Preliminary Q2 2022 Southern Missouri Bancorp Inc Earnings Call
Speaker 1: Welcome to the Southern Missouri Bancorp Quarterly Earnings Call. My name is Victoria and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. When preparing to ask a question, please ensure that your line is unmuted locally. I will now pass over to your host, CFO Matt Funke to begin. Matt, please go ahead.
Hello, everyone and welcome to the Southern Missouri Bancorp quarterly earnings call. My name is Victoria and I'll be coordinating your call today, if you'd like to ask a question. During the presentation you might decide by pressing star one on your telephone keypad if.
If you wish to whats going a question. Please press star T mobile phone to ask a question. Please ensure that your line is Amit Luckily I'm not supposed to have a T. I C. F. I must've funky to begin mats. Please go ahead.
Speaker 2: Thank you, Victoria. Good morning, everyone. This is Matt Sunkies, CFO with Southern Missouri Bancorp. Thank you for joining us. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Monday, January 24, 2022, and to take your questions.
Thank you Victoria and good morning, everyone. This is Matt Funke CFO with Southern Missouri Bancorp. Thank you for joining us.
The purpose of this call is to review the information and data presented in our quarterly earnings release dated Monday January 24, 2022 and to take your questions.
Speaker 2: We may make certain forward-looking statements during today's call, and we refer you to our cautionary statement regarding forward-looking statements contained in the press report.
We may make certain forward looking statements during today's call and we refer you to our cautionary statement regarding forward looking statements contained in the press release I'm joined on the call today by Greg Steffens, our president and CEO .
Speaker 2: I'm joined on the call today by Greg Steffens, our President and CEO . Greg will lead off our conversation today with commentary on our current operations, lending activity, and credit quality measures.
Greg will lead off our conversation today with commentary on our current operations lending activity and credit quality measures.
Speaker 3: Thank you, Matt, and good morning, everyone. This is Greg Steffens, and thank you for joining us today. Since our last call is in most of the United States, our market areas have seen a resurgence in COVID. Reported cases and hospitalizations moved steadily higher in November and through most of December before spiking right after the holidays in our market area.
Thank you, Matt and good morning, everyone. This is Greg Steffens and thank you for joining us today.
Since our last call is that most of the United States our market areas have seen.
Resurgence in Covid.
Reported cases in hospitalizations.
We steadily higher in November and through most of December .
The poorest spiking right after the holidays in our market areas.
Speaker 3: We're seeing many more team members reporting infection or exposure. And it has been problematic in terms of keeping staff on the job or our lobbies open for walk-in business. But we appreciate all of our...
We're seeing many more team members reporting infection or exposure and it has been problematic in terms of keeping staff on the job or our lobbies open for walk in business.
Well, we appreciate all of our team members.
Speaker 3: who are at times working remotely or with limited staff to continue meeting our customer needs. We continue to see very few restrictions on business activity in our primary markets, and we feel like the light is close to the end of the tunnel.
Ooh times, working remotely or with limited staff to continue meeting our.
Customer needs.
Continue to see very few restrictions on business activity in our primary markets.
Feel like the.
Well it is close to the end of the tunnel.
Speaker 3: We continue to feel very good about our current credit profile and borrower performance. We continue to closely monitor and work with two hotel industry relationships totaling just under 25 meters squared.
We continue to feel very good about our current credit profile and borrower performance.
We continue to closely monitor and work with two hotel industry relationships totaling just under.
24 million.
Speaker 3: with borrowers whose locations or business models were particularly impacted by the pandemic. We're hopeful that this recent wave of COVID recedes quickly and there seems to be some reason for optimism for that. We're hopeful that as we move into the later parts of the year, these properties' occupancy rates will move back closer to historical level.
With borrowers whose locations or business models were particularly impacted by the pandemic and we're hopeful that this recent wave of Covid receipts quickly and there seems to be some reason for optimism for that.
We're hopeful that as we move into the later parts of the year. These properties occupancy rates will move back closer to historical levels.
Speaker 3: PPP forgiveness slowed in the December quarter with a little more than half of the remaining balances forgiven.
P. P P forgiveness slowed in the December quarter, with a little more than half of the remaining balances forgiven.
Since September 30, we have 11 and a half million still outstanding at 12, 31, which is comprised of just 33 loans.
Speaker 3: We have $11.5 million still outstanding at $1,231, which is comprised of just 33 loans.
Speaker 3: We've now received forgiveness or repayment of 99% of our PPP loans from Rounds 1 and 2 by loan count and 94% in dollar terms.
We've now received forgiveness or repayment of 99% of our P. P. P loans from round, one and two by loan count and 94% in dollar terms.
Speaker 3: We're hopeful to get most of those remaining closed out in the March quarter.
We're hopeful to get most of those remaining closed out in the March quarter.
Speaker 3: Accelerated fee recognition dropped off significantly in the December quarter, and there remains only about $300,000 that is still deferred.
Accelerated fee recognition dropped off significantly in the December quarter, and there remains only about 300000 that is still deferred.
Nonperforming loans dropped quite a bit during the December quarter down $3 2 million.
Speaker 3: Non-performing loans dropped quite a bit during the December quarter, down $3.2 million, with the largest contributor being the return to accrual status of a relationship secured by single-family residential rental property. In addition, we also had a larger credit that was paid off.
With the largest contributor being the return to accrual status.
Our relationship secured by single family residential rental property. In addition, we also had a larger credit that was paid off.
Speaker 3: Adversely classified loans continue to move lower, down from the prior quarter by $1.8 million to $15.3 million. A year ago they totaled $24.8 million.
Adversely classified loans continued to move lower down from the prior quarter by $1 8 million to $15 3 million a year.
Year ago, they totaled $24 8 million.
Speaker 3: The hotel loans we mentioned that we're closely monitoring are not adversely classified, but are considered special mention steps.
Hotel loans, we mentioned that we're closely monitoring are not adversely classified but are considered special mentioned status.
Speaker 3: Watch and special mention credits totaled a combined $35.9 million on December 31st.
Watson Special mentioned credits totaled a combined $35 9 million at December 31.
Speaker 3: down 3.5 million this quarter and as compared to 60.8 million a year earlier.
Down three and a half million this quarter and as compared to $60 8 million a year earlier.
Speaker 3: We're also pleased with past due loans, which have moved lower and remain at very low historical levels.
We're also pleased with past due loans, which have moved lower and remain at very low historical levels.
Speaker 3: At $3.3 million in loans past 30 days or more, they represent 14 basis points of total loans, which is down from 21 basis points last quarter and 35 basis points for $7.7 million one year ago.
At $3 3 million.
Loans past due 30 days or more they represent 14 basis points of total loans, which is down from 21 basis points last quarter, and 35 basis points grew $7 7 million one year ago.
Speaker 3: Turning to our ag portfolio and agricultural update, our ag production and other loans to farmers were down $22.7 million in the quarter.
Turning to our AG portfolio and agricultural update our AG production and other loans to farmers were down $22 7 million in the quarter.
And up five 4 million compared to this time last year, while AG real estate balances were up $10 $5 million over the quarter and are up $10 2 million compared to December last year.
Speaker 3: and up $5.4 million compared to this time last year. While ag real estate balances were up $10.5 million over the quarter and are up $10.2 million compared to December last year.
Speaker 3: Our agricultural borrowers generally had a very good 2021 with higher yields and better prices.
Our agricultural borrowers generally had a very good 2021.
With higher yields and better pricing.
Speaker 3: Working capital positions for these borrowers mostly strengthen and are at some of the best levels we've seen.
Working capital positions for these borrowers mostly strengthened and there are some of the best levels we've seen.
Corn rice and soybean harvest, we're well under way when we updated you last quarter and generally our borrowers final yields per acre we're pretty much.
Speaker 3: Corn, rice, and soybean harvest were well underway when we updated you last quarter, and generally our borrowers' final yields per acre were pretty much in line with what we've seen over the last several days.
In line with what was then projected.
Speaker 3: Cotton harvest was just underway, but yields came in, as expected, around 1,200 pounds an acre on less productive ground and 1,400 pounds per acre on the more productive.
Carton cotton harvest was just underway, but yields came in as expected around 200 pounds an acre on less productive ground in 1400 pounds per acre on the more productive drill.
Speaker 3: Cotton prices moved higher into the calendar year end, helping these farmers to a very good 2021.
<unk> prices moved higher into the calendar year and helping these farmers too.
Very good 2021.
Speaker 3: Looking ahead to 2022, we anticipate that some of our borrowers will rotate out of corn, which was our largest concentration in 2021, due to the higher input cost given fertilizer requirements for that particular crop. They may move some of their less productive ground or some acreage where they need crop rotations to soybeans, cotton, popcorn, or peanuts.
Looking ahead to 2022, we anticipate that.
Some of our borrowers will rotate out of corn, which was our largest concentration in 2021 due to the higher input costs given fertilizer requirements for that particular crop they may.
They moved some of the less productive ground or some acreage where they need crop rotations to soybeans cotton pop corner peanuts.
Summarized acreage could also be diverted to soybeans as well for the same reasons.
Speaker 3: Some rice acreage could also be diverted to soybeans as well for the same reason.
Speaker 3: In general, the outlook for pricing on crops remains strong relative to our underwriting as we move into 2022, but we would cautionarily note input costs are being pressured and our pressuring margins.
In general the outlook for pricing on crops remained strong relative to our underwriting as we move into 2022, but we would caution narrowly node input costs are being pressured and are pressuring margins.
Speaker 3: Additionally, our borrowers continue to see some supply chain issues.
Additionally, our borrowers continue to see some supply chain issues.
Speaker 3: with supplies for parts and equipment, and logistics for moving grain or livestock to market.
With suppliers for parts and equipment and logistics for moving grain or livestock market.
Speaker 3: Still, overall, the picture for 2022 looks reasonably strong, coming off a very good 2021. And we would expect the vast majority of our loan production lines.
Still overall the picture for 2022 looks reasonably strong coming off a very good 2021 and.
And we would expect the vast majority of our.
Loan production lines to be renewed.
Pat.
Speaker 2: Thanks, Greg. We earned $1.35 diluted in the December quarter. That's the second quarter of our fiscal year. That figure is down $0.08 from the link September quarter, and it's up $0.03 from the $1.32 diluted that we earned in the December 2020 quarter.
Thanks, Greg.
We earned $1 35 diluted in the December quarter, that's the second quarter of our fiscal year that figure was down eight from the linked September quarter, and it's up three from the $1 32 diluted that we earned in the December 2020 quarter.
Speaker 2: In the year-ago period, we had a charge to earnings for provision for credit losses as compared to no charge in the current period and as compared to a modest negative provision in the length of September quarter.
In the year ago period, we had a charge to earnings for provision for credit losses as compared to no charge in the current period and as compared to a modest negative provision in the linked September quarter.
Speaker 2: Our net interest margin in the December quarter was 3.77, which included about six basis points of contribution from fair value discount accretion on acquired loan portfolios, or $381,000 in dollar terms.
Our net interest margin in the December quarter was $3 77, which included about six basis points of contribution from fair value discount accretion on acquired loan portfolios or 381000 in dollar terms.
Speaker 2: Also, as forgiveness of PPP loans continued, accelerated accretion of deferred origination fees on those loans added another $890,000 to interest income, which was 13 basis points of contribution to the margin.
Also as forgiveness of PPP loans continued accelerated accretion.
Excuse me accelerated accretion of deferred origination fees on those loans added another 890000 to interest income, which was 13 basis points of contribution to the margin.
Speaker 2: In the year ago period, our margin was 3.92%, of which nine basis points resulted from fair value discount accretion, 516,000. And PPP forgiveness caused us to accelerate accretion of 968,000 in deferred origination fees, which contributed 16 basis points to the margin.
In the year ago period, our margin was 392% of which nine basis points resulted from fair value discount accretion 516000, and PPP forgiveness caused us to accelerate accretion of 968000 in deferred origination fees, which contributed 16 basis points to the margin.
Speaker 2: On what we see as a core basis then, our margin was down nine basis points, comparing the December 21 quarter to the December 20 quarter. We see our core loan yields as being down 23 basis points, while what we view as our core cost of deposits is down 26, and our total core cost of funds down 28.
On what we see as a core basis, then our margin was down nine basis points comparing the December 21 quarter to the December 'twenty quarter, we see our core loan yields as being down 23 basis points, while what we view as our core cost of deposits is down 26, and our total core cost of funds down 28.
Speaker 2: Higher average cash balances drove the decline in the margin, reducing our total interest-earning asset yield, which dropped by 35 basis points, outside of accretion or accelerated recognition of PPP.
Higher average cash balances drove the decline in the margin, reducing our total interest, earning asset yield which dropped by 35 basis points outside of accretion or accelerated recognition of PPP fees.
Speaker 2: In the linked September quarter, we had reported a margin of 4.01%, which included a similar benefit from fair value discount accretion, six basis points. But we also saw significantly more accelerated recognition of deferred PPP fees in that quarter, which had contributed 34 basis points.
In the linked September quarter, we had reported a margin of four 1%, which included a similar benefit from fair value discount accretion six basis point, but we also saw significantly more accelerated recognition of deferred PPP fees in that quarter, which had contributed 34 basis points.
Speaker 2: So on what we consider a core sequential basis, we see a decrease of about three basis points, again attributable to increased average cash balance.
So on what we consider our core sequential basis, we see a decrease of about three basis points again attributable to increased average cash balances.
Speaker 2: Our non-interest income was down $435,000 compared to the year-ago period, so we saw a continued decline in gains on sales of residential loans originated for that purpose and the related servicing income, as well as normalized earnings on bank-owned life insurance as compared to one-time benefits included a year ago.
Our noninterest income was down 435000 compared to the year ago period. So we saw a continued decline in gains on sales of residential loans originated for that purpose and the related servicing income as well as normalized earnings on bank owned life insurance as compared to one time benefits included a year ago.
Speaker 2: Increases in other income, which included an abnormally strong quarter for wealth management revenues of $568,000 from a year ago, due primarily to one significant transaction, and also a gain on our exit from a renewable energy tax credit investment.
Increases in other income, which included an abnormally strong quarter for wealth management revenues up 568000 from a year ago due primarily to one significant transaction and also a gain on our exit from our renewable energy tax credit investment.
Speaker 2: Increases in deposit service charges, other loan fees, and bank card interchange income helped offset the decline as well.
Increases in deposit service charges other loan fees and bank card interchange income helped offset the decline as well.
Speaker 2: Compared to the linked quarter, non-interest income was up mostly due to the other income items noted. The tax credit investment benefit was $278,000 while wealth management revenues were higher by $395,000 on a linked quarter basis.
Compared to the linked quarter noninterest income was up mostly due to the other income items noted the tax credit investment benefit was 278000, while wealth management revenues were higher by 395000 on a linked quarter basis.
Speaker 2: Non-interest income, I'm sorry, non-interest expense was up 2 million compared to the year ago quarter. That included just over $200,000 in M&A charges, mostly legal and professional at this point. A $130,000 charge to write down the value of our legacy facility in Cairo, Illinois, where we consolidated our operations to a new facility picked up in a branch purchase and assumption.
Noninterest income I'm, sorry, noninterest expense was up $2 million compared to the year ago quarter that included just over 200000 in M&A charges, mostly legal and professional at this point $130000 charge to write down the value of our legacy facility in Cairo, Illinois, where we consolidated our operation.
To a new facility picked up in a branch purchase and assumption.
Speaker 2: We also had increased foreclosed property expenses as we took a write-down on the valuation of a single foreclosed property and also had some losses on dispositions with that expense category of $264,000 compared to a year ago.
We also had increased foreclosed property expenses as we took a write down on the valuation of a single foreclosed property and also had some losses on dispositions with that expense category up 264000 compared to a year ago.
Speaker 2: Other increases were attributable to occupancy, data processing, and compensation, with compensation due to above-trend increases in compensation during 2021, a modest uptick in headcount, and in this quarter, higher wealth management commissions resulting from their unusually strong quarter.
Other increases were attributable to occupancy data processing and compensation with compensation due to above trend increases in compensation during 2021, a modest uptick in head count.
And in this quarter higher wealth management commissions, resulting from their unusually strong quarter.
Speaker 2: Compared to the linked quarter, non-interest expense was up about $850,000, mostly due to the items already commented on.
Compared to the linked quarter noninterest expense was up about 850000, mostly due to the items already commented on.
Speaker 2: The company reported minimal net charge-offs in the December quarter, a little change from roughly zero in the September quarter. Our trailing 12-month net charge-offs now stands at just one basis point, which is $275,000 in dollar terms.
The company reported minimal net charge offs in the December quarter, and little changed from roughly zero in the September quarter, our trailing 12 month net charge offs now stands at just one basis point, which is 275200 75000 in dollar terms.
Speaker 2: Loan growth picked up from the December quarter. Even so, our continued positive credit metrics, along with a stabilized projection for economic recovery, indicated that no provision for credit losses was appropriate for the quarter after a modest recovery in the September quarter, and as compared to a charge of one million in the December quarter a year ago.
Loan growth picked up from the December quarter, even so our continued positive credit metrics, along with our stabilized projection for economic recovery indicated that no provision for credit losses was appropriate for the quarter. After a modest recovery in the September quarter, and as compared to a charge of $1 million in the December quarter, a year ago.
Speaker 2: In the last 12 months, we've recorded a total negative provision of $3.3 million as compared to a total charge of $7.2 million for the prior 12 months ended 12-31-2020, as we built reserves heading into the pandemic.
In the last 12 months, we have recorded a total negative provision of $3 3 million as compared to a total charge of $7 2 million for the prior 12 months ended 12 31 2020.
As we built reserves heading into the pandemic.
Speaker 2: On the balance sheet, gross loan balances were up $109 million in the December quarter, net of PPP balances declining by $15 million. An immaterial amount was picked up from the Cairo branch purchase.
On the balance sheet gross loan balances were up $109 million in the December quarter net of PPP balances declining by $15 million, an immaterial amount was picked up from the <unk> branch purchase.
Speaker 2: Compared to December 31st a year ago, gross balances were up 234 million, or almost 11%. Over those 12 months, PPP balances are down 84 million. So adjusted for that, our annual rate of growth would be a little more than 15% outside PPP.
Compared to December 31, a year ago gross balances were up $234 million or almost 11% over those 12 months PPP DAU PPP balances are down 84 million. So adjusted for that our annual rate of growth would be a little more than 15% outside PPP.
Speaker 2: The investment portfolio declined slightly over the December quarter, but has also been above trend over the last 12 months.
The investment portfolio declined slightly over the December quarter, but has also been above trend over the last 12 months.
Speaker 2: The quarter's loan growth, while we didn't make a provision for credit losses, moved our allowance as a percentage of grossed loans down seven basis points from the length quarter to 1.36 percent at December 31st.
The quarters loan growth, while we didn't make a provision for credit losses moved our allowance as a percentage of gross loans down seven basis points from the linked quarter to 136% at December 31.
As a percentage of gross loans, excluding PPP loans. It was also down seven basis points from the linked quarter to $1 three 7%.
Speaker 2: As a percentage of gross loans excluding PPP loans, it was also down seven basis points from the linked quarter to 1.37%.
Speaker 2: maybe this will be the last quarter we have to get those percentages set.
Maybe this will be the last quarter, we have to give those percentages separately.
Speaker 2: Deposits had a very strong December quarter with more than $180 million in growth. This was impacted by the KRO branch purchase and assumption, adding $28.5 million, as well as public unit funding inflows. Brokered funding was down $5 million during the quarter, while public unit deposits in total were up $101 million, which included $15 million in public unit funds from the KRO deposit assumption.
Deposits had a very strong December quarter with more than $180 million in growth. This was impacted by the Kayrol branch purchase and assumption, adding $28 5 million as well as public unit funding inflows brokered funding was down $5 million during the quarter.
While public unit deposits in total were up 101 million, which included $15 million in public unit funds from the Cairo deposit assumptions.
Speaker 2: We also saw seasonal public unit inflows and a new public unit relationship accounting for the significant portion of that growth.
We also saw a seasonal public unit inflows and a new public unit relationship accounting for the significant portion of that growth.
Speaker 2: In the current quarter, time deposits were basically unchanged as balances assumed from KRO were offset by a maturity of a broker deposit.
In the current quarter time deposits were basically unchanged as balances assumed from <unk> were offset by a maturity of a broker deposit.
Speaker 2: Over the last 12 months, time deposits are down $68 million, inclusive of a $16 million decrease in brokered funding.
Over the last 12 month time deposits are down $68 million inclusive of a $16 million decrease in brokerage funding non.
Speaker 2: Non-maturity deposits, meanwhile, are up $355 million over the last 12 months, which includes a little more than $100 million in public units.
Non maturity deposits. Meanwhile, we're up $355 million over the last 12 months, which includes a little more than $100 million and public unit funds.
Speaker 2: FHLB borrowings declined $10 million from the prior quarter and are down almost $27 million from 12 months earlier.
<unk> borrowings declined $10 million from the prior quarter and are down almost $27 million from 12 months earlier.
Speaker 2: Finally, our tangible equity ratio decreased by about 34 basis points during the quarter as our total asset growth picked up. Our risk-based ratios declined also as we grew the lending portfolio faster than capital, but we do remain well above regulatory expectations and buffers.
Finally, our tangible equity ratio decreased by about 34 basis points during the quarter as our total asset growth picked up our risk based ratios declined also as we grew the lending portfolio faster than capital, but we do remain well above regulatory expectations and buffers.
Speaker 3: Greg, final comments? Thanks, Matt. Our loan growth in the first half of the fiscal year was very strong, but we wouldn't expect it to repeat that during the second half. We saw strong growth this quarter in our commercial real estate, multifamily, residential, and construction loan portfolio.
Greg final comments, thanks, Matt our loan growth in the first half of the fiscal year was very strong, but we wouldn't expect it to repeat that during the second half we saw a strong growth this quarter in our commercial real estate multifamily.
Residential and construction loan portfolios, our commercial balances Isaly increased model modestly despite $15 million in PPP loan forgiveness.
Speaker 3: Our commercial balance has actually increased modestly despite $15 million in PPP loan forgiveness.
Speaker 3: Activity in our west region, centered in Springfield, Missouri, led the way in the current quarter and over the last 12 months.
Activity in our West region centered in Springfield, Missouri led the way in the current quarter and over the last 12 months.
Speaker 3: Our outlook for the March quarter would be more in line with historical trends. Our pipeline for loans to fund in 90 days was $158 million at 1231, down from $181 million at September 30, but well above the $85 million we reported at this time last year.
Our outlook for the March quarter would be more in line with historical trends our pipeline for loans to fund in 90 days was $158 million at $12 31 down.
Down from $181 million at September 30th, but well above the $85 million, we reported at this time last year.
Speaker 3: While we saw ag paydowns begin in the December quarter, we'll see some further reductions in the March quarter. And of course, as we mentioned, a modest amount of PPP repayment yet to come.
While we saw AG pay downs begin in the December quarter, we will see some further reductions in the March quarter and of course, as we mentioned a modest amount of PPP repayment yet to come.
Speaker 3: For the current quarter, we anticipate modest loan growth in total, followed by what is typically a better June quarter for growth.
For the current quarter, we anticipate modest loan growth in total <unk>.
Hello by what is typically a better June quarter for growth.
Our non owner occupied CRE.
Speaker 3: CRE concentration was approximately 288% of regulatory capital at 1231, up 17 basis points compared to September 30th, and 263% one year ago.
Sorry concentration was approximately 288% of regulatory capital of $12 31.
Up 17 basis points compared to September 30, and 263% one year ago.
Speaker 3: During the quarter, our loan growth in all relevant categories outstripped our consolidated cap.
During the quarter, our loan growth in all relevant categories outstripped, our consolidated capital growth.
Speaker 3: Our volume for loan originations was about $335 million in the December quarter, up from the September quarter and up from the first half of the calendar year when our totals were elevated due to second round PPP activity.
Our volume per loan originations was about $335 million in the December quarter up from the September quarter and.
Up from the first half of the calendar year, when our totals were elevated due to the second round PPP activity.
Speaker 3: In this same quarter a year ago, we originated $229 million by comparison.
In the same quarter, a year ago, we originated $229 million by comparison.
Speaker 3: Our December and March quarters are usually our best for deposit growth, and this December quarter was exceptionally strong. We did add $28 million in deposits from the branch acquisition and consolidation in Cairo, and our public unit balances increased.
Our December and March quarters are usually our best for deposit growth in this December quarter was exceptionally strong.
We did add $28 million in deposits from the branch acquisition and consolidation in Cairo, and our public unit balances.
<unk>.
Speaker 3: Time balances continue to stabilize in the second half of the calendar year after significant declines in the prior four quarters. Our excess reserves continue to move higher in the December quarter, and we expect them to remain elevated for the coming quarter.
Time balances continued to stabilize in the second half of the calendar year.
After significant declines in the prior four quarters, our excess reserves continue to move higher in the December quarter, and we expect them to remain elevated for the coming quarter.
Speaker 3: Our east region, which includes the Cairo market, has been our leader in growth in the current quarter and over the last 12 months.
Our east region, which includes the payroll market has been a leader in growth in the current quarter and over the last 12 months.
Speaker 3: Adjusted for Cairo, the east region would be basically comparable to the west for year-over-year growth.
Adjusted for Cairo, The East region would be basically comparable of the west for year over year growth.
Speaker 3: in those two regions where we've seen the largest pickup in public unit balances.
These two regions, where we've seen the largest pickup in public unit balances.
Speaker 3: Finally, our team's been working hard to complete the transition for a branch assumption while also preparing for the simultaneous legal and system mergers of Fortune Bank, headquartered in Arnold, Missouri, which is in Jefferson County portion of the St. Louis MSA.
Finally, our team has been working hard to complete the transition for our branch assumption.
While also preparing for the simultaneous legal and system mergers.
Fortune Bank headquartered in Arnold, Missouri, which is in Jefferson County portion of the St. Louis MSA.
Speaker 3: And with the second facility in Oakville, which is...
And with a second facility in Oakville, which is.
Speaker 3: in the south part of St. Louis County. The merger is set for February 25th and we received approval from the Federal Reserve to proceed with the approval of the proposed budget.
In the south part of St. Louis County.
The merger is set for February 25th and we received approval.
The approval from the Federal reserve to proceed on that timeframe.
Speaker 3: We also continue to look for additional acquisition opportunities, but this market's been relatively quiet recently.
We also continue to look for additional acquisition opportunities, but this market has been relatively quiet recently.
Thanks, Greg at this time, Victoria, we're ready to take questions from our participants. So if you would please remind folks how they can queue for questions at this time.
Speaker 2: Thanks, Greg. At this time, Victoria, we're ready to take questions from our participants. So if you would, please remind folks how they can queue for questions at this time.
Perfect. Thank you Matt.
Now I open up for a Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you wish to withdraw your question. Please press star one.
I wanted to ask a question. Please ensure that your line is on mute had lately.
And our first question comes from Andrew Liesch from Piper Sandler. Please go ahead. Your line is open.
Speaker 4: Thanks. Hi, good morning, everyone. Good morning, Andrew. Good morning. A question on the margin, and it seems like it's pretty obvious we're going to be getting a few rate hikes over the next 12 to 24 months. How should we expect the margin to react, say, from the first rate hike and then for subsequent rate hikes, assuming that there's a ramp up in Fed funds?
Thanks, Tom and good morning, everyone.
Good morning, Andrew.
Good morning.
On the margin and seem to be pretty obvious we're going to be getting a few rate hikes over the next two.
The 24 months.
Should we expect the margin to react.
For the first rate hike and then.
For subsequent rate hikes are assuming that there is a ramp up in fed funds.
Our modeling, we generally expect that our deposit pricing has been somewhat at a floor here recently with the overnight rates as low as they are.
Speaker 2: Our modeling, we generally expect that our deposit pricing has been somewhat at a floor here recently with the overnight rates as low as they are, so some benefit as rates move up. Of course, the cash position is helpful in that regard.
So some benefit as.
As rates move up of course, the cash position is helpful in that regard.
Speaker 2: We do have loans that are at floors as well, so that will offset some of what we see on the deposit side. Got a little bit of benefit from the fact that our time deposits are lower as a percentage of our total funding, but we may see some shift back into those as well as the rate curve steepens.
We do have loans that are at floors as well so that will offset some of what we see on the deposit side, we had a little bit of benefit from the fact that our time deposits are lower as a percentage of our total funding, but we may see some shift back into those as well as the rate curve steepens.
Speaker 2: So we feel reasonably confident we should do well in that first 100 basis points. If rate increases continue beyond there, we would probably see some margin pressure.
So we feel reasonably confident we should we should do well in that first 100 basis points if.
Rate increases continue beyond there, we would probably see some margin pressure.
Got it it sounds like you think youll be able to keep your deposit betas are pretty low for the first handful of her first few rate hikes does that seem fair.
Speaker 4: Got it. It sounds like you think you'll be able to keep your deposit pay that's pretty low for the first handful or for the first few rate hikes. Does that seem fair? I think that's right.
I think thats right.
What we're hoping for got it.
Speaker 4: Got it. Good. Um, and you know, Greg, I mean, obviously, loan growth here in the first half your fiscal year, I think well above what your guidance was, what's what's driving that? Is it just more calling efforts? It's more demand from customers? Is it market share gains? Is it extra business activity? What is what's been driving that? And why do you think that's gonna slow down here in the next
Got it.
Greg I mean, obviously loan growth here in the first half of your fiscal year well above what your guidance was grew what's what's driving that is it just.
More calling efforts as more demand from customers is it market share gains is it extra business activity what is whats been driving that and why do you think that from us.
Down here in the next six months.
Speaker 3: We had several customers of some larger size that went back into the
We had several customers of some larger size.
Went back into the market again.
Speaker 3: One of the big things that has led to increased growth over the first six months was we really had a drop in prepayment activity. And we've had some new team members that joined that have helped really contribute and increased calling efforts given cash balances that we had and was picking up.
One of the big things that has led to increased growth over the first six months was we really had a drop in prepayment activity.
And we've had some new team members that joined that have helped really contribute.
Increased calling efforts given cash balances that we had and was picking up.
Speaker 3: You know, we just had a lot of things all work together to contribute to a really strong first six months.
We just had a.
A lot of things all work together to contribute to a really strong first six months.
Speaker 3: And we do, and you know, we will have a really good quarter this quarter for production, but we do anticipate higher rates of repayment this quarter than what we've had with both with our ag portfolio and some of our commercial portfolios.
And we do and we will have a really good quarter this quarter for production, but we do anticipate higher rates of repayment this quarter than what we've had with both with our AG portfolio and some of our commercial portfolio.
But overall, we're definitely exceeding our loan growth estimates of what we had at the beginning of <unk>.
Speaker 3: But overall, we're definitely exceeding our loan growth estimates of what we had at the beginning of our fiscal year. And we're definitely going to exceed our budgeted results for the year.
Fiscal year, and we're definitely going to exceed our budgeted results for the year.
Speaker 4: Certainly, certainly. Cool. Thank you for taking the questions. I'll step back. Very helpful.
Certainly certainly cool.
Thank you for taking the questions I'll step back.
Okay.
Thanks, Andrew.
Speaker 1: Perfect, thank you Andrew for your question and as a reminder if you'd like to ask a question please press star 1.
Perfect. Thank you Andrew for your questions and as a reminder, if you'd like to ask a question. Please press star one.
Speaker 1: And our next question comes from Kelly Mota from KBW. Your line is open. Hi.
And our next question comes from Kelly Motta from KBS I believe your line is open.
Hi, good morning.
Speaker 5: I just, thank you for the question. I wanted to ask about.
I guess good morning, Kevin I wanted to ask about.
Speaker 6: Expenses, we're hearing from a lot of banks across the country about upward pressure on expenses, just inflationary pressure as well as increased tax spend. Can you maybe articulate what you're seeing, if there's any inflationary pressures higher than what you've typically seen, as well as, you know, any plans for investment over the next 12 months?
<unk> expenses were hearing from a lot of banks across the country about upward pressure on expenses.
Just inflationary pressure as well as increased tax patents can you.
Maybe articulate why what you're seeing if there's any inflationary.
Pressures are higher than what you typically would as well as.
Any any plans for that over the next 12 months.
What's the second part any plans for investment.
Speaker 5: What's the second part, any plans for investment? Second, tech investment for the next 12 months. Thanks.
Chegg investment for the next 12 months. Thanks.
Okay.
Speaker 2: Well, on the first part of the question, we're definitely seeing wage pressure. We probably really began seeing it late in 2019. We pulled some levers trying to address that over the last couple of years, and we'll continue to see some increase as we move into calendar 22. Probably a little bit more of an increase this year than what we've had to recognize over the first couple. But no, that's definitely the case in our market.
Well on the first part of the question, we're definitely seeing wage pressure, we probably really began seeing it late in 2019, we pulled some levers trying to address that over the last couple of years.
We will continue to see some some.
Greece as.
As we move into calendar 'twenty, two probably a little bit more of an increase this year than what we've had to recognize over the first couple.
Now that's that's definitely the case in our markets.
Tech investment.
Speaker 2: I wouldn't say it's anything new to us, but it's obviously...
I wouldn't say, it's anything new to us, but it obviously.
Speaker 2: even more important priority as we look at how to how to accomplish more with
And even more important priority as we look at how to how to accomplish more with.
Fewer head count wherever possible.
Speaker 6: Great. And then I just saw that your excess cash, looking at your average balance sheet, built quite a bit this quarter. Just any thoughts on what a normalized level of cash looks like for you guys, and what's the reasonable pace in order to get there, either via, you know,
Great and then I just thought that on your excess cash and looking at your average balance sheet.
Quite a bit this quarter.
Any thoughts on what a normalized level of cash looks like for you guys and what's the reasonable.
In order.
To get there either.
Yeah Adam.
Speaker 6: a deployment into loans or securities, just trying to get a better sense of the size of the balance.
The playbook into loans or securities just trying to get a better sense of the size of the balance sheet.
Greg logs that number to be as low as possible Kelly.
Speaker 2: Greg likes that number to be as low as possible, Kelly. With the size of our balance sheet now, long-term normal, we'd like to see it well below 100 million.
With the size of our pouch size of our balance sheet now.
Long term normal we'd like to see it well below $100 million.
Speaker 2: how to get there from where we're at. We still think at some point, we'll see some deposit outflows.
How to get there from where we're at.
Still think at some point, we will see some deposit outflows.
Speaker 2: Over the course of the year, we do expect to have continued loan growth, and as we see opportunities in the yield curve, we would look more at deployment into the investment portfolio.
Over the course of the year, we do expect to have continued loan growth.
And as as we see opportunities in the yield curve, we would look more at deployment into the investment portfolio.
The limitation there is we've always been relatively limited in what we had in our balance sheet in total in.
Speaker 2: The limitation there is we've always been relatively limited in what we had in our balance sheet in total in the investment portfolio, so really moving the needle there is pretty tough. But those three...
In the investment portfolio, so really moving the needle there is pretty tough, but those those three things would be our goal.
Speaker 3: We do anticipate picking up, you know, as Andrew was hinting at, some benefit as rates do go up with the Fed raising rates, what we expect in March.
We would do anticipate picking up.
As Andrew was.
Pending.
Some benefit as rates do go up with the fed raising rates, while we expect in March.
Speaker 3: that we would pick up some where Cassius is going to be hurting us. Next quarter is.
That we would pick up some of our cash is going to be hurting us.
Next quarter as much as it has this quarter.
Speaker 3: But cash balances are going to remain above targeted levels for the foreseeable future at this point.
Cash balances are going to remain above targeted levels for the foreseeable future at this point.
Got it thanks.
Thanks Kelly.
Speaker 1: Perfect. Thank you Kelly for your question and at this point there are no further questions and I'd like to pass back over to Mads for any final remarks.
Perfect. Thank you for your question and at this point there are nice I have a question and I would like to pass back over to match for any final remarks.
Speaker 2: Okay, thank you again, Victoria. Thank you everyone for joining us. We appreciate your interest as always, and we'll speak with you again in three months. Have a good day.
Okay. Thank you again, Victoria. Thank you everyone for joining US we appreciate your interest as always and we will speak with you again in three months have a good day.
Speaker 1: Thank you everybody for joining today's call. You may now disconnect your lines.
Thank you everybody for joining today's call you may now disconnect your lines.
Speaker 7: ?
Uh huh.
Okay.
Okay.