Great Southern Bancorp, Inc. earnings

Management highlights

- Core Franchise Resilience - Management reports the core banking franchise remains strong and resilient despite a highly competitive operating environment, supported by disciplined expense management, careful balance sheet positioning, and relationship-based banking. - Capital position remains a key strength: total stockholders' equity was $641.6 million (11.6% of total assets) at quarter end, with strong regulatory capital benchmarks. Tangible book value per share increased over the first half of 2026. - Balance Sheet & Lending Updates - Net loan balances declined in Q2 2026 driven by elevated, hard-to-forecast loan payoff activity, concentrated in commercial real estate and multifamily lending. Construction lending balances increased $53.2 million year-to-date to partially offset declines. - The overall lending pipeline remains robust, with total commitments of $1.07 billion at quarter end, including $531.5 million in unfunded closed construction loans. Management maintains disciplined origination with conservative underwriting standards. - Deposit decline in the first half of 2026 was a strategic choice: the firm allowed higher-cost broker deposits to mature without replacement, opting to use lower-priced FHLB borrowing instead. Core retail deposit mix remains largely stable. - Credit Quality - Credit metrics remain excellent, with total nonperforming assets equal to just 0.17% of total assets at quarter end. The $909,000 charge-off on a single multifamily loan is viewed as an idiosyncratic event, not reflective of broader portfolio weakness. The allowance for credit losses remained stable at 1.46% of total loans. - Operational Efficiency Initiative - Management implemented a cost-cutting plan consisting of consolidation of 9 banking centers and elimination of 66 positions across the firm to align with changing customer preferences and capture operational efficiency gains. One-time restructuring costs totaled $2.1 million, including $1.4 million in asset valuation allowances, $561,000 in severance, and $163,000 in remaining lease obligations. - The restructuring is expected to generate $4.4-$4.8 million in annual non-interest expense savings starting in Q4 2026, partially offset by higher expected funding costs from projected deposit attrition at closed locations. The net expected annual pre-tax income improvement is $2.3-$2.7 million.

Guidance

- Effective tax rate: Management maintains its prior projection that the combined federal and state effective tax rate will remain in the 18% to 19.5% range in future periods. - Net interest margin: Management expects margin to remain stable around the current Q2 2026 level, with only minor incremental benefit from remaining CD repricing in the third quarter of 2026. Significant competition for loans and funding prevents substantial further margin expansion. - Restructuring cost savings: Cost savings from the branch and workforce consolidation will not begin to impact results until Q4 2026; no material savings are expected in Q3 2026. Ongoing technology investment will push core non-interest expenses slightly higher over time, offsetting a portion of the restructuring savings. - Loan balance volatility: Management confirms that period-to-period loan balances will continue to be volatile due to unpredictable payoff activity, and does not provide guidance on future net loan growth rates.

Segment performance

Great Southern Bancorp operates as a single-segment banking franchise focused on lending, deposit services and other related banking activities. For Q2 2026: - Overall net income: $15.8 million ($1.43 per diluted common share), down from $19.8 million ($1.72 per diluted common share) in Q2 2025 - Net interest income: $49.5 million, a 2.9% ($1.5 million) decline year-over-year, driven by a $2 million reduction in income from a terminated interest rate swap, lower loan balances, and lower market interest rates. This was partially offset by lower interest expense. Net interest margin expanded to 3.76% from 3.68% year-over-year. - Non-interest income: $7.4 million, down $837,000 year-over-year, primarily due to a $1.1 million one-time tax credit partnership income recorded in Q2 2025, partially offset by higher commissions income. - Non-interest expense: $38.2 million, up $3.2 million year-over-year. Excluding $2.1 million in one-time branch consolidation and workforce reduction costs, core non-interest expense was $36.1 million, a $1.1 million year-over-year increase driven by higher technology and security investment costs. - Total assets: $5.52 billion; net loans: $4.31 billion, down $49.1 million (1.1%) from December 31, 2025; total deposits: $4.30 billion, down $180.7 million in the first half of 2026, with most of the decline in higher-cost broker deposits.

Risks & headwinds

- Sustained elevated loan payoff activity could lead to continued net loan balance declines, which would put downward pressure on net interest income even if the net interest margin holds steady. - The highly competitive operating environment for both lending and funding creates ongoing pricing pressure that could compress margins or limit growth. Higher-than-expected deposit attrition at closed branch locations could increase funding costs and reduce net restructuring benefits. - Unpredictable borrower repayment activity makes loan performance and balance trajectory difficult to forecast, creating volatility in quarterly financial results. - The one-time $1.4 million valuation allowance on 4 closed branch properties reflects the risk that the firm will not recover full carrying value on the sale of these assets, though management expects aggregate proceeds from all 9 properties to exceed combined carrying value.

Analyst Q&A

• Q: The analyst asks for management's outlook for net interest margin in the second half of 2026, specifically whether recent lower funding cost benefits will keep margin stable at current Q2 levels. /

  A: CFO Rex Copeland states that only modest margin benefit is expected from upcoming CD maturities in Q3, as most have already repriced multiple times following prior rate cuts. He characterizes the current margin as generally stable going forward, noting that intense competition for both loans and funding prevents substantial further expansion. Even after backing out the one-time $393,000 interest recovery in Q2, management expects to hold the margin near current levels.

• Q: The analyst asks whether additional branch closures are expected after the current 9-branch consolidation, given the ongoing focus on cost savings. /

  A: CEO Joe Turner explains that evaluating the branch network and operational efficiency is an ongoing process for Great Southern Bancorp, not a one-time event. The firm has closed 50+ branches over the past 15 years as customer traffic and behavior has shifted, and will continue to make adjustments as needed to align with customer preferences and control costs across all areas of the business.

• Q: The analyst asks what capital allocation alternatives management is considering after completing the current share buyback program, given the firm's already strong capital levels and recent stock price appreciation. /

  A: Joe Turner confirms the firm will avoid large, leveraged acquisitions. The three most likely capital deployment options are continued share repurchases, an increase to the regular common dividend, or a special dividend, with some combination of these options also possible. The board will continue to evaluate the best use of the firm's consistently generated excess capital.

• Q: The analyst asks if the projected post-restructuring core non-interest expense run rate of ~$35 million per quarter starting in Q4 2026 is accurate, after accounting for the planned cost savings. /

  A: Rex Copeland confirms that $36.1 million is the correct core non-interest expense number for Q2 2026, with no unusual additional items. No cost savings will be realized in Q3 2026, with benefits beginning in Q4 as projected. However, ongoing investments in technology and core system upgrades will push core expenses slightly higher, so full quarterly savings will not be fully realized, making the $35 million run rate a reasonable baseline estimate that will be offset slightly by new investment costs.