Q1 2024 Great Southern Bancorp Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Great Southern Bancorp, Inc. First quarter 2024 earnings call.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Kellie Pent up Investor Relations. Please go ahead.
Thank you Marvin and good afternoon, and thank you for joining us for our first quarter 2024 earnings call.
The purpose of this call is to discuss the company's results for the quarter ending March 31st Judy 2024, 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 the actual results.
Differ material materially from the results anticipated or projected for a list of some of these factors. Please see the forward looking statements disclosure in our first quarter earnings release and other public filings.
And CEO, Joe Turner, and Chief Financial Officer, Rex Copeland are on the call with me I'll now turn the meeting over to Joe Turner, Alright, Thanks, Kelly and good afternoon, everybody. We appreciate you joining us today for our first quarter earnings call.
I would characterize our first quarter.
Steady as we continue to operate in an uncertain.
In challenging times for the first quarter, we earned.
<unk> 13, a share of $13 $4 million key drivers of our performance, including a continued moderate increases in deposit costs.
Of course, there continues to be significant deposit competition.
The expected continuation of lower loan origination volume. Additionally, generally unchanged noninterest expense compared to the year ago quarter, but substantially down from the fourth quarter.
We're also.
Parts of our first quarter performance where Expo.
We'll provide more color on our recent results in his presentation.
The company's capital and liquidity positions continue to be strong.
Polar stock total stockholders' equity was $565 $2 million as of March 31, 2024 that was a $6 7 million decrease from the end of 2023, which was totally attributable to decreases in our mark to markets on.
Swaps and available for sale Securities. We also declared a <unk> 47 per share common dividend and <unk>.
We repurchased 112000 shares during the quarter at $51 44, SaaS average price.
Overall, our wine portfolio that portfolio continues to perform well, it's very diverse both by geography and by product type.
Anticipated in the current operating environment. Our total outstanding loan balance is essentially we're flat just slightly down actually $3 $4 million.
At the end of March 2024, the pipeline it won't commitments and unfunded lines increased slightly to $1 2 billion and that included $680 million of unfunded construction loans.
Overall credit quality metrics remained strong during the quarter, although nonperforming assets did increase slightly our nonperforming asset ratio to total assets.
<unk> 37 at the end of March compared to point to.
At the end of the year.
Nonperforming, that's an increase of $90 $5 million that was really attributable to one multifamily project since the end of the quarter. We have foreclosed that project is now in other real estate and we don't anticipate any significant charge offs from that asset.
Subsequent to the end of the foreclosure.
We have we have resolved $172 million relationship that was in the potential problem.
The relationship and that was resolved with no charge offs.
Of course for more information about our loan portfolio I encourage you to look at our loan portfolio presentation.
It's on file with the SEC that has helped all information regarding our loan portfolio.
Hi, <unk> geography that concludes my prepared remarks, I will turn the call over to Rex at this time.
Alright, Thank you Joe I'll start with net interest income and margin information on that so net interest income for the first quarter of 2024 was $44 8 million that compares to $53 2 million for the first quarter of 2023, I'd say like like several banks many banks in the industry, we experienced overall higher.
Cost during the first quarter of 2024, primarily due to current market interest rate and as Joe mentioned before competitive pressures.
While our deposit interest expense.
Increased the pace of that increase is moderated compared to the previous few quarters.
The higher funding costs contributed to a decrease in net interest income of approximately $8 4 million lower in the first quarter of 2004 compared to the first quarter.
'twenty three at about 331000.
Lower compared to the fourth quarter of 2023.
Higher funding cost in the first quarter were partially caused by a moderate amount of time deposits with lower rates maturing and being replaced at a current market at current market rates and due to mix some deposits shifting for noninterest bearing accounts to interest bearing products.
We detailed our upcoming time deposit maturities over the next 12 months and our earnings release, and then based on the current market rates that we see in March and early April replace replacement rates for these maturing time deposits will likely be in the four to four 5% range.
Okay.
Besides the higher funding cost on our deposits net income net interest income was also negatively affected compared to the year ago quarter by the Companys interest rate swaps two of which began net settlements in may of 2023.
During the first quarter of 2024 and fourth quarter of 2023. These two interest rate swaps combined to reduce interest income by $2 $8 million in each of those two quarters.
These swaps has had no impact in quarters prior to the second quarter of 2023.
Another interest rate swap contractually terminated on March one 2024, which reduced interest income by $1 9 million in the first quarter of 2024 compared to $2 2 million reduction in the same period.
23 set with this termination now during the first quarter, there will be no further financial impact from that swap.
Net interest margin in the first quarter of 24 was $3 three 2% that compared to $3, 99% in the first quarter of 'twenty three.
And also compares to net interest margin of 330% in the fourth quarter of 2023.
Okay.
When comparing those two periods the first quarter.
<unk> 24, and 23, the average yield on loans increased 37 basis points the yield on investment Securities increased 14 basis points on the average yield on other interest earning assets interest bearing cash basically increased 71 basis points.
The margin contraction, primarily resulted from increasing interest rates on all deposit types compared to a year ago as we just discussed.
Average rate on interest bearing demand and savings deposits time deposits and broker deposits increased by 90 basis points 186 basis points and 72 basis points, respectively. In the first quarter of 'twenty four compared to the first quarter of 'twenty three.
Just a couple of comments about liquidity and deposits.
Our liquidity position remains.
Strong we think we've got funding sources available to us of about $2 1 billion at the end of March with about $1 2 billion of that available firm home loan bank.
Advances or borrowings that we can utilize if needed.
We've also got.
Our borrowing line Thats a federal reserve.
Additional cash and <unk> securities.
At the end of March 2024, total deposits were nearly $4 8 million. During the three months ended March 31, 'twenty for the company's total deposits increased $51 7 million.
Interest bearing checking balances increased almost $80 million and noninterest bearing checking balances decreased about $19 million.
Time deposits generated through the company's banking center, a corporate services network decrease about $30 million during the first quarter and total broker deposits increased $24 million.
Couple of things on netted sorry on noninterest income for the quarter.
Impaired to the first quarter last year noninterest income decreased $1 1 million and it was $6 8 million in the first quarter of this year.
Couple of things that led to that Overdrafted insufficient funds fees were down 607000 compared to the first quarter last year.
The decrease is really just a continuation of what we've been seeing for a while now where.
Customers are choosing to opt out of authorizing the payment of overdrafts in their account balances.
And we just continue to see that as well as just the fact that we did.
Overall, I think we've seen a smaller utilization of overdrafts.
By our customers.
Second thing is point of sale and ATM fees.
Those fees decreased $518000 compared to the prior year quarter.
A lot of that decreases related to transactions that are now being routed through channels that provide lower fees to us.
We expect that's going to remain in place.
We also have had probably a little bit slightly lower usage of the <unk>.
Early in the first quarter as we have a little lower usage than perhaps in the rest of the year.
Sale, and ATM cards, or Im sorry debit cards.
And then lastly, other income decreased 465000 compared to the prior year first quarter.
In the first quarter of this year, we recorded $404000 related to activity incentives for debit card usage there Susan.
Income that we did generate based on volumes.
And the year before first quarter that was almost $800000. So there was about a $400000 difference in that.
Noninterest expense.
Actually decreased 41000, boes about $34 million compared.
Compared to the first quarter last year.
Some changes that occurred within categories in our advertising.
And marketing expense those fees decreased about $297000 compared to the prior.
Prior year quarter, we do have again with our debit card brand provider. We have some instead is reserved to qualifying expenditures that we get reimbursed for that was about $423000 in the first quarter of this year, we mentioned it in the earnings release, just pointed out that that's.
And Andy will be will be every quarter and in the previous year first quarter that was a $321000 a reduction in marketing and advertising expenses.
Legal audit and professional fees decreased about $256000 from the prior year quarter to $1 7 million.
We did have expenses related to legal training implementation costs for core system conversion.
2023 first quarter period that was $1 $3 million in the first quarter period. This year. It was 929000.
Salary and employee benefits increased about 453000, and this first quarter versus last year first quarter, just really normal annual merit increases in general.
Operations.
And then lastly insurance expense increased 277000 from the prior year quarter that was really due.
Due to increases in.
FDIC deposit insurance rates that took effect.
During 2023 and the full impact of that was included in the first quarter 2024.
We Joe mentioned before I think that total noninterest expense decreased fairly significantly from the fourth quarter of 2023 and as we highlighted.
Last quarter, there were some significant nonrecurring expenses that were recorded in that fourth quarter of 2023.
Efficiency ratio for the first quarter. This year was 60, 668% that compares to $56 four 2% in the first quarter of last year.
Joe will talk about credit quality before I'll just mentioned some things about the provision for credit losses. So during the first quarter of 'twenty four we did record a provision expense of 500000 are the outstanding loan portfolio portion that compared to a $1 5 million provision expense during the first quarter last year.
Also during the first quarter of this year, we recorded a provision for losses on unfunded commitments of about $130000 net compared to a negative provision of 826000 for the three months ended March 31, 2023, so our unfunded commitment levels were.
About they decreased a lot during 2023 and so we.
We're able to reduce some of the reserve we needed against that they were fairly flat in the first quarter. So not a significant change there the first quarter of this year.
Net charge offs in the first quarter were $83000, so not a significant amount and at the end of the first quarter. This <unk>.
2020 for the allowance for credit losses.
As a percentage of total loans was one 4%.
Okay. Then lastly, al mentioned, a little bit about income taxes. So for the three months ended March 31, 'twenty four 'twenty three the company's effective tax rate was 19, 1% and 21, 2%, respectively. So a little lower rate in the first quarter. This year.
The majority of what occurs with our tax rate being below the statutory federal rate.
As we do have utilization of certain investment tax credits and also some tax exempt investments and loans.
During 2024, we kind of look for the rest of this year to have an effective tax rate may be combined federal and state maybe around the level of $8, 5% to 25%.
And really Thats lower rate is primarily due to additional investment tax credit.
Utilization that we're going to be able to do in 2024, so higher levels that we'll be able to incorporate our taxes. This year.
So that concludes the prepared remarks that we have so at this time, we entertain questions and let me ask our operator to once again remind the attendees how to queue up for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you May press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Our first question comes from the line of Andrew sites of <unk>.
Piper Sandler your line is now open.
Good afternoon.
Great.
Hi, Rex on the margin here you got the one swap dropping off and the CD repricing amongst that group is pretty comparable to what's rolling off.
How do you think we've seen the bottom of the margin here and there is more room for it to move higher here in the second quarter.
Well I mean, it's hard to predict that with total certainty, but the one thing that I will say too is we had we had two months inclusion.
The negative income on that one swap that rolled off we will have zero months of inclusion of that so that for sure is going to.
Increase our interest income from that perspective.
Another $2 million a quarter, yes.
Roughly so yes yeah.
So.
We do have a moderate amount of.
Time deposits that are maturing and like I said I mean, we I.
I think those average rates are probably north of 4% or somewhere thereabouts that are going to be maturing and we'll probably be replacing it somewhere in the four to four and a half range I'm not sure will fall in there exactly.
I mean, there could be some additional.
Little bit of additional rate increase on that the thing that is more of a.
Wildcard really is.
Kind of mixed shift if there is more on.
The non time accounts and so we don't I mean, we don't necessarily anticipate that we're going to be raising any rates.
On those products, but it just depends on how the balances shift around as they move from the lower rate products to higher rate products or zero rate products to it.
Crist rate products so.
Got it.
Im not answering your question too directly but I'm trying to kind of give you some of the pieces of how we look at it.
Yes.
That's really helpful.
The other part of that Andrew is our loan portfolio the fixed rate loan.
Re pricing and I think there's some good disclosure about that in relatively recent disclosure about that in the.
In the annual report, yes, so you would be able to look at that and Thats. The other piece of it yes, I mean, there does seem to be as we as we alluded to earlier there does seem to be still be some with quantitative tightening.
<unk> market is still very competitive.
Got it all right that's all going to play all checkout time.
Well.
Ben.
Are you going to continue to have some of these nonrecurring items related to the <unk>.
Core conversion and then I guess like what sort of update can you provide on that and.
What other expenses that might come.
Ahead of that.
Really not much update other than what we provided in the.
Until that finally resolved, yes, we could we could continue to have expenses at this level.
Got it alright.
Thanks for taking the question.
Alright.
Thank you Paul next to our next question.
Our next question comes from the line of Damon Delmonte of <unk>. Your line is now open.
Hey, Good afternoon, guys Hope you guys are doing well today.
Just wanted to I just wanted to follow up on the line of question with with expenses.
Yes.
Is it fair to kind of Directionally point to something closer to $35 million level Rex given that the the advertising benefit this quarter.
<unk> here in the next quarter.
Yes for sure that's not going to be repeated in the next quarter.
And that was really the only thing that we called out in the first quarter.
Any size I mean, there could be some little things here and there.
<unk>.
I would say.
You can kind of use that as your as your guide from where you start from.
Okay Alright.
Good.
And then with respect to the outlook for loan growth.
You had commented last quarter, they expect things to be slower this quarter pretty flat just down a little bit.
Do you think thats more.
Indicative of what to expect for the remainder of the year or would you say there was some seasonality.
Contributing to the slower small enough Miss here in the first quarter and we should expect to see some positive growth over the next quarter or two.
No I don't think I don't think Damon.
Seasonal necessarily I would say.
Growth will continue to be sort of flattish.
Okay.
And is there any particular asset class that seeing lower demand that's kind of driving this or is it kind of broad based across the portfolio.
I think it's more broad based.
Okay.
So if the demand is down are you seeing any any signs of softening in those economies or is it just more of a demand function.
I think I think it's more demand function I think its higher interest rate.
And people just aren't pulling the trigger on deposits I mean, we don't see why.
Much deterioration.
Other than other than what you read a lot about like office.
In.
Particularly high rise office.
<unk> urban.
Office, and we just don't have a lot of that.
Got it.
I think the asset classes are holding up pretty well you know we had the multifamily project in Oklahoma that was the potential problem loan that.
We were paid off with.
No loss.
So I think the I think the asset classes from a credit standpoint are holding up pretty well, it's just that there's not a lot of new entrants.
And of those.
Into those markets I think a lot of people probably two we're expecting that by now that they can see the <unk>.
Rates at least near term see okay, maybe rates are going to start coming down but now with.
The first quarter that really changed the complexion I think for people for where they thought they were in December to where they are now right. We may be we may be have a higher rates for a while so maybe we just hold off a little bit longer before we start putting a project in place.
Got it okay.
Great and then just lastly, Rex could you just repeat what you said about the tax rate I missed what you are saying I know this quarter was 19, 1%, but what was your your commentary regarding the forward quarters.
Yes, so we think it will be somewhere in the range of 18, 5% to $20 five it will depend a little bit on on our earnings overall.
Do have some additional.
Investment tax credit utilization Thats coming online here in 2024, So we think that will bring our tax rate down a little below 21, where it's kind of been somewhat in the past.
Great.
That's all I had thank you very much.
Thank you. This concludes our question and answer session I would now like to turn it back to Joe Turner for closing remarks.
Alright, thanks, Thanks, Marvin and thank everybody for being on the call with US today, we will talk to you.
At the end of the second quarter. Thank you.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
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