Q3 2024 Great Southern Bancorp Inc Earnings Call
Good day. Thank you for standing by. Welcome to the Great Southern Bank, third quarter, 2024, Herings Congress call. At this time, all participants are in the room.
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Zach McCallwell: Zach, McCallwell
Zach McCallwell: and Vestory Relations. Please go ahead.
Zach McCallwell: Thank you. Good afternoon and thank you for joining Great Southern Bancorp Corridor 2024 annual call. Today we will be discussing the company's results for the Corridor Indicator San Bastaria, 2024. Before we begin, I'd like to remind everyone that during this call, for looking freshmen may be met, regarding the company's future event and financial performance.
Zach McCallwell: The attachment of our jet to various factors that could cause actual results to deformatarily from those antisypher to the local jet head. For a little bit faster, please refer to the forward-looking stretch management disorder, in the third-core earnings release in other part of this pilot.
Speaker Change: Joining me today, a presence in treatment that I work with, I draw Turner, and shape financial officer, Rex Copeland, are not hand to call over to jail.
Speaker Change: Okay, thanks back and good afternoon, everyone, we appreciate you joining us today for our third quarter earnings call. Our financial results reflect solid performance in the continued resilience of our operations despite the challenges in today's economic environment.
Speaker Change: Particularly with fluctuating interest rates in broader macroeconomic pressures.
Speaker Change: We earned $1.41 per diluted common share of $16.5 million in income for the third floor of 2024.
Speaker Change: This compares to $1.33 for the looted common share last year in the same quarter and $1.45 in the second quarter of 2024. We also surpassed the $6 billion in asset mark.
Speaker Change: during this four. These results, I think, demonstrate our ability to maintain solid earnings in a strong balance sheet.
Speaker Change: Regarding earnings performance, our annualized return on average assets was 1.11% during the quarter, and our annualized return on average equity was 11.1%.
Speaker Change: During the quarter. Netters are saying coming increased by 1.2 million or 2.6% to 48 million compared to 46.7 million in the year ago quarter.
Speaker Change: Our antithers, netted for smarts and remained steady at 342 compared to 3.43% in the third quarter last year.
Speaker Change: The continued pressure on our margins is primarily due to elevated deposit costs, reflecting the competitive landscape for deposits and higher interest rate environment we've been operating in.
Speaker Change: We have seen some relief from the Fed's recent rake cut, but I think it's important to note that changes to our deposit costs will likely take time, or this rake level will likely take time to fully impact our funding costs.
Speaker Change: As we move forward, we will closely monitor how these rate adjustments influenced the positive pricing and loan demand in the broader economy. So we expect these macroeconomic factors to present challenges we are well prepared to navigate the current environment by focusing on this fund asset and liability management.
Speaker Change: We maintain moderate loan growth during the quarter up 121.7 million for the year I think we're up.
Speaker Change: you know, over 70 million dollars in the quarter. The increase was primarily driven by expansion in our other residential loan segment, which was driven by completion of construction projects that transitioned into the permanent financing category.
Speaker Change: While we seem some declines in construction and commercial business loans, which is reflected on going economic and uncertainties, our pipeline of loan commitments and unsundid lines remain solid at 1.04 billion at the end of September 2024.
Speaker Change: I think this position does well to continue supporting our customers and pursuing selective lending opportunity.
Speaker Change: For more information about our law enforcement, you can find our quarterly law enforcement of presentations on our investor relations type under the presentation's link and it's also on file with the SEC.
Speaker Change: From a credit quality perspective, nothing really different than what we've said in the past about as good a credit quality as we've been.
Speaker Change: Ever had, we actually did make significant strides too.
Speaker Change: even improve at this quarter, not performing assets.
Speaker Change: he creates 512.7 million.
Speaker Change: Bring your total number forming assets down to 7.7 million.
Speaker Change: or 0.13% of total assets. That's down from 0.34% at June 30 and 0.20% at December 31, 23. The decline was largely due to the revolution of two significant non-performing assets. Net charge off for the quarter were 1.5 million compared to 99,000 in the same period a year ago. A provision for credit losses of 1.2 million was recorded in the quarter.
Speaker Change: As a result of the charge off and and growth in the loan portfolio.
Speaker Change: One of our charge-off related to a loan collateralized by an office building in the St. Louis Missouri suburb of Clayton, Missouri, which we've discussed in previous filing.
Speaker Change: Now our outlook on the broader portfolio, including the office portfolio remains positive. And we continue to view the commercial real estate market as a key area for potential growth, especially as economic conditions.
Speaker Change: Our capital position continues to be strong, stockholders' equity is increased by 40.3 million since December 31, 2023, bringing our TC ratio to 10% from 9.7%.
Speaker Change: Drunk!
Speaker Change: This increased reflex post-strong earnings in our discipline approach to capital management.
Speaker Change: We remain committed to returning cattle, the shareholders through share repurchases and dividends while growing both value per share.
Speaker Change: During the corner, we repurchased 271 shares in the average price of 53.04 and we declared a quarterly dividend of 40 cents per share.
Speaker Change: For the nine months into September 30, 2024, we've repurchased nearly 240,000 shares in the average price of $51.69 and we declare quarterly dividends totaling over the $3.00-$1.20 share.
Speaker Change: These actions align with our long-term strategy of delivering value to our shareholders while maintaining a strong capital base to support future growth.
Speaker Change: As far as the economic environment, the economic environment remains complex with inflationary pressures easing but still above target impacting consumer behavior and deposit growth.
Speaker Change: Recent interest rates test by the Federal Reserve are expected to provide some relief on deposit costs, but the full benefits may take time to materialize.
Speaker Change: Competition for deposits, I think, have softened slightly, and while loan demand remains stable, we are closely monitoring credit quality as economic uncertainty continues. We remain focused on prudent risk management and discipline and capital allocation as we navigate these conditions.
Speaker Change: To wrap up, I'd like to thank our team for their continued dedication and our customers for their ongoing trusting great southern.
Speaker Change: Despite the current challenges, we remain confident in executing our long-term strategy, managing risk, prudently, and delivering value to our shareholders.
Speaker Change: I'm confident that as we move through the remainder of the year we are well-positioned to build on momentum we've achieved and continue delivering strong consistent results. That concludes my prepared remarks. I'll turn the call over to our CFO Rex Copeland at this time.
Rex Copeland: All right, thank you, Joe, and good afternoon, everyone. I'll reiterate some of our financial results for the third quarter of 2024 and also provide more detail on performance and operational metrics.
Rex Copeland: has mentioned before an address to income for the third quarter of 2024 was $48 million, up $1.2 million or 2.6% from the same period last year.
Rex Copeland: This increase was driven primarily by higher loan yields, which rose by 52 basis points year over year, and increased average interest rate in assets.
Rex Copeland: The total interest turned on loans and investment securities improved during the quarter. I'll say to continue upward pressure on our deposit costs due to higher rates and changes in deposit mix compared to the prior year period.
Rex Copeland: Our dead interest margin has mentioned remain stable at 3.42%, that was compared to 3.43% in both the second quarter of 2024 and the third quarter of 2023.
Rex Copeland: The stability of our margin despite the challenging deposit rate environment reflects our discipline approach to balance sheet management and proactive steps to maze the cost of funds.
Rex Copeland: However, we continue to feel the impact of higher rates on interspering liabilities with a 34 basis point increase in interspering demand deposit costs compared to the third quarter of 2023. Time deposit costs also increased to 65 basis points compared to the prior year quarter.
Rex Copeland: You're today that interest income total of $139.6 million, down from $148.1 million in the same period in 2023.
Rex Copeland: This reflects the gradual compression in margin to cross the year as deposit and other funding costs rose faster than asset yields in the second half of 2023 and the first half of 2024.
Rex Copeland: We anticipate this trend moderates slightly as the Federal Reserve's recent rape test take effect, although the full impact will be felt over time.
Rex Copeland: We have noted that since the Fed Fund's rate cut last month, our daily net interest income and margin so far have not been negatively affected.
Rex Copeland: turned out to deposits are total deposits at the end of September 2024 or $4.7 billion from the previous quarter. The growth was primarily in broker deposits and interest bearing demand deposits, which helped offset some of the decrease in retail time deposits accounts.
Rex Copeland: During the quarter-renew several large time deposits that rates that remain high, although we are seeing signs of stabilization in recent months.
Rex Copeland: and $300 million of our broker deposits are floating rate, tied to effective Fed funds. So those funding rates increase or decrease in line with changes to the Fed funds rate.
Rex Copeland: Looking forward, we have 537 million in time deposits maturing within the next three months.
Rex Copeland: with an average rate of 4.53%. As market rates have decreased after the federal reserve rate cut, we expect to replace those deposits at lower rates, possibly between 3.50% and 4.20%.
Rex Copeland: Our liquidity position remains robust with cash and equivalence of $28.4 million and access to additional funding lines through the federal home loan bank and the federal reserve totally $1.42 billion. We are well prepared to meet both current and future funding needs.
Speaker Change: From the liquidity perspective, you're in a strong position with available, secure funding lines through the Omelon Bank and Fed has mentioned.
Speaker Change: and we also, in total, all those with including our on-balance sheet, liquidity would equal about $2 billion as of September 30th.
Speaker Change: Our deposit base remains diverse by customer type and geography and uninsured deposit to account for roughly 14% of total deposits, excluding internal subsidiary accounts.
Speaker Change: While the positive cost remaining elevated, the pace of these increases has moderated compared to earlier in the year. We expect this trend to continue as market conditions evolve, particularly with the recent shift in the interest rate environment.
Speaker Change: Non-interesting income for the third quarter was $7.0 million down $860,000 from the same period in 2023.
Speaker Change: The decline was largely due to reduced overdraft at insufficient fund fees, which reflect the broader industry trend of customers choosing to further authorizing payments of certain items, which you can see their account balances, resulting in fewer overdrafts in checking accounts and related fees.
Speaker Change: We also saw a dry drop in debit card fee in John.
Speaker Change: On the positive side, gains on loan sales were up by about $292,000 compared to last year's quarter, reflecting higher premiums on single family mortgage loans which we've originated for sale.
Speaker Change: on non-interest expense, that total was $33.7 million down $1.8 million compared to the prior
Speaker Change: The decrease was mainly due to lower professional fees and gains from selling foreclosed assets.
Speaker Change: legal audit and other professional fees decreased $1.0 million for the prior year quarter as it cost related to the proposed core systems conversion are no longer being incurred.
Speaker Change: We realized $459,000 in gains from selling foreclosed assets during the quarter compared to just $22,000 in gains in the same quarter last year.
Speaker Change: We also did experience, though, on the other side, an increase in occupancy expense of about 409,000, primarily due to technology related costs as we continue to invest in our digital infrastructure and online security.
Speaker Change: Our efficiency ratio improved during the quarter, coming in at 61.34% down from 65.13% in Q3, 2023. This improvement reflects our continued efforts to manage expenses while investing in key business areas.
Speaker Change: For the three months in December 30, 2024 and 2023, the company's effective tax rate was 18.0% and 21.5% respectively.
Speaker Change: These effective rates were nearer below the statutory federal rate of 21%. Primarily due to the utilization of certain investment tax credits, and the company's tax exempt investments and tax exempts of loans, which reduce the company's effective tax rate.
Speaker Change: The company's current effective tax rate both combined federal and state is expected to be approximately 18.0 to 20.0% in future periods. I'm merely due to the additional investment tax credits being utilized beginning in 2024.
Speaker Change: We finally talked a little bit about capital again. We ended the quarter with stockholders equity of 612.1 million dollars and increased of $40.3 million since the end of 2023.
Speaker Change: This brings our tangible common accurate ratio to 10.0% up from 9.7% at the end of 2023.
Speaker Change: We're also pleased to report a strong increase in our book value for share, which rose to over $52 up from about $49 in the previous quarter and $44.81 in the third quarter of last year.
Speaker Change: This increase in book value resulted from both increased retainer earnings and improvement in unrealized losses are available for sale investment portfolio and interest rates loss.
Speaker Change: This growth and underscores our commitment to enhancing shareholder value through both earnings performance and discipline capital management.
Speaker Change: Despite the challenges posed by the competitive deposit environment and higher funding costs, we have continued to deliver solid financial results. Our focus on managing credit risk, controlling costs, and maintaining strong capital levels has positioned as well as we navigate the remainder of this year.
Speaker Change: As we move forward, we remain committed to generating sustainable long-term value for our shareholders through prudent financial management, and strategic capital deployment.
Speaker Change: That concludes my remarks for today and we're now ready to take any questions we may have.
Speaker Change: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
Speaker Change: Episode 2
Speaker Change: Our first question comes from Andrew Leach with Piper Sandler, your line is open.
Andrew Leach: Hey everyone, good afternoon. I just wanted to touch on the margin here, so it sounds like you're getting some stabilization on the funding side, and I know in the past it's maybe it's taken a quarter or two for rate change as it flows through to your margin, but
Speaker Change: The tone sounds like NII and the margin of pretty stable since the rate cut. If it does not opportunity for expansion here in the fourth quarter, or if we got a weight until 2025 for that.
Speaker Change: I think we worked pretty hard throughout the year to try to get our...
Speaker Change: Maybe a little bit of assets into the position moderated to be in more neutral. We looked at what we knew as we had as far as variable rates.
Speaker Change: Loans that would reprise with cuts. And we have on the other side of the balance sheet, we've got quite a bit of, you know, we have some interest rate swaps. We've got some, as I mentioned, some floating rate broker deposits. And we've got some short-term home loan bank advances, overnight advances, that kind of thing. In addition to that, we've got some shorter maturity broker deposits. And as I mentioned, [inaudible]
Speaker Change: and a little over $500 million of...
Speaker Change: Combined retail and broker CDs, they'll make sure in the next three months. We feel like we've gotten things sort of matched off there, Andrew, more than we had before. I don't know that we're going to stay, we're going to get to a point where we can reprise the liability faster than the assets by much.
Speaker Change: So I think, I think fairly neutral is kind of how we see it in the near-term release.
Andrew Leach: Got it, guys, that's very helpful
Andrew Leach: I'm...
Andrew Leach: On the expense front, you know, it's kind of add back the, uh, uh, the gains that you had on the foreclosed assets and then take up some of the other one timers and, and the prior quarter looks like, uh, expenses were down by about a million dollars to 34.25 million. Is that a good run rate going forward or you're distinct maybe they rise a little bit sooner, this seems a little bit low to me.
Speaker Change: Yeah, I mean, it was lower probably than what the expectations were, you know, for sure the cost that we have been.
Speaker Change: and current previous quarters related to the proposed system conversion. That was about 900,000 or so a quarter and those are not in there and shouldn't be going forward. We probably had, I mean, in other categories you might have had 200,000 of other kind of good news kind of things that happened in the quarter. They were all pretty small individually.
Speaker Change: I mean, not to give total guidance, but I think that we were pretty much on the low side on the expenses in Q3 probably.
Speaker Change: Got it. Very helpful. Thanks for taking the questions. I'll step back.
Speaker Change: Thank you. I does a reminder to ask a question, please press star 1-1 on your telephone. Again, that is star 1-1 to ask a question.
Speaker Change: Our next question comes from Damon Delmont with KBW Your Line is open
Damon Delmont: Hey, good afternoon guys. Hope you're all doing well today. So first question.
Damon Delmont: Their afternoon. First, the first question, just regarding credit, nice to see the cleanup of a couple of credits and you're down to, you know, NPAs of, call it 16 basis points of loans and Oreo. You know, how do we think about the reserve at this point? You know, there was some release this quarter, but that was probably tied directly to those couple loans that you moved off the books. Do you feel like kind of a reserve in the mid one 30s is good or do you feel like you still have adequate [inaudible]
Damon Delmont: Access Reserve there that could kind of bleed out over the coming quarters.
Speaker Change: I mean, I feel like, you know, the races we're looking at are pretty good races for us.
Speaker Change: You know, I wouldn't expect to see a lot of lead out over the coming quarters.
Speaker Change: and some of it will also depend on the level of long growth that we have as well as we've got a reserve. If we grow, we've got a reserve for that up front as it happens so I like Joe. I think our reserve ratio has been fairly consistent.
Speaker Change: and probably gonna remade someone.
Speaker Change: in that area.
Speaker Change: Okay, great. And that kind of ties into the next question. They're about long growth that you just just mentioned there. You know, the last couple quarters were I think this quarter was six and a half percent and maybe 4% length quarter analyzed in the second quarter. The year started off kind of slow. A minimal growth here to end the year.
Speaker Change: You know, again, you know, we don't give guidance as to, you know, what long growth or it's going to be just because a lot of it's beyond our control we don't, you know, completely, we have a projection of what they are going to be, but they can always deposit.
Speaker Change: surprised you a little bit, Damon. I think probably something that you know, if you just look at the line, man, doesn't it?
Speaker Change: and kind of look at how we've grown thus far. That would probably be the best projection of what we might do to end up the year.
Speaker Change: Okay, let's help them. That's all that I had. Thank you.
Speaker Change: Okay, thank you.
Speaker Change: Thank you and our next question comes from John Rodus with Jane, your line is now open.
Speaker Change: Hey guys, good afternoon.
Speaker Change: Adjoin.
Speaker Change: um
Speaker Change: Joe, Joe, a question I guess on the buyback, you know, you only bought back roughly 3,000 shares this quarter, was that more a function of price or, I mean, you know, capital debt and use the price. The price for the most part this quarter was a little higher. So, you know, I think that's probably it, you know, although our book value now has been up and, you know, so there may be opportunity to, you know, buy back more here as we go forward.
Speaker Change: Good problems to have this.
Speaker Change: Yeah, we also thought it made some sense to take the opportunity to build up our capital a little bit to just have a little stronger capital to do.
Speaker Change: Reaction, drive.
Speaker Change: We have the subbed that's repricing in June, and we're going to be in a past position to just pay that off we want to. You know, Kelly, we said last quarter John, we've got good uses for capital in lots of areas in lots of ways.
John Rodis: So maybe just sort of big picture, your thoughts, any, you know, new markets that could be on the horizon for, you know, loan offices or your thoughts on, you know, M&A and the current environment. You guys obviously haven't done anything in a while, you know, I mean, as far as one production offices, you know, that, we don't have anything necessarily on the drawing board, but, you know, we're, our guys are in contact with banks and good lenders kind of across the country and so, you know, if we saw a situation that makes sense, you know, in a market that we were interested in, we could do that very fairly.
Speaker Change: Joe, maybe just sort of big picture your thoughts, any, you know, new markets that could be on the horizon for, you know, loan offices or your thoughts on, you know, M&A and the current environment you guys obviously haven't done anything in a while.
Speaker Change: here I mean
Speaker Change: As far as loan production offices, you know, we don't have anything necessarily on the drawing board, but, you know, our guys are in contact with banks and good lenders kind of across the country. And so, you know, if we saw a situation that makes sense, you know, in a market that we were interested in, we could do that fairly, fairly easily. In an A, you know.
Joe Turner: You know, we're just not big open bank emanate people.
Joe Turner: I mean, we see the struggles in, you know, when, when, when banks buy other banks, maintaining the revenue producers, and it seems like you sort of wind up competing to keep the business that you pay for.
Speaker Change: We're just not big open bank M&A people. I mean, we see the struggles in, you know, when banks buy other banks maintaining the revenue producers and it seems like you sort of wind up competing to keep the business that you pay for. And so, you know, never say never if the right situation came up, we would be interested that we're going to be pretty selected about it, I would say.
Joe Turner: And so, you know, never say never. If the, you know, right situation came up, we would be interrupted that we're going to be pretty selective about it, I would say.
John Rodis: Okay, that, that makes sense, Joe. I, I hear you.
John Rodis: So, thanks, guys.
Speaker Change: OK, that makes not sure I hear you. So, thanks guys.
John Rodis: Thanks, John. Thank you.
Operator: I'm showing no further questions at this time.
Joseph Turner: I would now like to turn it back to Joe Turner, Chief Executive Officer, for closing remarks. All right. Well, thanks, everybody, for joining our call today, and we'll look forward to talking to you after the end of the year. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.