Preliminary Q2 2021 Great Southern Bancorp Inc Earnings Call
Okay.
Thank you for standing by and welcome to the Great Southern Bancorp, Inc. Second quarter earnings Conference call. At this time, all participants on a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then 1 when you touch tone telephone.
As a room on today's conference call is being recorded.
I would like to turn the call for to your house and with Kelly Corona and that's the relations you may begin.
Thank you Valerie and good afternoon and welcome the purpose and this call today is to discuss the company's results for the quarter ending June 32021, before we begin I need to remind you that during this call. You may we may make forward looking statements about future events and financial performance.
Should not place undue reliance on any forward looking statements, which speak only as of the day. They are made please see our forward looking statements disclosure and our second quarter 2021 and earnings release for more information on.
Resident 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 Turner, Okay. Thanks, Kelly and good afternoon to everybody appreciate you joining us today.
We're very pleased with our second quarter earnings and our continued strong operations and financial condition.
Associates continue to focus on taking care of our customers lending and deposit and other financial needs has enabled us to achieve strong operating results.
I'll provide some brief remarks about the company's performance and then turn the call over to Rex Copeland, who will get into more detail on our financial results there and we'll open it up for questions for the second quarter of 2021, we earned $20.1 million and $4.46 per share compared to $13.2 million or 90.
<unk> per share and the same period and 2020.
The primary drivers of our higher earnings this year were higher net gains on mortgage loans sales increased point of sale debit card and ATM fees.
Check protection program net deferred fee income accretion of $1.1 million and a negative credit loss provision of $1.3 million related to both our outstanding loan portfolio and the unfunded commitments. The after tax effect of this on earnings was <unk> <unk> per diluted share.
Our earnings performance ratios improved with an annualized return on average assets of $1.44, and an annualized return on average equity of $12.84, and an efficiency ratio of 50, 563%. The net interest margin was down a few basis points from a year ago book.
But we really believe was greatly improved Rex will get into more color there.
As we anticipated overall loan growth decrease from the end of 2020, which is a reflection of how loan growth has a tendency to ebb and flow over relatively short periods of time and is dependent on economic and competitive factors totaled.
Total gross loans, which include unfunded loan amounts decreased by $40 million from the end of 2020 outstanding net loan and receivable balance decreased $82.5 million from $4.3 billion at December 31 to $4 to $1 million for 2.1 billion at June 30, our loan pipeline. However.
Did increase slightly.
So far this year loan production and activity and our markets has been vigorous for repayments, including forgiveness of PPP loans have created significant headwinds.
As you can see on our news release as I said earlier, if our loan pipeline did.
It did grow slightly during the quarter continues to be very strong.
We were busy with the paycheck protection program during the second quarter for.
For giving us we originated 600 loans.
<unk> approximately $121 million and round 1 of ppb and currently we have received full forgiveness on.
On nearly all of those I think we have a $120 million on the 121 and 578 of the 6800 loans that we've received full forgiveness on.
And as far as the second round goes we funded 650 loans.
<unk> about $58 million and.
And we've received full forgiveness on 13 loans and 13 of those loans totaling about $2 million.
As far as tier cares act loan modifications at the end of the quarter. We had 15 modified commercial loans with an aggregate outstanding balance of $91 million and 30 modified consumer and mortgage loans with an aggregate balance of $876000.
Asset quality generally has been continued to be excellent.
During the quarter, we had just for $100000 of charge offs.
Our level of non performing assets as we always say will fluctuate, but they are extremely low as of June 32021 at that point. Excluding FDIC acquired assets are nonperforming assets were $5.5 million, which is a decrease of $1.2 million from March 31, and 2021 <unk>.
Including FDIC acquired assets are nonperforming assets were $8.6 million.
And our non performing assets to period end assets were up 1.5%.
Excellent excellent.
Credit quality, our allowance for credit losses, as a percentage of the total outstanding loans was 1.5% to 8%.
Our capital continues to be very strong from the end of 2020, our total common stockholders' equity decreased slightly by about $100000 to $629.6 million.
Decreases and stockholders equity included the effects of our adoption of the seasonal low.
Loan loss standard regular dividends paid purchases of our common stock and a decline and the market value of our available for sale Securities portfolio. These decreases were offset by our strong earnings during the first 6 months of 2021, our book value did increase from $45.79 per share.
For $46.146 and <unk> per share.
During the second quarter, we repurchased 67, and 500 share of common stock and the during the first 6 months of 2021, we repurchased 142000 shares of our common stock.
With our favorable credit quality and strong capital position, we announced at the end of the quarter that we will redeem our $75 million sub sub debt issue that hits its 5 year period in August 2021.
The subordinated notes have an interest rate of 5.25% and since their issuance for the company has recorded annual interest expense of about $4.3 million.
And on these notes.
Finally, and in July we were SaaS and CRT for operating officer of many years, Doug Morris retire from the company that's been on with Great Southern and 25 years and had a banking career that spans 43 years during.
During his tenure with great Southern he was directly responsible for many of the great things, we accomplished and.
As I say, we're sad to see him go but glad that he's able to.
Enjoy what will hopefully be a very long and healthy retirement, Doug as all our managers due to book.
Seriously his responsibility and making sure his area was positioned to thrive and his absence and he has been working with a very capable successor, Mark Naples for well over a year to ensure a smooth transition and.
And Thats, what were seeing certainly and that area. Mark is also a banking veteran and he has.
Probably a 30 year banking veteran with 16 of those years spent here with great Southern.
That concludes my prepared remarks at this point I'll turn the call over to our CFO Rex Copeland.
Alright, Thank you Joe I'll start off with a little discussion on net interest income and net interest margin and Joe alluded to a few topics on that so I'll just state a few things here and then we'll work our way through that.
So net interest income for the second quarter of this year increased about $1.2 million or 2.8% to $44.7 million compared with $43.5 million and the second quarter of 2020.
Net interest income was $44.1 million and the first quarter of 2021. So we did increase our dollar amount a little bit here and the second quarter.
Included in that was some accretion of net deferred fees related to the PPP loans that we originated both last year and this year that amortization amount was $1.1 million and the.
The second quarter of this year, and we have $1.2 million and the first quarter of the year.
We didn't have any material amounts in 2020.
At that point.
June 30 of this year on remaining net deferred fees related to PPP loans is $3.7 million. So we anticipate that those will flow into income over the next few quarters.
It's going to depend somewhat on.
Customer activity, how quickly they work through the process to get their loans forgiven and repaid, but we would anticipate that a fair amount of those truly will be done and the third and fourth quarters. This year.
And net interest margin for the second quarter was 335% this year compared to $3.3 9% and the previous year quarter. So a decrease of 4 basis points.
For the 3 months ended June 30 of this year compared to the first quarter of this year, we decreased our net interest margin by 6 basis points versus 341% and in.
In Q1 and 2021.
So comparing the second quarter this year versus the second quarter last year. The average yield on loans decreased by about 31 basis points, while the average rate on our interest bearing deposits decreased 61 basis points.
A little bit on margin compression that we did experience as we said a lot of that relates to us.
Changes in asset mix of the company so.
It started to have a little more liquidity and the second quarter last year, but we've got quite a bit more yet still and the second quarter of this year. So our average cash equivalents comparing the 2 quarters were $193 million higher and.
Investment Securities on average were $27 million higher so a little bit a fair amount more of liquidity and.
The system right now versus a year ago.
So without that additional liquidity.
Our net interest margin would have been 11 basis points higher if you compare the 2 periods.
The cost of the subordinated notes.
Issued and the Middle of June last year, we had a full quarter's worth of that this year and thats about 7 basis points of additional cost or reduction to the margin.
And then the yield accretion on our FDIC acquired portfolio was about 4 basis points. This quarter period versus about 12 basis points. So a reduction of about 8 basis points there from the year ago quarter. So.
When you compare those things like Joe said, we feel like our margin has.
Stabilized fairly well and.
A lot of the.
Reduction and it right now is just the asset mix is what is what's holding it back a little bit.
Our core net interest margin, which excludes the yield accretion was $3.31.
And $3.27 and for both the 3 months of this year and last year, so a little bit higher on a core basis there.
And our overall funding costs have continued to decline and the second quarter of 2021 as our time deposits continue to reprice lower and we still have some more time deposits that are going to reprice lower and the next couple of quarters.
It's probably not going to be quite as rapid as what we've seen and the last 2 or 3 quarters, but there is still yet some room to go on on time deposits there.
So switch over to out of non interest income that Joe mentioned, a couple of things before that our earnings were higher related to some noninterest income areas, we had compared to the year ago quarter.
$1.3 billion, a lot of that related to gain on loan sales about 770000.
And was a higher profit and on loan sales this year quarter versus last year quarter.
And obviously, we've had a lot of refinancing activity a lot of purchase activity as well and so the.
Fixed rate loans that we originate.
For the most part we sell those and the secondary market.
Another area, where we've seen.
Increased and our fees.
As point of sale and ATM activity fees that was $967000 more this year.
Quarter versus last year's second quarter.
And to see just growth and accounts as part of it but we believe that our customers are utilizing their debit cards more frequently.
And higher transaction levels that kind of thing and so we're seeing a higher <unk>.
Interchange income flowing through from that.
Our other income category, which is a little bit of variety of things decreased about 740000 compared to the previous year quarter that was really mostly due to our back to back swap programs with our loan customers. We have customers that sometimes want to convert floating rates for fixed rates and vice versa and so we.
Had quite a bit of that happened and the second quarter last year, we do collect a fee on that and generate some income from it and we didn't have very much of that and the second quarter of this year.
So on noninterest expense.
And our expenses were about $843000 higher than they were and the second quarter last year and they were about $32 million a lot of that was driven by really $1.1 million or so of the increase in salary and benefit costs.
Some of that was attributable to just normal annual merit increases.
And some increased incentives in our mortgage area, obviously as I said, we had a lot higher origination levels and higher income and there are some incentives that go along with that and so that was part of it and then another piece of it that's about $400000 of that million dollars or so is related to differing floater.
Loan origination costs when those loans are made and then the net fee and the costs are netted together and taken to interest income over time.
Loans outstanding and so we had a little.
They are a difference there and more cost that got deferred out of the expense last year.
Efficiency ratio I think Joe mentioned was 55.63% and this quarter that compared to 56.75% and the second quarter of 2020 and.
And our improved efficiency ratio again due to a little bit of an increase and net interest income increase and noninterest income that was partially offset by that increase in non interest expense.
And last thing on its been mentioned as to income taxes, our effective tax rate was 28%.
And this year's quarter versus 19, 3% and the second quarter last year.
Effective rates are a little bit below our 21% federal tax rate, we do have.
And what really drives our tax.
Great is there.
Just the gross amount of income that we have taxable income that we have and somewhat the mix of how it lays out and the various states.
We're in various taxing jurisdictions and so they all have different levels of income that's incredible and different tax rates and so those have been kind of the 2 things that have been driving our tax rate a little bit higher and where it was maybe a couple of years ago.
We really anticipate a similar level of utilization of tax credits and.
Tax exempt loans and investments.
But we think our tax rate probably going forward. The rest of the year is going to be and that 20% to 21% kind of range.
That concludes the remarks and I had today and at this time, we will be happy to entertain any questions you have and I'll ask our operator, please do remind attendees how to queue up for questions.
Thank you again, ladies and gentlemen, and I said I'd ask a question. Please press Star then 1 on you touched on telephone and.
Again to ask a question. Please press Star then 1.
1 moment for our first question.
Our first question comes from Andrew Liesch from Piper Sandler Your line is open.
Hi, everyone. Good afternoon.
Hey, Andrew.
So this question and kind of on on the balance sheet mix and the margin here going forward, so and cash and equivalents at $681 million.
It looks like it was a record high balance for you guys and some of it will be used for.
And the sub debt redemption.
What plans do you guys have for that do you think something is going to flow out and liquidity and spent by our clients or on the securities portfolio purchases and Youre looking at possibly doing just kind of curious what your thoughts are on deploying this.
Great.
Couple of things, Andrew we do think debt.
We will see some of that flow out the customer deposit balance is definitely are higher.
We will see a bit of that flow out and it probably fairly slow and steady not like big pieces of it going right away. So we do believe there's going to be and some of that.
We did back in March when rates kind of ticked up a little higher we did buy some additional securities around $75 million or so.
But as you say our cash balances have continued to to grow a bit since then.
And just fluctuates a lot and I can tell you those balances were $100 million lower about a month ago.
And they just and just fluctuate and so.
We are trying to be mindful of that as rates have gotten pretty low. It's just it's not overly attractive to put on a lot of securities right. Now I mean, we could look at some things and the.
The thing that is a little bit concerning would be yes, we can go and put some securities on but to get a meaningful yield and probably have to have at least like a 5 year type duration, maybe or something like that and then maybe rates start moving up and.
At the end of next year or whatever they do.
And those securities go under water and that kind of thing. So we're trying to balance it a little bit.
As we move forward and we do we do analyze it and we do look at it within our Alco group, Joe and I spent some time talking about it separately as well.
So we will we're going to continue to look at it but I really I mean.
As it stands right now I don't really have.
Like are forward looking.
Answer for you on that.
Okay great.
Got it.
Andrew.
Yes, I mean, obviously the cash balances, earning.
Almost nothing but we're not as Rick said, we're not excited about stretching out 5.
5 years, and getting less and 1% yield theater and.
We have as Joe mentioned earlier, our loan pipeline is still strong we are originating a fair amount of loans and it doesn't show up in the and the.
The ending balance because theres, a lot and paying off but we do.
I believe we're going to have for loans to fund here too. So we don't want to get too carried away, but yes.
Yes, youre right, but I mean your questions and good where we are we are mindful of that level.
Got it and then and just on the loan side, Yes, I mean, it sounds like production continues to be strong but is there any.
Light at the end of the tunnel for payoffs to possibly slow or is it just continue to be at a very elevated elevated pace.
It's hard to understand it's hard to estimate Andrew we don't have a lot of visibility on on.
Loan pay offs I can just say.
I would say what's driving it is a bit on what you guys were just talking about.
And there is.
All the alternatives for loans are not very good so.
There are people out there that are.
Not necessarily banks for other kinds of lenders that are out there and are very aggressive and <unk>.
And I think in that environment.
Low pay offs will continue to be.
And fairly strong.
For <unk> and.
Phil we sort of break into an environment that would be my guess I mean, it's good news bad news. Good news is our projects are operating as expected and and are attractive to lots of different people. It's bad news because we hate that we hate to lose the yield.
Some of it too is construction loans, where the project finishes and in some cases it stays on our books as a permanent loans, but in other cases, they've got permanent financing.
And you know put together somewhere else. So when that construction is done and it pays off and moves onto our book Silverado and the second quarter..2 we we did our PPP loan balances did go down about $45 million. So that was part of what was driving our second quarter balances down and so at the end of June and we still had $56 million.
PPP loan balances left so as I've said before presumably that 56 million is gonna roll offs fair amount of that over the next 2 quarters. We don't have total visibility on that I know, we're working with our customers and try to kind of encourage them to get the paperwork done and and go through the process here before the end of the year, but.
It's going to be kind of up to them on their time on it when they when they want to do that and our.
<unk> auto portfolio continues to pay down some but that portfolio is fairly small and now I'd say less than 50, or so million dollars. So and we're not originating new stuff. There. So that's another piece of it as well.
Right right right.
Great. Thank you for all the detail really appreciate it and I'll step back. Thank you.
Thank you. Our next question comes from Damon Delmonte with <unk>. Your line is open.
Good afternoon, guys hope everybody's doing well today.
Great.
So first question on the margin.
Based on what you are saying is it fair that the outlook for the core margin and somewhat positive just given the impact from the redemption on me.
The $75 million redemption, and then kind of the commentary on.
Additional repricing on the CD side do you think that's enough to offset debt compression on the assets.
Well.
And it should do go a long way toward it because the debt.
Bad debt I mean, we still we're still going to have a half a quarter of it of expense and Q3.
But that's it runs about $1 million a quarter. So you will see a little bit of benefit there.
As far as like the CD.
And fit.
Our CD portfolio and like what 74 basis points for something like that.
Yes, 74 basis points and so.
New Cds as we put them on the books and renewed and renew right now are like.
And that around half ish of that level 40 basis point, and 35 basis points, maybe something like that on a weighted average. So there is there is some benefit still yet there, but they don't all mature tomorrow right. So I mean, we've got a lot of it and the mature over the next 6 months.
But we're seeing a little bit.
Of.
Slippage on the asset side as far as the loans too because as loans pay off some of those are paying off at rates that are at or higher than the overall portfolio yield and some of the new loans that come on and maybe a little bit lower than the overall portfolio yield. So we have seen as you can tell me if you look our and our loan rate.
It's come down from obviously.
And quarter by quarter non.
Not dramatic.
Because LIBOR rates haven't been really moving around too much so our $2 billion LIBOR portfolio.
Gross rates arent changing much and a lot of those loans have floors..2 so they're not they're not moving around very much right now but for all the loans that do pay off that are fixed rate at a higher.
Average rates on our portfolio, we do have a little bit of a headwind there so.
I think those things being said I mean, we do feel like our margin I think and stabilize now from where it was and as I said before.
As far as the dollars go.
We earned more net interest income this quarter than we did and the first quarter EBITDA and the second quarter last year. So on a dollar basis, even with the additional.
Cash and equivalents that we have we are making some headway in terms of just additional dollars anyway and the margin.
Got it okay.
Okay. That's helpful. Thank you and then with regards to the outlook for for credit.
Got it sends a very very strong very minimal non performing loans.
Using the economic guidelines for reserving continues to point towards a minimal to us and some cases reserve future reserve releases. How are you guys thinking about the provision over the next couple of quarters do you think you could see like what we saw in the first half of the year or do you think you go back to having to provide a little bit.
I think I think you hit the nail on the head.
And I mean the.
A couple of different obviously many different factors.
Fit into your seasonal calculation and certainly 1 of the biggest is what your loss history is and and as we have more and more quarters without loss history with no losses or relatively low losses, obviously.
All other things being equal going to result, and.
Lower provision expense.
But hopefully we'll have some loan growth that.
It could require.
Provision expense going forward.
And my guess is.
We wouldn't expect to see.
And.
We wouldn't expect to see.
Allowance to total loans that that ratio a lot lower than it is right now would you agree with that risk not in the near term at least.
Yes, not in the near term but.
And so that's probably going on limit.
Reserve releases going forward.
Got it okay. That's helpful.
And that's all that I had for now so I'll step back. Thank you Hey, David.
Before we jump out.
And 1 other comment on the margin that I was saying earlier and to.
Keep in mind I mean, we.
As we said we did have $1.1 million of net deferred fee income.
For the income.
On our PPP loans, and the second quarter and that basically we paid off all almost all if not all of the for.
First tranche.
Of.
Of the PPP loans, so we've got like I said.
And at $3.7 million still left on net deferred fees.
But the timing of that when that's going to come in and if it's going to come and the third quarter fourth quarter or even next year its pretty unclear to us right now yes.
Debt that makes it a little harder to for.
You guys as well as us to forecast.
We're taking on that particular line item coming out.
And that's a good point.
Got it okay very helpful. I appreciate that thank you.
David.
Thank you again, ladies and gentlemen for like to ask a question. Please press Star then 1.
1 moment please.
I'm showing no further questions at this time I'd like to turn the call back over to management for any closing remarks.
Okay again, we appreciate everybody being on the call with US today, and we'll look forward to speaking with you at the end of the third quarter. Thank you.
Yes.
Ladies and gentlemen that concludes today's conference. Thank you all participating you may all disconnect have a great day.
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