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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to the Great Southern Bancorp, Inc's. First Quarter 2024 Earnings Call. [Operator Instructions] 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, Investor Relations. Please go ahead.
Thank you, Marvin. 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 31, 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 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 first 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 meeting over to Joe Turner.
All right. Thanks, Kelly, and good afternoon, everybody. We appreciate you joining us today for our first quarter earnings call. I would characterize our first quarter performance as steady as we continue to operate in uncertain and challenging times. For the first quarter, we earned $1.13 a share or $13.4 million. Key drivers of our performance included continued moderate increases in deposit costs. Of course, there continues to be significant deposit competition and an 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 were also part of our first quarter performance. Rex will provide more color on our results in his presentation.
The company's capital and liquidity positions continue to be strong. 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-market on swaps and available for sale securities. We also declared a $0.40 per share common dividend and repurchased 112,000 shares during the quarter at $51.44 average price.
Overall, our loan portfolio continues to perform well. It's very diverse, both by geography and by product type. As anticipated in the current operating environment, our total outstanding loan balances essentially were flat, just slightly down actually $3.4 million. At the end of March 2024, the pipeline of loan 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 was 0.37% at the end of March compared to 0.20% at the end of the year. Nonperforming -- that's an increase of $9.5 million. That was really attributable to one multifamily projects.
Since the end of the quarter, we have foreclosed that project. It's now in other real estate, and we don't anticipate any significant charge-offs from that asset. Additionally, subsequent to the end of the foreclosure, we have resolved one $7.2 million relationship that was in the potential problem loan 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 that's on file with the SEC that has helpful information regarding our loan portfolio by type and geography. That concludes my prepared remarks. So I'll turn the call over to Rex at this time.
All right. 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 several banks, many banks of the industry, we experienced overall higher deposit costs 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 has moderated compared to the previous few quarters. The higher funding costs contributed to a decrease in net interest income, approximately $8.4 million lower in the first quarter of '24 compared to the first quarter of '23, about $331,000 lower compared to the fourth quarter of 2023.
Higher funding costs in the first quarter were partially caused by a moderate amount of time deposits with lower rates maturing and being replaced their current -- at the current market rates and due to mix of some deposits shifting from noninterest-bearing accounts to interest-bearing products.
We detailed our upcoming time deposit maturities over the next 12 months in our earnings release. And then based on the current market rates that we see in March and early April, replacement rates for these maturing time deposits will likely be in the 4% to 4.5% range.
Besides the higher funding costs on our deposits, net income -- net interest income was also negatively affected compared to the year ago quarter by the company's interest rate swaps, 2 of which began net settlements in May of 2023.
During the first quarter of 2024 and fourth quarter of 2023, these 2 interest rate swaps combined to reduce interest income by $2.8 million in each of those 2 quarters. These swaps had no impact in quarters prior to the second quarter of 2023.
Another interest rate swap contractually terminated on March 1, 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 in 2023. So 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 3.32%. That compared to 3.99% in the first quarter of '23 and also compares to net interest margin of 3.30% in the fourth quarter of 2023.
When comparing those 2 periods, the first quarter of '24 and '23, the average yield on loans increased 37 basis points. The yield on investment securities increased 14 basis points and 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 discussed.
Our 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 '24 compared to the first quarter of '23.
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 from home loan bank advances or borrowings that we can utilize if needed. We've also got the borrowing line at the Federal Reserve and additional cash and [ unpledged securities ].
At the end of March 2024, total deposits were nearly $4.8 million. During the 3 months ended March 31, '24, 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 and corporate services networks decreased about $30 million during the first quarter. And total brokered deposits increased $24 million.
A couple of things on net -- I'm sorry, on noninterest income for the quarter. Compared to the first quarter last year, noninterest income decreased $1.1 million, and it was $6.8 million in the first quarter this year. A couple of things that led to that. Overdraft and insufficient fund fees were down $607,000 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 and their account balances, and we just continue to see that as well as just the fact that just overall, I think you've seen a smaller utilization of overdraft by our customers.
Second thing is point of sale and ATM fees. Those fees decreased $518,000 compared to the prior year quarter. A lot of that decrease is related to transactions that are now being routed through channels that provide lower fee to us. We expect that's going to remain in place. We also have had probably a little bit slightly lower usage. I think generally in the first quarter is we have a little lower usage than perhaps in the rest of the year of point-of-sale and ATM cards -- debit cards.
And then lastly, other income decreased $465,000 compared to the prior year first quarter. In the first quarter this year, we recorded $404,000 related to activity incentives for debit card usage, there's some [ incentive ] income that we did generate based on volumes and the year before first quarter, that was almost $800,000. So there was about a $400,000 difference in that.
Noninterest expense actually decreased $41,000, both -- about $34 million compared to the first quarter last year. Changes that occurred within categories in our advertising and marketing expense, those fees decreased about $297,000 compared to the prior year quarter.
We do have -- again, with our debit card brand provider, we have some incentives for some qualifying expenditures that we get reimbursed for. That was about $423,000 in the first quarter this year. We mentioned it in the earnings release. Just to point it out that that's an annual thing, it won't be every quarter. And in the previous year first quarter, that was a $321,000 reduction in marketing and advertising expenses.
Legal audit and professional fees decreased about $256,000 from the prior year quarter to $1.7 million. We did have expenses related to legal training implementation costs for core system conversion. 2023 1st quarter period, that was $1.3 million. In the first quarter period this year was $929,000. Salary employee benefits increased about $453,000 this first quarter versus last year first quarter, just really normal annual merit increases in general operations.
And then lastly, insurance expense increased $277,000 from the prior year quarter. That was really due to the increases in FDIC deposit insurance rate that took effect during 2023 and the full impact of that was included in the first quarter of 2024.
We -- as 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. The efficiency ratio for the first quarter this year was 66.68%. That compares to 56.42% in the first quarter of last year.
Joe talked about credit quality before. I'll just mention some things about the provision for credit losses. So during the first quarter of '24, we did record a provision expense of $500,000 on 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 $130,000. And that compared to a negative provision of $826,000 for the 3 months ended March 31, 2023.
So our unfunded commitment levels were about -- they decreased a lot during 2023. And so we were 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 in the first quarter of this year. Net charge-offs in the first quarter were $83,000, so not a significant amount. And at the end of the first quarter this 2024, the allowance for credit losses as a percentage of total loans was 1.40%.
And then lastly, I'll mention a little bit about income taxes. So for the 3 months ended March 31, '24 and '23, 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 is we do have utilization of certain investment tax credits and also some tax-exempt investments and loans.
And during 2024, we kind of look for the rest of this year to have effective tax rate, maybe combined federal and state, maybe around the level of 18.5% to 20.5%. And really, that's 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 in our taxes this year.
So that concludes the prepared remarks that we have. So at this time, we'll entertain questions. Let me ask our operator to once again remind the attendees how to queue in for questions.
[Operator Instructions] Our first question comes from the line of Andrew Liesch of Piper Sandler.
Rex, on the margin here, you got the one swap dropping off and those CD repricing looks it's pretty comparable to what's rolling off. So do you think we've seen the bottom of the margin here and there's 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 2 months inclusion of the negative income on that one swap that rolled off. We'll have 0 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. So we do have a moderate amount of time deposits that are maturing. And like I said, I mean, we -- 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 4% to 4.5% range. I'm not sure we'll fall in there exactly.
So I mean, there could be some additional -- a little bit of additional rate increase on that. The thing that is more of a wildcard really is kind of mix 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 if they move from lower rate products to higher rate products or 0 rate products to interest rate products. So I'm kind of -- I'm 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.
The other part of that, Andrew, is our loan portfolio, the fixed rate loan portfolio repricing. And I think there's some good disclosure about that and relatively recent disclosure about that in the annual report. Yes. So you would be able to look at that. And that's the other piece of it. Yes. I mean there does seem to be -- as we alluded to earlier, there does seem to be -- still be some with quantitative tightening, the deposit market is still pretty competitive.
Got it. All right. That's really helpful. I'll check out as well. Then, look, are you going to continue to have some of these nonrecurring items related to the core conversion? And then I guess like what sort of update can you provide on that? And what other expenses might come ahead of that?
Really not much update other than what we provided in the press release, Andrew. And yes, until that's finally resolved, yes, we could continue to have expenses at this level.
Our next question comes from the line of Damon DelMonte of KBW.
Just wanted to -- I just wanted to follow-up on the line of question with expenses. Is it fair to kind of directionally point to something closer to the $35 million level, Rex, given that the advertising benefit this quarter isn't repeated 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 of any size. I mean there could be some little things here and there. I would say you can kind of use that as your guide from where you start from.
Okay. All right. That's good. And then with respect to the outlook for loan growth, you commented last quarter that you expect things to be slower this quarter, pretty flat, just a little down a little bit. Do you think that's more indicative of what to expect for the remainder of the year? Or would you say there was some seasonality contributing to the slowness 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, Damon, that that's seasonal necessarily. I would say growth will continue to be sort of flattish.
Okay. And is there any particular asset class that's 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 signs of softening in those economies? Or is it just more of a demand function?
I think it's more demand function. I think it's higher interest rates and people just aren't pulling the trigger on deposits. I mean, we don't see like much deterioration other than what you read a lot about, like office and particularly high-rise office, urban kind of office, and we just don't have a lot of that.
But I think the asset classes are holding up pretty well. We had the multifamily project in Oklahoma that was a potential problem loan that we were paid off with no loss. So 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 into those markets.
I think a lot of people probably too were expecting that by now, they could see the rates at least near term see, okay, my rates are going to start coming down. But now with the first quarter, that really changed the complexion, I think, for people from where they thought they were in December to where they are now. We may be having higher rates for a while, so maybe we just hold off a little bit longer before we start putting the 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 were saying. I know that this quarter was 19.1%. But what was your commentary regarding the forward quarters?
Yes. So we think it will be somewhere in the range of 18.5% to 20.5%. It will depend a little bit on our earnings overall. But we do have some additional investment tax credit utilization that's 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.
This concludes the question-and-answer session. I would now like to turn it back to Joe Turner for closing remarks.
All right. Thanks. Thanks, Marvin, and thanks, 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.