Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Great Southern Bancorp Inc. fourth quarter 2019 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need a press star.
On your telephone if you require any further assistance. Please press star zero. Please be advised to today's conference maybe recorded.
I would now like to hand, the conference over to your Speaker today, Kelly Polonus with Investor Relations. Please go ahead ma'am.
Thank you said he good afternoon and welcome to our call. The purpose of this call is to discuss the company results for the quarter ending December 31st 2019, 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 you should not place undue reliance.
It's on any forward looking statements, which speak only as of the safe. They are made these statements are subject to a number of factors that could cause actual results to differ materially from the results anticipated or projected for those to some of these factors. Please see the forward looking statements disclosure in our fourth quarter order 2019 earnings release.
President and CEO , Joe Turner, and Chief Financial Officer, Rex Copeland or on the call today and I'll now turn the call over to Joe aren't Thanks, Kelly. Good afternoon, I also would like to thank you for joining us on our fourth quarter earnings call.
As is usual I'll go over at a high level, our company's performance and then turn the call over to react to will go into a little more detail on the income statement and then we'll open it up for questions.
Hopefully you've had a chance to at least plants that are earnings.
Released a few have you've seen that we had a solid quarter, especially given the interest rate and competitive environment. We earned $1.24 per diluted common share during the quarter 17 point Ninemillion a in the full year, we achieved our the highest annual net income we ever have at 73.6 million.
And then $5 in 14 cents.
Per common share our performance metrics during the quarter were return on common equity Elevenseventy, a return on assets, 1.44% or margin was EUR 382, and our efficiency ratio was 56.11.
Well production in the fourth quarter was pretty solid you probably noticed that our net loan balances were down about $3 million, but our gross loan balances which include you know unfunded.
Commitments, a construction loan balances were up about 34 million our net loan balances were up 165 million during the full year 2019, and gross loan balances were up about a 99 million a I think we said last quarter and maybe previous quarters that it does seem to.
He getting a little bit more.
Competitive.
The lending environment seems to be getting a little bit more difficult, maybe spreads credit spreads or or or shrinking on our loan products I think all that still.
Accurate its not a dramatic thing, though if you if you have a chance you can look at page seven of our earnings release, where we include a table on our unfunded.
Commitments and really the most part of that sections are the last two sections of that table, which fell water unfunded commitment on FID and construction loan commitments are or proceeds that remain to be disbursed nonconstruction loans, and then on funded a real estate and non real estate loan commitments those total.
So like a billion dollars just slightly over a billion dollars at the end of.
2019, and if you look at the two previous years a year in 2018 and 2017, they were slightly higher than that but not significantly like maybe one year was a billion in 20 something million and and the other year was a billion and 60 million. So we are down slightly.
But still have you know a relatively robust loans loan demand our asset quality continues to be a really pristine the best in our history, our nonperforming asset balances.
Went down $3.6 million during the year to 8.2 million, So I guess 16 basis points or something on assets our capital continues to be strong.
Significantly exceeding regulatory thresholds.
From the end of 2018 to 2019, our total common stockholders equity increased by about $71 million I think about $23 million of that was as a result of appreciation on or.
Unrealized appreciation on our security available for sale securities portfolio, and the yes, but increase value of art or balance sheet swap, our 400 million dollar swap, but the rest of that.
As a relates to just retained earnings.
Book value per share increased from 40 198 to 40 229 during the last quarter and from 30 759.
The end of 2018.
Our tangible common equity to tangible asset ratio is also very strong 11.9%.
And I'm sure you've noticed that we obviously declared just recently paid or our fourth quarter 34 cents per share a common dividend and we announced another dollar per share a special dividends.
And earlier this month.
That concludes my prepared remarks, I'll turn the call over to Rex at this time.
Okay. Thank you Joe I'll start out talking about net interest margin as Joe mentioned earlier, we did see a little bit of margin compression in the third or in the fourth quarter versus the third quarter fourth quarter was 3.82% compared to four through seven in the fourth quarter last year in 395 in the third quarter.
Earlier this year, so perhaps of 19, so we experienced about 13 basis points, a decrease compared to the third quarter of 2019, a lot of that was related to decrease in the average yield on our loan portfolio and also the other interest earning assets and we partially offset that with some decrease.
In our average interest rates paid on deposits and other borrowings as you know the federal reserve cut rates.
A couple of times in the latter part of the year in September and October and those things that those right. That's affected short term rates, primarily a short her LIBOR rates, which we have a lot of loans that are that are tied to that index.
The positive impact that we've had on net interest income net interest margin from additional yield accretion continued in the fourth quarter I was not about 19 basis points.
I have a yield or out of a net interest margin increase into in the fourth quarter. This year.
Similar to where we have been in the third quarter is 19 as the fourth quarter 2018.
Interest income dollars were up from a year ago quarter, but down from the third quarter of 2019.
Little bit so we are continuing to see as Joe mentioned, a you know our net interest income dollars has been pretty good at the margin as a percentage has come down a little bit as we've seen a compression here most recently.
Hum one thing I'll note too is we did record about $1.2 billion of interest income ended the fourth quarter related to the.
Balance sheet interest rate swap transaction that we've entered into.
So that has enabled us to.
Keep a little bit higher level of interest income related to that particular part of the loan portfolio.
Non interest income I'll talk about from over here.
Non interest income increased by about $474000 compared to the fourth quarter a year ago. The increase was really in a couple of categories. Other income we had a couple of things some income related to.
Interest rate swaps that we've entered into with our customers are back to back swap program.
We had some fee income from that is about $222000 at about $184000 related to the exit of certain of our tax credit partnerships that we had in 2019. We also saw a gain on.
The sale of loans, a single family loans, primarily in some SPD loans.
Lives more origination of fixed rate loans, which we sell the secondary market in the 2019 period versus 2018.
Offset softening a little bit was a decrease in some of our service charge and ATM fees compared to the fourth quarter 2018.
Non interest expense, Joe mentioned, our efficiency ratio earlier, but we're still tracking well on the expense containment and the operational efficiency noninterest expenses were up about 763000 compared to the fourth quarter a year ago.
The biggest drivers were increases in salary and employee benefits related primarily to some incentive incentives in lending operations areas annual employee compensation Merit increases and then staffing additions in some areas, including lending which were also include the do.
Loan officers, we opened in Atlanta Denver.
2018.
We also had a little bit higher expenses related to.
You can see any equipment, mainly related to increased depreciation on some new ATM IP ends and then also upgraded software on our ATM operating systems.
We did continue to have also did this quarter.
Yes, I see insurance premiums, we did continue to have a credit there. So we didnt have to book.
I see insurance expense in the fourth quarter of 2019.
One last thing that I'll just mention is.
Implementation of Cecil.
We as you know have been working on that for quite some time and we are finalizing that are have finalized primarily that we do expect that will continue as I think we said last quarter about a 2% to 3% decrease in equity.
We'll probably be reflected based on the implementation of seasonally the first quarter of 2020.
And we have gone through pretty much all of our review on that and we're just finalizing.
Everything now with with our auditors are accounts for implementation here in the first quarter this year.
So with that that concludes my prepared remarks, and I will turn it back over last few questions and let me ask our operator to once again remind attendees had UQM for questions.
As a reminder to ask a question you need a press star one on your telephone to withdraw your question press the pound Keith Please standby well, we compile acuity roster.
And our first question comes from Andrew Liesch with Piper Sandler. Please proceed with your question.
Hi, everyone.
Hi, Andrew Hi.
Just wanted to start with <unk> expenses here above 29, and a half million for me benefiting from a little bit from the lack of FDIC insurance, but what's the.
Maybe that's a good run rate to look at going into next year, maybe creeping up toward towards 30 million. How do you guys. We the expense base.
We're actually want that this yeah. This is rex.
I'll.
Try to take that a little bit here I think that Theres no. We tried to highlight anything that was really out of the ordinary in the quarter.
We mentioned a couple of things there that you have implemented and do things that are going on so I mean is.
We don't give a lot of forward guidance on it but I'm not sure I'm not speakers anything really materially.
Unusual necessarily in the quarter.
Got you okay.
The sequential increased and salaries and employee benefits that just normal course of business or what it was there anything unique in that line item.
I think I think it's helpful. Thanks, you know the along with the increased.
The profit on loan sales you know we're paying on.
The originators essentially a commission on that so you know I would say that's a big chunk of it Andrew.
Related to that and then as Rick said, yes, just normal kind of merit increases we have had.
Some staffing increases related to the LP as we open so that would probably be the rest of it.
Okay.
Helpful. And then if I just kind of switching back to see solved.
How do you think provisioning is going to play out under the new.
Under the new modeling should be similar to what you guys had been doing or what differences do you see ahead.
This this Rex again, I would say, it's going to be impacted maybe slightly differently, it's going to be impacted obviously still by charge offs.
So whatever level of charge offs, we have that will impact were our allowance.
The moves up or down.
Also didn't just growth in the portfolio. So presumably the more growth that you have the more you would be to provide you know for those new loans that are coming on your books.
So I think it's not going to be terribly different than what we've done before and less you know the economic outlook stores to change because that's also a piece of what we have to factor in is.
Our economic forecasting and outlook for the future and do we think that.
Periods.
Look out into the next.
Few quarters do we feel like that the the economic activity or the economic forecast is going to be more positive or more negative than it is currently.
Okay.
That's very helpful.
I will step back.
Thanks.
Thank you.
One comes from Michael Frito with KBW. Please proceed with your question.
Hey, good afternoon happy new year again.
Hi.
Oh I wanted to start at the bottom of your release, where you guys have kind of that business initiatives section I was really through it last night and up the last comment the.
Third party vendors that you guys have engaged to kind of analyze your facilities and you're in branch customer experience I was wondering choke you'd be willing to expand on that a little bit I guess kind of two part question one.
What specifically are they kind of analyzing with with regard to like the in branch customer experience in the two do you have any.
Kind of additional expectations of what you're hoping to learn what you think you can learn that analysis and how that might impact your decision making go forward.
Okay, well I'll start and Kelly pluses in here with me and she may be able to add to do it you know I think mainly is you know we understand the kind of changing demographics than maybe changing expectation a among our customer base and we just want to make sure that we have a bit.
Tranche a system banking center network that is structured and built to meet those expectations, though you know I think what they'll do is identified banking centers, where we feel like we have the most untapped potential and then we'll focus resource.
First is on those banking centers, and maybe make changes to them or to the through the physical banking center.
You know that we think might help us to be able to serve our our customers better yeah. The second thing we are interested to them you know expanding in some markets. So that they may have some ideas.
It would help US there Kelly do you have anything.
The add to that.
And part of your question, Mike I don't know that we I mean, we kind of have some expectation, but probably before saying anything on this call I would rather.
Let them worked for a little bit and then get back to us maybe on our.
Second quarter or first quarter call, we might have something a little more concrete on that.
Okay, that's fair.
Thanks for that that color and then I.
I was curious just kind of the construction growth opportunities job, obviously, that's been a.
Flair for you guys recently and I'm just curious.
As you think about the competitive dynamics of the market being a bit more cautious I was curious if that kind of less equally to all the lines of businesses or are there certain businesses, where you're still optimistic about growth and I think there's good.
Maybe a higher velocity of opportunities I was wondering if you could expand on that thought a little bit for us.
No I really wouldn't say so you know I think what.
It's going to benefit.
As you know, having the Atlanta and Denver offices that are.
Relatively new so you know we don't have a lot of as we've talked about before we don't have big balances that are going to be paying off how those offices and we hope to be able to grow I mean, I think thats going to be kind of across product lines, they're certainly going to be some.
Construction.
Loans made out of those off those but hopefully some commercial real estate as well. We also a higher you know NR, Kansas City office.
At the end I, a couple of seeing eye officers from a a competitor and the Kansas City area and we're hopeful there do you know we're not going to.
Try to I mean, we're not going to try to.
You know have four or $500 million and see an eye balances by this time next year, that's not the way, we do things, but but we do think overtime, we'll be able to grow in that area and grow profitably.
Okay.
And then just lastly.
On capital you mentioned in your prepared remarks about the special dividends not two years in a row and I was just wondered if you could maybe give us so just a refresher on on on kind of the ports be on capital at this point I mean, it seems like you know obviously the hopes to drive.
So to mid single digit organic growth and then maybe pay out this special dividend to tip bump up the pay I'll give you some flexibility, but not like capital accumulate to materially beyond where you are today is that kind of a fair way to summarize is there anything else you think that you would expand upon on that based on what I just said.
No I think that I think thats pretty fair summary of it.
Okay, and then can you just remind us just the.
The near term appetite for share repurchases and whats left under current authorization.
Rex do you have that.
I don't have that exact number but it's a life. It's over 400 something thousand dollar shares.
Well, that's about housing shares yeah.
We're still left on the authorization that's right okay.
And any change your kind of your view on that as a method of capital deployment or we're still just to use opportunistically and selectively based on on market conditions with the preference for for the dividends at this point I think at this point a preference for the dividend and then and then we know we do view the.
We do view share repurchases as another you know a potential use of capital just depending on returns and so forth.
Great well. Thank you guys for taking my questions I appreciate it.
Hey, Thanks, Mike.
Our next question comes from John Rodis with Janney. Please proceed with your question.
Good afternoon guys.
John John .
Hey, guys doing.
Good deep sea.
Rex you mentioned in your and your remarks service charges were down little bit.
Was there anything unusual in there it seemed like a pretty pretty big drop from the third quarter to the fourth quarter and service charges and typically there.
Flat to up in the fourth quarter last few years.
Yeah, I don't know that's all it is not as much related to service charges. I think is maybe it is ATM fees. So we kind of group all that together in one line item, but I would say that is probably your debt ATM fees. So there's some expenses that are dedicated there.
As well as just the gross fee income.
And so we saw a little bit less.
You know income and then a little bit higher.
Expenses that related to it so the whole net of all that was below what were that.
Yeah, we're going through a conversion of system.
You know kind of the the against the best way to describe the system that's in between.
The ATM and ER and we're converting from our current vendor to a new vendor.
And there have been some additional fees a vendor fees related to that conversion that net in those numbers, so and and.
I think that conversion probably explain as much of it as anything.
Okay. Thanks.
That conversion to be I'm kind of completed.
During this quarter hopefully during this quarter. So you know the second quarter of <unk> 0.1 thing I should be a little cleaner quarter on that line item.
Okay.
Rex just another question on the core margin of 363.
The feds on hold this year do you think you've sort of seen about him in the core margin or do you think there's still some more pressure given you know launching and so forth that you talked about yeah. It's a there's a couple of pieces that that play into it obviously, so if one month LIBOR goes down any further you know.
We'll see a little bit of pressure from that we've got about one of the half billion dollars a loans that are tied to one most whiteboard reset every month.
We also have whatever loads or.
Paying back.
Or maturing within any given period may or may not be because they may be at higher rates, then they'll do loans that were putting on one example might be our we've been paid a line or consumer auto business to run down.
Right a lot and so one of those are maybe 5% to 6% type loans.
Rates and so we're probably not putting isn't as high a rate product back on a different categories. Maybe as those are now that's not a big dollar amount anymore because.
There's only a $117 billion that left but but that's the kind of thing that could play into it as well then on the liability side.
We'll do what we cared to lower rates on gone non time accounts.
Also the time accounts as we are seeing maturities happening those over the next several months.
The those Cds have been on the books for several months or maybe a year or more and they have a higher rate so presumably whereas we replace those with the Cds, where they redo we'll.
He is a benefit of lower rates on those it's hard to hard to predict exactly how it's all going to play out but those are the drivers I think that will affect it.
But I mean, I guess already this quarter libraries down what I think like 10 basis points yourself. So I mean, just sort of reading between the lines it sounds like.
Probably a little bit more compression all things equal.
Maybe not Stacy maybe not the patient saw this quarter last quarter. Yeah. We obviously will be caught Joe the thing that thing like as Rick said, you know the I think the two big drivers.
You know for us going forward are going to be the repricing of our of our CD portfolio.
Versus.
The repricing of our fixed rate loan portfolio.
And you know you should that over the course of the next year.
Should improve our margin.
A little bit, but you know as Brexit the <unk>. So many things are are difficult to predict it's difficult it's difficult to predict credit spreads.
If we replaced a lot of variable rate you know to 75 over LIBOR variable rate loans with 250 over LIBOR variable rate loans, we obviously Lou spread so you know the competitive pressures.
Yeah, we have a we havent in town competitor paying I think over 2% for Cds right now.
Yeah.
It's it's kinda hard to predict those sorts of things we do have some things that should be helpful and as you point out since where we base, we index our loans to lie before as opposed to prime.
Things tend to move regardless of whether the the fed is moving so why bore has crept down some.
This quarter and we're going to feel the impact of that certainly.
Okay, well here's an easy question do you think is going to win the Super Bowl [laughter], well, that's obvious that [laughter].
Are you going to Miami.
No I'm not going I'm going to watch it from the comfort in my own home [laughter] because.
So good times class so the good times, where people in Kansas City. So thanks guys.
Alright, Thanks John .
Thank you and I'm not showing any further questions at this time I'd like to turn it back to Kelly plan for any further.
Well. This concludes our quarterly conference call. We led thank everyone for joining us today and enjoy the rest of your day. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.