Q1 2021 Great Southern Bancorp Inc Earnings Call
Good day, and thank you for standing by and welcome to the Great Southern Bancorp, Inc. First quarter and 2021, earning conference 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 on your telephone.
Please be advised that today's conference is being recorded.
If you require any further <expletive>istance. Please press star zero and I would now like to hand, the conference over to your speaker today, Kellie, Poland and Investor Relations. Please go ahead.
Thank you Gigi good afternoon and welcome the purpose of this call is to discuss the company's results for the quarter ending March 31, 2021 before we began and I need to remind you that during this call. We may make forward looking statements about future events and financial performance you should not place on.
Reliance on any forward looking statements, which speak only as of the day. They are made please see our disclosure and our first quarter 2021 earnings release for more information President and CEO, Joe Turner, and Chief Financial Officer, Rex Copeland and are on the call with me today I'll now turn the call over to Joe Thanks, Ken.
Ali.
Good afternoon, everybody I also want to thank you for joining us today I am pleased to report that we began 2021 was strong operating results and the first quarter.
As is typical and I'll provide a preliminary remarks about the company's performance and then turn it over to.
Our CFO Rex Copeland, who will go into more detail about our financial results.
Hopefully you've had a chance to at least glance at the earnings release. If you have you've seen that we earned $18 9 million or $1 36, and the first quarter per share.
Compared to $14 $9 million for.
For the same period, a year ago. The primary drivers of our earnings increase this year were higher net gains on mortgage loans sales and of course that the result of the very robust mortgage market. We're in.
Lower credit cost provision and.
Generally well contained expenses.
That was partially offset by slightly lower net interest income there was really.
Almost exclusively driven by lower levels of FDIC accretion income I think our net interest income was down about $850000 for the quarter and our increased net income was down like 1.1, and $1 2 million for the quarter. So.
That's really the culprit, there, but but generally a pretty good.
Our level of net interest income and higher income tax rate I think just as a result of higher levels of income.
Results generally and a higher income tax rate for us because our tax credits and a lower impact on our ultimate tax expense.
Our performance metrics for the quarter were good annualized return on common equity was $12, one 8% and return on robust levels of common equity I think we ended the quarter at 10, 8% on.
Our annualized return on average <expletive>ets was $1 38.
Our efficiency ratio was 50, 633%.
During the first quarter, we did adopt diesel which resulted in an increase and our allowance of 11 allowance for loan losses of $11 6 million. We also established established and allowance for losses on unfunded commitments of $8 7 million, so essentially $23 million.
Additional allowance.
And that we now have on our balance sheet that resulted in a $14 million.
Debit to retained earnings net of tax.
Uh huh.
As far as loans since.
And a 20 point.
Our loan growth has been relatively flat.
We've had good.
Levels.
And of origination, but loan payoffs have been pretty robust.
And as well so our.
Our gross loan portfolio, including our level, our unfunded loans decreased by $2 7 million, our net loans decreased by about $11 1 million.
Both of those decreases from the end of 2020 average debt origination activity continues to be strong if you looked at.
<unk> line chart and our earnings release, our pipeline continues to be relatively stable at $1 3 billion.
A little bit of information about paycheck protection.
<unk> SEC protection program.
We were pleased to again participate and that our test our loan officers are proud to be helping.
Our commercial customers deal with the effects of the pandemic.
In addition to originating second round loans, we're also.
The deep and forgiveness on the first round loans and Thats going extremely well, so refreshed view, we originate and <unk> hundred loans.
For $121 million.
At this time last year during the first round of PPP funding. Currently we have received for forgiveness on more than 1100 of those loans totaling about $66 million and we have more on the pipeline awaiting SBA approval I think from our perspective, we would say that the that the process has.
It has gone well and we've had.
And not a ton of pushback from the SBA on our forgiveness.
And.
Applications as.
And as far as the second round goes we have received nearly 500 applications totaling $55 million, we funded about 1400 and those applications totaling $53 million.
Those have been roughly split 50 50 between customers who participated in the program before and those that were seeking our first draw under the program. This time.
I would remind you for more information about our loan portfolio. We did file our loan portfolio presentation last night that should be on our website as well as the SEC's website.
Asset quality continues to be extremely strong.
At March 31, and 2021, excluding FDIC acquired <expletive>ets nonperforming <expletive>ets for $6 $7 million about a $2 $9 million increase from the end of 2020. That's really just two loans I think.
Customers that have been around the bank for quite some time.
Including FDIC acquired <expletive>ets nonperforming <expletive>ets were $10 $9 million, resulting.
Our resulting in a percentage of total to total <expletive>ets nonperforming <expletive>ets to total <expletive>ets up for one 9%.
Our pandemic related loan modifications dropped to $146 million at the end of March compared to $251 million.
At the end of December 2020, as our remaining loan modifications 19.
Loans totaling $141 million or commercial and 93 loans totaling $5 million were and the consumer and mortgage cabot's categories.
Our capital continues to be very strong from the end of 2020, it did decrease by about $18 million for $611 million.
Principally as a REIT as a result of the additional allowance that I spoke about before.
Reduced capital by $14 million.
And.
And also the drop and the value of our available for sales.
The securities portfolio.
That concludes my prepared remarks at this time I will turn the call over to our CFO Rex Copeland correct. Okay. Thank you Joe and thank you everybody for joining US again today and I'll talk a little bit first about net interest income and margin and Joe mentioned earlier that our first quarter net interest income was down about 849000 from a year ago.
To a total of $44 1 million this year's quarter.
One component of that I'll make note of and we mentioned and our earnings releases the net deferred fees on on the PPP loans, Joe was talking about the number of loans earlier, we recorded income interest income of about $1 2 million related to the net deferred fees accretion and the first quarter of this year.
Remind you that we deferred fees and costs related to that and accrete debt to income over the expected life of the loans to loans pay off and anything remaining gets taken into income at that point. So.
We will expect to see some more of that probably here and the second quarter as Joe mentioned, we're still working with some of the first round stuff to get get forgiveness and repayments on some of those PPP loans at the end of March the net deferred fees related to those loans to PPP loans for.
And for both of the groups and loans that we've originated was about $3 $9 million, so that will be taken to income over the upcoming quarters.
The net interest margin was 341% and the first quarter this year that compared to 384% and the first quarter of 2020, which was a decrease of 43 basis points. The net interest margin was also three for 1% and the fourth quarter of 2020, So no change between fourth quarter 2020 and for.
First quarter this year.
And comparing the first quarter of 'twenty, one and 2020, the average yield on loans decreased about 76 basis points, while the average rate on deposits declined about 8%.
Most of that margin compression resulted from a change and <expletive>et mix.
And I talked about that previously.
And it's been kind of the thing has been going on for most of 2020 and into 2021 for us our average cash equivalents increased about $329 million and average investments increased about $30 million.
The average yield on those cash equivalents decreased about 106 basis points.
First quarter of this year versus first quarter last year.
So that change and <expletive>et mix.
And I mentioned a minute ago was about 24 basis points of the decrease.
And with the addition of you recall last year and June we issued some subordinated debt and that was about eight basis points of additional costs for a reduction and our margins.
And the additional yield accretion from our FDIC loans was down about 11 basis points.
And from the first quarter last year, so those three components make up really the whole difference.
The decrease and our margin from $3 80 for two to $3 41.
The average compared to December quarter, and the average yield on loans decreased about three basis points, while the average rate on deposits declined 15 basis points.
However, the net interest margin as I said was unchanged and that's really got to do mostly with <expletive>et mix again, where we had decrease and average loans increase and average cash equivalents as of Q1 this year versus Q4 last year.
I mentioned the accretion income on the FDIC acquired loans, what we have left to take the income is about $1 $3 million at the end of March and we will have about 800 to 900000 to that will go into income and the remainder of 2021.
I'll shift over to noninterest income now for the first quarter of this year noninterest income increased $2 4 million to $9 $7 million when you compare it to the first quarter of 2020.
The increases there were primarily net gains on loan sales.
Joe mentioned earlier.
Significant.
Activity origination activity and our mortgage business and.
And a lot of that longer term fixed rate, which we sell and the secondary market. So the profit on on loan sales was up about $2 1 million Q1, this year versus Q1 and 2020.
We also had an increase and income on our derivative interest rate products.
No.
The net effect of that we have we have.
Derivatives are going both directions for back to back swaps with our customers and loan Counterparties and as rates have moved a little bit higher the net impact of that of that to US is we did recognize about 474000, Inc.
Increase in net fair value so that flows through our income statement and the noninterest income category last year's first quarter I think we had net reduction.
And the market value.
And that flipped around for us through the first quarter of this year.
Other income was actually down.
$600000 compared to the for.
First quarter of 2020, and that 2020 period, we had about $486000 and.
Related to new the originated interest rate swaps with our customers and we also had some.
Income recognized on the exit of certain tax credit partnership deals.
Noninterest expenses as Joe said fairly well contained.
This year versus last our noninterest expense decreased about 494000.
Compared to the first quarter last year to a total of $30 3 million and the first quarter. This year salary employee benefits was down about $1 million.
The impact of that really was as you may recall, we paid out a special bonus to our employees last year and there was about $1 $1 million of expenses that was recorded and the first quarter of 2020 related to that.
Also insurance expense increased about $378000 this year compared to last year quarter.
That's really on the FDIC deposit insurance premiums a year ago, we had credits where we did not have to pay.
On the insurance premiums due to overpayment into the fund this year, we are paying the full amount and expensing the full amount.
The last thing was experience on other real estate owned.
Repossession totals and real estate and on the totals are down.
Expenses on those decreased about 211000 compared to the first quarter a year ago.
The efficiency ratio for first quarter, 2021 was 50, 633% and that compared to 50, 891%.
For the first quarter and 2020.
Improvement and the efficiency ratio. This year was really due to the increase and noninterest income and also a little bit to the decreased and noninterest expense.
Joe mentioned, just briefly our income tax expenses.
Expenses were our rate was higher so that rate was the effective rate was 21% and the first quarter of this year and it was low less than 16% and the first quarter last year.
<unk> of that as Joe said.
Primarily.
Higher overall level of income that we achieved this year and then a little bit lower levels of utilization for low income housing tax credits this year compared to the previous year and also lower levels of tax exempt.
Interest income on municipal Securities and some of our loans and then another factor that plays into it as our state income taxes and.
Income is allocated between the various taxing jurisdictions, where we have to pay tax and.
And some of that some of those jurisdictions have higher.
Tax rate and others and so that plays into a little bit of the tax rate as well.
We think though.
That going forward, our effective tax rate is going to be somewhere around 19, 5% to 25% as we move forward this year.
That concludes our prepared remarks at this time, so we will entertain questions and let me ask our operator to once again remind the attendees how to queue in for questions now.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Andrew Liesch from Piper Sandler Your line is now open.
Good afternoon, everyone.
Great.
Alright, sorry, if I missed it but what is the balance of PPP loans at the end of the quarter.
To round 100 and.
20, or so million I believe I don't have that number.
It would be Andrew.
I think we funded $53 million and we received forgiveness on 55.
So I would think alpha one and <unk> I would say of 800 and somewhere in the 18 and 19 something like that.
Got it yeah that makes sense, if I take the $3 nine thats, yet to be real fee income and tend to be realized and.
And do a 3% yield and so on its right around $120 million. Okay. Thank you.
And then it sounds like forgiveness on that is going.
Smoothly and.
Is there any timing you can provide on how you think that's going to be forgiven it'll be more weighted towards the second quarter on third quarter. What are the what are your thoughts there.
It would be a total guests from my perspective, I would think.
The second quarter would be bigger than the third quarter wouldn't you I would think so I know are a lot of our lenders are.
Working with our customers, we've got several things and the pipeline and I know, they're doing some outreach to talk to the customers do so yeah. I would think that they are going to try to get more of is done and the second quarter, but I mean im going to guests and I was going to stall and through the third and Thats, what the original grouping and then the more recent.
Originations here that happened since the beginning since mid January.
And I guess, we're not going to see those forgiveness items until maybe fourth quarter to start probably got great got it got it and then just rolling and those fees and all the different dynamics that are at play here.
And like how do you think the margins who performed from the $3 41 level.
In theory on the benefit from the fees, but it seems like the core trend width, although although liquidity coming on might be for the tractor from that.
Well I mean, certainly the liquidity that we have and as I said the mix has dropped a little bit. So that's really been a lot of the story. If you look back to where our margin was and the first quarter of 2020 before the pandemic sort of a little more normalized.
Fine.
On.
Probably like I said half of that drop or so is really related to the mix.
And just having a lot more liquidity, we probably have.
And maybe $400 million more liquidity now than we had been and probably.
And so.
The other part of it as I mentioned the sub debt. We issue there was and there are eight basis points and then.
The income that we're going to derive from.
The FDIC loans, obviously, it's five basis points, I think and the first quarter of this year and I believe was 16 basis points and the first quarter of last year. So there's not going to be a whole lot more of that income coming on the book So as I mentioned 800 or so.
And the rest of this year, so and the next three quarters, it's gonna be on that.
Thousands and they get spread and there so sort of if you exclude the <unk>.
If you exclude the FDIC.
Income.
Yes, I think Andrew I think theres still some <unk>.
Remaining.
And the pickup as a result of.
Primarily time deposits time deposits continuing to re price.
But I don't think there's I don't think anybody thinks theres meaningful increases on our margin.
From here until we see higher interest rates would you agree with that rate, yes, I mean, what we're probably going to see is like Joe said, our time deposits are going to reprice down over the next two or three quarters.
Might see a little bit further reduction of rates on.
On the non time deposit.
<unk>, but I think those are like 19 basis points or something now so there is going to be a limit to how much lower they can go.
And what we're seeing on the on the loan side.
As you know a.
A little bit of a reduction.
In loan balance rates.
Because of.
The things that are repaying like Joe said, we've booked a lot of new loans, we generate a lot of loans. We just have a lot of repayments going on too and.
A lot of those loans that are repaying are maybe going to be four 5% and kind of rates and the new loans going on and maybe closer to 4% or something like that so we're seeing a little bit of headwind from that as well that's offsetting the good that we have from <unk>.
CD rates continuing to go down.
Got it.
Okay. Thank you so much for taking the questions.
Thanks, Andrew.
Thank you. Our next question comes from the line of Dame on del Monte from <unk>. Your line is now open.
And good afternoon, guys hope everybody is doing well today.
David.
So my first question just on the and I apologize if you've covered this in your prepared remarks I was jumping between conference calls but.
Just in terms of how we should think about the reserve level and the provision going forward I mean, obviously the adoption and seasonal was quite a big boost and just given the strong underlying credit trends of the portfolio.
Is it.
Is there a way you can kind of frame out what.
Our range for the provision could look like and the upcoming quarters.
I think I mean, I think a lot and it's going to depend on loan growth really frankly, though.
And.
I would think if you <expletive>umed a flat loan portfolio.
<unk>.
We sort of we sort of believe with our loan portfolio at the level at that right now.
We've got the rate reserve level. So if you have if you have a flattish loan portfolio and no charge offs there might not be.
Wouldn't think provision expense would be too high.
If if.
You have a little bit of charge offs, and youre going to have to private and not replace your charge offs, but you would generally think youre going to have to have some provision expenses. If you have.
And the level of charge offs. The other piece of it that you'd have to think through two is whats. Your forecast is for the economy moving forward as well. So that's for how you see that looking in the next 12 to 18 months that yeah, I think if theres drastic changes there.
And the other piece of that too is.
Is the unfunded as we mentioned earlier the unfunded.
Commitments have to have a reserve against them Theyre not part of the allowance for credit losses or differently and they open the liabilities section but.
Same kind of concept so as that pipeline grows or declines theres going to be differences that youre going to reflect there too yeah. That's a good point.
If you had I mean, we have about $1 $3 billion and unfunded.
And that went up 10%.
It would be reasonable to <expletive>ume that that allowance for the unfunded commitments might go up 10% as well and that the $800000. So.
Okay.
And from a.
Pure loan loss reserve perspective, so you're at like $1 59, excluding PPP.
And you don't think it needs to go higher than that rate, if anything and there should be a bias for some reserve releases going forward.
Well I mean.
I think we think we're appropriately reserved at this point so.
Okay.
Yes, I agree with what you're saying.
Okay Fair enough that's helpful. Thank you.
And then I guess my other question on <unk>.
Expenses.
Again, I apologize, yes relative maybe you called out some some one time items that weren't repeatable, but can you help us think a little bit about a good core run rate going forward.
To go off of.
I don't think really and the first quarter of this year, we really had too much debt was.
Not fairly standard.
And our expenses.
We're going to be a little higher.
Related to the mortgage business because as long as the mortgage business is still robust we're going to generate a lot of fee income.
From the profit on loan sales, probably but we're also having to do some compensation to our producers and things like that so those expenses all things being equal.
Should be fairly consistent I would think as we move forward.
Don't really think there was we didn't see we didn't call out anything on the expense line as being sort of unusual no.
Okay.
Okay. That's all that I had thank you very much appreciate it thanks David.
Thank you. Our next question comes from the line of John relative from Janney. Your line is now open.
Demand for good afternoon, guys hope, you're doing well and John.
Just I guess just a question on capital obviously, so you adopted Cecil but.
Joe I think as you alluded to your capital levels remained pretty strong tce's north of 10% can you maybe just remind us again.
Youre sort of bias towards uses of capital going forward and and.
I know you bought bought back some stock during the quarter, but just sort of give us an update.
Uh huh.
Yes, I think I think what we said before obviously if there was.
If there was.
Something really opportunistic on the acquisition side, we would be interested and that but.
So remind you though.
The way we view the way, we view acquisitions as were going to.
Have conservative <expletive>umption and based on very conservative <expletive>umptions, particularly with respect to.
Growth and the.
And with the target company based on those <expletive>umptions and we want the thing to be accretive via a good deal for our existing shareholders and and generally we don't find those kind of deals out there. We did 10 years ago. When we were buying banks on the FDIC, but we really haven't.
And any big extent debt so.
As the tween.
Stock buybacks and dividends, we would probably prefer stock buyback.
Especially.
Given where we were able to buy our stock back.
And 2020 at close to book value.
Yeah.
It's spread out from book value now.
And and.
Stock buybacks are not quite as good at not quite as attractive as they were not.
Not to say that we wouldn't buy back some stock at these levels, but.
It's not as attractive.
For active as it was back in 2020, and so that would leave special dividends or an increase and the current dividend possible.
Okay sounds good thank you Joe.
Hey.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Joe Turner, President and CEO for closing remarks.
Okay, well again, we appreciate everybody for taking the time to be with us on our call today.
And we look forward to talking to you about three months. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
And.
And for me.
Great.
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Great.