased 542,000 shares of common stock at an average price of $68.67.
Rex Copeland: Approximately 145,000 shares remained available under our current stock repurchase authorization at quarter end, and this month our board approved a new $1 million share repurchase authorization to succeed the existing program once completed. Our board of directors also declared our regular quarterly cash dividend of $0.43 per common share in September. Overall, our Q3 results reflect solid execution throughout our business. Our net interest margin remains resilient, our core deposit mix remains stable, and our asset quality trends remain solid. Our capital benchmarks sit at strong levels, and we are well positioned for continued operational success. That concludes my remarks, and now we are ready to take questions.
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Rodis of Janney Capital. Your line is now open.
John Rodis: Hey, good afternoon, guys.
Rex Copeland: Hey, John.
John Rodis: Hey. Rex, the investment in the securities portfolio, so you bought, I think you said roughly $400 million, and you said average yield around 4.9%, give or take?
Rex Copeland: Yeah. In the range. It will vary slightly, but 4.8% to 5% is what it should. 4.9% is sort of an average in there, yes.
John Rodis: What was the net spread, roughly? What were you paying initially in the quarter, and what was the timing? When did you buy them in the quarter? Did you get a full quarter's impact? It does not look like it based on the average balances.
Rex Copeland: No. We bought a little bit of it in July, more in August and some more in September. I would say, I think the biggest chunk of it was probably in August, John, but we did some in July and September as well. I would say at the time we started buying, of course, the Fed had not raised rates, so just overnight borrowing costs at the Federal Home Loan Bank were probably a little less than 390, 395, something like that maybe.
John Rodis: Okay. Your net spread on this with the higher rates, it is 100 basis points or less, give or take, correct?
Rex Copeland: Right. The borrowing cost at the Federal Home Loan Bank is give or take, 424 in a quarter now. Yes, that is sort of like the spread would be the difference between that and the yield.
John Rodis: Yeah. So obviously it is additive to net interest income, but dilutive to the margin. Any plans to purchase any more securities?
Rex Copeland: Not really at this time. I do not think so. Plans can change, but we think we got what we wanted to do there.
John Rodis: Okay. So, I just want to make sure I am looking at it right as far as the, I guess, puts and takes with the net interest income dollars and then the hedging treatment. It looks like all things equal, you had a one-time benefit of the $500,000 roughly, and then a recurring benefit, I guess, to 2028. This quarter was roughly $300,000, and then going forward, you will pick up another $200,000 a quarter. Am I thinking about that right?
Rex Copeland: No, it will be more than that. Q1, yes, I think you are right. We had an initial, call it $500,000 added to interest income, and then we had about another $279,000 of this accretion income that we took in. Then it should be about another roughly $170,000 a month of accretion income that will go back into interest income to recapture that $3.5 million that was the one-time hit to non-interest income in this quarter.
John Rodis: Yeah. I will just try asking this, but as far as the margin goes, it seems like directionally it is probably down a little bit, especially with the securities, but do you think 365 to 370 range is reasonable?
Rex Copeland: Well, that is probably reasonable. Yes, we would see a decrease in the margin itself for the securities.
John Rodis: Yeah
Rex Copeland: purchase, which would be fairly modest, but there would be some decrease there. Then partially offsetting that or maybe offsetting a fair amount is going to be this accretion income, basically for the next six quarters is when that accretion income is going to come back in, John.
John Rodis: Yeah. I am just trying to put it all together.
Rex Copeland: Yeah
John Rodis: The margin maybe in that range seems reasonable.
Rex Copeland: Yeah, I think so.
John Rodis: Okay. Joe, maybe a question for you. Loan portfolio continued to trend down. Any thoughts on what we see over the next quarter or 2?
Joe Turner: The same comment we always make, John. It is really difficult to predict. A lot of it is based on just payoffs. It is possible that with rates being up a little bit, payoff activity could be down, which would be a bullish thing for loan growth. The reason we do not give guidance is we just do not feel like we have a lot of real good, clear information. We have some visibility, but it is probably a whole lot more limited than what you guys think. I could see how higher interest rates could slow down refinancing activity, and we could have loans on our books longer, which would be positive, but it is just kind of time will tell.
John Rodis: Yeah. As far as the new buyback, you authorized another 1 million shares. All things equal, I assume you sort of continue to do what you have been doing, maybe buying back 100,000 shares a quarter?
Joe Turner: Yeah. We are kind of in and out from time to time. Obviously, you can see from our activity that we do think it is a positive thing for our shareholders at these price levels. I do not see anything right now that would change our opinion about that.
John Rodis: Yeah. Okay. Thanks, guys.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Damon DelMonte of KBW. Line is now open.
Damon DelMonte: Hey, good afternoon, guys. Hope you're doing well.
Joe Turner: Hey.
Damon DelMonte: Joe, just a question on the loans and the payoffs. Obviously, payoffs and refinancings are happening all over the industry. But I was just wondering, is there anything different with your approach of lending which allows you or which results in you guys having more payoffs than origination activity? Are these more transactional accounts where you don't have an established relationship with the borrower, where you can maybe work with them and offer them a more competitive rate that would keep them with you guys? Just looking for any color on that.
Joe Turner: No. Usually when we see a payoff, Damon, it's coming on terms that are, from the borrower's perspective, just terms that we wouldn't be interested in. We're involved in the construction part of the project, and so just as an example, maybe a $30 million apartment project, we're doing two-thirds of the cost, $20 million with a loan. And when they go to refinance that, they're looking at borrowing substantially more than what we have loaned and either significantly limiting or maybe removing their guarantees and lessening the rate a lot. So it's not a structure that we would be interested in.
Rex Copeland: Other things are just projects get completed and the sponsor sells the project.
Joe Turner: Yeah. Right. There is both, refinancing into a permanent mortgage and sales.
Damon DelMonte: Got you. Okay. Are these payoffs and refinancings happening anywhere in particular in your footprint? Is it like a different certain parts, is it down like Texas or more like in the northern Midwest or anything?
Joe Turner: No, not really. I think they happen all over.
Damon DelMonte: Okay. I guess my next question on expenses, with the cost saves coming in here in Q4. Can we assume that this quarter's level will go down because of those savings? Or is there some already pre-planned growth in expenses that would neutralize the impact?
Rex Copeland: I think there could be some increases, but they shouldn't be of the magnitude of what we're talking about dropping as far as the costs go. There will be a little bit of the cost still probably in there in October, but most of the quarter will be free of those costs and charges. I think we should see lower expenses as we outlined in Q4, generally speaking. Could be a little bit of offset to it, but not-
Joe Turner: Yeah. We have talked a bit on these calls, Damon, about we are in the process of upgrading our technology platform, primarily with Jack Henry and as more of those products roll out, and I think we are substantially through that. But there could be another one or two of those roll out, and that could be some additional expense. I do not have off the top of my head what that would be, but that would be the only caveat I would give.
Damon DelMonte: Got it. Okay, great. That is all that I had. Thank you.
Joe Turner: All right. Thanks, Damon.
Operator: Thank you. I am showing no further questions at this time. I will now turn it back to Joe for closing remarks.
Joe Turner: All right. Appreciate everybody being with us, and we will look forward to talking to you again after the first of the year. Thank you.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
