Great Southern Bancorp, Inc.

Good day, 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. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 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 Polona. 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 not place any undue reliance on any of these forward-looking statements which speak only as the date they are made. Please see our forward-looking statements disclosure in our first quarter 2022 earnings release for more information. President and CEO Joe Turner and Chief Financial Officer Rex Copeland are on the call with me today. I'll now turn the call over to Joe Turner.

Okay. Thanks, Kelly. Good afternoon. As Kelly said, we really appreciate all of you joining us for our call today. Overall, our first quarter earnings were very solid. They get us off to a great start for what we expect to be another productive year. We certainly recognize that there's continued economic and societal uncertainty, but we're just going to remain focused on our customers' needs and, as 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 22, we earned $17 million, or $1.30 per diluted share, compared to $18.9 million, or $1.36 per diluted share. I think our free tax earnings were down you know, Q122 from Q121, about $2.5 million, and that's almost entirely the result of lower PPP fees by about $800,000, 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, $1.27 per share I'm sorry, 1.27% return on average assets and 11.14% return on equity. Our margin was 343 for the quarter. The Federal Reserve is obviously talking about pretty significantly raising rates in 2022, which should be positive for us, assuming the LIBOR rates fall suit, which there's no reason to believe they wouldn't. Our loans did increase in the first quarter by about $100 million. Our pipeline of commitments continues to be strong. That's up about $98 million from the end of 2021. We did open our commercial loan production office, new commercial loan production office in Phoenix. midway through the quarter, and we are expecting to open or hoping to open at least one more loan production office during 2022. Of course, our model is to hire an experienced lender from the market we're going into, and then sometimes a number two from within our organization will follow them or will hire. In the case of Phoenix, we hired a number two into that market as well. Asset quality metrics continue to be extremely strong, with non-performing assets at $5.2 million, a decrease of $821,000 from the end of 2021. And our non-performing assets, the period end assets was 10 basis points at the end of the first quarter, so negligible. I think we're almost completely out of ORE, 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 21, our total common stockholders' equity did decrease by about $34 million. Rex may go over this. I'll just give you the brief snapshot. Basically, we had increases to capital, $17 million from earnings, $3 million from option exercises, So total increases to capital during the quarter were $20 million. Decreases were about $25 or $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 result of our dividends. So our capital ratios are still extremely strong. and afford us the opportunity to really do whatever we want to do. With that, I'll turn the call over to Rex. Thanks, Joe. I'll just add on to what Joe said. We did buy back a fair amount of stock in the first quarter, about almost 420,000 shares of our stock, and we still have about 750,000 shares yet available under our authorized repurchase program. So I'll talk briefly about net interest income and net interest margin. Joe gave a couple highlights on that. The net interest margin in the first quarter of 22 decreased about $823,000 compared to the first quarter of 2021. The total was $43.3 million in this first quarter versus $44.1 million in the first quarter last year. And then we also had net interest income of $44.2 million in the fourth quarter of 2021. So to compare those. Joe mentioned, I think, earlier that our net deferred fees related to PPP loans dropped pretty significantly this first quarter this year. We had $416,000 of net deferred fees that created the income this quarter. previous year first quarter was 1.2 million of income and fourth quarter last year was 1.6 million so obviously much less you know positive health 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 that flows into income now going forward our debt interest margin is Joe said with three three point four three percent in the first quarter this year That compared to 3.41% in the first quarter last year and 3.37% in the fourth quarter of 2021. During the three months ended March 31st this year, 2022, we did have some shifts in our asset mix that helped us. 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 in account 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 had 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 2.80%. So well in excess of what we were earning as a Federal Reserve. We did also in the first quarter enter into an interest rate swap agreement. It's only a two-year agreement, so fairly short. But we receive a fixed rate of about 1.67%, 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 $369,000 for us, and we'll expect to see some increases in the second quarter as well. Now, obviously, if the one-month LIBOR exceeds 1.67%, then at that point we would owe settlements, and that would be a net offset to interest income at that point. I think we mentioned before, too, that we do anticipate that the Federal Reserve, if they raise rates, that will be generally a positive thing for us. Non-interest income was down $560,000 compared to the first quarter last year. Most of that, as Joe said, was related to gain on sale of loans. We typically sell 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 where it was a year ago, and so our profit on sales declined by about 1.6 million comparing those two periods. What we have been doing though is originating loans that are fixed for a period of time and then become variable, more variable from the beginning. And so our net on 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. Another area that actually we had an increase in non-interest income was in point-of-sale and ATM fees. We were up about $606,000 compared to the first quarter of last year. That increase is almost entirely due to debit card transaction activity and the fees we earn on that. We continue to see in the latter half of last year and so far in the first quarter of this year a pretty significant increase in usage of debit cards by our customers, and so we're earning additional transaction fees on those. Other income was also up about $250,000 compared to the previous year quarter. Most of that, or all of it, and then a little bit extra was we did receive a $500,000 bonus. It's a one-time payment for... levels that we achieved, the benchmark levels we achieved with debit card activity. And so that will not be a recurring thing, but we did cross over the benchmarks on that and earned that $500,000 bonus. Non-interest expense was up about $947,000 first quarter this year versus first quarter last year. That was really, most categories, we had a few things that were higher and lower, but they mostly offset other than salary and employee benefits. That was up about $960,000, and that's a variety of things. The new Phoenix LPO was opened in the first quarter. Joe mentioned that, and there were some costs associated there. Also, there was really just general, with the employment market and things of that nature, we would have had just some general higher costs that we incurred this year versus last year. Also, normal annual raises, things of that nature were in there. And then lastly, we did have another kind of significant thing where a little bit of technical accounting, but you defer costs when you originate loans. There are certain fixed costs 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, PPP included in that. And so we deferred more fees first quarter last year versus first quarter 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 59.62%. That compared with 56.33% in the first quarter last year. The efficiency ratio being higher was really primarily resulting from the non-interest 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 $300,000 provision there, so a slight difference from a year ago. This year we had $193,000 negative provision on our unfunded commitments and unfunded portion of loans. And that relates to a $674,000 negative provision in the first quarter last year. Income taxes, just the effective tax rate there in the first quarter was 20.5%. It was 21% the first quarter last year. We think that our effective tax rate, probably based on the level of tax exempt investments and loans that we have and tax credit utilization that we have, It's going to probably run that our effective rate will be between 20.5% and 21.5%, we think, 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 in for questions.