Preliminary Q1 2022 Great Southern Bancorp Inc Earnings Call
Yeah.
Okay.
Good day, and thank you and thank you for standing by.
Welcome to the Great Southern Bancorp incorporated first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then one on your telephone if you require any further assistance during the conference. Please press Star Zero I would now like to hand, the conference over to our speaker today Ms. Kelly Colonna, you may begin.
Thank you Latanya good afternoon, and welcome to our call. The purpose of this call today is to discuss the company's results for the quarter ending March 31, 2022, 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 that.
Place any undue reliance on any of these forward looking statements, which speak only as the date. They are made please see our COO.
Forward looking statements disclosure in our first quarter 2022 earnings release for more information.
<unk> CEO , Joe Turner, and Chief Financial Officer, Rex Copeland are on the call with me today I will now turn the call over to Joe Turner.
Thanks, Kelly good afternoon, and as Kelly said, we really appreciate all of you joining us for our call today overall, our first quarter earnings were very solid.
Get us off to a great start for what we expect to be another productive year.
We certainly recognize that there are continued economic and there's continued economic and societal uncertainty.
We're just going to remain focused on our customers' needs and it's always operate with a long viewed mindset as is typical I'll provide some brief remarks on the company's performance and then turn the call over to Rex Copeland, our CFO to go into more detail about the financial results then we'll open it up for questions.
In the first quarter of 'twenty, two we earned $17 million or $1 30 per diluted share compared to $18 9 million or $1 36 per diluted sure sure I think our pretax earnings were down.
Q1, 'twenty two from Q1, 'twenty, one about two and a half million and that's almost entirely the result of lower P. P fees by about 800000, and I think our profit on loan sales was down by about $1.5 million.
Our performance ratios earnings performance ratios were very solid during the quarter of $1 27 per share or I'm, sorry, $1, one point to 7%.
Turn on.
Average assets and $11 one four per.
Percent return on equity our margin was $3 43 for the quarter.
The Federal reserve is obviously talking about.
Pretty significantly raising rate and a 2022, which should be.
Positive for us assuming the.
LIBOR rates follow suit, which there is no reason to believe they would.
Or loans did increase in the first quarter by about $100 million.
Our pipeline of commitments.
<unk> strong thats up about $98 million.
From the end of 2021, we did open our commercial our commercial loan production office, New commercial loan production office in Phoenix Midway through the quarter and we are expecting to open are hoping to open at least one more loan production office during 2022.
Of course, our model is to hire experienced lender for the market, we're going into and then sometimes you get a number two from within our organization will will follow them or will higher in those.
In the case of Phoenix, we've hired a number of wins in that market as well.
Asset quality metrics continued to be extremely strong with nonperforming assets of $5 2 million a decrease of 821000.
From the end of 2021.
Sure.
And our nonperforming assets to period end assets was 10 basis points.
At the end of the first quarter so negligible.
But I think we're all.
Almost completely out of or <unk>, which will be.
The first time, I remember that happening in a long long time.
Our capital continues to be very strong.
From the end of 'twenty, one our total common stockholders' equity did decrease by about $34 million.
Rex might go over this I'll just give you the brief snapshot and basically we got the increases the capital $17 million from earnings 3 million from option exercises. So total increases the capital during the quarter were 20 million.
Decreases were about 45% to $26 million of stock purchases probably.
The decreases in our mark to market on our securities and our swap were about $23 million and then the additional decrease will be the results of our dividends.
Our capital ratios are still extremely strong and affordability.
Afford us the opportunity to really do whatever we want to do.
So.
I think that with that I'll turn the call over to Rex.
Thanks, Joe.
Just add on to what Joe said, we did buy back a fair amount of stock in the first quarter.
Most more than 20000 shares.
Our stock and we still have about 750000 shares available under our authorized repurchase program.
So I'll talk briefly about net interest income and net interest margin Joe Joe gave a couple of highlights on that.
The net interest margin in the first quarter of 'twenty two.
Decreased about 823000.
<unk> to the first quarter of 2021.
The total was $43 3 million in this first quarter versus $44 1 billion in the first quarter last year and then we also had net.
Interest income of $44 2 million in the fourth quarter of 2021 sort of trying to compare those.
Joe mentioned I think earlier that our net deferred fees related to PPP loans dropped pretty significantly. This first quarter of this year. We have 416000 of net deferred fees that are accretive to income this quarter.
Previous year first quarter was $1 2 million of income in fourth quarter last year was $1 6 million. So obviously much less.
Positive.
Help there from the PPP fees, and we're down to about 88 or so million dollars of net deferred fees, so there'll be very little.
Flows into income now going forward.
Our net interest margin as Joe said with 334, 3% in the first quarter of this year that compared to $3 four 1% in the first quarter last year and $3 three 7% in the fourth quarter of 2021.
During the three months ended March 31. This year 2000, 22022, we did have some shifts in our asset mix that helped us.
You mentioned before net loans grew about $104 million in the period and investments grew just under 200 million or so in the period. So.
We were able to take a significant amount of funds that we had.
At the Federal Reserve Bank and put those to work.
In loans and investment Securities, which most of those securities were purchased in March as rates have moved higher so we didn't get a lot of benefit of those in the first quarter, but the yield on what we purchased is going to be we expect to be around two 8% so well in excess of what we were earning.
As the federal reserve.
We did also in the first quarter entered into an interest rate swap agreement.
It's only a two year agreement so fairly short.
We receive a fixed rate of about 167% and we pay a floating rate of one month LIBOR and so in the month of March that was a net increase to interest income of 369000 and for US and you will expect to see some increases in the <unk>.
Second quarter as well now obviously is the one month LIBOR exceeds 167%.
And at that point, we would owe settlements and that would be.
Net offset to interest income at that point.
I think we mentioned before to you that we do anticipate that the federal reserve if they raise rates that will be.
Generally a positive a positive thing for us.
Noninterest income was down 560000 compared to the first quarter last year most of that as Joe said was related to the gain on sale of loans, we typically sell our longer term fixed rate loans in the secondary market as we originate those and the origination volume of those longer term fixed rate loans was down a lot from.
It was a year ago or so our profit on sales declined by about $1 6 million comparing those two periods.
What we have been doing that was originating loans.
That are fixed for a period of time, and then become variable where variable from the beginning.
And so our debt on our books that we hold.
Single family residential loans increased about $53 million in the first quarter compared to where we were at the beginning of the year.
The another area that accurately that increase in noninterest income was at point of sale and ATM fees.
We were up about $606000 compared to the first quarter last year that increases mostly almost entirely due.
Two a debit card transaction activity and the fees we earn on that.
We've continued to see in the latter half of last year and so far in the first quarter of this year.
So it's a pretty significant increase in usage.
Debit cards by our customers and so we're earning additional transaction fees on those.
Other income was also up about 250000.
Compared to the previous year quarter, most of that or all of it and then a little bit extra was we did receive.
$500000 Boe.
Bonus Thats, a one time payment for.
Levels that we achieved at benchmark levels, where you achieved with debit card activity and so that will not be a recurring thing that we did crossover the benchmarks on that and earn that $500000 bonus.
Noninterest expense was up about $947000.
First quarter this year versus first quarter last year that was really most categories. We had a few things that were higher than lower but they mostly offset other than.
Salary and employee benefits that was up about 960000.
And that's a lot of a variety of things.
<unk> Phoenix L. P. O was opened in the first quarter, Joe mentioned that there were some costs associated there.
Also.
There was no.
Really.
Just general.
With the employment market and things of that nature, we would have had just some general higher.
Cost that we incurred this year versus last and also normal.
Annual raises and things of that nature, we are in there.
And then lastly, we did have.
Another significant thing where.
Little bit of a technical accounting, but you defer cost when you originate loans there are certain fixed cost to originate loans and you defer those and amortize those with the deferred fees into interest income last year, we had a lot of loan originations.
Included in that and so we deferred more fees.
First quarter last year versus first quarter of this year and that had an impact on why our expenses were higher this year as well.
The efficiency ratio for the quarter. This first quarter was $59 six 2% that compared with $56 three 3% in the first quarter last year the.
The efficiency ratio being higher was really primarily resulting from the noninterest expense increase this year.
Provision for credit losses, really not a whole lot happening there in the first quarter, we didn't have any change in our provision related to our outstanding loan portfolio I think last year, we had $300000 provision there. So a slight difference from a year ago last year or I'm, sorry. This year, we had.
$193000 negative provision on our unfunded commitments and.
Unfunded portion of loans related and that relates to a 674000 negative provision in the first quarter last year.
Income taxes, just the effective tax rate during the first quarter was 25% with 21% in the first quarter last year.
We think that our effective tax rate probably based on.
The level of tax exempt.
Investments in loans that we have in tax credit utilization that we have.
They're probably run that our effective rate will be between 25, and 21, 5% we'd be moving forward through the year.
That concludes the prepared remarks that we have at this time, we will entertain some questions and let me ask our operator to once again remind our attendees how to queue up for questions.
Certainly.
As a reminder, please press star one on your telephone.
To withdraw your question. Please press the pound key.
One moment.
And our first question comes from Andrew Lee of <unk>.
For Sandler your line is open.
Hey, good afternoon, everyone.
Thank you Craig.
Hi quick question on the margin here and just the cadence of it following rate hikes can you just remind us how are you.
Your margin has acted in prior rates up cycles has there been a lag effect at all have you gotten a margin benefit right away. How do you guys see that playing out.
Local brands.
It depends on how fast the fed moves and how much market rates news items that moves I would say is that first rate hike. The 25 basis point rate hike in March happened late in the quarter.
We didnt have a tremendous impact from that.
<unk> starts moving a 50 basis point increments, though I would think that that would be.
Fairly.
Quick that we would see some positive activity there on the loan side, we've got prime base loans and also one month LIBOR resetting loans. So the prime base loans would move immediately.
To the extent that they are above their floor rate and the.
One month LIBOR loans would move sometime within that first 30 day period.
And obviously LIBOR rates have already been moving.
In anticipation of a fed rate hikes do so.
Those things are starting to kind of happen already.
On the funding side.
Most of our funding is through pretty much all of it is funded through deposits. These days.
Inc level anyway, and so.
Got some noninterest bearing accounts and interest bearing checking accounts and then.
Less than a $1 billion of Cds.
So those will probably be slower to two.
The increase in rates, yes, I think we have Andrew about $1 billion.
Adjustable rate loans that adjust.
Reasonably frequently.
Lastly, our more often than that and.
Probably Rex right.
$700 million of them are at floors or something that they're going to be that are in the money. So they might not adjust immediately but we probably have.
The $1 billion.
Loans or so.
Would adjust pretty pretty rapidly or would adjust with rate increases and then.
I mean, you can probably decide for yourself.
As Rex said the we've got.
Reasonably low level really a prime accounts most of our accounts are transaction of some sort. So they could move it's just a question of how quickly they will and I think theres been a fair amount of written about.
Industry Beta factors and I think theres been a problem.
Probably some analysis of what our beta factors work in the last rate cycle.
You can probably review those.
Certainly okay. Thanks for that.
But then obviously out of the securities purchases that took place in March I guess, what's the thought process on how you're looking to do more of that do you feel like what you've done is enough. How are how should we look at the securities book going forward.
I would say, we've probably done the lion's share of what we're going to do there could be a little bit more in the second quarter, but generally I think we've probably done most of what we anticipate to do on that so we will we should see.
The full benefit of that in the second quarter now.
Alright, thanks, so much for taking the questions I'll step back.
Great.
And our next question comes from Damon Delmonte of <unk>. Your line is open.
Hey, good afternoon, everyone hope everybody's doing well today.
Thank you.
So first question just want to talk really about loan growth and maybe a little bit about your outlook.
I know.
One of the challenges for you guys has been the.
Prolong the acceleration of.
Prepayment and particularly commercial real estate loans, it seems like Thats kind of come in and come in come in a bit and slowed and you've been able to keep your strong pace of originations and it's been producing positive growth for you guys. So can you just talk a little bit about kind of those couple of dynamics and how the rest of the year is shaping up for you guys.
Yes, it's just hard to have a lot of visibility on that David I mean.
We do make larger commercial real estate loans 15 million dollar loans and a lot of cases, and so they can be a little bit.
Repayments can be a little bit lumpy. So you might have.
Five or six one quarter.
And the next next quarter, you don't have many but.
Maybe they happened in the first month of the following quarters, so I'm not ready to say that.
Repayment activity have permanently slowed I don't know.
As we've said before we feel like our deals are.
At the top of or near the top of the credit curve. So they are attractive to a lot of different lenders.
And so I'm sure, we'll be we'll be continuing to fight through repayment headwinds it would be nice though.
If it flows a little bit.
Logic would tell you that.
As rates go up.
Our customers aren't going to be quite as.
Interested in moving into those fixed rate deals so it gets a little bit.
It's hard to call that at this point and we do have customers that complete projects get them up and running and then sell it.
So let me get paid off so there is some of that that's going to probably continue to go on regardless of what interest rates are looking like.
Got it okay.
But.
Absent a acceleration of paybacks that you're you feel good that you should be selling showing net growth in the coming quarters.
It's just.
Its hard thing.
It's hard to say I mean.
That's why we don't forecast.
Loan growth because so much of it's dependent on the level of competition.
And all those sorts of things we're going to continue to do the same things. We're trying to do the same things that have allowed us to have substantial origination volume.
Over the last many years and where we're going to we're going to try to even improve our origination engine by we added the Phoenix <unk> and as I mentioned in my comments.
We're going to try to add at least one more this year.
But.
As far as forecasting.
Loan totals, we just we can't do that.
Okay fair enough.
And then on the expense side.
Rex do you feel that you guys have captured.
Wage inflation and just higher salary costs here in this first quarter or do you expect that to kind of.
They need to move up from this level.
Yeah, I would think we've captured a lot of it probably.
<unk>.
Many of our employees get their annual raises in the at the beginning of the year.
A lot of our staff, though also get raises throughout the year.
So there'll be some of that but I would say most of it I would think would have happened in the first quarter and hopefully we've captured the.
The wage inflation, that's been going on in that as well.
I can't I can't say for certain with that because.
Every day, you read different articles about such and such company is raising their minimum wage and that kind of thing and so we're all competing for a lot. So some of those same people in some ways. So.
I can't say that it's totally done, but I think we surely picked up a big chunk of that here in the first quarter I think yeah I agree with what Rex that is similar.
It's still you know.
Yeah.
Market for employers and so there could easily be some additional employee expense not necessarily employee expense, but we are going through a systems conversion that will occur in <unk>.
August of 2023, and we do expect.
Four four consultants that others that are helping us through that process that that could add maybe 300000 or so quarter to our expense base wouldn't that be close.
Ballpark.
Yes.
That's happening this August or next August .
Yes, that's happening next August , but probably from now until next August .
Half.
<unk> has increased by that 300000 number as a result of activities going on with respect to that conversion, we're already starting to preparation work for that conversion it.
It seems like it's a long way in the future, but it will be here before we know and we're already working on a lot of different size.
But that obviously once the conversion occurs.
<unk> expenses will drop off.
Got it Okay and then just one final question.
No.
Credits and very strong for you guys and your very pretty.
Pretty healthy reserve at call it $1 48 of loans.
Where do you kind of see that.
<unk> level trending to overtime and do you think that it's more likely that you would grow into that or you would you for cash maybe like another reserve release that we've seen over the last few quarters.
I guess I'll take a stab at it and then let Rex.
I mean, I think our reserve is.
Appropriately set for the size of the size and composition of our loan portfolio.
So if we saw substantial increases in our loan portfolio I think it would be fair to assume there would be increases in the allowance as well right.
Yes, we've already adopted diesel so we are under the <unk> methodology and and so it's going to factor in different states.
The composition and level of our loan portfolio.
That if it grows or shrinks that kind of thing and then also there'll be some factors that will be economic outlook and things of that nature.
I know, there's a lot of talk about what we'd be having a recession sometime next year in 2024.
We've got to factor those types of things into.
And figure out if we think theres going to be some issues with that.
What are the things that impact we think the level of losses in our portfolio are going to really boil back down to employment levels and so we watch.
The unemployment numbers or the employment levels that are out there and those things will play into our analysis as we tried to set what.
But we think it's inappropriate.
Allowance for credit losses, the other part of it is also the unfunded amount.
That fluctuate and we do see that bouncing up and down depending on the unfunded commitments and the unfunded portion of construction loans and things like that that we have out there. So there's a few different factors that play into it.
We had we had some.
Pretty healthy.
Reserve.
Released last year.
I don't necessarily anticipate thats going to happen this year.
Depending on our loan portfolio does of course, but it doesn't seem like we're looking at a situation where.
That would be the thing.
It was.
Okay.
Joseph slugging through it as well.
Again like you said, we've got a really benign level of net charge offs now for the last three years at least.
And if that continues then that would probably indicate that we can have a lot of fluctuation is probably in the allowance.
Right got it Okay, alright, that's helpful to us saw that I had thank you very much.
Alright, thank you.
I would now like to turn the conference back to Kelly <unk> for closing remarks.
Okay, well, we appreciate everyone joining us today, and we look forward to our call next quarter, everyone take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Sure.
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