Preliminary Q3 2021 Great Southern Bancorp Inc Earnings Call
Okay.
Good day, and thank you for standing by.
Welcome to the great Southern Bancorp third quarter, 2021 earnings 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 that session you will need to press star one on your telephone please.
Please be advised that today's conference is being.
<unk> recorded if you require assistance during the conference. Please press Star zero.
I would now like to hand, the conference over to Kelly <unk> Investor Relations. Please go ahead.
Good afternoon and welcome the purpose of this call is to discuss the company's results for the quarter ending September 30th 2020.
<unk>.
Before we begin I need to remind you that during this call. We may make forward looking statements about future events and financial performance. Please do not place undue reliance on any forward looking statements, which speak only as of the date. They are made please see our forward looking statements disclosure in our third quarter 2020.
One earnings release for more information.
President and CEO, Joe Turner, and Chief Financial Officer, Rex Copeland her on the call with me today I'll now turn the call over to Joe Turner Alright. Thanks Kelly.
Afternoon, and we certainly appreciate you joining us today, we are very pleased with our third quarter.
<unk>, 20th we're seeing continued strong financial position.
Both of which reflect our associates ongoing commitment to take care of our customers in a very difficult operating environment. As is typical I'll provide some brief remarks about the company's performance and then turn the call over to Rex Copeland, our CFO, who will get into more detail.
On our financial results then we'll open it up for questions for the third quarter of 2021, we earned $24 million or $1 49 per diluted common share compared to $13 5 million or 96 per share for the same period in 2020.
Our increased earnings were primarily.
Or even by.
Negative credit loss provision, which is indicative of continued strong credit quality.
A improving.
The economic situation and.
The lower.
Loan portfolio balance we have.
<unk> net interest income, primarily driven by reduced deposit cost as well as PPP deferred fee income recognition and.
And we had increased noninterest income mainly related to debit card and ATM fees.
Importantly, our pre provision revenue continues to be strong with 2021 level.
Higher getting those achieved in 2020.
Sure.
Our earnings performance ratios were solid with an annualized return on average assets of $1 47.
Return on equity of $12 82, and an efficiency ratio of 57 point too.
Thus far in 2021.
<unk> production activity in our markets has been quite vigorous the loan repayments, including customer Refinancings project sales have been very very high as well historically high.
In fact, I looked at a report yesterday, where we compared 2021 originations through 930.
One loan to 2019, and 2020 loan origination both of which were very good years from a loan origination standpoint, and we're on track to exceed those two years or equal or exceed those two years in 2021.
Our outstanding loans have decreased 270.
$30 million compared to the end of 2020 about $90 million of that is a decrease in the PPP loans.
Our pipeline of loan commitments and unfunded loans remained strong.
That pipeline increased about $100 million.
From the end of the second quarter.
<unk>.
Certainly this type of lending environment can be dangerous for banks.
Like credit cycles in the past, we recognize the current short term growth challenges and our commitment to our shareholders is that we will not stretch our credit culture discipline.
For the sake of loan growth, we manage for the long.
And understand that we will have periodic ebbs and flows in our loan portfolio.
As far as Paycheck protection program.
About 100% of the round one paycheck protection loan was about $121 million have been forgiven, maybe just a very small portion.
I have.
Have not and we don't expect to have problems with those second round, which began in January we.
Good about $58 million in loans, and I think we've had $26 million of those forgiven.
We had total deferred fees in the second round of $3 7 million.
Recognized.
One $6 million of that in the first quarter, and we have $2 $1 billion left.
To recognize probably most of that will be in the fourth quarter.
Cares Act modifications were down to $38 million of loans that are still under modification and we would expect most of those two I guess $38 million.
Commercial and then to $2 million in consumer.
You would expect most of those over the next probably three to nine months to be.
Beyond.
Regular payment terms from.
From an asset quality standpoint, I don't know what else. We can say, it's as good as it's ever been continues to be.
Net charge.
<unk> come a year with $9000.
Our nonperforming assets, excluding FDIC acquired assets.
$5 $2 million or 10 basis points of assets.
Sure.
Allowance for credit losses, despite our reverse provision remains pretty steady at one point.
<unk> predicts personal loans.
From a capital from a capital standpoint, our capital remains extremely strong $624 million.
That's down about $5 million from the end of the year and down about five or $6 million I think from the end of the second quarter as.
Hi, Sal.
Basically we made $20 million a little over in the in the third quarter.
Paid a dividend of between $4 5 million, we'd probably spend about $15 million buying back stock and.
So that equaled about our earnings.
Reduction in our capital.
<unk> is from a reduction in our.
The market value of our securities portfolio, and our swap interest rate swap.
I'll also remind you that during the quarter, we redeemed $75 million of subordinated notes and that occurred.
In August so we had about a half a quarter of the benefit.
From that redemption that concludes my prepared remarks, I'll turn the call over to Rex Copeland at this time.
Alright. Thank you. Thank you Joe I'm going to start by talking a little bit about net interest income and margin. So our net interest income in the third quarter of 2021 increased about.
$755000 or about one 7%.
Compared to the.
Third quarter in 2020, so this quarter, we were $44 9 million and net interest income of $44 2 million in the third quarter last year and then we were at $44 7 million.
In the second quarter of 2021 so.
Those numbers values didn't change a whole lot between those three periods.
Consistent as far as the dollars go.
This quarter.
Joe mentioned, we we.
We did have some accretion income from the PPP loans the net deferred.
Deferred fees that with the income was about $1 6 million in the third quarter of this year and we had about $1 1 million that went to income from PPP deferred fees in the second quarter of 2021. So Joe said, we have about $2 $1 billion lift in net deferred PPP fees.
And we think a large portion of that is going to go to income in the fourth quarter. We do expect our customers are probably going to continue to.
Avail themselves of.
Getting those loans forgiven and repaid.
So we expect most of that will occur in the fourth quarter.
The net interest margin was 336% in both the third quarter of this year and last year.
For the three months ended September 30 of this year, our net interest margin increased one basis point compared to $3 35 in the three months ended June 30 of this year.
The if you compare back this quarter to the previous year quarter. The average yield on loans decreased about 11 basis points, while the average rate on interest bearing deposits declined by about 46 basis points.
The margin compression really resulted from changes in our asset mix with our average cash equivalents.
It's increasing by about $333 million. This this quarter period versus a year ago quarter period, and average loans in that same timeframe were down by about $266 million, so significant shift from loans into cash and cash equivalent type.
Assets.
Without that additional liquidity if he had the same kind of level of liquidity that we had a year ago. Our net interest margin would have been about 23 basis points higher.
In addition, this year, we also had lower accretion income from our FDIC acquired portfolios. So that played into it.
So this quarter of this year versus the previous year quarter.
The core net interest margin, which excludes that yield accretion was $3 34, and $3 27 for the three months ended September 30, 21 and 2020. So we are.
Core margin was up a bit from where it was a year.
From an overall our funding cost continued to decline in the third quarter as our time deposits continue to reprice lower at maturity, we should be able to see that continue here in the in the fourth quarter and probably into the first half of next year.
I think our at the end of September our.
Cost of time.
[noise] ago Closets was about 66 basis points and most recently we.
<unk> been originating overall sort of an average new CD rate of around 35% to 40 basis points.
So you also while our net interest margin percentage has been impacted by the increase.
Deposits and changes in asset mix in terms of dollars for the nine months period. This year versus last our net interest income was $133 7 million in the first nine months. This year up from $132 6 million in the same nine month period a year ago.
So some of the factors in that also.
<unk> IPO in addition.
Pairing those nine month periods, we had $3 $2 million less in FDIC acquired loan accretion income as I mentioned earlier and $1 $4 million more in interest expense.
Subordinated notes as we issued some additional notes in June of 2020.
So we did have a reduction for the half of the quarter.
Sub debt that we did redeem but overall the expenses were higher in the quarter than they were a year ago.
So partially offsetting these items. We also did recognize $2 9 million more in deferred PPP loan fees.
This year nine months first nine months versus the first nine months of last year.
Noninterest income.
Was up.
By about 332000 to $9 8 million compared to the year ago third quarter.
Joe mentioned point of sale and ATM fees were higher that was an increase.
Fees is about 657000 and comparing the two quarters, we just have more activity more debit card usage and thats been going on.
For the most part since the pandemic began maybe not right off the bat, but certainly more recently and that level has just continued to kind of stay fairly steady.
At a higher higher level than it was pre pandemic.
Overdrafts and insufficient fund fees were up about 200000 compared to the previous year quarter.
Really we're sort of at a normal I think a more normal level now in 2020, we had waived a lot of fees.
As the pandemic.
Had shut down different.
Retail establishment there were some stay at home orders and things like that and we had gone through early on and determined to.
Be pretty lenient with waiting on on.
On overdraft and insufficient.
The last thing in noninterest income as net gains on.
Loan sales.
This third quarter versus previous year third quarter net gain on loan sales actually decreased by about $537000.
The decrease really was just a little bit less origination this year versus last in the third quarter last year, we had pretty significant.
Refinance activity going on rates were very low also a lot of purchase activity.
And I would say now the purchase activity is still going fairly strongly but refinanced in the third quarter had had dropped back quite a bit from where it was a year ago, maybe two more maybe a more normal.
Normal level.
And noninterest expense I'll talk about that for just a moment. So for the quarter ended September 30. This year, our noninterest expense decreased about 649000 to $31 $3 billion when you compare it to the year ago quarter.
This was primarily driven by an 800.
$67000 decrease in salary and employee benefits compared to the prior year quarter and the 2020 period 2020 period, we did have a special bonus that we pay to our employees in response to some of the ongoing impacts of COVID-19.
That was $1 1 million.
Bonus and related costs that occurred in 2000, Twenty's period that did not reoccur in 2021.
The efficiency ratio for the third quarter of this year was 57.27% and that compared to $59, 64% for the same quarter in 2020.
Income taxes, I'll kind of wrap up with that.
The tax rate was just under 21%.
This third quarter of this year little bit less in 'twenty, one 5% in the third quarter last year.
Effective rate is probably we expect is going.
To be somewhere around that $20 to 21%.
Move through the rest of this year and probably into the beginning of next year. It is impacted a lot by.
On the tax.
Credit activities that we have some of our municipal and loan.
Activities.
<unk> that our tax exempt income from those are tax exempt.
And then also just the.
The level of income in variety of states of the operate in where each state obviously has different.
<unk> rates and so the mix plays into some of that with our overall tax rate that we have.
So that's.
That concludes the remarks that I have at this time, we will entertain questions and let me ask our operator to once again remind the attendees on how to queue in for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A.
<unk> roster.
And our first question comes from the line of Damon Delmonte with <unk>. Your line is open.
Hey, good afternoon, guys hope everybody is doing well today.
So I wanted to start off with loan growth.
Joe in your opening comments, you talked about the strength of the origination.
Activity that you guys have been seeing and that's kind of been muted.
By payoffs and whatnot. So you have to look back over the last three or four quarters net loan growth being pretty hard to come by.
What are you seeing today and kind of how are your ceiling going forward about being able to post some positive net growth in the coming quarters.
Got it.
Yeah.
See basically the same fab.
Factors that play that have been at play over the last year I think I think whats driving thing what's driving the.
High levels of refinance and that floor activity. David is just all the <unk>.
Cash in the system, there's just so much competition.
The risk free rate of return right now for.
Mortgage backs that agency mortgage backed five year seven year duration, whatever is one 5%. So let's say if somebody can refi.
A loan at.
3% three in a quarter and it's typically not banks that would be more.
Life companies or agencies or those sorts of lenders I mean, theyre pretty quick to do it and.
Don't see anything.
Today.
Really that's any different.
And then what we've seen over the over the past year or so so I think that will continue to be a headwind.
Probably until we see those rates to come up a little bit.
If if people were able to go out and get a quarter percent or or two 5%.
Mortgage backs.
They probably aren't going to be so quick to.
The <unk>.
Refi those projects and really I mean, I think what we're seeing is that those projects that we're doing we've told you. They are high they are high quality. They are extremely high quality I think.
And people are just will.
On the <unk>.
The longer term lenders are willing to jump into a more quickly.
Whereas before they were.
They were wanting to wait for.
Stabilization now maybe they are willing to jump in that construction.
Construction completion.
So we just have to continue to be diligent I.
I think we've mentioned on the call that we are exploring.
We mentioned on previous calls that we were exploring.
New LTE sites in.
So we're actively engaged in that and we're just going to manage through this process.
Got it okay.
Okay. So it sounds like at.
At least another quarter, maybe two before we start to see some positive momentum in the portfolio.
Yes, it's just hard to say.
It's hard to say I mean, I will say you know $90 million of the repayment thus far this.
Year was.
With PPP loans, and obviously, that's not going to repeat right.
$35 million roughly is paydown in the consumer portfolio, which I'm sure is primarily indirect that's not going to repeat so that's 125 of.
<unk>.
The pay down in our portfolio that likely won't repeat.
In future quarters, but they are still there.
Like I said earlier, there are still factors at play, which I'm sure are going to make.
Repayments higher than typical.
Got it Okay. That's helpful. I appreciate the color and then with regards to expenses.
You know there was kind of a uptick in the occupancy and equipment expense were there any one time charges in there.
Rex that are related to separate that was there was yeah. It wasn't all of it but there were some things.
There was that.
And adjustments that we made system some asset lives that you know.
Maybe then a couple of hundred thousand dollars or so that that we included a catch up in some expense there that shouldn't go back to normal in the fourth quarter.
And then there's just.
When you when you have a banking center network like we have got in offices, we had some.
In the summer months, we have some parking lot repairs and things like that so there's just things like that that go on that don't necessarily occur, but likewise in the winter months, we're gonna have snow removal probably in some places so.
Some of that yes was was.
I would say not going to recur, but then there are some things that probably are in there.
Okay. So then when you look kind of look at the overall expense. They like next quarter do you think.
You know keep it flat to this level.
Back out a couple of those one time items and then you get a little bit abnormal growth in there.
Yeah, I mean, I think the I think.
And this.
The sort of the two challenges that are present, I think not just for great settlement, but generally in the banking business is all this cash in the system is compressing rates and making the margin business more.
More difficult.
It's compressing margins and it's making it tougher to grow assets. So that's one issue I think that's a temporary thing I don't know if thats going to last.
Six months, a year 18 months, but I think it's going to be temporary.
The other thing that.
Interesting though.
Is the employment situation in the country. It is just its tough and so I would assume that employee costs are going to come up some as we as we try to.
Hire new people.
And keep the people we have it's a very tough employment market right now.
And some of that's actually been occurring already yes, we're actually seeing some of that already this year right.
Had to adjust them salaries in and trying to hire people and things of that nature, it's been harder to do.
Locate.
Staff and potential employees right. We always have open positions I mean, I would think we have 1200 employees I would think.
Kind of a steady state is 40 or so open positions, but I think we have close to 100 right now and it's just.
It's hard to find folks.
And obviously, we all read in the paper that is not.
Southern specific that's pretty much economy wide.
Okay, Great and then just lastly on credit trends, obviously remained very strong.
Had a negative provision this quarter for the third quarter in a row.
So.
With the outlook for loan growth you know being subdued for the next couple of quarters and credit trends remain a good you know is it fair to expect another negative provision in the fourth quarter or are we you know.
Very very well.
I mean, you know.
If we were to have another quarter with no charge off you know and and.
Yes.
If we have declining loan balances, it's possible certainly that the that the allowance could go down.
We feel like we have a well funded allowance.
Based on the based on the level of our loan portfolio right now if the all other things being equal if the loan portfolio were to go down a little bit yeah, I guess the against the allowance could go down a little bit as well.
Okay.
That's all I had thank you very much guys I appreciate it okay. Thank you David.
Thank you. Our next question comes from the line of Andrew Leisch with Piper Sandler Your line is open.
Yeah.
Hi, everyone. Good afternoon.
Hi, Anthony.
Right, but good things I just wanted to touch on the margin here, a little bit and some of the factors at play there how much.
Do you think it's still left.
On the deposit side I know you referenced some Cds that are still set to mature but are are these maturities and the.
The funding cost improvement should that be enough to offset yield pressures.
I don't know I'll take a shot and then let Rex.
I mean, if you look at our second to last page of our.
Released.
I think it's the second to last page.
We show the level of time deposits, Andrew and that's really probably where most of the repricing will.
We will show the.
The rate on our time deposits.
66 basis points right, we're probably paying about half that right now so so there could certainly be some additional relief there.
And as far.
As the maturities go just to give you an idea within three months about $270 million of that CD portfolio will mature within six cumulatively about $438 million and then within the next year about $795 million. So its most of that portfolio was within the next.
12 months is going to have a chance to reprice at maturity yeah.
Got it that was actually going to be my follow up on that side. Thank you for that.
And then the.
Obviously, there is some there's been some very good loan production also elevated payoffs.
The loans that you've been adding I guess, what's been the.
The blended rate on those.
Yeah, I don't have that number will try to we may try to put something like that in the.
And the 10-Q, maybe.
Andrew.
Got it yeah, I'll look up to that then but none of the ones that pay off.
Certainly appreciate you guys sticking to your knitting with pricing and underwriting.
Curious what what are the yields that you guys are losing.
One of our competitors offering that.
Making it economical for you.
Oh, I mean, I think I think what we are.
What we see I mean.
We spent most of the deals that we.
We do you know, especially multifamily.
Multifamily or or senior care industrial whatever I mean, we have.
30% to 40% equity in and when those longer term lenders come in theyre cutting our rate.
They are also probably giving the borrowers back.
Some of their equity.
And we have guarantees and typically those long term.
Loans do not have guarantees or at least have a very limited guarantee so it's a it's a it is that a is that an amount at a guaranteed structure.
And at a rate that we just wouldn't want to do.
Got it that makes it tough to compete there.
Thank you for taking the question I will step back.
Alright. Thanks.
Thank you as a reminder to ask a question. Please press star one on your telephone.
And our next question comes from John <unk> with Janney. Your line is open.
Hey, good afternoon, guys, Hi, Jonathan Jonathan.
Joe just I guess just back to two loans in the second I guess you said in the press release that it's mostly multifamily is are the payoffs in any particular market or is it.
Pretty much across the whole footprint I.
I think it's across the board John and one thing that's interesting I don't know if any of you.
Look at our loan presentation that we file every quarter right now we're talking about this earlier.
I've looked at that we have a.
A page in.
In there that shows the multifamily portfolio and sort of stratify it by L. T V.
Page 11 page 11, if you look at that.
You'll note that as.
As of June 30, 'twenty, one we had about $70 million.
Uh huh.
1 billion dollar multifamily portfolio that was over 76% LTV and at the end of September we only had $20 million that was over over that that LTV. So obviously $50 million was paid off in the quarter.
<unk> was higher LTV deals I'm sure. They werent bad deals I'm sure they were good deals but.
It is.
Across geography, it's probably higher.
Higher LTV lower LTV if.
Yeah.
I don't think there's I think there's a lot of demand for that product out there right now.
Yeah, that's interesting thanks.
Rex just a question on the securities portfolio as you know trend it trended down again this quarter if its net loan growth remains sort of challenging in the near term would you expect.
Two grow the securities portfolio, some or is it still flattish to down.
You know our portfolio is kind of structure, we put most of this portfolio on back maybe two to three years ago and its fixed rate agency commercial type projects.
So we've been able to maintain our yield so far at around $2 60, plus.
And so that's been helpful and it probably pays down on average $4 5 million a month, just normal payment because theres. Some theres some lockout structure on this and prepayment structure on it so we.
Like a normal single family portfolio with no prepayment stuff on it you know we don't get these wild swings coming in with big prepayments generally on that portfolio at least not yet for a while anyway.
But we did add some in that portfolio back in I think March of this year.
We don't get out in time, the 10 year treasury yields have gotten back up to around 175 or something like that and then the yields have gone back down through the second and a lot of the third quarter, what their yields are coming back up again, a little bit now so so long winded answer, but yeah, we're going to look at that I don't know for sure what we're going to do yet but that is something.
And I think we need to consider is is it time to maybe.
As more securities in the portfolio again.
With the extra cash that we have and one of the things that we're doing to us.
We've got on the funding side, we've got some internet based CD deposits.
And those as they come due we basically dropped our rate to almost zero and the majority of those as they mature or just going away. So we're trying to eat up some of.
Our liquidity with just letting those deposits roll off and not replace them at any cost relief. So.
And so what's rolling off there is probably going to be.
I don't know.
70, or so million coming up in the next few months.
And so that will not get replaced so that.
It should eat into some of that extra.
Liquidity that we have as.
No.
But yeah, John we're going to look at different avenues to see if there's some things that we might want to try to do with with the liquidity that we have sitting there now.
Okay. Thanks, Rex and then Rex maybe just one final question on that but just back to expenses. It looks like advertising was up about four.
Well that was $1 linked quarter to almost $1 million was that was that more timing or.
Does that maybe pull back some going forward.
Yeah, I will tell Kelly she has to pull that back a while.
Okay. That's timing it was timing we had a few sponsorships and things in there.
400 happened in the third quarter, we also in the second quarter had a.
A little bit of a credit that we got some marketing dollars back from.
Another entity that we have.
Partnership with them and so there was a little bit maybe less expense in the second quarter.
They had some extra expense in the third and it's probably going to kind of even back out I'd say in the in the fourth quarter and moving forward.
Okay. Okay.
Well I think the sponsorships were higher by maybe 100000 or so.
I mean for sure okay. So so just just.
<unk> and overall expenses again, just back to the earlier question.
It sounds like the expenses are probably relatively.
Relatively stable going forward I mean, maybe some modest growth, but it doesn't sound like there's a big pull back from the current level going forward.
I don't think so no and I mean, obviously going into the fourth quarter.
Some things going on but then the first quarter.
A lot of our.
People get raises yeah, then people get raises typically at the end of at the beginning of the next year and so we're going to have a lot of that now nonexempt people get raises at their anniversary throughout the year. So that goes on all year long, but.
There usually is a little bit of an uptick you know for the first quarter for that because of the again.
The increases in that kind of thing so I.
There was a there was some extra stuff in the quarter, maybe on expenses, but I wouldn't say it was huge amounts so.
Rex just final final question, just a P. P P loans.
They are what about $30 million at the end of the September 35, I think.
Yep remaining okay.
Okay. Thanks, guys.
Thanks, John.
I'm showing no further questions at this time I would like to turn the conference back to Joe Turner.
Thank you very much why as I said, we really appreciate.
Everybody being on the call today, and we look forward to talking to you in January thank.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day, and thank you for standing by and welcome to the Great Southern Bancorp third quarter 2021 earnings 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 that session you will need to press star one on your telephone.
Be advised that today's conference is being recorded if you require assistance during the conference. Please press Star zero.
I would now like to hand, the conference over to Kelly <unk> Investor Relations. Please go ahead.
Good afternoon and welcome the purpose of this call is to discuss the company's results for the quarter ended.
Please September 30th 2021 before we begin I need to remind you that during this call. We may make forward looking statements about future events and financial performance. Please do not place undue reliance on any forward looking statements, which speak only as of the date. They are made please see our forward looking statements.
Ending so as you're in our third quarter 2021 earnings release for more information.
President and CEO, Joe Turner, and Chief Financial Officer, Rex Copeland her on the call with me today I'll now turn the call over to Joe Turner Alright. Thanks Kelly.
Good afternoon, and we certainly appreciate you joining us today.
We are very pleased with our third quarter earnings and continued strong financial position I think both of which reflect our associates ongoing commitment to take care of our customers in a very difficult operating environment. As is typical I'll provide some brief remarks about the company's performance and then turn the call over to Rex Copeland are.
So we will get into more detail on our financial results.
Then we'll open it up for questions for the third quarter of 2021, we earned $24 million or $1 49 per diluted common share compared to 13 5 million or 96 cents per share for the same period in 2020.
Our increased earnings were primarily driven by <unk>.
Negative credit loss provision, which is indicative of continued strong credit quality.
A improving.
Economic situations.
And.
The lower.
Loan.
Oh balance we had higher net interest income primarily driven by reduced deposit cost as well as PPP deferred fee income recognition.
And we had increased noninterest income mainly related to debit card and ATM fees.
Importantly, our pre provision revenue.
Important to be strong with 2021 levels exceeding those achieved in 2020.
Sure.
Our earnings performance ratios were solid with an annualized return on average assets of $1 47.
Our return on equity of $12 82, and an efficiency ratio of 57 two.
Thus far in 2021 loan production activity in our markets has been quite vigorous but loan repayments, including customer refinancings project sales.
Have been very very high as well historically high.
In fact, I looked at a report yesterday, where we compared 2021.
<unk> thousand 930 to 2019, and 2020 loan origination both of which were very good years from a loan origination standpoint, and we're on track to exceed those two years will equal or exceed those two years in 2021.
Our outstanding.
<unk> loans have decreased $271 million compared to the.
End of 2020 about $90 million of that is a decrease in the PPP loans are.
Our pipeline of loan commitments and unfunded loans remained strong.
Our pipeline increased about $100 million.
From the end of the second quarter.
Adding luck.
Sure.
Certainly this type of lending environment can be dangerous for banks.
Like credit cycles in the past, we recognize the current short term growth challenges.
Our commitment to our shareholders is that we will not stretch our credit culture disciplined for.
The loan growth, we manage for the long term and understand that we will have periodic.
And flows in our loan portfolio.
As far as Paycheck protection program.
About a 100% of the round one paycheck protection loan was about $121 million have been forgiven, maybe just a very.
The same mall portion.
Have not and we don't expect to have problems with those second round, which began in January we did.
We had about $58 million in loans and I think we've had $26 million of those forgiven.
We have total deferred fees in the second round of <unk>.
Very familiar with.
We recognized $1 $6 million of that in the first quarter and we have $2 $1 billion left.
To recognize probably most of that will be in the fourth quarter.
Cares Act modifications were down to $38 million of loans that are still under modification and we would expect most of that.
72, I guess $38 million of commercial and then $2 million in consumer we would expect most of those over the next probably three to nine months too.
Yes.
Yes.
Regular payment terms from.
From an asset quality standpoint, I don't know what else, we can say, it's as good as it's ever been.
Those who used to be.
Net charge offs for the year with $9000.
Our nonperforming assets, excluding FDIC acquired assets.
$5 $2 million or 10 basis points of assets.
<unk>.
Allowance for credit losses, despite our reverse.
Competition remains very steady at 1.56% of loans.
Okay.
Permanent capital from a capital standpoint, our capital remains extremely strong $624 million.
That's down about $5 million from the end of the year and down about five or $6 million.
<unk> from the end of the second quarter as well basically we made $20 million a little over in the in the third quarter.
Yeah.
Paid a dividend of between $4 5 million, we probably spend about $15 million buying back stock and so.
So that equaled about our.
I think so the reduction in our capital is from a reduction in our.
The market value of our securities portfolio, and our swap interest rate swap.
I'll also remind you that during the quarter, we redeemed $75 million of subordinated.
Earnings notes and that occurred in August so we had about a half a quarter of the benefit.
That redemption that concludes my prepared remarks, I'll turn the call over to Rex Copeland at this time.
Alright. Thank you. Thank you Joe I'm going to start by talking a little bit about net interest income and margin. So our net interest income in the third.
Nader through 2021 increased about $755000 or about one 7%.
<unk> to the.
Third quarter in 2020, so this quarter, we were $44 9 million and net interest income $44 2 million in the third quarter last year and.
When we were at $44 7 million in the second quarter of 2021 so.
Those numbers the values didn't change a whole lot between those three periods, but it's been fairly consistent as far as the dollars go.
This quarter I think Joe mentioned, we.
We did have some accretion income.
Third quarter from the PPP loans, the net deferred fees that with the income was about $1 6 million.
In the third quarter of this year and we had about $1 1 million that went to income from PPP deferred fees in the second quarter of 2021. So.
<unk>, we have about $2 $1 billion lift in.
Deferred PPP fees, and we think a large portion of that is going to go to income in the fourth quarter. We do expect our customers are probably going to continue to.
Avail themselves of.
Youre getting those loans forgiven.
Paid.
So we expect.
No most of that will occur in the fourth quarter.
The net interest margin was 336% in both the third quarter of this year and last year.
For the three months ended September 30 of this year.
Margin increased one basis point compared to $3 35 in.
Expect Thats ended June 30 of this year.
If you compare back this quarter to the previous year quarter. The average yield on loans decreased about 11 basis points, while the average rate on interest bearing deposits declined by about 46 basis points.
The margin compression really resulted from.
Three changes in our asset mix with our average cash equivalents, increasing by about $333 million. This this quarter period versus a year ago quarter period, and average loans in that same timeframe were down by about $266 million, so significant shift from loans into cash.
<unk> cash equivalent type.
Assets, so without that additional liquidity. If you had the same kind of level of liquidity that we had a year ago. Our net interest margin would have been about 23 basis points higher.
In addition, this year, we also had lower accretion income from our FDI.
Cash acquired portfolios, so that played into it.
From this this quarter of this year versus the previous year quarter.
The core net interest margin, which excludes that yield accretion was $3 34, and $3 27 for the three months ended September 30, 21 and 2020 so.
FTIR.
Core margin was up a bit from where it was a year ago.
Overall, our funding cost continue to decline in the third quarter as our time deposits continue to reprice lower at maturity and we should be able to see that continue here in the <unk>.
In the fourth quarter and probably into the first half of next year.
Or at the end of September our.
Cost of time deposits was about 66 basis points and most recently, we've been originating overall sort of an average new CD rate of around 35 to 40 basis points.
So you also while our net interest margin percentage has been impacted by the increased deposits and changes in asset mix in terms of dollars for the nine months period.
This year versus last our net interest income was $133 7 million in the first nine months this year up from $132 6 million.
I'm the same nine month period, a year ago.
Some of the factors in that also are you in addition.
Comparing those nine month periods, we had $3 2 million less in FDIC acquired loan accretion income as I mentioned earlier and $1 $4 million more in interest expense on subordinated.
As we issued some additional notes in June of 2020.
So we did have a reduction for the half of the quarter.
Sub debt that we did redeem but overall the expenses were higher in the quarter than they were a year ago.
So partially offsetting these items.
And we also did recognize $2 9 million more in deferred PPP loan fees. This year nine months first nine months versus the first nine months of last year.
Noninterest income.
Was.
Up by about 332000 to $9 8 million compared to the year.
[noise] ago third quarter.
Joe mentioned point of sale and ATM fees were higher that was an increase of about 657000 b comparing the two quarters. We just had more activity more debit card usage and thats been going on.
For the most part since the pandemic began maybe that right off the bat.
But certainly more recently and that level has just continued to kind of stay fairly steady at a higher higher level than it was pre pandemic.
<unk> afternoon sufficient fund fees were up about 200000 compared to the previous year quarter.
Really we're sort of at a normal I think a more normal level now.
Now in 2020, we had waived a lot of fees as.
As the pandemic had shut down.
Great.
Retail establishment there there were some stay at home orders and things like that and we had gone through early on and determined to.
<unk> be pretty lenient with waiting on.
On overdraft, but insufficient.
The last thing in noninterest income as net gains on loan sales.
This third quarter versus previous year third quarter net gain on loan sales actually decreased by about $537000.
The decrease really was just a little bit less origination this.
Year versus last in the third quarter last year, we had pretty significant refinance activity going on rates were very low also a lot of purchase activity.
And I would say now the purchase activity is still going fairly strongly but refinance in the third quarter.
<unk> had dropped back quite a bit from where it was a year ago, maybe two more maybe a more normal normal level.
And noninterest expense I'll talk about that for just a moment. So for the quarter ended September 30 of this year, our noninterest expense decreased about 649000 to 31.
$3 billion, when you compare it to the year ago quarter. This.
This was primarily driven by an $867000 decrease in salary and employee benefits compared to the prior year quarter and the 2020 period 2020 period, we did have a special bonus that we pay to our employees.
In response to some of the ongoing impacts of COVID-19.
It was $1 1 million of <unk>.
Bonus and related costs that occurred in 2000, Twenty's period that did not reoccur in 2021.
The efficiency ratio for the third quarter of this year was 57.2 dollars.
7% and that compared to 50, 964% for the same quarter in 2020.
Income taxes, I'll kind of wrap up with that.
The tax rate was just under 21% this third quarter of this year little bit.
21, 5% in the third quarter last year.
The effective rate is probably we expect is going to be somewhere around that $20 to 21% as we move through the rest of this year and probably into the beginning of next year. It is impacted a lot by.
The.
Less.
Credit activities that we have some of our municipal and loan.
Activities that are tax exempt income from those are tax exempt and then also just the.
The level of income in variety of states of the operate in where each state obviously has.
<unk>.
Right and so the mix plays into some of that with our overall tax rate that we have.
So that concludes the remarks that I have at this time, we will entertain questions and let me ask our operator to once again remind the attendees on how to queue in for questions.
As a reminder.
Different to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
And our first question comes from the line of Damon Delmonte with <unk>. Your line is open.
Hey, good afternoon, guys hope everybody's doing well today.
Yes.
Reminder, so.
Hi, I wanted to start off with loan growth.
Joe in your opening comments, you talked about the strength of the origination activity that you guys have been seeing and that's kind of been muted.
By payoffs and whatnot. So if we look back over the last three or four quarters net loan growth being pretty hard to come by.
Yeah.
You're seeing today and kind of how are you feeling going forward about being able to post some positive.
Net growth in the coming quarters.
Yes.
See basically the same factor.
Factors that play that have been at play over the last year I think.
What's what's driving thing what's driving the.
High levels of refinance and that floor activity. David is just all the cash in the system. There's just so much competition.
The the risk free rate of return right now for.
Mortgage backs.
I think all agency mortgage backed.
Five year seven year duration, whatever is one 5%. So if they if somebody can refi a loan at all.
3% three in a quarter and it's typically not banks that would be more.
Life companies or agencies.
Sector or those sorts of lenders I mean, there are pretty quick to do it and.
Don't see anything today.
Really that's any different than what we've seen over the over the past year or so so I think that will continue to be a headwind probably until we see those rates.
Fees have come up a little bit.
If if people were able to go out and get through in a quarter percent or or two 5%.
Mortgage backs, they probably aren't going to be so quick to.
The <unk>.
Refi those projects and really I think what we're seeing is.
Great.
Those projects that we're doing we've told you. They are high they are high quality. They are extremely high quality I think.
And people are just willing to the longer term lenders are willing to jump into a more quickly.
Whereas before they were.
Were they.
They were wanting to wait for.
Is stable.
Stabilization now maybe they are willing to jump into that.
Construction completion.
So we just have to continue to be diligent I think we've mentioned on the call that we are exploring.
As we've mentioned on previous calls that we were exploring.
New Lps.
And.
So we're actively engaged in that and we're just going to manage through this process.
Got it okay.
Right so it sounds like.
At least another quarter, maybe two before we start to see some positive momentum in the portfolio.
It's just hard to say, it's just hard to say I mean, I will say.
$90 million of the repayment thus far this year was.
With PPP loans, and obviously, that's not going to repeat right.
$35 million roughly.
Is pay down in the consumer portfolio, which I'm sure is primarily indirect that's not going to repeat so that's 125 of.
<unk>.
The pay down in our portfolio.
That likely won't repeat in.
In future quarters, but they are still.
Like I said earlier, there are still factors at play, which I'm sure are going to make.
Repayments higher than typical.
Got it Okay. That's helpful. I appreciate the color and then with regards to expenses.
You know there was kind of a uptick in the occupancy.
<unk> expense were there any one time charges in there.
Rex that are related to separate that was there.
Yeah, I mean, it wasn't all of it but there were some things there were there was that.
And adjustments that we made system some asset lives that maybe.
It may have been a couple of hundred thousand.
Equipped so that that we included as to catch up in some expense there that shouldn't go back to normal in the fourth quarter.
And then there's just.
When you when you have a banking center network like we have got in offices, we had some.
The summer months, we have some parking lot repairs and things like that.
So there's just things like that that go on it don't necessarily occur, but likewise in the winter months, we are going to have snow removal probably in some places so.
Some of that yes was was I would say not going to recur, but then there are some things that probably are in there.
Okay. So then when you look kind of look at the overall expense base like next quarter.
So I think the kind of.
Keep it flat to this level.
Back out couple of those one time items, and then you get a little bit abnormal growth in there.
Yes, I mean, I think the I think you know this.
The sort of two challenges.
Our president.
Or do you think not just for great settlement, but generally in the banking business is all of this cash in the system is compressing rate.
And making the margin business more difficult.
Compressing margins and it's making it tougher to grow assets. So that's one issue.
That's our.
Is there anything I don't know if that's going to last.
Six months, a year 18 months, but I think it's going to be temporary.
The other thing that.
Interesting, though is the employment situation in the country. It is just its tough and so I would assume.
A temporary employee costs.
Are going to come up some as we as we try to.
Hire new people.
And keep the people we have it's a very tough employment market right now.
And some of that has actually been occurring already yes, I mean, we're actually.
Already this year and have had.
<unk> had to adjust them salaries and trying to hire people and things of that nature, it's been harder.
To locate.
Staff and potential employees right. We always have open positions I mean, I would think we have 1200 employees I would think.
See it's kind of steady state is 40, or so open positions, but I think we have close to 100 right now and it's just it's.
It's hard to find folks.
Obviously, we all read in the paper that is not.
Great Southern specific that's pretty much economy wide.
Okay, Great and then just lastly on credit trends, obviously remained very strong.
Had a negative provision this quarter for the third quarter in a row.
With the outlook for loan growth being subdued for the next couple of quarters and credit trends remain good.
Is it fair to expect another negative provision in the fourth quarter.
Or have we.
Very very low like zero.
I mean.
Hum.
<unk>.
Yes.
If we were to have another quarter with no charge off.
And and.
If we had.
<unk> or in loan balances, it's possible certainly that the that the allowance could go down I mean, we feel like we have a well funded allowance based on the based on the level of our loan portfolio right now if the all other things being equal if the loan portfolio were to go down a little bit against the against the.
Decline allowance could go down a little bit as well.
Okay.
That's all I had thank you very much guys I appreciate it okay. Thanks, David.
Thank you. Our next question comes from the line of Andrew Leisch with Piper Sandler Your line is open.
Okay.
Hi, everyone. Good afternoon.
Hey, Andrew.
Hi, good. Thanks, just wanted to touch on the margin here a little bit.
And some of the factors at play there how much room do you think thats still left.
On the deposit side I know you referenced some Cds that are still set to mature but are these maturities and the.
Jim.
The funding cost improvement should that be enough to offset yield pressures.
I don't know I'll take a shot and then let Rex I mean, if you look at our second to last page of our.
Released.
I think it's the second to the left.
Page.
We show the level of time deposit standard and that is really probably where most of the repricing will come.
We show the.
The rate on our time deposits.
66 basis points right, we're probably.
Paying about half that right now so so there could certainly be some additional relief there.
And as far as the maturities go just to give you an idea within three months about $270 million of that CD portfolio will mature within.
There's six cumulatively about 438 million and then within the next year about $795 million. So its most of that portfolio within the next 12 months is going to have a chance to reprice at maturity.
Got it that was actually going to be my follow up on that side. Thank you for that.
And then.
Obviously, there's some there's been some very good loan production also elevated payoffs.
The loans that you've been adding I guess, what's been the blended rate on those.
Yeah, I don't have that number will try to we may try to put something like that.
In the in the 10-Q, maybe.
Andrew.
Got it.
For that and then let alone the ones that pay off certainly appreciate you guys sticking to your knitting with pricing and underwriting and.
I'm just kind of curious what what are the yields that you guys are losing what.
One of our competitors offering that.
But making it sound economical for you.
I mean, I think I think what we are.
What we see I mean.
As we said most of the deals that we do.
Especially multifamily or or senior care industrial whatever I mean, we have.
30 to 40.
40% equity in and when those longer term lenders come in Theyre cutting our rate.
But they're also probably giving the borrowers back some of their equity and we have guarantees and typically those long term.
Loans do not have.
If these are at least half.
Limited guarantee so it's a it's a it's it's a it's not an amount at a guaranteed structure.
And out of range that we just wouldn't want to do.
Got it got it that makes it tough to compete there.
Thank you for taking.
Gary I will step back.
Alright, Thanks, Andrew.
Thank you as a reminder to ask a question. Please press star one on your telephone. Our next question comes from John Rowan with Janney. Your line is open.
Hey, good afternoon, guys, Hi, Jonathan Johnson.
My question, though just I guess just back to two loans in the second I guess you said in the press release that it's mostly multifamily is are the payoffs in any particular market or is it pretty much across the whole footprint.
I think it's across the board John and one thing that's interesting I don't know if any of you.
Yeah.
If you look at our loan presentation, then we file every for Rex and I were talking about this earlier I've looked at that we have.
A page in there that.
It shows the multifamily portfolio and sort of stratify it by LTV Petulant in page 11 page 11, and if you.
With that Ah.
You'll note that that.
As of June 30, 'twenty, one we had about $70 million of.
Of the 1 billion dollar multifamily portfolio that was over 76% LTV and.
Look end of September we only had $20 million that was over over that that LTV. So obviously $50 million was paid off in the quarter was higher LTV deals now I am sure. They werent bad deals I'm sure they were good deals but.
It is.
Across geography, it's probably.
Higher LTV lower LTV if.
I don't think there's I think there's a lot of demand for that product out there right now.
Yeah, that's interesting thanks.
Just a question on the securities portfolio trend it trended down again this quarter if its net loan growth remains sort of challenging in the near term would you expect to grow the securities portfolio, some or is it still flattish to down.
Our portfolio is kind of structure, we put most of this portfolio.
Rex show on back maybe two to three years ago, when its fixed rate agency commercial type projects.
So we've been able to maintain our yield so far at around $2 60, plus.
And so that's been helpful.
It probably pays down on average $4 5 million or more.
<unk> just normal payment because theres some theres some lockout structure on this and prepayment structure on it so we don't get like a normal.
Single family portfolio with no prepayment stuff on it we don't get these wild swings coming in with big prepayments generally on that portfolio.
It's not yet for a while anyway.
But we did add some in that portfolio back in.
March of this year and I think at that time.
10 year Treasury yields have gotten back up to around 175 or something like that and then the yields have gone back down through the second and a lot.
At linked quarter, while their yields are coming back up again, a little bit now so so long winded answer, but yes, we're going to look at that I don't know for sure what we're going to do yet but that is something that we need to consider is is it time to maybe.
Add some more securities in the portfolio again.
With the extra cash that we have.
Third what are the things that we're doing to us.
We've got on the on the funding side, we've got some internet based CD deposits.
And those as they come due we basically dropped our rates to almost zero and the majority of those as they mature.
And just going away. So we're trying to eat up some of our liquidity with just letting those deposits roll off and not replace them at any cost relief. So so what's rolling off there.
Probably going to be.
Sure.
I don't know.
70, or so million coming.
On the next few months.
And so that will not get replaced so that is.
It should eat into some of that extra.
Liquidity that we have as well.
But but yeah, John we're going to look at different avenues to see if there's some things that we might want to try to do with.
It up with the liquidity that we have sitting there now.
Okay. Thanks Rex Rex.
Maybe just one final question on that but just back to expenses. It looks like advertising was up about $400000 linked quarter to almost $1 million was that was that more timing or.
Does that maybe pullback some going forward.
Yeah, I will tell Kelly she has to pull that back a while [laughter], okay. That's timing.
We had a few sponsorships and things in there that happened in the third quarter. We also in the second quarter had a little bit of a credit that we got some marketing dollars back from.
Another entity that we have.
Partnership with and so you know there was a little bit maybe less expense in the second quarter and some extra expense in the third and is probably going to kind of even back out I'd say and then in the fourth quarter and moving forward.
Okay. Okay.
Yeah.
Well I think the sponsorships where high by maybe 100000 or so.
Yeah for sure. Okay. So so just just for overall expenses again, just back to the earlier question.
It sounds like the expenses are probably relatively.
Stable going forward.
Some modest growth, but it doesn't sound like there's a big pullback from the current level going forward.
I don't think so no and I mean, obviously going into the fourth quarter there'll be some things going on but then the first quarter.
A lot of our.
And people get raises yet again people get raises typically.
Maybe at the beginning of the next year and so we're.
Gonna have a lot of that now nonexempt people get raises at their anniversary throughout the year. So that goes on all year long, but.
Is it a little bit of an uptick you know for the first quarter for that because of the again.
Fuel increases and that kind of thing so I.
At the Air was there was some extra stuff in the quarter, maybe unexpected, but I wouldn't say it was huge amounts so okay.
Rex just final final question, just PPP loans looks like they were what about $30 million at the end of the September 35, I think.
Yep remaining okay.
Okay. Thanks, guys.
Thanks, John.
I am showing no further questions at this time I would like to turn the conference back to Joe Turner.
Okay. Thank you very much why as I said, we really appreciate.
Everybody being on the call today, and we look forward to talking to you in January Thank you.
<unk>.
This concludes today's conference call. Thank you for participating you may now disconnect.