Good day, and thank you for standing by. 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. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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.
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, a list of some 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, thanks, Kelly, and good afternoon, everybody. We appreciate you joining us today for our fourth quarter earnings call. As we, as we anticipated, our fourth quarter results reflected the challenging operating environment that the banking industry is experiencing right now. While our earnings were down this quarter, and we expect-- 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 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 2022. Earnings per diluted common share were $1.33 in the third quarter of 2023.
In light of the current interest rate environment, key performance drivers included continued increase in deposit costs and significant competition for deposits, as well as expected continuation of lower loan origination volume. As we pointed out in 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 non-recurring additional expenses, which decreased our fourth quarter earnings. On a positive note, the company's capital strengthened, with stockholders' equity increasing by approximately $40 million from the end of the third quarter 2023. At the end of the quarter, we had, or end of the year, we had a book value of $48.44 per common share, which was an increase of $3.63, 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 did decline to 3.30% for the fourth quarter, compared to 3.99% for the same period in 2022, and 3.43% for the Q3 of 2023. The margin contraction primarily resulted from continuing changes in deposit and other funding mixes, increasing interest rates on all deposit types during the fourth quarter, and an impact from net settlements related to our interest rate swaps. Rex will provide a little bit more color on this in his comments. As I mentioned, our capital and liquidity positioning continues to be strong.
Total stockholders' equity increased by $40.1 million from the end of the third quarter 2023, and increased $38.7 million from the end of 2022, as a result of decreased AOCI 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 twelve months ended December 31, 2023. Our capital remains substantially above regulatory well-capitalized thresholds, and our TCE ratio was 9.7% at 12/31/2023, up from 9.2% at the end of 2022. In the fourth quarter of 2023, the company declared a $0.40 per common share dividend, and for all of 2023, our dividend declared were $1.60 per common share.
We also continued to repurchase our shares during 2023. We repurchased approximately 450,000 shares at an average price of $51.38 per share in 2023. As for liquidity, our borrowing capacity at Home Loan Bank was approximately $919 million at the end of 2023. At the end of 2023, we had available secured funding lines through the Home Loan Bank and Federal Reserve Bank, and on-balance sheet liquidity totaling approximately $2.1 billion. 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, excluding internal subsidiary accounts. Overall, our loan portfolio is strong, diverse, and performing well.
During the fourth quarter, new loan production and general activity was down compared to 2022, as expected. Total outstanding loan balances grew by nearly $83 million since the end of 2022. Growth primarily came from the multi-family loan segment. Much of this movement from an unfunded construction line of availability to 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 and the unfunded portion of construction loans remained strong, totaling $1.2 billion in the fourth quarter, but that has decreased significantly compared to the end of 2022. 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 12/31/2023, down from $1.4 billion at the end of 2022. I would remind you that we have a lot, lot of information that we filed yesterday in our loan, loan portfolio. You can find that at the FDIC site. Overall, our credit quality metrics remained extremely strong during the quarter. Non-performing assets to total assets were 0.2% at the end of the year, increasing by 1 basis point from September 30, 2023. Delinquencies in our loan portfolio continue to be at historically low levels. More information about our non-performing and potential problem loans is included in the earnings release. This concludes my prepared remarks. At this time, I'll turn the call over to our CFO, Rex 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. Just, 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. With the Fed Funds and market increase in rates in 2022, we were again able to increase rates on assets more quickly than liabilities in 2022. And so we achieved for us, you know, pre-peak net interest income and margin in the second half of 2022. So we're comparing, you know, the latter part of 2023 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 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. Net interest income was $46.7 million in the third quarter of 2023. So we did have a decrease, you know, linked quarter on net interest income of about $1.6 million when you compare Q4 versus Q3 of 2023.
So if 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 rates that we had on these swaps at December 31, 2023, the negative impact of all those interest rate swaps combined in the first quarter of 2024 is expected to be approximately $2.7 million. The negative impact of all these swaps combined in the fourth quarter of 2023 was about $3.6 million. So as we noted in the earnings release, one of these swaps will terminate on March 1, 2024. That swap had a negative impact to interest income of $2.9 million in the fourth quarter of 2023.
It's expected to have a negative impact of $1.9 million, approximately in the first quarter of 2024, 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 markets. 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 you know current market rates.
And then lastly, and importantly, sporadically throughout 2023, the company experienced a higher than normal reduction in balances of non-interest-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 1.3%, but non-interest-bearing checking balances decreased about $168 million, or about 15.8%. 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, subsequent to the end of the year in the first... in, into 2024, our time deposit maturities over the next 12 months, as they stood at December 31st, 2023, 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% currently... So based on, you know, 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%-4.5%, generally. As Joe 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.
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 over $900 million of that is availability at the Home Loan Bank. We also have 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. 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. Interest-bearing checking balances decreased about $27 million, or 1.2%, and non-interest-bearing checking balances decreased $46.7 million, or about 5% in the fourth quarter. Time deposits generated through the 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. Total brokered deposits decreased by about $8 million in the fourth quarter. So talk for a minute here about non-interest income. Our total non-interest income in the fourth quarter of 2023, compared to the fourth quarter of 2022, 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 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 costs during the transition from our old debit card processor to the new debit card processor, and that include a couple of hundred thousand dollars as we kind of made that transition and finalized some things. So a couple of 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. 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 were 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 on those.
Non-interest expense, we'll talk about that for a moment here. So in the fourth quarter of 2023 versus 2022, 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 2022. Portion of this is 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 2023 versus 2022, related to compensation costs that you defer and take over time for originated loan volumes. Our volumes were lower in 2023 versus 2022.
One of the major items in the higher expense, and this a non-recurring type item, was, we mentioned it in the, in the fourth quarter of 2023, 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 of expense in Q4 of 2023. 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'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 in—as we go into 2024. Net occupancy expense increased about $389,000.... fourth quarter this year, or fourth quarter 2023 versus fourth quarter 2022. 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. 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 are engaged to support that transition. In 2023, that expense was $918,000, so a little bit lower than it was in the fourth quarter a year ago. 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, you know, 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 expenses as well. Provision for credit losses.
We did record a provision expense of $750,000 in the fourth quarter of 2023 on the outstanding loan portfolio, the funded loan portfolio. That compared to a $1 million provision in the fourth quarter of 2022. In the three months ended December 31, 2023, 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 ended December 31, 2022. Our net charge-offs in the fourth quarter of 2023 were $833,000 .
That compared to $281,000 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 fourth quarter, the allowance for credit losses as a 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 2023 was 19.7%, and for the fourth quarter of 2022, it was 16.6%.
For the full year, which is probably more indicative of really kind of going forward, the company's effective tax rate for 2023 was 20.6%, and for 2022 was 19.4%. We do continue to have some tax credit items and some tax-exempt investments and loans, which reduce our effective tax rate. We think that the effective tax rate going forward is probably going to be something in the 20%, 20.5%-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.
So those are the items I wanted to discuss, and that concludes our remarks that we 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 in for questions.
Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by. We compile the Q&A roster. One moment for our first question. 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 just 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 NII increase here this quarter, or do you think there's other funding costs that might be offsetting?
I mean, all things being equal, that should be somewhat of an improvement. I mean, although we'll still have, you know, two, two months of it in the first quarter, so the more improvement will be in the beginning of the second quarter. You know, it's going to depend a little bit on what we see as far as any further migration from non-interest-bearing accounts into other, you know, interest-bearing types of funds. You know, 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, you know, some CDs, as I mentioned, they're going to mature in the first quarter of 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, you know, 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, there's, you know, what happens to non-interest-bearing accounts and, you know, our, our CD, 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, 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, that, 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 in, 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 margins, certainly.
As you, as you mentioned, you know, the $3 million a quarter swap that rolls off completely starting in the second quarter will help as well.
Got it. 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 have the balance right now of loans that are going to reprice this year?
I don't have the balance. I mean, as of last year, the balance was $200 million, maybe, of repricing loans. But, you know, that may have changed in the last year.
And that's in addition to give or take $2 billion, you know, $1.8 billion or $2 billion of loans that are repriced quickly and because they're tied to SOFR type of products.
Yeah. Yeah, but you're talking about-
You're talking about-
Right.
You're talking about-
The new, the stuff that hasn't moved yet. Yeah.
Yeah.
That's right.
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. You know, we could-
Is it, 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 you know, rates have stabilized here. You know, I think it's probably-
Okay
... stabilized.
It depends-
Got it.
It depends a little bit on the nature of which type of loans, too. So as construction-
Right
-loans fund, you know, they're coming on at, I don't know, somewhere in the-
Yeah, 250-300 over SOFR.
Yeah.
Yeah.
So, we're probably not originating a lot of just new loans that go immediately on the books necessarily, so-
Yeah.
But that's sort of what you can kind of think of from a construction standpoint as far as what's funding. And there's a little bit of, you know, commercial, other commercial stuff and some consumer stuff, but they're not usually real big balances on those right now.
Got it. Got it. That covers my questions there. Thanks so much. I'll step back.
Thank you. One moment for our next question. And our next question will come from the line of Damon DelMonte from KBW. Your line is open.
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-$1 million. So is it fair then to kind of take those out of this quarter's level, and you're kind of put you in the $35 million range as a starting point for 2024? Is that reasonable?
Yeah, I think that is.
I think so. I mean, so definitely the bonuses are... I mean, that's not something that we're contemplating on a quarterly basis, obviously. We did have some additional, you know, fraud loss stuff that we had in the fourth quarter that's above kind of what we've normally been 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've had. 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-
Higher payroll-
A little higher to start off the year. So there's a few of those type of things out there, but those, I mean, that's usually it's something that's every first quarter of every year.
Got it. Okay, thanks. 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, 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 see that kind of recapture some of that lost revenue?
There's $200,000 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, 2023. 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. So I don't think... There's $200,000 of expenses in there that we don't think will you know carry forward.
Got it.
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 the outlook for loan growth, you know, got the commentary on the pipeline and, you know, it 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?
It's just really hard to say, Damon. You know, we're subject to levels of competition, also customer interest in, you know, moving forward with projects. We're not seeing a ton of projects that really, you know, sort of, you know, fit what we're trying to do. Either people are trying to do their projects with too low equity or, you know, unguaranteed or those sorts of things. And, you know, we're not willing to stretch to put stuff on the books. So, it's just hard to say at this point.
Gotcha. Okay. Okay, that's all that I had. Thank you very much.
Thank you. One moment for our next question. Our next question will come from the line of John Rodis from Janney. Your line is open.
Good afternoon, guys.
Hey, John.
John.
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 so how should we think about expenses there in the first and second quarter and I guess, if any, in the third quarter?
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 release. 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 to date. So, I really can't... You know, we're going to have that level of expenses until we ultimately, you know, do something. And so, I think you're gonna have to kind of model those, you know, probably here for the time being.
Is Joe, is 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, it's hard to say. I just wouldn't want to... I couldn't tell you.
Okay.
Beyond that. I really can't, I can't comment much past what-
Okay, fair, 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 addition of roughly $7.2 million, and it was other residential. Can you maybe just add a little detail or color on that?
Yeah, that's a modest-sized multifamily project in Oklahoma. And to be honest with you, John, I mean, we expect that to resolve, you know, relatively quickly, hopefully in 2024. And, you know, 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.
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.