Hello. Thank you for standing by. Welcome to the Great Southern Bancorp, Inc. Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Kelly Polonus. You may begin.

Thank you. Well, good afternoon, and thank you for joining us for our second quarter earnings call. The purpose of this call is to discuss the company's results for the quarter ending June 30, 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 projected results. For a list of some of these factors, please see the forward-looking statements disclosure in our second quarter earnings release and our 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.

All right. Thanks, Kelly, and good afternoon to everybody. Our second quarter results reflected improved earnings versus the first quarter of 2024, both on a reported basis and excluding the non-recurring items, as we continue to operate in a challenging economic environment. For the second quarter, we earned $1.45 per diluted common share or $17 million, compared to $1.52 or $18.3 million for the same period in 2023. Earnings were $1.13 per share or $13.4 million in the first quarter of ‘24. Excluding the non-recurring items related to the terminated core banking system conversion project and some compliance matters, earnings per diluted common share were $1.37 for the second quarter of ‘24. Key drivers of our performance included modest increases in overall funding costs, continued significant competition for deposits and lower loan origination volume. The second quarter was also the first full period without the negative impact of one of our interest rate swaps, as we discussed in previous reports. Rex will provide more color on our results in his presentation. As far as capital and liquidity, the company's capital and liquidity positions remain strong. Total stockholders' equity was $568.8 million as of June 30 ‘24, decreasing $3 million from the end of ‘23 due to increases in unrealized losses on our available-for-sale securities portfolio, as well as our portfolio of interest rate swaps. Our capital remains substantially above regulatory well-capitalized thresholds. Our TCE ratio was 9.4% at the end of June. The company declared a $0.40 per common share dividend during the second quarter and continued to repurchase shares of common stock from time-to-time, with approximately 237,000 shares repurchased so far in 2024. In terms of liquidity, the company had available secured funding lines through the Federal Home Loan Bank and Federal Reserve, along with on-balance sheet liquidity totaling…

All right. Thank you, Joe. Net interest income for the second quarter of 2024 was $46.8 million, compared to $48.1 million for the second quarter of 2023 and versus $44.8 million in the first quarter of 2024. As we highlighted in our news release, we did see improved net interest income in the second quarter of 2024, compared to the first quarter due to the contractual termination of an interest rate swap. This swap reduced interest income by $1.9 million in the first quarter of 2024, with no financial impact from the swap in the second quarter. While deposit interest expenses have increased, compared to a year ago, the pace of the increase has moderated over the last few quarters and only increased modestly, compared to the first quarter of 2024. Higher funding costs in the second quarter of 2024 were particularly or partially caused by lower deposit balances with increased borrowings. We detailed our upcoming time deposit maturities over the next 12 months in our earnings release. Based on time deposit market rates in June 2024, replacement rates for these maturing time deposits are likely to be somewhere in the range of 4% to 4.35%. Net interest margin was 3.43% in the second quarter of 2024, compared to 3.56% in the same period of 2023. A decrease of 13 basis points. Net interest margin was 3.32% in the first quarter of 2024. In comparing to 2024 and 2023 second quarter periods, the average yield on loans increased 53 basis points, the average yield on investment securities increased 23 basis points, and the average yield on other interest-earning assets increased 38 basis points. The margin contraction primarily resulted from increasing interest rates on all deposit types as we discussed earlier. The average rate on interest-bearing demand and savings deposits, time…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Liesch with Piper Sandler. Your line is open.

Hey, guys. Good afternoon. Question on the securities book this quarter looked like you added to it. I'm just curious, what you purchased as far as type and then duration and yield?

Yes, I'll go ahead and take that one. We did add some securities, probably around $80 million to $85 million of securities during May and June. We were able to achieve in excess, we believe, a 5% yields on those securities. And it's going to be typically stuff like what we have, it's generally going to be, there's some single-family mortgage-backed pass-throughs, but there's also some multifamily product in there as well. So it's kind of a combination of a lot of things that we already have in the portfolio.

All agency stuff, right, Rex?

Correct. All agency.

Got it. All right. That's helpful. Also, short term borrowings were up. I suppose that kind of offset some of the deposit decline. But were those borrowings used to fund these purchases? I'm just curious on some of the dynamics on this balance sheet.

Yes, that was -- you're right on both counts there. So it was used some to fund the purchases and also just to make up for some shortfall in the deposit runoff.

Got it. All right. So I'm just going to -- so curious now, if you roll this on the security, some of these borrowings, and then the loan growth or towards the margin, do you think that there's -- that the margin's got to come down from here, taking on this leverage, how do you foresee it playing out here going forward?

Well, the securities we added on are probably going to yield somewhere in the 520 to 540 kind of range. So there's probably a little bit of negative carry, in the immediate future here.

We fund it up short, Andrew. We funded them short.

Got it. Okay.

So -- but it should -- if rates do what people are expecting, I guess, the margin should. I mean, with respect to this securities transaction, margin should improve.

Got it. Okay. Especially then with rate cuts, it's kind of locks in some higher cost or higher-yielding assets. Is that the right way to think about it?

Yes.

Correct.

Got it. Okay. Very helpful.

I think they were bought at a discount, too, so if they pay fast our yield should be better. Is that right, Rex?

That's correct.

Got it. Okay. That's helpful. And then, you referenced a couple times on the call, some ongoing compliance matters, and then also that was referenced in the release. Just curious if there's any more detail you can provide on that. I recognize that it might be sensitive if you can't, but just curious what you might mean by that?

No, we really can't say a lot more, Andrew, than is in the earnings release. We don't have this sort of activity very often, and that's why we included it as non-recurring. I think if you look back through our earnings releases, you'll see that we don't have this that often, but I think we've given as much detail as we're comfortable giving.

Got it. All right. Thanks for taking the questions. I will step back.

Thank you. Please stand by for our next question. Our next question comes from the line of Damon DelMonte with KBW. Your line is open.

Hey, good afternoon, everyone. Hope you're all doing well today, and thanks for taking my questions. So, first one, just wanted to circle back on the margin. With the swap that rolled off during the quarter, I guess is the full benefit reflected this here in the second quarter, and kind of how does that play into the outlook for the margin over the back half of the year?

Yes, the full benefit was in the second quarter that swap terminated on March 1. So we had two of three months of it in the first quarter, and then we had zero months of it in the second quarter. So it was fully impacting in the second quarter.

Okay. And then can you remind us, do you have another one that's rolling off in '24 or is it the spring of '25?

No, we don't have anything rolling off now for a little while. They're further out. There is the one that we terminated several years ago that is still providing income. That one goes, I think, through August of '25, something like that, I believe.

Yes, it's either August of '25 or October of '25.

Got you. Okay. So kind of from this quarter's level, I mean, do you think you can defend the margin over the back half of the year, just kind of given what you're seeing on loan pricing and kind of deposit pricing pressures?

I'll take that one to start. I think we can do a decent job of it. Like I was saying earlier, we think that what we have coming up, we've got fairly significant maturities of CDs coming due here in the next couple of quarters. And so we think that the new CDs that will go on to replace the maturing ones should be add and maybe they could be a little bit lower rate than some of the ones that are going to roll off. Kind of depends on, obviously, competition and where the Fed kind of starts to guide rates and things like that. So there'll be a little -- I mean, there's a little bit of sure uncertainty regarding that. But it appears right now that where we think we're going to put new CDs on would be at or below kind of where these are going to mature. And we do continue to have the fixed rate loans and just other loans that are in the portfolio that are repaying, and we're able to go and put those back to work at higher levels. As we were saying before immediately, the securities we put on the books are not providing much in the way of spread, obviously. If rate cuts happen, they will start to provide some more spread there. But those are -- I mean, we've added balances to the denominator that really, there's not a lot of net interest income generating from it just yet. So that'll be a little bit kind of sideways on the margin probably.

Got you. Okay. And looking at the period end securities, I think they were like $740 million. And then the average securities were a little bit less than $700. So kind of got put on towards the end of the quarter. So we should probably expect some impact from that here in the third quarter?

Yes, maybe a little bit. We put most of those on in late May and early June, I believe.

Okay. Okay, that's helpful. Thank you. And then on the expense side of things, you guys have been carrying kind of extra expenses related to the expected conversion with the software provider, the systems provider. And now that that's not happening and the agreement's been canceled, how do we think about kind of the expense run rate here from this quarter, absent the $600,000 related to the -- for the compliance stuff?

Yes. What were there, Rex, like $900,000 of expenses related specifically to the conversion?

Yes. That kind of the ongoing stuff that we had there for several quarters. Yes.

So should we expect them to decline by almost a $1 million here in the next quarter?

I mean, we do -- we call the -- I mean, the $900,000 is legal and professional non-recurring that occurred as a result of the conversion. So those expenses should more or less be gone. There could be some trailing where we could have a few people associated with that still here, but those for the most part should be gone. And the compliance expense shouldn't be like that again either.

Got it. Okay. That's helpful. And then I think you noted in the release that the final resolution here with the software provider was you're sticking with your current partner, and they're going to be able to accommodate new products and services to help you guys. Is that correct?

Right.

Got it. Okay. All right. That's all that I had for now. Thank you.

Okay.

Thank you. Please stand by for our next question. Our next question comes from the line of John Rodis with Janney. Your line is open.

Hey, guys. Good afternoon.

Hey, John.

Hope you guys are doing well. Just back to the conversation on the securities portfolio, I guess, Rex, do you plan any -- do you plan to add more to the securities portfolio right now?

Generally, I'd say no. We felt like that there was a nice opportunity there. When rates had moved back a little higher, we could get some fairly attractive yields, and we thought we would take advantage of that. I don't know that I could go out today and replace that yield profile. So I would say probably not too much. I mean, there's always the chance we might do a little bit of stuff here and there if the opportunity arises, but generally, I don't think we have a big plan to go do that now.

Okay. And then the short-term borrowings that were referred to earlier, were those FHLB advances or what were they, and what sort of yield are you paying on that?

Yes, those are mostly going to be overnight advances, and those will be in the low-550s probably as a rate right now.

And then I assume you would expect to, once those roll-off to replace those with CDs or more core deposits or something like that?

To the extent that we generate some growth in the core deposits, we would just pay back those advances. We may just continue to roll the advances over. I mean, they're just overnight. We can continue to roll them. We've got plenty of capacity to do it. So we could just continue to roll it over in overnight. We could do some brokered as well, some short-term brokered, and we do that from time to time. So we got some options out there. It just kind of depends on the pricing that we see and what we think makes the most sense. And now we kind of are -- maybe we are really close to a rate cut. I mean, we don't know, but it seems like the Fed is starting to send signals, and they may send us some more robust signals at their July meeting on those, but it seems like we may be getting closer to the point where we do get the first rate cut.

Yes. Just to circle back on expenses, so if we back out the compliance and the legal and consulting and stuff, that puts you around $35 million-ish. Is the $35 million area, is that sort of a good run rate?

I would say pretty close, John. Like I said, there could be a few trailing people that from the legal and expense associated with the conversion line. So maybe that doesn't all drop off. The other thing as we transition, we mentioned that there are new products and services that we'll be getting from our current provider, I mean, that's probably going to cost us a little bit more money, which could be 100,000 or 125,000 a month.

Yes, remind me again, who's your current core provider?

[Technical Difficulty]

Okay, that's what I thought. And just, maybe Joe, just one final question on the buyback obviously stocks of you know bank stocks have obviously had a nice move your stocks north of $60 how do you feel about the buyback today versus you know levels you bought stock last quarter?

I mean, we're sort of just rethinking it. We really liked it when we were able to buy our stocks back in the low-50s. And so we'll just sort of rethink it, you know, as we, you know, what's the best thing to do at this point? You know, we do have the sub-debt coming due in June, and so it may make sense not to be as aggressive buying our stock back and use the money to pay that off when it comes to it. So we would be in pretty good shape to be able to do that. So I mean there's other uses for the money too. So I mean we're just going to kind of rethink it.

The sub debts next year right?

Yes, yes, June of ’25.

Those are good problems to have. So thanks guys.

Alright thanks, John.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Joe Turner for closing remarks.

All right. Thanks again to everybody for joining our call, and we'll look forward to talking to you at the end of the third quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.