Q1 2021 Southern Missouri Bancorp Inc Earnings Call
Good day and welcome to the Southern Missouri Bancorp incorporated quarterly earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone too.
All your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Max One P. Please go ahead Sir.
Thank you Chuck and good afternoon, and good afternoon, everyone. This is Matt Funky CFO with southern Missouri Bancorp. The purpose of this call is to review the information and data we presented in our quarterly earnings release dated Monday October 26, 2020 and to take your questions. We may make certain forward looking statements during today's call.
I refer you to our cautionary statement regarding forward looking statements contained in the press release.
I'm joined on the call today by Greg Steffens, our president and CEO.
And Greg Glenn to provide a quick update on the bank's operations and the continuing pandemic environment.
Thank you, Matt and good afternoon, everyone.
Thanks for joining us today, and we're going to provide a brief update on our operations as we can do continue to deal with COVID-19.
We're pleased to report that our communities are continuing to work to get back towards normal. Although we are currently seeing increasing virus cases and hospitalizations we.
We currently have very few restrictions on actual activity in most of our markets.
Schools remain open and we're hoping that the spread is brought under control. So the poor significant activity restrictions would be required.
Well, we've had a few situations where some of our team members.
Effected by the buyer is somebody have needed to temporarily closed type facility. It moved to drive to Ratably service.
For a period of time.
Robert facilities remain open for business at this time.
We can we have focused a good deal of earnings release on the low payment deferrals and interest only modifications.
That we began to make as early as March has provided under the cares act without TDR designations and what the encouragement of our regulators those.
Those those over the last few months have made substantial progress.
Towards resuming amortizing payments, we are continuing to see that in October.
We've seen a significant rate stuck reductions since the June 30 levels. When we had 380 million in such modifications.
And we were below 94 million at September Thirtyth.
We expect a substantial majority of that to move back to contractual terms by the end of October.
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Most importantly loans that are in full deferral, we're down to less than $10 million at September Thirtyth from 141 million at June Thirtyth.
P.P.P., we find that very few loans since the last call and have submitted a relatively small number of forgiveness applications for the S.B.A.
And they were approved and funded only a handful of those balances are.
Basically flat at a 134 million.
Also I want to touch on credit quality or nonperforming loans were little changed and remain to good levels at quarter end as we saw just a few basis points.
I think Trey some past dues and classified loans classified loans were up about a half million dollars at the end of the quarter at 25 million and past due loans were up by a similar amount at 7 million.
We have provided a detailed breakdown of our loan portfolio at the back of earnings release would encourage you to review that.
We remain very pleased with the underlying performance of our Lonesome our current environment, we continue to work closely with the.
The borrowers in our hotel portfolio now we did downgrade several loans in the June quarter.
Due to poor occupancy during the pandemic and some of those loans.
We're in more urban areas that continue to struggle.
Our restaurant, a multi tenant retail portfolios continue to perform better than we could have anticipated at the else outside of the pandemic and we remain guardedly optimistic that coast loan portfolios.
Now for our agricultural.
Portfolio update.
Our borrowers are generally in the harvest season, and making good progress agricultural real estate balances were down a little bit over 3 million over the quarter well like production lows.
Tour farmers increased by 21 million, which is a little bit stronger than our seasonal draws over the past several years, our lenders are reporting averaged to higher yields on most of our crops.
Well there Paul crop progress reports corneal reports are averaging from 175 to 210 bushels, an acre well some reports up to 250 bushels, an acre on better more productive Grail.
Rice producers are reporting yields to 975 bushel range.
And hybrid varieties are going for up to 200 bushels an acre.
Producers are reporting early soybean yielding around 60 bushels an acre.
And with some longer season varieties, ranging from 70 to 80 bushels an acre cut.
Cotton producers are reporting some lower yields in comparison or previous years.
Coming in around the 1200 pound an acre range with more productive BLAIC coming in at 13 to 1400 pound snake.
For appeal or farmers, who still farm not irrigated land they've reported much harder than average yields on their crops such as slipping from corn.
Compared to what they normally do but.
Overall, our crop mix ended up being 30% soybeans, 25% corn 25 per cent caught that.
15% rise and then 5% specialty crops, which include primarily popcorn and peanuts.
Our rice harvest is approximately 75% complete with.
<unk> producers expecting to market their price and the 25 to 540, a bushel range.
Which along with improved yields and pricing should improve their incomes on their crops to lever.
Our cotton farmers are approximately 50% complete with their harvest with producers estimating carton sales and the 60 to 62 cents a pound range, but it's a little early to determine how cotton is going to be graded or Jen this season yet.
Our corn harvest is 95% complete with producers reporting sales averaging in the 375 to 415, a bushel range.
We're saying typical harvest season spikes in corn prices at this time that may help some of our people move more bushels to market that are fully contracted.
Our soybean farmers are approximately 60% complete with their harvest.
With several com farmers contracting soybeans earlier in the year. The 925 to 950 range overall, we're seeing seasonal spikes personal.
For soybean prices that should allow farmers to sell non contracted beans.
Beans in the 10 dollar more range per bushel.
In comparison to our prices used for 2020 underwriting.
Current prices are trending.
11% higher soybeans are trailing 12% higher prices about even in cotton is trending about 14% lower overall with improved pricing on some of our crops combined with higher than anticipated yields we maintain an optimistic outlook for the majority of our.
<unk> customers.
[noise] livestock prices are still trending 10% below or underwriting prices for most of our cattle farmers and they are continuing to old cattle.
Hoping to gain additional way then prices before sending the mark.
As we noted in last quarter's call many of our cattle farmers had to hold their catalog or the spreading the news show with the pandemic in the livestock being closed, but we did say government payment assistance that helped offset.
A good portion of this problem.
Farmers are optimistic that prices will increase through the fall there's considerable demand for locally grown beef.
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Families purchasing catalyst for slaughter and processing locally to restock their freezers help.
Helping to improve farm to table demand that we're seeing improve as a direct result of the pandemic.
We do see lingering instability in the agricultural markets related to the pandemic, but currently expect our farmers will have an average to above average crop for 2020, and most are expecting a better year than when we spoke three months ago.
Farmers are also anticipating possible additional assistance and government payments and the U.S.D.A. later this year or early next.
Similar to what they received in 2019 from the parking facilities program that would help offset the increased cost of production, we're seeing in the aggregate and agriculture relative to commodity prices that they say is now distributing some CFA P. Two payments to area farmers, but its too early.
To determine yet how those payments will impact overall like.
Matt would you go ahead and update us with our financial results sure. Thanks, Great [laughter], we earned a dollar nine diluted in the September quarter. That's the first quarter of our fiscal year and that's an increase of 33 cents from the linked June quarter, and it's up 24 cents from the 85 cents diluted that we earned in September 20.
19 quarter.
Provision for loan losses declined somewhat as we had relatively slow loan growth compared to the year ago quarter.
And we did not see much change in the economic outlook following our July 1st Cecil adoption.
Noninterest income remained strong and we saw a reduction in non interest expense.
On last quarter's elevated levels that included charges from the central Federal acquisition and expenses and write downs related to foreclose property.
Noninterest income continued to show significant increases compared to the year ago period gains on secondary market residential loan sales continued to lead the way.
The volume of originations is more than three times the year ago period, and the average gain per loan is a little bit better as well.
We're also generating more and mortgage servicing income as the dollars under servicing continued to increase sharply we generated new mortgage servicing rights with our increasing originations compare.
Compared to a year ago loans under servicing are up by about 30% or $45 million.
If you follow components of our noninterest income and expense reporting closely over time, you may notice that we've changed how we account for the debit card interchange expenses, netting those now against a interchange income instead of reporting.
Separately as noninterest expense.
Compared to the year ago period debit card income is up.
On an adjusted basis, they're a little more than 10%, which is from a 9% increase in transactions and 17% increase in dollar volume.
We still have some concern the outlook there may be a little tougher as consumers respond to the ongoing pandemic and government stimulus presumably fades.
On a similar note our deposit service charges, including NSF.
There are those are down about 6% year over year, despite a 12% per item increase in the NSF charge.
Finally, we saw a nonrecurring benefit in our wealth management income as an agreement with a broker dealer to bring services to the new market area produced about 187001 time income.
Non interest expense was up 9.3% compared to the same quarter, a year ago and down 13% compared to the linked quarter. When we had a million one in M&A expenses with no material charges in the current or year ago periods.
In the current quarter, we had a 150000, we would call nonrecurring.
Which was compensation related to the same wealth management market expansion.
We also recorded a charge for provision for off balance sheet credit exposure at 226000 in the current quarter as compared to a recovery of 146 in the same quarter, a year ago and a charge of 132000 the linked quarter.
On an ongoing basis exclusive of those items, we saw increases this quarter compared to the June quarter, and only a couple of categories. One was occupancy as Weve added a couple of additional facilities and the other was FDIC assessment premiums.
As we had an increased assessment base after the central Federal acquisition and a lower.
Leverage capital ratio as a result of the PPP loan growth.
Meanwhile, we saw declines in foreclosed property expenses, where we took an unusually large hit in the June quarter marketing charges. As we expect the current quarter's expenses were somewhat lower than intended just due to the timing of some of the marketing department projects.
Data processing the timing of some ongoing projects, they're probably also influenced our spend in a way that should not be repeatable, either and compensation and benefits, where we return to a more regular level outside the nonrecurring item. We noted earlier compared to the June quarter, when bonus accruals had inflated the figure so.
What at our fiscal year end.
Compared to September a year ago, the September quarter, a year ago.
Significant changes on what we see as a core basis, our compensation and occupancy which are both up a little more than 6% on a core basis.
<unk> processing, which is running about 20% higher on a core basis and a deposit insurance, which was zero at this time last year due to the FDIC is one time credits were up to 200000 in the current quarter.
Net interest margin in the September quarter was 3.73%, which included about six basis points of contribution from fair value discount accretion.
A year ago or margin was threeeighty, one and we had about 10 basis points from fair value accretion. We also had some other benefits from loans returning to accrual status are being resolved.
That were on non accrual status and had some deferred interest income on those that we recognized.
Also in the linked quarter when we had a margin of 375, we had about six basis points at fair value discount accretion and then another three basis points attributable to loans returning to accrual status were being resolved.
On a sequential basis, we see about two basis points of improvement in our core margin, but thats somewhat due to the 92 day quarter and if you adjust for the number of days in the June quarter versus the September quarter on a core basis day, adjusted we might see ourselves is down two basis points, we're pleased with margin performance.
Warmest today, but we do expect going forward it may be hard to match asset.
Same with lower cost of funds.
Nonperforming balances nonperforming loans in asset balances worst stable since the prior quarter.
NPH remained at 40 basis points on gross loans at NPL remained at 40 basis points on gross loan mph at 44 basis points on total assets both.
Both showed improvement compared to a year ago as we reduce problem loans from the Gideon acquisition in November 2018.
Net charge offs just 162000.
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841000 over the last 12 months, that's a trailing 12 month figure of about four basis points a year ago, we were running about two basis points.
But as far as provisioning.
In the September quarter down to 774000, which is 14 basis points for the quarter, but again looking back over the last 12 months provisioning has been it almost $6 million or 29 basis points we.
We did see our effective tax rate tick up a little bit to 21.6% as our higher pre tax income combined with a slight decline in tax advantaged investments.
Over on the balance sheet.
Gross loan balances up 18 million.
But net loaned up just 8.5 because of the seasonal adoption we had.
About eight.
Eight and a half I'm sorry.
Not in a half million increase in our provision of which almost 9 million was due to the seasonal adoption.
Outside of the Central Federal acquisition, and PPP loans, we see about 5.5% core growth rate over the last 12 months a year ago. At this time outside of M&A core growth rate was running about 6.5% so little bit of a slowdown there.
Allowance as a percentage of gross loans at 159 at September Thirtyth.
Uh huh.
That would be 169, if you excluded PPP loans from the calculation.
Deposits, we did see move down a little bit in the September quarter. After a couple of very strong quarters in March in June a public.
Public unit deposits were back down this quarter by 17 million. After they were up last quarter by about 13 million brokered funding was down a couple of million as well.
Really what we're seeing in.
In the numbers this quarter, a little bit of a wash out some of the growth we had over the last couple of quarters.
Specifically in time deposits and deposit or preferences seems to be moving towards just sitting on cash in and.
Non maturity accounts.
Greg Let me hand, it back over to you for some strategic items. Thanks.
Thanks, Matt in terms of loan growth our pace of growth is relatively slow over this last quarter and that was roughly in line with our expectations and.
PPP loan forgiveness with its getting started well.
We're going to anticipate gross to clients.
That are fairly modest over the next quarter, depending upon the speed at which the SP a it proves forgiveness.
At 930, our non owner occupied CRT concentration was approximately 270%.
Regulatory capital, which is down from 280% at June Thirtyth and up from 253, one year ago.
Our volume of loan originations was.
Lower in the September quarter than where we were in June the Gen was artificially inflated by all the PPP lending, but we were up.
Substantially from the same period of the prior year.
Our loan pipeline for loans to fund and 90 days was 123 million at September 30 is notably higher from where we were at June Thirtyth when it was $87 million.
And 102 million compared to a year ago, our pipeline remains diverse in nature and similar to prior periods.
But it does include a little bit more secondary market production for loans that will be sold.
After they are closed even though our pipeline is larger than where it was last quarter. Our expectation is for limited growth in the coming quarter due to the PPP forgiveness.
Expected seasonal pay downs on our AG operating balances and the increase loan prepayment activity that we're seeing at present.
In regard to M&A, we continued to not expect many opportunities over the upcoming months we.
We do believe that ultimately disruption will lead to some deals but for the moment. We are hearing the phone rang very often.
In an 8-K filing last week and reiterated in our earnings release, we announced that our board approved a resumption of our stock repurchase plan originally announced in late 2018.
We have around 232000 shares remaining for repurchase under the plan and given our current outlook on the credit portfolio.
Expectation for limited growth and few M&A opportunities, we believe that repurchasing shares near term. Thanks.
Current levels could represent a relatively attractive.
So the cap.
We maintained the quarterly dividend of 15 cents per share for the November quarter as well.
Thanks, Matt Okay, Thanks, Greg and Chuck at this time, we'd like to take any questions that our participants may have if you wouldn't mind reminding them how to queue for questions and we'll do so.
Thank you to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we'll pause momentarily to assemble our roster.
Again to ask a question. Its star then one and our first question will come from Andrew Light with Piper Sandler. Please go ahead.
Afternoon, guys. How are you how are you doing doing.
Doing well Andrew how are you.
Good. Thanks, No Greg. Please go maybe last quarter's conference call you spoke about you hotel loans that Youre monitoring.
Maybe having potential weakness has been how do those stand right now where where's occupancy at.
What were these some of the credits that were downgraded just any sort of update.
You bet.
Recent trips.
We had three hotel relationships.
That we moved to watch list status they remain in watch list status.
The markets, where they're at continue to struggle. They are catered primarily to the business community and business travel and they are struggling.
They are currently on repayments status, we are monitoring how they.
Are performing and we will.
Yes, Mike.
Any adjustments as necessary, but were presently negotiating with those customers.
Okay. Thanks, and then beyond that maybe these three hospitality loans are there any other areas of the portfolio that are that stupid that are giving you pause right now any other.
Targeted areas of concern.
We really are seeing much we do have one restaurant customers that.
No it was struggling but they are making interest only payments, but just their level of there.
There are very limited on the amount of occupancy that they can allow in their restaurants and it's relatively small.
Okay, rather than the three hotels are our primary area of concern.
Got it got it and.
And then Matt just on your expense commentary it sounds like.
There are a few line items that might have been.
A little bit below and natural run rate here in the quarter, so pretty safe to assume that seen increase in expenses going.
Adnan this upcoming quarter.
Yeah, we would probably see some of those bounce back to a more normalized level on the items we noted.
Nothing nothing huge there but.
Probably see a little little tick up in the December quarter, and then generally into the March quarter, we had a little bit of expense build with our new calendar year.
Understood.
That covers.
Covers the my questions I will step back thanks, guys.
Thank you Andrew.
Again, if you would like to ask a question. Please press Star then one our next question will come from Kelly Motta with KBW. Please go ahead.
Hi, good afternoon. Thank you.
Good question.
I wanted to ask about mortgage revenues not in your.
Comments I believe you noted that.
Volumes were three times year over year.
What they had been I was just wondering with what you're seeing in your markets. It you expect another couple of quarters, that's outsized mortgage banking revenues.
[noise], Kevin I'll, we're saying that the pipeline right now for what we have for mortgage production is really running pretty.
Similar to where it was last quarter.
Now we would anticipate after the end of the calendar year that some of those balances would start to.
Wind down a little bit but present the pipeline still is.
Maintaining the same level, where we were before.
At some point those rifai opportunities will go away, but right now were it seems like we're taking some market share just with the amount of increase and the loans under servicing and just one Greg mentioned balances, but I think he means originations will wind down as the re Fi opportunity Yep understood. Thanks for the color do you do.
How much was on the high this quarter.
I don't have that.
I think it's about two thirds is probably re Fi members, we've gotten into about 64% re fi and 36% purchase.
Got it.
If I could turn to credit.
You, obviously built your well last mile with a lot with.
Teladoc said.
I was just wondering if.
Your assumptions include any.
Carol stimulus down the line.
Kind of how we should be thinking about.
Hey, Betty for the reserve build work is needed.
Conditions kind of stay on.
Here without further deterioration.
So within the the Cecil model, we're working from we're looking primarily at GDP expectations and a look.
Look in between.
Between the Epo in say in a couple of outside economists.
For what their expectations are for GDP GDP going forward.
Pre presuming that there I think most of those parties are presuming that there is some sort of stimulus in there and as that would as those hopes would fade you might see.
Downgrading their expectations, but I don't know how to how to really quantify that.
Understood. Thank you. Thanks, so much that.
You're welcome Thanks Kelly.
Thanks, Greg.
This concludes our question and answer session I would like to turn the conference back over to match fund for any closing remarks. Please go ahead Sir.
Okay. Thanks, Chuck and thank you everyone for participating we appreciate your interest and we'll talk again in three months.
Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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