Executive Summary / Key Takeaways

• Robust Financial Performance: Great Southern Bancorp delivered strong Q2 2025 results, with net income rising to $19.8 million and an annualized net interest margin expanding to 3.68%, driven by disciplined balance sheet management and proactive funding cost control.
• Pristine Asset Quality: The bank maintains exceptional credit quality, evidenced by nonperforming assets at a low 0.14% of total assets and net recoveries on loans in Q2 2025, underscoring its conservative credit posture.
• Strong Capital and Shareholder Returns: GSBC boasts robust capital levels, operating well above regulatory requirements, and actively returns capital to shareholders through consistent dividends and an opportunistic share repurchase program, including a new 1 million share authorization.
• Strategic Technology Investments: The company is making targeted investments in its core banking platform, ITM units, and a "next-generation" banking center to enhance operational efficiency, customer experience, and long-term competitive positioning.
• Balanced Outlook with Known Headwinds: While the near-term net interest margin is expected to remain largely neutral with some tailwinds from deposit repricing, a significant headwind is anticipated in Q4 2025 from the cessation of a terminated interest rate swap's income benefit. Loan growth is expected to remain modest in a competitive environment.

A Regional Powerhouse with a Prudent Approach

Great Southern Bancorp, Inc. (NASDAQ:GSBC), established in 1923 in Springfield, Missouri, has evolved into a resilient regional banking institution with a deep-rooted commitment to its communities. The company operates as a one-bank holding company, primarily through Great Southern Bank, offering a comprehensive suite of financial services. Its strategic expansion, marked by a series of acquisitions in the late 2000s and early 2010s, including TeamBank, N.A. (2009) and Valley Bank (2014), solidified its footprint. A notable move in 2016 saw the acquisition of 12 branches in the St. Louis market, contributing $4.2 million in goodwill and expanding its reach. Today, GSBC serves customers through 89 retail banking centers across Missouri, Iowa, Kansas, Minnesota, Arkansas, and Nebraska, complemented by commercial lending offices in key markets such as Atlanta, Charlotte, Chicago, Dallas, Denver, Omaha, and Phoenix.

GSBC's overarching strategy is characterized by a conservative credit posture, a relationship-based lending approach, disciplined expense management, and a focus on maintaining a stable, diversified deposit base. This strategy has been honed through various economic cycles, including the aftermath of the 2007-2008 financial crisis and the rapid recession of 2020. The company's emphasis on prudent risk management and long-term value creation underpins its operational decisions.

The broader banking industry currently faces a dynamic environment. While real GDP in 2025 is projected to rise 1.5%, and unemployment remains low at 4.1% nationally as of June 2025, inflationary pressures, with Core PCE at 2.8%, persist above the Federal Reserve's 2.0% target. The housing market shows mixed signals, with existing-home sales down 2.7% in June 2025, but median prices rising. Commercial real estate (CRE) segments present a varied picture: multi-family housing is experiencing a strong recovery in demand, with Q1 2025 absorption at nearly 130,000 units and overall vacancy at 8.2%. In contrast, the office market faces rising vacancy rates (14.1% nationally in June 2025) and flat asking rents, while retail is seeing increased store closures. The industrial market, though favoring tenants with a 7.4% vacancy rate, is nearing the end of a development surge. These trends create both opportunities and challenges for regional banks like GSBC.

Competitive Landscape and Strategic Positioning

GSBC operates in a competitive landscape dominated by other regional and community banks, as well as larger financial institutions. Key direct competitors include Commerce Bancshares (CBSH), UMB Financial Corporation (UMBF), Simmons First National Corporation (SFNC), and Fifth Third Bancorp (FITB). GSBC differentiates itself through its extensive physical branch network and a strong emphasis on community relationships, fostering deep customer loyalty in its core Midwestern markets. This localized approach provides a qualitative edge, particularly in areas where in-person banking and personalized service are highly valued, allowing GSBC to maintain stable funding sources and potentially stronger pricing power in regional markets.

Comparing GSBC's financial health to its peers reveals a nuanced picture. GSBC's Net Profit Margin of 19.18% (TTM) is competitive, surpassing UMBF (17%) and SFNC (11%), though trailing CBSH (25%). Its Operating Profit Margin of 23.52% (TTM) also demonstrates strong operational efficiency relative to UMBF (21%), SFNC (12%), and FITB (22%), but is lower than CBSH (32%). In terms of valuation, GSBC's P/E ratio of 10.72 (TTM) is notably lower than CBSH (15.91), UMBF (12.47), SFNC (18.23), and FITB (12.46), suggesting a potentially undervalued stock based on earnings. Its Price-to-Book ratio of 1.18 (TTM) is also lower than most larger peers, aligning with analyst commentary that the stock appears cheap. Furthermore, GSBC exhibits a more conservative leverage profile with a Debt/Equity ratio of 0.72 (TTM), lower than CBSH (0.88), UMBF (0.86), and FITB (0.97).

While GSBC excels in community-focused execution and operational stability, it faces vulnerabilities related to its geographic scale and the pace of technological innovation compared to larger, more diversified competitors. Indirect competitors, such as fintech companies and online banks, pose a threat by offering more accessible and potentially cheaper digital services, which could erode demand for traditional banking products. GSBC's reliance on physical branches, while a strength for relationship banking, could make it more susceptible to these digital disruptors.

Strategic Investments in Technology

GSBC's approach to technology is centered on strategic investments aimed at enhancing operational efficiency, improving the customer experience, and strengthening its competitive stance rather than developing proprietary, differentiated core technologies. The company is actively upgrading its core banking platform, with projects expected to be completed between Q3 2025 and 2026. This initiative aims to expand its array of products and services, streamlining internal processes and improving overall service delivery.

A tangible example of this strategic investment is the installation of 10 Interactive Teller Machine (ITM) units in the St. Louis market. These ITMs replace older ATM units and offer customers live teller services, extended banking hours, and a broader range of transactions beyond traditional ATM capabilities. This provides enhanced customer convenience and operational flexibility, allowing the bank to maintain a strong physical presence while offering modern, efficient service options.

Furthermore, GSBC initiated construction in March 2025 on a new "next-generation banking center" in Springfield, Missouri, slated for completion in Q4 2025. This facility is designed to be a testing ground for new designs, processes, technology, and tools, balancing innovation with customer convenience. These investments are critical for GSBC to adapt to evolving customer expectations and maintain its competitive edge against rivals who may have more advanced digital offerings or greater scale in technological deployment. While not a unique technological moat, these initiatives are vital for mitigating potential technological gaps and supporting the bank's long-term growth strategy.

Financial Resilience and Margin Expansion

Great Southern Bancorp's financial performance in the second quarter of 2025 underscores its resilience in a dynamic operating environment. The company reported net income of $19.8 million, or $1.72 per diluted common share, a notable increase from $17.0 million, or $1.45 per diluted common share, in Q2 2024. This improvement was primarily driven by a significant increase in net interest income, supported by consistent loan and investment yields alongside lower funding costs.

Net interest income (NII) for Q2 2025 reached $51.0 million, an 8.9% increase from $46.8 million in the prior-year quarter. This led to an annualized net interest margin (NIM) of 3.68%, a 25 basis point expansion from 3.43% in Q2 2024 and an 11 basis point improvement from 3.57% in Q1 2025. This margin expansion reflects GSBC's disciplined balance sheet strategy and proactive management of funding costs.

Interest income on loans saw a slight decrease of $465,000 in Q2 2025 compared to Q2 2024, primarily due to a reduction in the average yield on loans from 6.37% to 6.26%, partially offset by a rise in average loan balances to $4.73 billion from $4.69 billion. Conversely, interest income from investment securities and other interest-earning assets increased by $513,000, or 7.7%, driven by higher average balances and rates. A key factor in the improved profitability was the reduction in interest expense, which declined by $4.1 million, or 12.0%, in Q2 2025 compared to Q2 2024. This was largely attributable to a $3.4 million (12.3%) reduction in deposit-related costs, as the average rate paid on total interest-bearing liabilities decreased to 2.75% from 3.17%.

Non-interest income for Q2 2025 totaled $8.2 million, a decrease of $1.6 million (16.5%) from Q2 2024. This was influenced by a $1.1 million gain from tax credit partnership investment activities in Q2 2025, which, while positive, was lower than the $2.7 million income from a software vendor agreement termination in Q2 2024. Non-interest expenses decreased by $1.4 million (3.9%) to $35.0 million in Q2 2025. This reduction was primarily due to lower legal, audit, and other professional fees, which were elevated in the prior year due to core systems conversion costs, and decreased expenses on other real estate owned due to rental income. These savings partially offset increased investments in net occupancy and equipment expenses related to computer license, support, and hardware upgrades. The company's efficiency ratio improved significantly to 59.16% in Q2 2025, down from 64.27% in Q2 2024, reflecting effective cost control.

Loan Portfolio and Asset Quality: A Foundation of Strength

GSBC's loan portfolio and asset quality remain a cornerstone of its investment thesis. Gross loans totaled $4.6 billion at June 30, 2025, a 3.3% decrease from $4.76 billion at year-end 2024, primarily due to higher loan payoffs in Q2 2025, including a $30 million payoff on the last day of the quarter. The largest loan categories continue to be multifamily ($1.58 billion) and commercial real estate ($1.49 billion). The company maintains a healthy pipeline of unfunded construction loans, totaling $644 million at June 30, 2025, reflecting its continued presence and strategic focus in this segment.

Asset quality remains pristine, with nonperforming assets at a low $8.1 million, representing just 0.14% of total assets at June 30, 2025, a decrease from 0.16% at December 31, 2024. Nonperforming loans to period-end loans stood at 0.04%. The company recorded net recoveries on loans of $111,000 in Q2 2025 and did not record a provision for credit losses on its outstanding loan portfolio. The allowance for credit losses as a percentage of total loans was 1.41% at June 30, 2025, which management deems adequate to cover inherent losses. This strong asset quality, coupled with conservative underwriting standards, provides a significant competitive advantage, particularly in the current environment of varied CRE market performance.

Capital, Liquidity, and Shareholder Returns

GSBC demonstrates robust capital and liquidity, reinforcing its financial stability. Total stockholders' equity increased to $622.4 million at June 30, 2025, representing 10.6% of total assets, up from $599.6 million (10.0%) at December 31, 2024. The tangible common equity to tangible assets ratio also improved to 10.5% in Q2 2025. The Bank remains well-capitalized, with a Common Equity Tier 1 capital ratio of 13.1%, Tier 1 capital ratio of 13.1%, total capital ratio of 14.4%, and a Tier 1 leverage ratio of 11.2%, all comfortably exceeding regulatory minimums.

Liquidity is ample, with $245.9 million in cash and cash equivalents at June 30, 2025, and access to an additional $1.55 billion through Federal Home Loan Bank and Federal Reserve funding lines. Uninsured deposits, excluding consolidated subsidiaries, stood at approximately $703 million, or 15% of total deposits. In June 2025, GSBC strategically redeemed its $75 million aggregate principal amount of 5.5% fixed-to-floating rate subordinated notes, ahead of a scheduled rate step-up, utilizing FHLB overnight borrowings to fund the redemption and saving future interest costs.

The company is committed to returning value to shareholders. It declared a common stock cash dividend of $0.40 per share in Q2 2025, representing 23% of net income per diluted common share. GSBC also actively engages in share repurchases, buying back 175,998 shares in Q2 2025. A new authorization for an additional 1 million shares was approved in April 2025, set to succeed the existing program once the remaining 94,000 shares are repurchased. While unrealized losses on held-to-maturity investment securities totaled $19.3 million at June 30, 2025 (representing 2.3% of total stockholders' equity if included in capital net of taxes), the overall capital position remains strong.

Outlook and Strategic Positioning

Looking ahead, GSBC anticipates a largely neutral net interest margin in the near term. This outlook is supported by expected tailwinds from maturing time deposits, with approximately $537 million maturing within three months at an average rate of 4.53% expected to reprice at lower rates (3.50-4.20%). However, a significant headwind is projected for Q4 2025, as the approximately $2 million per quarter in interest income from a terminated interest rate swap will cease after Q3 2025. Management believes the balance sheet is well-positioned to absorb potential Federal Reserve rate cuts, expecting only a minor immediate negative impact on net interest income followed by a quick recovery.

Loan growth is expected to remain modest in 2025, reflecting a competitive market with fewer opportunities and unpredictable loan payoffs. Despite a healthy pipeline of unfunded construction loans, the funding process, often delayed by borrower equity contributions, is likely to be offset by ongoing repayments. Non-interest expenses are projected to remain fairly consistent in the latter half of 2025, benefiting from the absence of prior-year core systems conversion costs, with minor increases anticipated for technology investments and compensation adjustments. The company's effective tax rate is expected to range between 18% and 20% in future periods, driven by the utilization of investment tax credits.

GSBC's strategic positioning emphasizes its regional focus, disciplined operations, and ongoing investments in technology to enhance customer experience and efficiency. While the company is not actively pursuing large-scale open bank M&A, it remains opportunistic for the "right situation," acknowledging the challenges of integrating acquired businesses. The company's commitment to strong credit quality, cost control, and robust capital management serves as its primary competitive response to market volatility and the evolving banking landscape.

Conclusion

Great Southern Bancorp (GSBC) stands as a fundamentally strong and prudently managed regional bank, consistently delivering value to its shareholders amidst a dynamic and competitive banking environment. The company's recent financial performance, marked by expanding net interest margins, disciplined expense management, and robust profitability, reflects the efficacy of its conservative, relationship-based strategy. This operational strength is underpinned by pristine asset quality and a solid capital base, providing a resilient foundation against potential economic headwinds.

While the banking sector faces ongoing challenges from interest rate volatility and intense competition for both loans and deposits, GSBC's strategic investments in technology, coupled with its deep community ties and strong liquidity, position it to adapt and maintain its market standing. The company's commitment to shareholder returns through dividends and share repurchases further enhances its appeal. As GSBC continues to execute its disciplined approach, its steadfast focus on core banking fundamentals and strategic operational enhancements will be crucial in driving long-term value creation and sustaining its competitive edge in the evolving financial landscape.