Good day, ladies and gentlemen, and welcome to the Great Southern Bancorp's Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer and instructions will be given at that time. [Operator Instructions]. I would now like to introduce your host for today's conference, Kelly Polonus, Investor Relations. Please go ahead, ma'am.

Good afternoon and welcome. This is Kelly Polonus, Investor Relations for Great Southern Bancorp. The purpose of our call today is to discuss the company's results for the quarter ending September 30, 2018. Before we begin, I need to remind you that during the course of this call, we may make forward-looking statements about future events and future financial performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date they are made. These statements are subject to a number of factors that could cause actual results to differ materially from the results anticipated or projected. For a list of some of these factors, please see the forward-looking statements disclosure in our third quarter 2018 earnings release. President and CEO, Joe Turner; and Chief Financial Officer, Rex Copeland are here with me. And I'll turn the call over to Joe.

All right. Thanks, Kelly. Good afternoon, everybody. I want to thank you for joining our third quarter earnings call. As always, I'll provide some remarks, general remarks about our performance during the quarter and then Rex will talk a little bit more specifically about the income statement detail. Hopefully, you've got a chance to at least glance at our earnings release. If you have, you've seen that we had a very strong quarter. We earned $22.5 million during the quarter or a $1.57 a share. Our returns were 17.8% on common equity and 1.99% on assets with a margin of 4.02%. Obviously during the quarter, you know one of big things that happened, we did close our sale about $54 million to $56 million of deposits in the Omaha area plus the related banking facilities that generated a gain of $7.25 million pretax. After tax that was a $0.39 a share. So our core earnings during the quarter were about 18 and our core returns were 1.49% on assets and 13.35% on equity. We feel - continue to feel really good about our loan portfolio both in terms of growth and performance. Our loan portfolio grew $83 million during the quarter. From the end of 2017, it's grown $217 million. And that of course is net of $79 million, Rex, and decreases in the consumer portfolio as a return of our little tougher underwriting guidelines. We've also had about a $32 million decrease in our FDIC portfolio. Our pipeline continues to be strong. We're up about $163 million from the end of 2017. Our newest loan production offices in Atlanta and Denver will come online officially in the fourth quarter. We of course have personnel working in both offices right now. Asset quality, we felt like was awfully strong at the end of the second quarter and as they got slightly better during this quarter. Non-performing assets and potential problem loans, so what we would think of as our total bucket of problems decreased to $11 million from the end of the second quarter. Large portion of the decrease was a result of the decrease in our foreclosed real estate of $4 million. Non-performing loans decreased $2 million from the end of the second quarter and potential problem loans decreased $5.4 million from the end of the second quarter. Our capital position continues to be strong. Obviously, you know you see our capital ratios in light of the strong capital position also in light of the positive projection of our earnings levels and asset quality levels, our border elected to increase the quarterly dividend in the third quarter to $0.32 a share. Capital has grown about $36 million during the first nine months of 2018. We're now at 11.1% of assets, $35.90 a share book value and about a 10.9% tangible common equity asset ratio. That concludes my remarks and I'll turn the call over to Rex at this time.

All right. Thank you, Joe. I'm going to start with net interest margins. Our reported margin in the third quarter was 4.02%. The core margin which excludes that impact of our additional yield accretion, our FDIC acquired loan portfolios expanded to 3.88% during the quarter, which is about 20 basis points higher than it was in the year ago quarter and about 4 basis points more than it was in the second quarter of this year. It's kind of driving that. Throughout the year has really been increased yields on most of our loans, increased growth in our loan categories as well. Also our yields on investments and funds that we have at the Federal Reserve Bank are yielding higher rates. That's partly and partially offset by an increase in our deposit cost and also some increased costs on Home Loan Bank borrowings. As we've indicated in the past filings that rising interest rates would have a modest positive effect on net interest income and margin, we're seeing that so far this year, competition though remain significant and we're seeing increased costs, core deposits and other borrowings and we continue to anticipate that. That likely will put a little bit of pressure on margin expansion as we move forward. You know as Joe mentioned earlier, some of the headwinds to our margin improvement have been the lower level of consumer loans and just in general lower amounts of accretion income. I think in the third quarter, our accretion income was actually up a little bit, but as a general kind of a trend that has been lower than it's been in previous periods. And we did see it I think probably similar to what most banks are experiencing. We did see our cost of deposits increase more in the third…

Good afternoon.

Hi, Andrew.

Hi. Questions on this loan production going forward, the last couple quarters have been two of your best in the years, just kind of curious on your outlook, I mean the pipeline is strong and certainly having competitive payoffs. But is this like high single-digit rate sustainable just with what you see in the pipeline?

You've heard us addressed this kind of question before Andrew, we don't get forward guidance on loan growth or those sorts of things. I think it's too difficult to do. There's too much of it, that's out of our control, very competitive landscape, so we don't know what competitors are going to be doing. Just too hard to gauge. I will say we are - we feel good about our levels of activity in all our - in all the areas where we produce loans. You know that's across all geographies, across our product lines. And as you say, we feel like our pipeline is strong.

Great. And then just turning more towards the margin, it sounds like the deposit costs how they rose last quarter that may continue following the slightest rate hikes. So if I roll everything together based on what you said, maybe a little - maybe compression but certainly not like wild expansion, if anything does expansion similar to alright best of what we saw this last quarter on a core basis?

I mean probably, so I think what we're seeing is probably what the industry has been describing and that is - we got the benefit for a long time the first 100 basis points of interest rate increases. We probably saw a lot of benefit on the loan side, not as much detriment on deposit side. And I'd say, we're seeing the level of competition to maintain and grow deposits. We're seeing a lot more necessity to selectively race in deposit rates here and there. So with the franchise that we have, we do certain things in certain markets and maybe not in others, but we do continue to think that. If you look back just the change in our deposit cost by the last four or five quarters, you can see that deposit cost maybe a year ago, we're only going up 4 or 5 basis points a quarter and this past quarter they went up 15 basis points, so.

Okay. That covers my question. Thanks.

Thank you. Our next question as from Michael Perito with KBW. Your line is open.

Hey, good afternoon, everyone. Thanks for taking my questions.

Hi, Mike.

So, I wanted to start maybe asking Andrew's loan growth question a bit differently, after the successful branch sale which gave you a nice boost to returns in capital this quarter, obviously we had some deposits throughout the door as well though and so in the context of kind of the balance sheet capacity to lend, how should we think about do go forward strategy to funding incremental loan growth with kind loan deposit ratio where it is and just any updated thoughts on that post branch sale would be appreciated?

Yeah I think Mike, we got this question or similar question last quarter. And I think our answer would be very similar this quarter. I think that the deposit growth seems to be cyclical and we're in a part of the cycle where deposits are not growing nearly as quickly as loan. We feel like we have alternative capacity with broker deposits with Federal Home Loan bank borrowings with feeders, deposits those sort of things. We feel like we have capacity to fund relatively robust loan growth for several quarters. So we're not certainly immediately concerned, but obviously over the long term in order to grow our balance sheet, yeah we are going to have to grow deposits. And we think the fortunate thing about us is we have the infrastructure in place to do that. We have 99 branches, so a little over $40 million or around $40 million deposits per branch, we can obviously handle a lot more than that. As I said last quarter, our franchise being in a number of call scenarios, we're able to selectively raise rates with specials and so forth in a specific metro market and not reprice everything in the portfolio. We're also relatively far down the road. Hopefully, it will roll out by the end of the year to having a better, more robust online product where we can sort of look for areas of the country that are maybe not as competitive on the deposit side and grow deposit that way.

And on that last point, I mean is that type of product meant to compete with a lot of the other kind of online money market type accounts that we see out there today, I think where you see a lot of the incremental funding being raised north of 2% or is that something different that you guys are trying to create?

I don't know that we've zeroed in on a rate yet. I mean we're really, really aggressive rate payer. So I don't know that we'll compete on just strictly a price basis on everything, but we'll look for places maybe that are a little weaker and try to capitalize on that.

But it will be a money market?

Yeah, a money market type product, yeah.

Okay. All right. Helpful, thank you, Joe. And then just kind of curious I mean I'm sure you're kind of getting into that, it's now already there that 2019 budgeting season and post branch sale also, capital levels are fairly robust, you know bank group obviously has come under a little pressure in the public markets the last few weeks. Just curious how you're - you're thinking about that buyback and generally any other thoughts about capital deployment obviously had the dividend in the quarter which was a nice raise, but just curious about any other thoughts you can give us on capital deployment as you look out to next year at this point?

Yeah, I mean I think we would all agree that an 11% roughly tangible common equity to asset ratios is pretty strong. So I think there's room for buybacks. Obviously our stock is more attractive at this point than it was a month or two ago. And so you know we're as an each back analysis at $60 might not have been that attractive, it is a little more attractive where the stock is trading right now. There's also a possibility of kind of special dividends too and that will be something our board will consider, so. And I don't think a buyback in a special dividend would necessarily be mutually exclusive. So I think we have a number of alternatives we can review. And are piece of that would just be you know if we feel like our loan growth is going to continue on or we see more loan growth and obviously asking to, will need capital to support that.

Is there a level of capital where you know it becomes a point where you have to do something in your mind?

I don't think so, Mike.

Okay. Well, I appreciate the color and thanks for taking my questions.

Thank you. Our next question is from John Rodis with FIG Partners. Your line is open.

Good afternoon, guys.

Hi, John.

Rex, your comment on the provision, did you say there was a reversal of like 900,000 this quarter?

No. We just - we had a position that we had fully reserved in our allowance for loan loss and we actually collected on that loan. So our net charge-offs were only about $1.4 million, so we had a little lower. We didn't need to put any additional provision and so our provision expense was only about $1.3 million this quarter.

Okay. But also equal without that the provision would have been higher I guess by that like amount, is that what you're sort of saying?

No, well I mean, what we needed to have is - roughly what we had as a far as a net charge-off and so that 900,000 didn't come back to reduce our net charge-off. That was just something that we had already fully allocated for.

Okay.

As part of our net charge-offs would have been higher, we may have had to need to put additional provision in that, but they are fairly low this quarter.

Okay. Fair enough. And then you actually grew the securities portfolio this quarter a little bit, I don't know is this just putting some of the gains to work from the branch sale or can you maybe just address that?

There's a couple of things that we're doing with that. One is obviously it's pledgeable asset. And number two, we're looking at some ways that we can you know mitigate risk to us you know potentially a falling rate environment down the road and so we're putting on some securities that will be have some benefit you know to us there. And at least you know one of the securities involved in this does benefit us from a CRA perspective. So I think we will be looking at probably adding a few more securities into the portfolio this nature not like lots of it at one time then a little bit you know as we move forward quarter by quarter, primarily they help us with down the road you know should interest rates start to decrease, that will help mitigate some of the risk to us to falling rates.

So, I assume just the growth in that portfolio, it's probably dilutive to the margin, but possible at the interest income, is that correct?

Right.

Yeah, I think that was correct. The yields are not going to be as high as loan yields, but you know they're going to be in the maybe mid-3% percent kind of stuff.

Okay. And then Rex, just as far as - you know you gave your sort of outlook for tax rates and I think it's primarily for this year but you know as of right now sort of similar tax rates going forward for 2019?

Yes. You know this year and in this particular quarter with the large gain that we had that obviously aid out more of our tax advantaged items than normal and so that caused our effective tax rate to be a little bit higher than we've been running in the last few quarters.

Okay, super. Thanks guys.

Thank you. And that concludes our Q&A session for today.

Thank you. And I appreciate everybody calling in today on our third quarter earnings. If anyone has any further questions, please feel free to contact me, I'd be glad to help, if not, we'll adjourn. Thank you again.

Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program and you may all disconnect. Everyone have a great day.