Q4 2023 Great Southern Bancorp Inc Earnings Call

Operator: So those are the items I wanted to discuss, and that concludes our remarks that we have prepared so far today. At this time, we'll entertain questions, and I'll ask our operator to once again remind the attendees on the call how to queue. Thank you, and at this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced to withdraw your question. Please press star 11 again.

Operator: Please stand by while we compile the Q&A roster. One moment for our first question, and our first question comes from Andrew Liesch of Piper Schreiber. Hi, good afternoon, everyone.

Andrew Brian Liesch: Thanks for taking the time today. Really, my questions revolve around the margin outlook here. So if the swap hit here in the first quarter is going to be less than it was in the fourth, could we see the margin and an III increase here this quarter? Or do you think there's other funding costs that might be upsetting? Thank you.

Joseph W. Turner: All things being equal, that should be somewhat of an improvement. I mean, although we'll probably have two months of it in the first quarter, so the more improvement will be in the beginning of the second quarter. It kind of depends a little bit on... What we see as far as any further migration from non-interest-bearing accounts into other interest-bearing types of funds, it doesn't feel like the costs are going up on other borrowings. I mean, the rates on those are pretty much kind of where they are. CDs, we do have them.

Joseph W. Turner: Some GDs, as I mentioned, are going to mature in the first quarter of 2024, but I think the bulk of those is probably later in the quarter. So, what do I mean? I don't know that the first quarter is going to be terribly affected by it all, you know, so it just depends on kind of where competition goes, and I think the biggest driver is going to be can't wear non-intersparing belts. Yeah, I agree with that, Andrew.

Joseph W. Turner: I mean, you know, what happens to non-interest-bearing accounts and, you know, our CD... Our TD portfolio is relatively short, probably a year or so. So most of those have repriced up to, you know, close to current market rates. I mean, there could be a little bit of movement there, but not a lot.

Joseph W. Turner: And then, of course, our interest-bearing checking, you know, that sort of keeps up with the market as it goes. But it does seem to, you know, continue to slide up. And that may be, you know, people moving from lower tiers to higher tiers. And so there could be a little bit of a slide up, you know, in the cost of funds. I wouldn't expect it to be dramatic, you know, but again, the thing to watch there is the, you know, migration from non-interest bearing into interest bearing account. You know, generally speaking, though, our liabilities should be priced pretty close to market. We still have a fair amount of loans, you know, and we've got disclosures on that in our annual report. We have a fair amount of loans to reprice up. You know, that's not necessarily going to all happen, and it's not going to all happen in 24 hours.

Joseph W. Turner: You know, it's going to happen, you know, over a period of time, but, you know, that's going to be helpful. The margin certainly, and as you mentioned, the $3 million a quarter swap that rolls off completely starting in the second quarter will help as well. Got it. The loan repricing, I'm sure it'll be in the 10K when you file that in a couple months, but do you have the balance right now of loans that are going to reprice this year? I don't have the balance.

Joseph W. Turner: I mean, as of last year, the balance was a couple hundred million dollars of repricing loans, but you know that may have changed in the last year. And that's in addition to... give or take $1.8 or $2 billion of loans that are repriced quickly because they're tied to SOFR. Yeah. You're talking about it. The stuff that hasn't moved yet.

Joseph W. Turner: Yeah. Yeah. Yeah. Got it. And then, just if you have it handy, do you know what the average yield on the new loan production was in the last quarter? I don't have that number.

Joseph W. Turner: Is it trending higher, or do you think it's sort of stabilized at a certain level? I think it's probably stabilized, as ways to stabilize fear. I think it's probably kind of stable. It depends a little bit on the nature of the type of loans, too.

Joseph W. Turner: So, as construction loans, you know, they're coming on at... I don't know, somewhere between 250 to 300 over, over, over, yeah, yeah. We're probably not originating a lot of new loans that go immediately on the books. That's what you can kind of think of from a construction standpoint as far as what funds. I think there's a little bit of commercial stuff, but they're not easily looked at right now.

Damon DeMonte: Thank you. One moment for our next question, and our next question comes to mind: Damon DeMonte from KBW. You're on your phone. Hey, good afternoon, guys. Hope everybody's doing well today.

Damon DeMonte: Hi David. Hi. So I just had a question here on expenses. You know, you guys called out some kind of one-time items. If you look at the $440,000 or the bonuses, the $320,000, and the other operating expenses, and the $240,000, you know, that's call it $900,000 to $1 million.

Joseph W. Turner: So is it fair then to kind of take those out of this quarter's level, and you're kind of put in the $35 million range as a starting point for 2024? Is that reasonable? Yeah, I think so. Definitely, the bonuses are, I mean, that's not something that we're contemplating on a quarterly basis, obviously. The other thing is that we did have some additional, you know, fraud law stuff that we had in the fourth quarter, and it's above kind of what we've noted that are running. And so, you know, we hope that that's not going to be a new trend. It was definitely higher than the general trend that we had expected.

Joseph W. Turner: So yeah, I think those are all good things. Now, remember, though, that in the first quarter, we will have a lot of people get raises at the end of the year. So we've got merit increases and things like that. Plus, payroll taxes will be a little higher at the start of the year. So there are a few of those type of things out there, but that's usually something that happens in the first quarter of every year.

Joseph W. Turner: And then, in the fee income, you kind of called out lower debit card and ATM fees, I believe, because you had changed vendors. So, you know, if you look at third quarter to fourth quarter, that was a pretty decent drop. So, is this a good run rate going forward, or do you expect to..., recapture some of that lost revenue? I think we had a couple hundred thousand dollars in there that was sort of just some transition stuff going on that reduced it, but I mean, we definitely saw less usage, I think, and gross income in the fourth quarter of this year of $23. So I don't know if that's a bit of a new trend there or not, but the top line went down a little bit, and the expenses were higher, like I mentioned to you. I don't think there are a couple hundred thousand of expenses in there that we don't think we'll carry forward, but it's hard to know for sure what that's going to look like in the first quarter. Yeah, I think that's exactly right.

Damon DeMonte: Okay, that's helpful. Thank you. And then, I guess just lastly, on kind of the outlook for bone growth, you know, got the commentary on the pipeline and you know it's being lower but yet still being somewhat healthy. How do you kind of frame out growth for the upcoming year? Do you think kind of low to mid single digits is doable?

Joseph W. Turner: Do you think you could actually get to a solid mid single digit level? What are your thoughts on that? It's just really hard to say, Damon. We're subject to levels of competition and customer interest in moving forward with projects. We're not seeing a ton of projects that really say what we're trying to do, either people are trying to do it, or either the projects were too low equity or, you know, unguaranteed or those sorts of things, and, you know, we're not willing to take the stress to put stuff on the books.

So, it's hard to say at this point. Okay, that's all I have. Thank you very much. Thank you. One moment, our next question, and our next question will come from one John Roddice from Journey. Your line is open.

Good afternoon, guys. Thank you. Hey, just back to the expense topic, can you just give us an update on the system's conversion? I know in the text you said mid-2024, so how should we think about expenses there in the first and second quarters, and, I guess, if any, in the third quarter?

Joseph W. Turner: Yeah, I mean, John, that we can't really update you much past what we've got in the earnings release, you know. We're just sort of in discussions with the third-party vendor, as we said, you know, we have some disputes with them, and, you know, we're trying to make progress on those, but we really haven't made much progress to date, so I really can't. You know, we're going to have that level of expenses until we ultimately do something. And so, I think you're going to have to kind of model those, you know, probably here for the time being. Is Joe's worst case, though, mid this year, or could it be stressed out even farther than that, is that what you're saying?

Joseph W. Turner: Well, it's just too hard to say. I just wouldn't want to, or I couldn't tell you beyond that. I really can't. I can't comment much more. Okay. Fair enough. Just one other question. You know, I mean, credit quality remains very, you know, very solid for you guys, but I did notice in the one table of potential problem loans that you had a new addition of roughly $7.2 million, and it was other residential. Can you maybe expand on a little detail or color on that?

Joseph W. Turner: Um, yeah, that's a pretty decent prize, multi-family project in Oklahoma, and to be honest with you, John, I mean, we expect that to resolve itself relatively quickly, hopefully in 20 years. And, you know, we don't expect, at this point, a lot. Okay. Okay. Thank you, guys. Thank you. I'm assigned no further questions at this time. I would now like to turn it back to Joe Turner for closing remarks. All right, everybody. We appreciate you being with us here in January, and we'll look forward to talking to you in April. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day. Thank you for watching!

Good day and thank you for standing by. Welcome to the Great Southern Bank Corp fourth quarter 2023 earnings call. At this time, all participants are in a 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 hands raised. To withdraw your questions, 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 your first speaker today, Kelly Polonus. Please go ahead.

Kelly Polonus: Thank you, Victor. Good afternoon, and thank you for joining us for our fourth quarter 2023 earnings call. The purpose of this call is to discuss the company's results for the quarter ending December 31st, 2023. Before we begin, I need to remind you that during the course of this call, we may make forward-looking statements about future events and financial performance. These statements are subject to a number of factors that could cause actual results to differ materially from the results anticipated or projected. For a list of some of these factors, please see the forward-looking statements disclosure in our fourth quarter earnings release and other public filings.

Joe: President and CEO Joe Turner and Chief Financial Officer Rex Copeland are on the call with me. I'll now turn the call over to Joe. Okay. Thanks, Kelly. Good afternoon, everybody. We appreciate you joining us today for our fourth quarter interview.

Joseph W. Turner: As we anticipated, our fourth quarter results reflected the challenging operating environment that the banking industry is experiencing right now.

Joseph W. Turner: While our earnings were down this quarter and we continue to expect significant competition for deposits in a challenging environment for non-interest income, we are steadfast in our long-term view of running the company like we have for decades in the cyclical end

Joseph W. Turner: For the fourth quarter, we earned $1.11 per share, or $13.1 million, compared to $1.84, or $22.6 million in the fourth quarter of .2.

Joseph W. Turner: Earnings for the latest common share were $1.33 in the third quarter.

Joseph W. Turner: In light of the current interest rate environment, key performance drivers include a continued increase in deposit costs and significant competition for deposits, as well as expected continuation of lower loan origination volumes.

Joseph W. Turner: As we pointed out in our release, lower non-interest income and higher expenses also...

Joseph W. Turner: to reduce earnings during the quarter. However, we did note that there were a few non-recurring additional expenses which decreased our fourth quarter earnings. On a positive note, the company's capital strength and with stockholders' equity increasing by approximately $40 million from the end of the third quarter of 23, at the end of the year we had a book value of $48.44 per common share with...

Joseph W. Turner: $3.00

Joseph W. Turner: I think he earned the fourth quarter

Joseph W. Turner: We mentioned our last couple of calls from anticipated headwinds of who was faith-related this March.

Joseph W. Turner: Our NIM did decline to 330 for the fourth quarter compared to 399 for the same period of 22 and 343 for the Q3 of 22.

Joseph W. Turner: The margin contraction primarily resulted from continuing changes in deposit and other

Joseph W. Turner: Thanks for watching!

Joseph W. Turner: increase the interest rates on all deposit tax during the fourth quarter and impact from net settlements related to our interest rates.

Joseph W. Turner: Rex will provide a little bit more color on this in his comments.

Rex A. Copeland: As I mentioned, our capital and liquidity position continues to be strong. Our total stock quarter equity increased by $40.1 million from the end of the third quarter of 23 and increased $38.7 million from the end of 22 as a result of decreased AOTI losses on investment and interest rate swaps and continued growth in our retained earnings.

Rex A. Copeland: The retained earnings component of our stockholders' equity increased $26 million during the 12-month end of December 31-23.

Rex A. Copeland: Our capital remains substantially above regulatory well-capitalized thresholds, and our TTE ratio was 9.7% at 1231.3, up from 9.2%.

Rex A. Copeland: at the end of point two.

Rex A. Copeland: In the fourth quarter of 23, the company declared a 40 cent per common share dividend, and for all of 23, our dividends declared were dollars.

Rex A. Copeland: for Congress.

Rex A. Copeland: We also continue to repurchase our shares during, or continue to repurchase our shares during 2023. We've repurchased approximately 450,000 shares at an average price of $51.38.

Rex A. Copeland: first year influence.

Rex A. Copeland: As for liquidity, our borrowing staff, we have a home loan bank with approximately $919 million at the end of 2023. At the end of 2023, we have available secured funding lines through the Home Loan Bank and Federal Reserve Bank and on-balance sheet liquidity totaling approximately $2.1 billion.

Rex A. Copeland: As we've noted for the last few quarters, our company's deposit base is diverse by customer type and geography.

Rex A. Copeland: have a very low level of uninsured deposits, about 15% of total deposits.

Rex A. Copeland: Reading Internal Sub-Systeria

Rex A. Copeland: Overall, our loan portfolio is strong, diverse, and performing well. During the fourth quarter, new loan production and general activity was down compared to 22 as expected. Full outstanding loan balances grew by nearly $83 million since the end of the 20th.

Rex A. Copeland: primarily came from the multifamily loan segment. Much of this movement from unfunded construction line availability to construction projects and commercial business loans partially offset by a reduction in construction.

Rex A. Copeland: and one of our family residents.

Rex A. Copeland: Our pipeline of loan commitments and the unfunded portion of construction loans remains strong, totaling $1.2 billion in the fourth quarter, but that has to decrease significantly compared to the end of 2022.

Rex A. Copeland: As construction projects were completed, the related loans were either paid off or moved from the construction category to the appropriate permanent loan category.

Rex A. Copeland: The unfunded portion of construction loans was $719 million at 1231.3, down from $1.4 billion at the end of 2013.

Rex A. Copeland: I would remind you that we have a lot of information that we filed yesterday in our loan portfolio. You can find that at the FDC site.

Rex A. Copeland: Overall, our credit quality metrics remain extremely strong, very important. Non-performing assets, the total assets were 0.2% at the end of the year, increasing by one basis point from September 30, 2020.

Rex A. Copeland: as we put these in our loan portfolio continue to be a historically low level.

Rex A. Copeland: More information about our number for any of the potential problem runners included in your

Rex A. Copeland: This concludes my prepared remarks, at this time I'll turn the call over to our CFO Rex.

Rex A. Copeland: All right. Thank you, Joe, and thank you all for being on the call today. I'll start off with net interest income and margin. I mentioned this last quarter, and I'll just mention it again, but just a general comment about net interest income comparisons for the third and fourth quarters this year versus same period last year. With the Fed funds and market increase in rates in 22, we were, again, able to increase rates on assets more quickly than liabilities in 22, and so we achieved for us, you know, peak net interest income and margin in the second half of 2022, so we're comparing, you know, the latter part of 23 to those numbers.

Rex A. Copeland: Net interest income for the fourth quarter of 2023 decreased $9.5 million to $45.1 million compared to $54.6 million in the fourth quarter of 2022, driven by some negative changes in funding mix of deposits and borrowings, increasing interest rates on pretty much all deposit types during the fourth quarter of 2023, and also due to negative impacts of the interest rate swaps, which we've mentioned before. Our net interest income was $46.7 million in the third quarter of 2023, so we did have a decrease in the least quarter on net interest income of about $1.6 million when you compare Q4 versus Q3 of 2023.

Rex A. Copeland: So, you know, we look at it and say if the SOFR and prime interest rates remain pretty much at their current levels, you know, the company's interest rate swaps will continue to have a negative impact on our net interest income. And based on the interest rate that we had on these swaps at December 31st of 23, the negative impact of all those interest rate swaps combined in the first quarter of 2024 is expected to be approximately $2.7 million.

Rex A. Copeland: The negative impact of all these swaps combined in the fourth quarter of 23

Rex A. Copeland: was about 3.6

Rex A. Copeland: So, as we noted in the earnings release, one of these swaps will terminate on March 1 of 24. And that swap had a negative impact interest income of $2.9 million in the fourth quarter of 23. It's expected to have a negative impact of $1.9 million approximately in the first quarter of 24. And then after the first quarter, there's no impact in subsequent periods.

Rex A. Copeland: So the company's net interest income was also negatively impacted in the fourth quarter by the high level of competition for deposits across the industry and in our local market. The company also had a portion of time deposits maturing at somewhat lower than current rates in the late third and fourth quarters of 2023. And so those time deposit renewals were either at rates that were higher, probably somewhat higher, or they left the company in turn requiring us to replace those funds with other funding sources that would be at the current market rate.

Rex A. Copeland: And then, lastly and importantly, sporadically throughout 2023, the company experienced a higher than normal reduction in balances of non-interest-bearing deposits.

Rex A. Copeland: Customer balances in both non-interfering checking and interfering checking accounts have fluctuated throughout 2023.

Rex A. Copeland: have marked an interest rate for certain checking account types and time deposit accounts have increased. Some customers have chosen to reallocate funds into higher-rate accounts.

Rex A. Copeland: So during the full year of 2023, the company's interest-bearing checking balances increased about $28 million, or about 1.3%, but non-interest-bearing checking balances decreased about $168 million, or about $15.8 million.

Rex A. Copeland: Those are point-in-time balances and not average balances. However, if you do look at the Q4 average balances of non-interest-bearing demand deposits, it was $1.07 billion in the fourth quarter of 2022, and it was $900 million in the fourth quarter of 2023.

Rex A. Copeland: So looking ahead subsequent to the end of the year into 2024, our time deposit maturities over the next 12 months, as they stood at December 31st of 23, were within three months, we'd have 394 million of maturities with a weighted average rate of 3.82%. Within three to six months, we have 324 million of maturities with a weighted average rate of 4.32%. And then within six to 12 months, we have $371 million of maturities with a weighted average rate of 4.08%.

Rex A. Copeland: So based on the time deposit market rates that we have in place, or that we're seeing now in January of this year, replacement rates we think on those are going to be somewhere in the range of 4% to 4.5% generally.

Rex A. Copeland: As Phil mentioned earlier, our net interest margin was 3.30% in the fourth quarter. That compared to 3.99% in the fourth quarter of 2022, and then also compared to 3.43% in the third quarter of 2023.

Speaker Change: I'll shift over a little bit here to liquidity and deposits. Joe mentioned liquidity earlier, but I'll just talk a little bit more about that. So, you know, we continue to have substantial liquidity and readily available funding sources totaling about $2.1 billion at the end of December.

Speaker Change: about over $900 million of that is availability at the home loan bank. We also have a substantial amount of unpledged securities and a $450 million or so available line with the Federal Reserve Bank should we need to look at that. So we do have, we think, ample sources of liquidity.

Speaker Change: At December 31, 2023, I'll talk a little more about deposits here. The total deposits were over $4.7 billion. During the three months ended December 31, 2023, the total deposits decreased about $130 million.

Speaker Change: Interest-bearing checking balances decreased about $27 million for 1.2% and non-interest-bearing checking balances decreased $46.7 million for about 5% in the fourth quarter.

Speaker Change: Time deposits generated through the

Speaker Change: Company's Banking Center Network and our Corporate Services Network decreased about $43 million and time deposits generated through Internet channels decreased another $3 million.

Speaker Change: total broker deposit decreased by about $8 million in the fourth quarter.

Speaker Change: So talk for a minute here about non-interest income.

Speaker Change: Our total non-interest income in the fourth quarter of 23 compared to the fourth quarter of 22 decreased by about $1.1 million to $6.6 million.

Speaker Change: Primary reasons for that decline included point of sale and ATM fees that decreased about $621,000 compared to that prior year fourth quarter period.

Speaker Change: Some of the reasons for those, those decreases, we do have now, some of the transactions are now being routed through different channels than they were a year ago. Those channels have lower fees to us, which we expect that's going to continue in future periods. We also had some increases in certain related processing costs during the transition from our old debit card processor to the new debit card processor. And that included a couple hundred thousand dollars as we kind of made that transition and finalized some things. So a couple hundred thousand dollars that we anticipate would be a non-recurring item.

Speaker Change: Other income decreased $399,000 compared to the fourth quarter of 2022. During 2022, we did receive some payments that were from a third-party servicer related to some old acquired loans, which was not repeated in the 2023 period.

Speaker Change: and then finally Overdraft and Insufficient Fund Fees those decreased by about $327,000 compared to the fourth quarter of 2022 we continue to see a little bit of shifting going on there

Speaker Change: It appears that we've got, where people are using their debit cards for point-of-sale transactions and overdrawing their accounts in some cases with that, it seems that the usage has shifted more to credit cards, resulting in fewer overdrafts and fees that we have generated.

Speaker Change: Non-interest expense, we'll talk about that for a moment here. So in the fourth quarter of 23 versus 22, non-interest expense increased $1.9 million to $36.3 million. And so when you kind of look at the reasons for that, we've broken it into a few different places. Salary and employee benefits are part of it. That was up about $1.2 million from the fourth quarter of 22.

Speaker Change: Fortunately, this is just normal merit increases in some of our various operational and lending areas.

Speaker Change: and we also had a little bit less of a negative expense in the fourth quarter of 23 versus 22 related to compensation costs that you defer and take over time for originated loan volumes. Our volumes were lower in 23 versus 22. And then also one of the major items in the higher expense in the non-recurring type items was

Speaker Change: We mentioned in the fourth quarter of 23, we did have some discretionary bonuses that were awarded to various associates that have been involved significantly in the software and systems transition that we've been going through.

Speaker Change: and that was about $441,000.

Speaker Change: and Chris Spence in Q4 of 23.

Speaker Change: Additional expense related to insurance, that increased $550,000 from the prior year, fourth quarter. That increase was really due to previously announced increases in the FDIC deposit insurance fund rates. We noted that previously, and then we did have some, as a result of some of that, we did record some additional expenses in the fourth quarter of this year, which we don't believe will be –

Speaker Change: and Jeffrey Curry as we go into 2020.

Speaker Change: Net occupancy expense increased about $389,000 fourth quarter this year, or fourth quarter 23 versus fourth quarter 22. A lot of that's related to some computer license and support expenses that we had that we did not have in the prior year that we've had to add here in 2023.

Speaker Change: And then lastly, legal audit, other professional fees decreased about $481,000 from the prior year quarter. In the 2022 period, we expensed about $1.4 million related to training and implementation costs for the core system conversion and professional fees to consultants that were engaged to support that transition. In 2023, that expense was $918,000, so a little bit lower than it was in the fourth quarter year.

Speaker Change: So, efficiency ratio for the fourth quarter of 2023 was 70.17%. That compared to 55.13% for the same quarter in 2022. And the increase in that ratio is mainly due to the decrease in net interest income and non-interest income, and then also a little bit related to increases in income.

Speaker Change: Provisioned for credit losses, we did record a provision expense of $750,000 in the fourth quarter of 23 on the outstanding loan portfolio, the funded loan portfolio. That compared to a $1 million provision in the fourth quarter of 2022. And for the...

Speaker Change: We also recorded a negative provision for losses on the unfunded commitments of $1.7 million, so a reduction of expense for that, compared to a negative provision of $159,000 for the three months into December 31, 2022. Our net charge-offs in the fourth quarter of 23 were $833,000. That compared to...

Speaker Change: $281,000 in the fourth quarter of 2022. And those current period of charge jobs are primarily related to two relationships that are kind of long-term relationships that we've had for quite some time.

Speaker Change: At the end of the third quarter, I'm sorry, the end of the fourth quarter, the allowance for credit losses and percentage of total loans was 1.39%.

Speaker Change: and lastly I'll talk a little bit about income taxes so our effective tax rate for the fourth quarter of 23 was 19.7 percent and for the fourth quarter of 22 it was 16.6 percent. For the full year which is probably more indicative of really kind of going forward the company's effective tax rate for 23 was 20.6 percent and for 2022 was 19.4 percent. We do continue to have some tax credits

Speaker Change: and some tax exempt investments and loans.

Speaker Change: which reduce our effective tax rate. We think that the effective tax rate going forward is probably going to be something in the 20.5% to 21.5% range in 2024. That can vary a little bit just depending on the level and utilization of tax credits and also state income tax expense estimates evolve. We're constantly reviewing those, and so that can affect the overall effective tax rate from time to time.

Operator: Good day, and thank you for standing by. Welcome to the Great Southern Bank Corp fourth quarter 2023 earnings call.

Operator: At this time, all participants are in a 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 you to raise your hands. To withdraw your questions, 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 your first speaker today, Kelly Polonus.

Speaker Change: So those are the items I wanted to discuss, and that concludes our remarks that we've prepared so far today. At this time, we'll entertain questions, and I'll ask our operator to once again remind the attendees on the call how to cue in.

Speaker Change: Thank you. And at this time, we'll conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw a question, please press star 1-1 again. Please stand by. We will pause the Q&A roster.

Please go ahead.

Thank you, Victor.

Good afternoon, and thank you for joining us for our fourth quarter 2023 earnings call.

Speaker Change: One moment for our first question.

The purpose of this call is to discuss the company's results for the quarter ending December 31st, 2023. Before we begin, I need to remind you that during the course of this call, we may make forward-looking statements about future events and financial performance. These statements are subject to a number of factors that could cause actual results to differ materially from the results anticipated or projected. For a list of some of these factors, please see the forward-looking statements disclosure in our fourth-quarter earnings release and other public filings.

Speaker Change: and our first question comes from Andrew Liesch from Piper Sandler.

Andrew Brian Liesch: Good afternoon, everyone. Thanks for taking my time today. Really, my question just revolves around the margin outlook here. So if the swap hit here in the first quarter is going to be less than it was in the fourth, could we see the margin and NII increase here this quarter? Or do you think there's other funding costs that might be upsetting?

President and CEO Joe Turner and Chief Financial Officer Rex Copeland are on the call with me.

Speaker Change: Thank you.

I'll now turn the call over to Joe.

Speaker Change: Um, I mean, all things being equal, that should be somewhat of an improvement. I mean, although we'll probably have, you know, two months of it in the first quarter, so the more improvement will be in the beginning of the second quarter.

Okay.

Thanks, Kelly.

Good afternoon, everybody. We appreciate you joining us today for our fourth quarter interview. As we anticipated, our fourth quarter results reflected the challenging operating environment that the banking industry is experiencing right now.

Speaker Change: It really depends a little bit on

While our earnings were down this quarter and we continue to expect significant competition for deposits in a challenging environment for non-interest income, we are steadfast in our long-term view of running the company like we have for decades in the cyclical end. For the fourth quarter, we earned $1.11 per share, or $13.1 million, compared to $1.84, or $22.6 million in the fourth quarter of 2012.

Speaker Change: What we see as far as any further migration from non-interest-bearing accounts into other interest-bearing types of funds, it doesn't feel like the costs are going up on other borrowings. The rates on those are pretty much kind of where they are.

Speaker Change: CDs, we do have

Speaker Change: You know, some CDs, as I mentioned, are going to mature in the first quarter of 2024, but I think the bulk of those is probably later in the quarter.

Earnings for the latest common share were $1.33 in the third quarter. In light of the current interest rate environment, key performance drivers include a continued increase in deposit costs and significant competition for deposits, as well as an expected continuation of lower loan origination volumes. As we pointed out in our release, lower non-interest income and higher expenses also reduced earnings during the quarter. However, we did note that there were a few non-recurring additional expenses which decreased our fourth quarter earnings. On a positive note, the company's capital strength, and with stockholders' equity increasing by approximately $40 million from the end of the third quarter of 23, at the end of the year, we had a book value of $48.44 per common share with... $3.00. I think he earned $3.00 in the fourth quarter. We mentioned our last couple of calls from anticipated headwinds that were faith-related this March.

Speaker Change: So, I mean

Speaker Change: I don't know if the first quarter is going to be terribly affected by it all.

Speaker Change: you know, so it just depends on kind of where competition goes and I think the biggest driver is going to be

Speaker Change: kind of where non-interest bearing balances shake out. Yeah, I agree with that, Andrew. I mean, there's, you know, what happens to non-interest bearing accounts? And, you know, our CD...

Speaker Change: Our CD portfolio is relatively short, probably a year or so. So most of those have repriced up to, you know, close to current market rates. I mean, there could be a little bit of movement there, but not a lot. And then, of course, our interest-bearing checking, you know, that sort of keeps up with market as it goes. But it does seem to, you know, continue to slide up. And that may be, you know, people moving from, you know, lower tiers to higher tiers. And so there could be a little bit of slide up, you know, in the cost of funds. I wouldn't expect it to be dramatic, you know. But, again, the thing to watch there is the, you know, migration from non-interest-bearing into, you know, interest-bearing accounts. You know, generally speaking, though, our liabilities should be priced, you know, up pretty close to market. We still have a fair amount of loans. You know, and we've got disclosures on that in our annual report. We have a fair amount of loans to reprice up. You know, that's not going to necessarily all happen. And it's not going to all happen in 2024. You know, it's going to happen, you know, over a period of time. But, you know, that's going to be helpful to margin certainly. And as you mentioned, you know, the $3 million a quarter swap that rolls off completely starting in the second quarter with us as well.

Our NIM did decline to 330 for the fourth quarter compared to 399 for the same period of 22 and 343 for the Q3 of 22. The margin contraction primarily resulted from continuing changes in deposit and other, Thanks for watching! increase the interest rates on all deposit tax during the fourth quarter and impact from net settlements related to our interest rates.

Rex will provide a little bit more color on this in his comments.

As I mentioned, our capital and liquidity position continues to be strong.

Our total stock quarterly equity increased by $40.1 million from the end of the third quarter of 23 and increased $38.7 million from the end of 22 as a result of decreased AOTI losses on investment and interest rate swaps and continued growth in our retained earnings. The retained earnings component of our stockholders' equity increased $26 million during the 12-month end of December 31-23.

Speaker Change: Got it. The loan repricing, I'm sure it'll be in the 10K when you file that in a couple months, but do you have the balance right now of loans that are going to reprice this year?

Our capital remains substantially above regulatory well-capitalized thresholds, and our TTE ratio was 9.7% at 1231.3, up from 9.2% at the end of point two. In the fourth quarter of 23, the company declared a 40 cent per common share dividend, and for all of 23, our dividends declared were dollars for Congress. We will also continue to repurchase our shares during, or continue to repurchase our shares during 2023. We've repurchased approximately 450,000 shares at an average price of $51.38, our first year of influence.

Speaker Change: I don't have the balance. I mean, as of...

Speaker Change: Last year, the balance was a couple hundred million dollars, maybe, of repricing loans, but that may have changed in the last year. And that's in addition to...

Speaker Change: give or take $1.8 or $2 billion of loans that will reprice quickly because there are times there's SOFR or times... Yeah, I mean, you're talking about the stuff that hasn't made yet. Yeah, that's right.

As for liquidity, our borrowing staff, we have a home loan bank with approximately $919 million at the end of 2023. Additionally, at the end of 2023, we have available secured funding lines through the Home Loan Bank and Federal Reserve Bank and on-balance sheet liquidity totaling approximately $2.1 billion.

Speaker Change: Got it. And then just if you have it handy, do you know what the average yield on the new loan section was in the last quarter?

Speaker Change: I don't have that number.

Speaker Change: Is it trending higher or do you think it's sort of stabilized at a certain level? I think it's probably stabilized, you know.

As we've noted for the last few quarters, our company's deposit base is diverse by customer type and geography, and has a very low level of uninsured deposits, about 15% of total deposits. Reading Internal Sub-Systeria, Overall, our loan portfolio is strong, diverse, and performing well. During the fourth quarter, new loan production and general activity were down compared to the second quarter, as expected. However, full outstanding loan balances grew by nearly $83 million since the end of the 20th, primarily from the multifamily loan segment. Much of this movement from unfunded construction line availability to construction projects and commercial business loans is partially offset by a reduction in construction, and one of our family residents. Our pipeline of loan commitments and the unfunded portion of construction loans remains strong, totaling $1.2 billion in the fourth quarter, but that has to decrease significantly compared to the end of 2022.

Speaker Change: as, you know, race that's stabilized here. You know, I think it's probably going to stay.

Speaker Change: it depends a little bit on the nature of which type of loans so as construction loans you know they're coming on at

Speaker Change: I don't know, somewhere between 250 to 300 over Elko Surfer. Yeah, yeah.

Speaker Change: So we're not, we're probably not originating a lot of just new loans that go immediately on the books necessarily. So yeah, that's sort of what you can kind of think of from a construction standpoint as far as what funding.

Speaker Change: and there's a little bit of other commercial stuff and some consumer stuff

Speaker Change: They're not easily looping.

Speaker Change: That covers my questions there. Thanks so much. I'll step back.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: And our next question comes tonight of Damon DeMonte from KBW. Your line is up.

As construction projects were completed, the related loans were either paid off or moved from the construction category to the appropriate permanent loan category. The unfunded portion of construction loans was $719 million at 1231.3, down from $1.4 billion at the end of 2013. I would remind you that we have a lot of information that we filed yesterday in our loan portfolio.

Damon DeMonte: Hey, good afternoon, guys. Hope everybody's doing well today. Hi, David. Hi. So I just had a question here on expenses. You know, you guys called out some kind of one-time items. If you look at the $440,000 of the bonuses, the $320,000 on the other operating expenses, and the $240,000, you know, that's call it $900,000 to a million. So is it fair then to kind of take those out of this quarter's level and kind of put you in the $35 million range as a starting point for 2024? Is that reasonable?

You can find that at the FDC site. Overall, our credit quality metrics remain extremely strong, which is very important. Non-performing assets, the total assets were 0.2% at the end of the year, increasing by one basis point from September 30, 2020, as we put these in our loan portfolio continue to be at a historically low level. More information about our numbers for any of the potential problem runners included in your, This concludes my prepared remarks; at this time, I'll turn the call over to our CFO, Rex.

Speaker Change: yeah I think so I mean so so definitely the bonuses are I mean that's not something that we're contemplating on a quarterly basis obviously the other cat we did have some additional you know fraud law stuff that we had in the fourth quarter that's above kind of what we've noted running and so you know we hope that that's not going to be a new trend it was definitely higher than the

All right. Thank you, Joe, and thank you all for being on the call today. I'll start off with net interest income and margin. I mentioned this last quarter, and I'll just mention it again, but just a general comment about net interest income comparisons for the third and fourth quarters this year versus the same period last year.

Speaker Change: So, yeah, I think those are all things. Now, remember, though, that in the first quarter we will have, I mean, a lot of people get raises at the end of the year, so we've got merit increases and things like that, plus payroll taxes will be a little higher at the start of the year. So there's a few of those type of things out there, but that's usually something that's every first quarter or whatever.

With the Fed funds and market increase in rates in 22, we were, again, able to increase rates on assets more quickly than liabilities in 22, and so we achieved, for us, peak net interest income and margin in the second half of 2022, so we're comparing, you know, the latter part of 23 to those numbers. Net interest income for the fourth quarter of 2023 decreased $9.5 million to $45.1 million compared to $54.6 million in the fourth quarter of 2022, driven by some negative changes in the funding mix of deposits and borrowings, increasing interest rates on pretty much all deposit types during the fourth quarter of 2023, and also due to the negative impacts of the interest rate swaps, which we've mentioned before.

Speaker Change: got it okay thanks and then um and then the fee income um you kind of called out the the lower uh debit card and atm fees i believe because you change vendors um so you know if you look at third quarter to fourth quarter that was a pretty pretty decent drop so is this a good run rate going forward or do you expect to

Speaker Change: Let's do that kind of thing.

Speaker Change: recaptured some of that lost revenue.

Speaker Change: I think we had a couple of hundred thousand dollars in there that was sort of just some transition stuff going on that reduced it. But, I mean, we definitely saw less usage, I think, and gross income in the fourth quarter of this year, of 23. So I don't know if that's a bit of a new trend there or not. But it definitely – the top line went down a little bit, and the expenses were higher, like I mentioned to you.

Our net interest income was $46.7 million in the third quarter of 2023, so we did have a decrease in the least quarter on net interest income of about $1.6 million when you compare Q4 versus Q3 of 2023. So, you know, we look at it and say if the SOFR and prime interest rates remain pretty much at their current levels, the company's interest rate swaps will continue to have a negative impact on our net interest income. And based on the interest rates that we had on these swaps at December 31st of last year, the negative impact of all those interest rate swaps combined in the first quarter of 2024 is expected to be approximately $2.7 million.

Speaker Change: I don't think there's a couple hundred thousand of expenses in there that we don't think we'll carry forward. But it's hard to know for sure what that's going to look like in the first quarter. Yeah, I think that's exactly right.

Speaker Change: Okay, that's helpful. Thank you. And then I guess just lastly, on kind of the outlook for loan growth, you know,

Speaker Change: got the commentary on the pipeline and, you know, it's being lower, but yet still being somewhat, you know, healthy. How do you kind of frame out growth for the upcoming year? Do you think kind of low to mid-single digits is doable? Do you think you could actually get to a solid mid-single digit level? What are your thoughts on that?

The negative impact of all these swaps combined in the fourth quarter of 23, was about 3.6. As we noted in the earnings release, one of these swaps will terminate on March 1 of 24, and that swap had a negative impact interest income of $2.9 million in the fourth quarter of 23. It's expected to have a negative impact of $1.9 million in the first quarter of 24. And then after the first quarter, there will be no impact in subsequent periods. So the company's net interest income was also negatively impacted in the fourth quarter by the high level of competition for deposits across the industry and in our local market. Additionally, the company also had a portion of time deposits maturing at somewhat lower than current rates in the late third and fourth quarters of 2023. And so those time deposit renewals were either at rates that were higher, probably somewhat higher, or they left the company, in turn, requiring us to replace those funds with other funding sources that would be at the current market rate. And then, lastly and importantly, sporadically throughout 2023, the company experienced a higher than normal reduction in balances of non-interest-bearing deposits.

Speaker Change: just really hard to say Damon you know the

Speaker Change: We're subject to levels of competition, also customer interest in moving forward with projects.

Speaker Change: We're not seeing a ton of projects that really

Speaker Change: you know sort of you know fit what we're trying to do either people are trying to do it do their project with too low equity or you know unguaranteed or those sorts of things and you know we're not willing to stress to put stuff on the book so it's just hard to say at this point.

Speaker Change: gotcha, okay okay, that's all I had, thank you very much

Speaker Change: Thank you. One moment for our next question.

Speaker Change: And our next question will come from John Rodditz from Janie, your line is open.

John Rodditz: Good afternoon, guys.

John Rodditz: Hey, John.

John Rodditz: Hey, just back to the expense topic, can you just give us an update on the systems conversion? I know in the text you said mid-2024, but how should we think about expenses there in the first and second quarter, and I guess if any in the third quarter?

Customer balances in both non-interfering checking and interfering checking accounts have fluctuated throughout 2023, and the interest rate for certain checking account types and time deposit accounts has increased. Some customers have chosen to reallocate funds into higher-rate accounts.

Speaker Change: Yeah, I mean, I don't know, John, that we can really update you, you know, much past what we've got in the earnings relief. You know, we've just sort of, we're, you know, in discussions with the third-party vendor. As we said, you know, we have some disputes with them, and, you know, we're trying to make progress on those. But we really haven't made much today. So, I really can't.

So during the full year of 2023, the company's interest-bearing checking balances increased about $28 million, or about 1.3%, but non-interest-bearing checking balances decreased about $168 million, or about $15.8 million.

Those are point-in-time balances and not average balances.

However, if you do look at the Q4 average balances of non-interest-bearing demand deposits, it was $1.07 billion in the fourth quarter of 2022, and it was $900 million in the fourth quarter of 2023. So looking ahead to the end of the year and into 2024, our time deposit maturities for the next 12 months, as they stood at December 31st of 23, were within three months, we'd have 394 million maturities with a weighted average rate of 3.82%. Within three to six months, we have 324 million maturities with a weighted average rate of 4.32%. And then within six to 12 months, we have $371 million in maturities with a weighted average rate of 4.08%. So based on the time deposit market rates that we have in place, or that we're seeing now in January of this year, replacement rates on those are going to be somewhere in the range of 4% to 4.5%, generally. As Phil mentioned earlier, our net interest margin was 3.30% in the fourth quarter. That compared to 3.99% in the fourth quarter of 2022 and then also compared to 3.43% in the third quarter of 2023. I'll shift over a little bit here to liquidity and deposits.

Speaker Change: You know, we're going to have that level of expenses until we ultimately, you know, do something. And so I think you're going to have to kind of model those, you know, probably here for the time being.

Speaker Change: Is Joe's worst case, though, mid this year, or could it be stretched out even farther than that? Is that what you're saying?

Speaker Change: Well, it's just getting hard to say. I just wouldn't want to, I couldn't tell you.

Speaker Change: Uh,

Speaker Change: beyond that. I really can't. I can't comment much.

Speaker Change: OK, fair enough. Just one other question. You know, I mean, credit quality remains very, you know, very solid for you guys. But I did notice in the one table potential problem loans, you had a new edition of.

Speaker Change: roughly 7.2 million and it was other residential. Can you maybe add a little detail or color on that?

Speaker Change: Um, yeah, that's a...

Speaker Change: That's a modest size.

Speaker Change: Multifamily Project um

Speaker Change: in Oklahoma. And to be honest with you, John, I mean, we expect that to resolve, you know, relatively quickly, hopefully in 2020.

Speaker Change: and we don't expect, at this point, we don't expect a lot.

Joe mentioned liquidity earlier, but I'll just talk a little bit more about that. So, you know, we continue to have substantial liquidity and readily available funding sources totaling about $2.1 billion at the end of December, about $900 million of that is available at the home loan bank. We also have a substantial amount of unpledged securities and a $450 million or so available line with the Federal Reserve Bank should we need to look at that. So we do have, we think, ample sources of liquidity.

Speaker Change: Okay. Okay. Thank you, guys.

Speaker Change: Thank you. I'm not showing no further questions at this time. I would like to turn it back to Joe Turner for closing remarks.

Joseph W. Turner: All right, everybody. We appreciate you being with us here in January, and we'll look forward to talking to you in April. Thank you.

Speaker Change: Thank you for your participation in today's conference that does include the program. You may now disconnect, everyone. Have a great day.

At December 31, 2023, I'll talk a little more about deposits here. The total deposits were over $4.7 billion. During the three months ended December 31, 2023, total deposits decreased about $130 million. Interest-bearing checking balances decreased about $27 million for 1.2%, and non-interest-bearing checking balances decreased $46.7 million for about 5% in the fourth quarter. Time deposits generated through the Company's Banking Center Network and our Corporate Services Network decreased about $43 million, and time deposits generated through Internet channels decreased another $3 million. Total broker deposits decreased by about $8 million in the fourth quarter.

Speaker Change: Thank you for watching!

So talk for a minute here about non-interest income. Our total non-interest income in the fourth quarter of 23, compared to the fourth quarter of 22, decreased by about $1.1 million to $6.6 million. Primary reasons for that decline included point of sale and ATM fees that decreased about $621,000 compared to the prior year fourth quarter period. Some of the reasons for those decreases we do have now are that some of the transactions are now being routed through different channels than they were a year ago. Those channels have lower fees to us, and we expect that to continue in future periods. We also had some increases in certain related processing costs during the transition from our old debit card processor to the new debit card processor.

And that included a couple hundred thousand dollars as we kind of made that transition and finalized some things. So a couple hundred thousand dollars that we anticipate would be a non-recurring item. Other income decreased $399,000 compared to the fourth quarter of 2022. During 2022, we did receive some payments that were from a third-party servicer related to some old acquired loans, which was not repeated in the 2023 period, and then finally Overdraft and Insufficient Fund Fees those decreased by about $327,000 compared to the fourth quarter of 2022 we continue to see a little bit of shifting going on there, It appears that we've got, where people are using their debit cards for point-of-sale transactions and overdrawing their accounts in some cases with that, it seems that the usage has shifted more to credit cards, resulting in fewer overdrafts and fees that we have generated.

Non-interest expense, we'll talk about that for a moment here. So in the fourth quarter of 23 versus 22, non-interest expense increased $1.9 million to $36.3 million. And so when you kind of look at the reasons for that, we've broken it into a few different areas. Salary and employee benefits are part of it. That was up about $1.2 million from the fourth quarter of 22. Fortunately, this was just normal merit increases in some of our various operational and lending areas, and we also had a little bit less of a negative expense in the fourth quarter of 23 versus 22 related to compensation costs that you defer and take over time for originated loan volumes. Our volumes were lower in 23 versus 22.

And then also one of the major items in the higher expenses in the non-recurring type items was, we mentioned in the fourth quarter of 23, we did have some discretionary bonuses that were awarded to various associates that have been involved significantly in the software and systems transition that we've been going through, and that was about $441,000 for Chris Spence in Q4 of 23. Additional expense related to insurance that increased $550,000 from the prior year's fourth quarter. That increase was really due to previously announced increases in the FDIC deposit insurance fund rates. We noted that previously, and then we did have some, as a result of some of that, we did record some additional expenses in the fourth quarter of this year, which we don't believe will be – and Jeffrey Curry as we go into 2020.

Net occupancy expense increased about $389,000 in the fourth quarter this year, or fourth quarter 23 versus fourth quarter 22. A lot of that's related to some computer license and support expenses that we have that we did not have in the prior year that we've had to add here in 2023. And then lastly, legal audit, and other professional fees decreased about $481,000 from the prior year quarter. In the 2022 period, we expensed about $1.4 million related to training and implementation costs for the core system conversion and professional fees to consultants that were engaged to support that transition. In 2023, that expense was $918,000, so it was a little bit lower than it was in the fourth quarter of the previous year.

So, the efficiency ratio for the fourth quarter of 2023 was 70.17%, and that compared to 55.13% for the same quarter in 2022. And the increase in that ratio is mainly due to the decrease in net interest income and non-interest income, and then also a little bit related to increases in income. Provisioned for credit losses, we did record a provision expense of $750,000 in the fourth quarter of 23 on the outstanding loan portfolio, the funded loan portfolio. That compares to a $1 million provision in the fourth quarter of 2022. And for the...

Speaker: We also recorded a negative provision for losses on the unfunded commitments of $1.7 million, so a reduction of expense for that, compared to a negative provision of $159,000 for the three months into December 31, 2022. Our net charge-offs in the fourth quarter of 23 were $833,000. That compared to... $281,000 in the fourth quarter of 2022. And those current period of charge jobs are primarily related to two relationships that are kind of long-term relationships that we've had for quite some time. At the end of the third quarter, sorry, the end of the fourth quarter, the allowance for credit losses and percentage of total loans was 1.39%. And lastly, I'll talk a little bit about income taxes. So our effective tax rate for the fourth quarter of 23 was 19.7 percent, and for the fourth quarter of 22, it was 16.6 percent. For the full year, which is probably more indicative of really kind of going forward, the company's effective tax We do continue to have some tax credits and some tax-exempt investments and loans, which reduce our effective tax rate.

Speaker: We think that the effective tax rate going forward is probably going to be something in the 20.5% to 21.5% range in 2024. That can vary a little bit just depending on the level and utilization of tax credits and also how state income tax expense estimates evolve. We're constantly reviewing them, and so that can affect the overall effective tax rate from time to time. So those are the items I wanted to discuss, and that concludes the remarks that we've prepared so far today.

Operator: At this time, we'll entertain questions, and I'll ask our operator to once again remind the attendees on the call how to cue in. Thank you. And at this time, we'll conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw a question, please press star 1-1 again. Please stand by. We will pause the Q&A roster. One moment for our first question, and our first question comes from Andrew Liesch of Piper Sandler.

Andrew Brian Liesch: Good afternoon, everyone.

Andrew Brian Liesch: Thanks for taking my time today. Really, my question just revolves around the margin outlook.

Speaker: So if the swap hit here in the first quarter is going to be less than it was in the fourth, could we see the margin and NII increase here this quarter? Or do you think there's other funding costs that might be upsetting? Thank you. Um, I mean, all things being equal, that should be somewhat of an improvement. I mean, although we'll probably have, you know, two months of it in the first quarter, so the more improvement will be in the beginning of the second quarter. It really depends a little bit on what we see as far as any further migration from non-interest-bearing accounts into other interest-bearing types of funds. It doesn't feel like the costs are going up on other borrowings. The rates on those are pretty much kind of where they are. CDs, we do have some CDs, as I mentioned, are going to mature in the first quarter of 2024, but I think the bulk of those are probably later in the quarter.

Speaker: So, I mean, I don't know if the first quarter is going to be terribly affected by it all, you know, so it just depends on kind of where competition goes, and I think the biggest driver is going to be kind of where non-interest-bearing balances shake out. Yeah, I agree with that, Andrew. I mean, you know, what happens to non-interest bearing accounts? And, you know, our CD... Our CD portfolio is relatively short, probably a year or so.

Speaker: So most of those have been repriced up to, you know, close to current market rates. I mean, there could be a little bit of movement there, but not a lot. And then, of course, our interest-bearing checking, you know, that sort of keeps up with the market as it goes. But it does seem to, you know, continue to slide up. And that may be, you know, people moving from lower tiers to higher tiers. And so there could be a little bit of a slide up, you know, in the cost of funds. I wouldn't expect it to be dramatic, you know. But, again, the thing to watch there is the migration from non-interest-bearing accounts into interest-bearing accounts. You know, generally speaking, though, our liabilities should be priced pretty close to market.

Speaker: We still have a fair amount of loans.

Speaker: You know, and we've got disclosures on that in our annual report. We have a fair amount of loans to reprice.

Speaker: You know, that's not going to necessarily all happen.

Speaker: And it's not going to all happen in 2024. You know, it's going to happen, you know, over a period of time. But, you know, that's going to be helpful to margin certainly. And as you mentioned, the $3 million a quarter swap that rolls off completely starting in the second quarter with us as well. Got it.

Andrew Brian Liesch: The loan repricing, I'm sure it'll be in the 10K when you file that in a couple months, but do you have the balance right now of loans that are going to reprice this year?

Speaker: I don't have the balance. I mean, as of...

Speaker: Last year, the balance was a couple hundred million dollars, maybe, of repricing loans, but that may have changed in the last year. And that's in addition to... give or take $1.8 or $2 billion of loans that will reprice quickly because there are times there's SOFR or times... Yeah, I mean, you're talking about the stuff that hasn't been made yet. Yeah, that's right.

Speaker: Got it. And then, just if you have it handy, do you know what the average yield on the new loan section was in the last quarter? I don't have that number. Is it trending higher, or do you think it's sort of stabilized at a certain level? I think it's probably stabilized, you know, as a race that's stabilized here. You know, I think it's probably going to stay. It depends a little bit on the nature of the type of loans, so as construction loans, you know they're coming on at, I don't know, somewhere between 250 to 300 over Elko Surfer. Yeah, yeah. So we're probably not originating a lot of just new loans that go immediately on the books, necessarily. So yeah, that's sort of what you can kind of think of from a construction standpoint as far as funding goes, and there's a little bit of other commercial stuff and some consumer stuff. They're not easily looping. That covers my questions there. Thanks so much. I'll step back.

Speaker: Thank you.

Operator: One moment for our next question.

And our next question comes tonight from Damon DeMonte from KBW. Your line is up. Hey, good afternoon, guys. I hope everybody's doing well today. Hi David. Hi. So I just had a question here on expenses. You know, you guys called out some kind of one-time items. If you look at the $440,000 in bonuses, the $320,000 in other operating expenses, and the $240,000, you know, that's called $900,000 to a million.

Speaker: So is it fair then to kind of take those out of this quarter's level and kind of put you in the $35 million range as a starting point for 2024? Is that reasonable? Yeah, I think so, I mean, definitely, the bonuses are, I mean, that's not something that we're contemplating on a quarterly basis obviously, the other cat, we did have some additional, you know, fraud law stuff that we had in the fourth quarter that's above kind of what we've noted running, and so you know, we hope that that's not going to be a new trend. It was definitely higher than the, So Now, remember, though, that in the first quarter, we will have a lot of people getting raises at the end of the year, so we've got merit increases and things like that, plus payroll taxes will be a little higher at the start of the year.

Speaker: So there's a few of those type of things out there, but that's usually something that's every first quarter or whatever, got it okay, thanks. And then, um, and then the fee income. You kind of called out the lower debit card and atm fees, I believe because you change vendors. So, if you look at third quarter to fourth quarter, that was a pretty, pretty decent drop. So is this a good run rate going I think we had a couple of hundred thousand dollars in there that was sort of just some transition stuff going on that reduced it. But, I mean, we definitely saw less usage, I think, and gross income in the fourth quarter of this year of $23. So I don't know if that's a bit of a new trend there or not.

Speaker: But it definitely – the top line went down a little bit, and the expenses were higher, like I mentioned to you. But I don't think there are a couple hundred thousand dollars in expenses there that we don't think we'll carry forward. But it's hard to know for sure what that's going to look like in the first quarter. Yeah, I think that's exactly right. Okay, that's helpful. Thank you. And then I guess just lastly, on kind of the outlook for loan growth, you know, got the commentary on the pipeline and, you know, it's being lower, but yet still being somewhat, you know, healthy. How do you kind of frame out growth for the upcoming year? Do you think kind of low to mid-single digits is doable? Do you think you could actually get to a solid mid-single digit level? What are your thoughts on that?

Speaker: just really hard to say Damon, you know the levels of competition, and also customer interest in moving forward with projects. We're not seeing a ton of projects that really, you know sort of fit what we're trying to do. Either people are trying to do their project with too low equity or unguaranteed or those sorts of things, and you know we're not willing to stress to put stuff on the book so it's just hard to say at this point. Gotcha. Okay, okay. That's all I had. Thank you very much. One moment for our next question.

Operator: And our next question will come from John Rodditz on behalf of Janie. Your line is open.

Good afternoon, guys. Hey, John.

Hey, just back to the expense topic; can you just give us an update on the system conversion?

Speaker: I know in the text you said mid-2024, but how should we think about expenses there in the first and second quarters and, I guess, if any, in the third quarter? Yeah, I mean, John, that we can really update you much past what we've got in the earnings relief. You know, we're just sort of, we're in discussions with the third-party vendor. As we said, we have some disputes with them, and, you know, we're trying to make progress on those. But we really haven't made much progress today. So, I really can't. You know, we're going to have that level of expenses until we ultimately do something. And so I think you're going to have to kind of model those, you know, probably here for the time being.

Speaker: Is Joe's worst case, though, mid this year, or could it be stretched out even farther than that? Is that what you're saying? Well, it's just getting hard to say. I just wouldn't want to; I couldn't tell you. Uh, beyond that, I really can't. I can't comment much. OK, fair enough. Just one other question. You know, I mean, credit quality remains very, you know, very solid for you guys. But I did notice in the one table of potential problem loans, you had a new edition of roughly 7.2 million, and it was other residential. Can you maybe add a little detail or color on that?

Speaker: Um, yeah, that's a... That's a modest size.

Speaker: Multifamily Project um, in Oklahoma. And to be honest with you, John, I mean, we expect that to resolve relatively quickly, hopefully in 2020, and we don't expect, at this point, a lot. Okay. Okay. Thank you, guys. Thank you.

Operator: I'm not showing no further questions at this time.

I would like to turn it back to Joe Turner for his closing remarks.

All right, everybody.

We appreciate you being with us here in January, and we'll look forward to talking to you in April.

Operator: Thank you.

Operator: Thank you for your participation in today's conference, which does include the program. You may now disconnect, everyone. Have a great day.

Operator: Thank you for watching!

Okay.

Good day, and thank you for standing by and welcome to the Great Southern Bancorp fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Just a question. During the session you will need to press star one on your telephone.

Here, an automated message advising your hands raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

I hand, the conference over to your first speaker today Kellie Polonius. Please go ahead.

Thank you Victor good afternoon, and thank you for joining us for our fourth quarter 2023 earnings call. The purpose of this call is to discuss the company's results for the quarter ending December 31st 2023, before we begin I need to remind you that during the course of this call we may make forward looking.

Eight months about future events and financial performance.

Statements are subject to a number of factors that could cause actual results to differ materially from the results anticipated.

At our projected for Atlanta, and most are kind of these factors. Please see the forward looking statements disclosure in our fourth quarter earnings release, and other public filings President and CEO, Joe Turner, and Chief Financial Officer Rex Copeland are on the call with me I'll now turn the call over to Joe Okay. Thank you.

Good afternoon, everybody. We appreciate you joining us today for our fourth quarter earnings call.

As we anticipated our fourth quarter results reflected the challenging operating environment that the banking industry is experiencing right now while earnings were down this quarter and we expect we continue to expect significant competition for deposits.

The challenging environment for non interest income we are steadfast in our long term view of running the company like we have for decades in a cyclical industry.

For the fourth quarter, we earned $1 11 per share or $13 1 million compared to $1 84, or $22 6 million in the fourth quarter of 2002.

Earnings per diluted common share were $1 33 in the third quarter of 2003.

In light of the current interest rate environment key performance drivers included continued increase in deposit costs.

Have a good competition for deposits as well as expected continuation of lower loan origination volume.

Pointed out our release lower non interest income and higher expenses also contributed to reduced earnings during the quarter. However, we did note that there were a few nonrecurring additional expenses, which decreased our fourth quarter earnings.

Positive note the company's capital strengthen with stockholders' equity increased by approximately $40 million for me in the third quarter 'twenty three we added at the end of the quarter. We have oriented the year. We've got a book value of $48.44 per common share, which was an increase of $3 63, Fabs I think.

During the fourth quarter.

We mentioned on our last couple of calls some anticipated headwinds that we would face related to net interest margin.

Our NIM declined to $3 30 for the fourth quarter compared to 399 for the same period of $2003 43 for Q3 of 'twenty three.

Margin contraction, primarily resulted from continuing changes in deposit and other funding mix.

Okay.

Increasing interest rate on all deposits during the fourth quarter and any impact from net settlements related to our interest rate swaps Rex will provide a little bit more color on that.

His comments.

As I mentioned, our capital liquidity position continues to be strong total stockholders equity increased by $40 1 million from the end of the third quarter 2003, and increased $38 7 million from the end of 'twenty two as a result of decreased Aoc losses on investment and interest rate swaps.

And continued growth in our retained earnings.

<unk> are a component of our stockholders equity increased $26 million during the 12 months ended.

December 30 123 or.

Our capital remains substantially above regulatory well capitalized thresholds and our TCE ratio was nine 7% at 12 31, three up nine up from nine 2% at the end of 'twenty two.

In the fourth quarter of 2003, the company declared a <unk> <unk> per common share dividend and for all of <unk> <unk>.

Three our dividends declared were $1 60 per common share. We also continued to repurchase our shares during two.

Our continued to repurchase our shares during 2023.

Repurchased approximately 450000 shares at an average price of $51 38.

First year and 2023.

As for liquidity, our borrowing capacity of home loan bank was approximately $919 million at the end of 'twenty three at the end of 'twenty. Three we had available secured funding line through the home loan Bank and Federal Reserve Bank and on balance sheet liquidity totaling approximately $2 $1 billion as we can.

Noted for the last few quarters, our company's deposit deposit base is diverse by customer type and geography and has a very low level of uninsured deposits about 15% total deposits excluding internal.

On your account.

Overall, our loan portfolio is strong and diverse and performing well during the fourth quarter new loan production in general activity was down compared to <unk> 22 as expected total outstanding loan balances grew by nearly $83 million since the end of 'twenty two.

Growth primarily came from the multifamily loan segments most of it.

For Mt funded construction line availability.

Construction projects and commercial business loans, partially offset by a reduction in construction loans and one to four family residential loans.

Our pipeline of loan commitments in the unfunded portion of construction loans remained strong building $1 2 billion in the fourth quarter, but that has decreased significantly compared to the end of 'twenty two.

Construction projects were completed the related loans were either paid off or maybe from the construction category to the appropriate permanent loan category beyond the funded portion of construction loans was $719 million at $12 31 to 23 down from $1 4 billion at the end of 'twenty two.

I would remind you that we have a lot of information that we filed yesterday and our loan portfolio you can find that at.

At the FTC side.

Overall, our credit quality.

Metrics remain extremely strong during the quarter non performing assets to total asset or assets were <unk>, 2% at the end of the year, increasing by one basis point from September 32003, as delinquencies in our loan portfolio continued to be at historically low levels.

More information about our nonperforming and potential problem loans is included in the earnings release.

This concludes my prepared remarks at this time I will turn the call over to our CFO Rex Copeland.

Alright, Thank you Joe and thank you all for beyond the call today.

I'll start off with net interest income and margin.

Just mentioned.

I mentioned this last quarter and I'll just mention it again that just a general comment about net interest income comparisons for the third and fourth quarters. This year versus same periods last year.

The fed funds and market increase in rates in 'twenty. Two we were again able to increase rates on assets more quickly their liabilities last in 'twenty, two and so we achieve for US pre peak net interest income and margin in the second half of 2022. So we are comparing.

The latter part of 'twenty three to those numbers.

Net interest income for the fourth quarter of 2008, 2023 decreased $9 $5 million to $45 1 million compared to $54 6 million in the fourth quarter of 2022, driven by some negative changes in funding mix of deposits and borrowings increasing interest rates on pretty much all deposit types during the fourth.

<unk> 23, and also due to the negative impacts of the interest rate swaps, which we've mentioned before.

Net interest income was $46 7 million in the third quarter of 2023. So we did have a decrease linked quarter net interest income of about $1 6 million. When you compare Q4 versus Q3 of 2023.

So we look at it and say if the sofa and prime interest rates remain pretty much at their current levels.

The Companys interest rate swaps will continue to have a negative impact on our net interest income.

Based on the interest rates that we had on the swaps at December 31, 23, the negative impact of all of those interest rate swaps combined in the first quarter of 2024 is expected to be approximately $2 7 billion.

The negative impact of all of these swaps combined in the fourth quarter of 'twenty three.

It was about $3 6 million.

So as we noted in the earnings release, one of these swaps will terminate on March one at 24 that swap had a negative impact to interest income of $2 9 million in the fourth quarter of 'twenty. Three it is expected to have a negative impact of a $1 9 million approximately in the first quarter of 'twenty four.

And then after the first quarter due to Vito impact in subsequent periods.

So the company has net interest income was also negatively impacted in the fourth quarter by the high level of competition for deposits across the industry and in our local markets.

The company also had a portion of time deposits maturing at somewhat lower than current rates in the third in the late third and fourth quarters of 'twenty three and so those time deposit renewals were either at rates that were higher probably at somewhat higher or.

They left the company and in turn requiring us to replace those funds with other funding sources that would be at current market rates.

And then lastly, and importantly sporadically throughout 2023, the company experienced a higher than normal reduction in balances of noninterest bearing deposits customer balances in both non interest bearing checking and interest bearing checking accounts have fluctuated throughout 2023.

As market interest rates for certain checking account types and time deposit accounts have increased some customers have chosen to reallocate funds into higher rate accounts.

So during the full year of 2023, the company's interest bearing checking balances increased about $28 million or about one 3%, but noninterest bearing checking balances decreased about $168 million or about 15, 8%.

Those are point in time balances of non average balances. However, if you. If you do look at the Q4 average balances of noninterest bearing demand deposits. It was one point over $7 billion in the fourth quarter of 'twenty, two and it was $900 million in the fourth quarter of 2023.

So looking ahead subsequent to the end of the year than the first.

Into 2024, our time deposit maturities over the next 12 months as they stood at December 31 of 23 were within three months, we have $394 million, but maturities with a weighted average rate of 382%.

Within three to six months, we have 324 million maturities with a weighted average rate of 432% and then within six to 12 months, we have $371 million of maturities with a weighted average rate of 4.8% currently.

So based on that.

Deposit market rates that we have in place that are that we're seeing now in January of this year replacement rates. We think on those are going to be somewhere in the range of four to four 5% generally.

As Joe mentioned earlier, our net interest margin was three 3% in the fourth quarter net compared to $3, 99% in the fourth quarter of 2022.

And then also compared to 343% in the third quarter of 2023.

I'll shift over a little bit here to liquidity and deposits Joe mentioned.

Liquidity earlier, but just.

Just talk a little bit more about that so we continue to have substantial liquidity and readily available funding sources totaling about $2 1 billion at the end of December.

And that not over $900 million of ads availability at the home loan bank.

We also have substantial amount of Unpledged securities.

$450 million or so.

<unk> why with the Federal Reserve Bank should we need to look at that so we do have we think ample sources of liquidity.

At December 31, 2023, I'll talk a little more about deposits here that total deposits were over $4 7 million. During the three months ended December 31, 23 total deposits decreased about $130 million interest bearing checking balances decreased about $27 million for one 2% and non.

Interest bearing checking balances decreased $46 7 million or about 5% in the fourth quarter.

Deposits generated through the <unk>.

Company's banking center network, and our corporate services networks decreased about $43 million.

And time deposits generated through internet channels decreased another $3 million.

Brokered deposits decreased by about $8 million in the fourth quarter.

So talk for a minute here about noninterest income.

Our total noninterest income in the fourth quarter of <unk> 23, compared to the fourth quarter of 'twenty to decrease by about $1 1 million to $6 $6 million.

Primary reasons for that decline included.

Point of sale and ATM fees decreased about $621000 compared to that prior year fourth quarter period.

Some of the reasons for the decrease is we do have now some of the transactions are now being routed through different channels than they were a year ago and those channels have lower fees to us, which we expect that's going to continue in future periods.

We also had some.

Increases in certain related processing cost during the transition from our old debit card processor to the new debit card processor and that included a couple of hundred thousand dollars as we kind of made that transition and finalize some things. There are a couple of hundred thousand dollars that we anticipate will be non recurring.

Item.

Other income decreased 399000 compared to the fourth quarter.

'twenty two.

During 2000 22022, we did receive some.

Payments that were from a third party servicer related to some old acquired loans, which was not repeated in the 2023 period.

And then finally overdraft and insufficient earn fees.

<unk> decreased by about 327000 compared to the fourth quarter of 2022.

We continue to see a little bit of shifting going on there.

It appears that we've got where people are using their debit cards for point of sale transactions and overdrawing their accounts in some cases with that it seems that the usage has shifted more to credit cards.

<unk> and fewer overdrafts in.

Fees that we have generated on those.

Noninterest expense I will talk about that for a moment here. So in the in the fourth quarter of 'twenty three versus 22 noninterest expense increased $1 9 million to $36 3 million.

And so when you kind of look at that.

The reasons for that we've broken it into a few different places salary and employee benefits or part of it that was up about $1 2 million from the fourth quarter of 'twenty two.

Fortunately this is just normal merit increases and some of our various operational and lending areas.

And we also had a little bit less of a.

Negative expense in the fourth quarter of 'twenty, three versus 22 related to comp.

Compensation costs that you differ and takeover time poor originated loan volumes our volumes were lower in 'twenty three versus 22, and then also one.

The major items in the higher expense and the nonrecurring type items was.

We mentioned it in the fourth quarter of 'twenty three we did have some discretionary bonuses that were awarded the various associates that have been evolved significantly in the software and systems transition that we've been going through and that was about $441000 of expense.

In Q4 of 'twenty three.

Additionally expense related to insurance.

Net increased 550000 from the prior year fourth quarter net increase was really due to previously announced incur.

Increases in the FDIC deposit insurance fund rates.

We've noted that previously and then we did have some.

As a result of some of that we did record some additional expenses.

In the fourth quarter of this year, which we don't believe will be.

Recurring as we go into 2024.

Net occupancy expense increased about 389004th quarter of this year or fourth quarter 23 versus fourth quarter 'twenty two.

Lot of that is related to some computer license and support expenses that we had.

That we did not have in the prior year that we've had to add.

Here in 2023.

Lastly, legal audit and other professional fees decreased about $481000 from the prior year quarter.

2022 period, we expensed about $1 $4 million related to training and implementation costs for the core system conversion and professional fees to consultants. They are engaged to support that transition in a 2023 that expense was $918000 still a little bit lower than it was in the fourth quarter a year ago.

So efficiency ratio for the fourth quarter of 2023 was 71, 7% that compared to 55, 3% for the same quarter in 2022.

The increase in that ratio is mainly due to the decrease in net interest income and noninterest income and then also a little bit related to increases in expenses as well.

Provision for credit losses, we did record a provision expense.

$750000 in the fourth quarter of 'twenty three on the outstanding loan portfolio, the funded loan portfolio that compared to a $1 million provision in the fourth quarter of 2022.

And for the.

Three months ended December 30, 123, we also recorded a negative provision for losses on unfunded commitments of $1 $7 million. So a reduction of expense for that compared to a negative provision of $159000 for the three months ended December 31 2022.

Our net charge offs in the fourth quarter of 'twenty, three were $833000 that compared to.

$281000 in the fourth quarter of 2022, and those current period charge offs, primarily related to two relationships that are kind of long term relationships that we've had for quite some time.

At the end of the third quarter.

I'm sorry, the end of the fourth quarter, the allowance for credit losses as a percentage of total loans was 139%.

And lastly, I will talk a little bit of income taxes. So our effective tax rate for the fourth quarter of 'twenty. Three was 19, 7% for the fourth quarter of 2002. It was 16, 6% for.

For the full year, which is probably more indicative of really kind of going forward. The company's effective tax rate for 2003 was 26% and for 2022 was 19, 4%. We do continue to have.

Some tax credit.

Items, and some tax exempt investments and loans.

Which reduced our effective tax rate.

We think that the effective tax rate going forward, it's probably going to be something in the 20, 25% to 21, 5% range in 2024 that can vary a little bit just depending on the level of utilization of tax credits and also state income tax expense estimate evolve we're constantly reviewing those and so that can affect.

The overall effective tax rate it from time to time.

So those are the items I wanted to discuss and that concludes our remarks that we prepared so far today at this time, we will entertain questions and I'll ask our operator to once again remind the attendees on the call how to queue for questions.

Thank you and at this time, we will conduct a question and answer session.

A reminder to ask a question you eight press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Part of the Q&A roster.

One moment for our first question.

And our first question comes from the line of Andrew Liesch from Piper Sandler Your line is open.

Hi, good afternoon, everyone.

Thanks for taking the time today.

Really my question does revolve around the margin outlook here so.

If the swaps.

Hit here in the first quarter is going to be less than it wasn't before could we see the margin and NII.

Increase here this quarter or do you think there is other funding concept might be upsetting.

You may all things being equal that should be somewhat of an improvement. Although we will still have two two months of it in the first quarter. So the more improvement will be in the beginning of the second quarter.

The.

It is good it depends a little bit on.

What we see as far as any further migration from noninterest bearing accounts into two other interest bearing types of funds.

It doesn't feel like the costs are going up on other borrowings that mean the rates on those are pretty much kind of where they are.

Cds, we do have.

Some Cds as I mentioned, they are going to mature in the first quarter.

<unk> 2024, but I think the bulk of those is probably later in the quarter.

So I mean.

I don't know that the first quarter is going to be terribly affected by at all.

So it just depends on kind of where competition goes and I think the biggest driver is going to be.

Kind of where noninterest bearing balances shakeout, yes, I agree with that Andrew I mean, there is.

What happens to noninterest bearing accounts.

Our CD.

Our CD portfolio is relatively short probably a year or so so most of those have repriced up too.

Close to current market rates, I mean, there could be a little bit of movement, there, but that not a lot and then of course, our interest bearing checking that.

That sort of keeps uplift market as it goes but it does seem to.

Continue to slide up and that may be people moving from lower tiers to higher tiers, and so there could be a little bit of slide up.

And the cost of funds I wouldn't expect it to be dramatic, but again the thing to watch there is the.

Migration from.

Interest bearing into interest bearing accounts generally speaking, though our liabilities should be priced.

And we've got disclosures on that in our annual report.

We have a fair amount of loans to reprice up that's not going to necessarily all happen.

It's not going to all happen in 'twenty, four it's going to happen.

Over a period of time, but that's going to be helpful to margins certainly and as you as you mentioned the $3 million.

Our quarter swap that rolls off completely.

Starting in the second quarter will help as well.

Got it but the loan repricing and I'm sure it'll be in the 10-K, when you file that in a couple of months, but do you.

To have the balance right now of loans that.

We're going to reprice.

This year.

I don't have the balance I mean as a.

Last year, the balance was a couple of hundred million dollars maybe.

Repricing loans, but that may have changed in the last year and Thats in addition to <unk>.

Give or take 2 billion.

One eight or $2 billion of loans that will reprice quickly because they're tied to sofa type, yes, yes, but you are talking.

You are talking about the new stuff that hasn't moved yet yes, yes, that's right.

Yes.

Got it and then just if you have it handy do you know what.

The average yield on the new loan production was in the last quarter.

Speaker Change: I don't have that number.

Yes.

Is it trending higher do you think it's sort of stabilized at a certain level I think it's probably I think it's probably stabilized.

<unk>.

As rates have stabilized here, yes, I think it's probably kind of stabilizes.

Yes.

And a little bit on the nature of which type of loans to so as construction loans.

They are coming on it.

I don't know somewhere.

50 to 300 over algo sulfur yeah yeah.

So we're not we're probably not originate a lot of just new loans that go immediately on the books necessarily so yes.

That's sort of what you can kind of think of it from a construction standpoint as far as what's the funding.

And theres a little bit of.

Commercial other commercial stuff and some consumer stuff, but there is theyre not usually real big balances on those right now got it got it.

That covers my questions. Thanks, so much I'll step back.

Thank you.

Moment for our next question.

And our next question comes from the line of Damon Delmonte from K VW. Your line is open.

Hey, good afternoon, guys hope everybody is doing well today.

Speaker Change: David.

Hi, So I just had a question here on expenses you guys called out some.

Kind of one time items.

If you look at that.

440000 of the bonuses the $3 20 in the us.

Other operating expenses in the $2 40.

Call It 900000 to a $1 million.

So is it fair then to kind of take those out of the this quarter's level and youre kind of puts in the $35 million range as a starting point for 2024 is that is that reasonable.

Yes, I think so I mean so.

So definitely the bonuses are I mean, that's not something that we're contemplating on a quarterly basis obviously.

On the other.

Did have some additional.

Fraud loss stuff that we had in the fourth quarter, that's above kind of what we've normally been running and so we hope that thats not going to be a new trend.

Speaker Change: It was definitely higher than the general trend that we've had and so I think those are all things now.

Remember, though that in the first quarter, we will have I mean.

Speaker Change: A lot of people get raises at the end of the year. So we've got merit increases and things like that plus.

Payroll taxes are higher payroll to little higher here to start start off the year. So there's a few of those type of things out there, but those I mean, that's usually something that every first quarter of every year.

Got it okay. Thanks, and then.

And then the fee income.

You kind of called out the lower debit card and ATM fees I believe because you had changed vendors.

So if you look at third quarter to fourth quarter that was a pretty pretty decent drops. So is this a good run rate going forward or do you expect to.

I see that kind of.

Recapture some of that lost revenue.

We had a couple of hundred thousand dollars in there that was sort of just some transition stuff going on that reduced it but I mean, we definitely saw.

Less usage I think.

Gross income.

In the fourth quarter of.

This year of 23.

So I don't know if thats a bit of a new trend there or not but.

It definitely the top topline went down a little bit and the expenses were higher like I mentioned to you. So.

I don't think Theres, a couple of hundred thousand of expenses in there that we don't think we will.

Carryforward.

Okay.

Speaker Change: It's hard to know for sure what that's going to look like in the first quarter, Yes, I think thats exactly right.

Okay. That's helpful. Thank you and then I guess just lastly.

The outlook for loan growth.

You've got the commentary on the pipeline as being lower but yet still being somewhat healthy.

Or do you kind of frame out growth for the upcoming year do you think kind of low to mid single digits is doable do you think you could actually get a solid mid single digit level what are your thoughts on that.

It's just really hard to say Damon.

Yes.

We're subject to levels of competition also customer interest in moving forward with project.

We're not seeing a ton of projects that really.

Sort of what we're trying to do either people are trying to do it do their projects with CLO equity or <unk>.

On guaranteed or those sorts of things and we're not willing to threats to put stuff on the books. So.

It's just hard to say at this point.

Got it okay. Okay. That's all I had thank you very much.

Okay.

Our next question.

And our next question comes from the line of John Rogers from Janney. Your line is open.

Good afternoon, guys Hey.

John: Hey, John.

Hey.

Just back to the expense.

Can you just give us an update on the systems conversion I know in the text you said mid 2024, but so how should we think about expenses there in the first and second quarter and I guess, if any in the third quarter.

Yes.

No John that we can really update you.

<unk> much.

Much past, what we've got in the.

Earnings really we've hit Florida.

We're in discussions.

With the with the third party vendor.

As we said we have some disputes with them.

And we're trying to make progress on those.

But we really haven't made much today so.

I really can't.

We're going to we're going to have that level of expenses until we ultimately.

Do something.

And so.

I think youre going to have to kind of model those.

Probably here for the time being.

Joe.

Worst case, though mid this year or could it be stretched out even farther than that is that what youre, saying.

Well, it's just it's hard to say I, just wouldn't want to I couldn't Italia.

Beyond that I really can't I can't comment much pathway.

Yeah.

Okay Fair enough just one other question.

Credit quality remains very very solid for you guys, but I did notice in the one table potential problem loans you had a new addition of.

Roughly $7 2 billion and it was other residential can you maybe just add a little detail or color on that.

Yes.

Yeah.

Okay.

That's a great that's a modest size.

Multifamily project.

In Oklahoma and to be honest with you John I mean, we expect that.

Resolved relatively quickly hopefully in <unk> four.

And we don't expect at this point, we don't expect a loss on it.

Okay.

Okay. Thank you guys.

Thank you I'm not showing no further questions at this time I would now like to turn it back to Joe Turner for closing remarks.

Alright, everybody. We appreciate you being with US here in January and we'll look forward to talking to you in April Thank you.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.

Okay.

Yes.

[music].

Yes.

Okay.

Okay.

Thank you.

Yes.