Ladies and gentlemen, thank you for standing by, and welcome to the Great Southern Bancorp, Inc., Third Quarter 2020 Earnings Call. At this time all participant lines are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your host today, Kelly Polonus, Investor Relations. Please go ahead.

Thank you, Sara. Good afternoon and welcome. I hope everyone is well. The purpose of this call is to discuss the company's results for the quarter ending September 30, 2020. 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. Please see the forward-looking statements disclosure in our third quarter 2020 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, thank you. Good afternoon. I also would like to thank everybody for joining us today. And I hope everyone on our call as well also. As we manage through the pandemic now in its seventh month, we remain focused on the well-being of our associates, customers and communities. I believe our associates are doing a tremendous job of serving our customers through this difficult time. As we said last quarter, we are actively working with any customers who may be experiencing financial hardship caused by this pandemic. While there is still a lot of uncertainty about the months ahead, we are ready to respond to the challenges produced by the health crisis and are in a position of strength to do so with our strong capital, earnings and liquidity. I'll provide some brief remarks about the company's performance during the quarter. And then I'll turn the call over to Rex Copeland who will get into more detail on our financial results, then we'll open it up for questions. As expected in this operating climate, our earnings declined in the third quarter as compared to the year ago quarter. Still we achieve very good earnings of $0.96 per diluted common share in the third quarter. The primary driver of our earnings decline when comparing it to the year ago period were, number one, a higher loan loss provision, but 100% or almost 100% of that provision went to grow our allowance for loan losses. We had very low charge offs during the quarter. We did have a lower net interest income than the year ago quarter, I think by about maybe $1.8 million or so, over half of that, though, is attributable to the result or the effects of the sub debt that we issued at the end of the…

Thank you, Joe. I'm going to start today by speaking a little bit about net interest income and margin. Our net interest income for the third quarter of 2020 decreased about $1.7 million to 44.2 million. That compares to about 45.9 million for the third quarter of 2019. The net interest income was affected negatively by of course the Federal Reserve significant rate cuts that happened in March. We also have some additional lower earning assets, SBA, paycheck protection program loans, some investment security purchases and also increased balances that we hold at the Federal Reserve and cash and cash equivalents and then also more recently in this quarter by the cost of the sub debt that we issued in mid to late June. The core interest margin if you exclude the yield accretion from our acquired loan pools was 3.27% for the third quarter of this year. That compares to 3.75% for the third quarter in 2019 and is the same 3.27% as where we were in the second quarter of 2020. The decrease is a result of the same things I talked about previously. The one thing that is a little different when you compare Q2 this year to Q3, we did have about - on an annualized basis, about eight basis points related to our cost of the sub debt that we issued in June. So if you look at that on the core comparison, we were at 327 in Q2, 327 in Q3, but we had eight basis points of headwind from the sub debt costs. So we said on previous discussions and filings that the rank test would negatively affect our net interest income and margin in the near term, because we have a lot of loans that are indexed to LIBOR. But over the…

And I think too Rex, we did have additional insurance costs because we no longer have the credit on our FDIC insurance.

Right, we had a full credit I think last year and then this year, we have had a partial credit and we had to start paying the full amount again this year. So that's why the insurance cost was higher. Occupancy expense was also higher than it was a year ago, about $530,000. Some of that was depreciation. We rolled out some new ATM, ITM units late in the - or in the fourth quarter last year. And we've got the depreciation on those and it's higher this year. Also just another repairs and maintenance things that occurred in the third quarter were $250,000 or so of it. So we just - those were the costs that that increased the occupancy line. One last thing and non-interest expense, expense on other real estate owned and repossessions was lowered by about $400,000 compared to the prior year period. We just have - we've been - we're doing a good job, I think on working down that foreclosed assets that we have, the repossessed autos are much lower level than they would have been last couple of years. So we just got less cost associated with foreclosed real estate and with the repossession of autos and auto portfolio. As mentioned before, our efficiency ratio for this quarter was 59.64%. That compared to 52.63% in the third quarter of last year. The higher efficiency ratio was mainly due to the higher level of non-interest expense that I mentioned and some of the reasons for that I just talked about. Also we had a small decrease in total revenue. Non-interest income was higher, but net interest income was a little bit lower. So despite these increases in costs our non-interest expense to average assets remained at 2.34% for the quarter this year versus the…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Liesh with Piper Sandler. Your line is now open.

Hey, good afternoon, everyone. How are you?

Hi, Andrew.

Hi. So just want to focus on expenses right now a little bit higher this quarter than I was forecasting. You guys had a pretty good run rate there below 30 million. It seems like maybe some of it was affected by the mortgage business this quarter. But is this like the new run rate we should be using or do you think it's probably still in that $30 million level?

Well, I mean, 1.1 million of it was this one - was this special bonus and so that - you need to back that out. The other cost, I mean, the other - there's some other COVID costs that relate to supplies and cleaning and equipment and that kind of stuff. And that's going to be with us for a while. [indiscernible] that probably 350,000 of our costs during the quarter were payments made to quarantine employees. Those costs will probably continue until we get out of the pandemic. I mean, I think the two things that that could adjust that seems to me is the 1.1 million will adjust as Rex said and then we did - our mortgage related compensation is up 800,000, I think from or 750,000, from where it was during the third quarter of 2019. So you back those two numbers or you normalize the mortgage and you back the 1.1 million off and yeah, you are at 30 million, but our mortgage volume continues to be strong. So you don't - it's hard to see that changing as long as our mortgage volume remains strong.

Okay, thanks. That's helpful. And then around the margin, sounds like still some good opportunities on the funding side to improve some costs there. What are you seeing on yield pressures right now? And is the funding cost benefit - is that actually more than what you're seeing on the yield side right now?

Probably, I mean, I think the funding costs are coming down a little bit more. We have had a little bit of our loans repay, a lot of those are typically maybe at higher rates than the new loans that are coming on. So we have seen a little bit of decline in the yield on loans. I mean, if you look at our - in our press release, toward the end, I think on Page 19, you can see for the quarter, what our average yields and costs work. And then the first column there, we give you a yield and cost rates as of 9/30. So those are going to be the point in time numbers. And you can kind of see from there where the yields are on different asset classes. And then on the liability side, and you can see on deposits our 9/30 cost of deposits is 67 basis points. For the quarter it was 79 basis points. So clearly, we anticipate we're going to see those costs come down a bit more, the other areas - probably not going to change much. I mean, the subordinated notes, those are fixed rate. And the sub debt is blooming, but it's tied to LIBOR and LIBOR hasn't been moving around too much. So the reduction on the funding side is going to come on the deposits. And then on the loan side, the only thing that you don't see in there that - the yield that we give you on the loans does exclude on the - at the point in time does exclude the yield accretion. So in the third quarter that was nine basis points of benefit, so you can kind of analyze that and say that well, maybe that yields a little bit higher than what we show here or will be, but it still is going to come down a little bit from where we were probably in the -

The nine basis points is in the three months ended September 30 number, but it's not in the point in time.

So we'll continue to see - I mean, we've been - probably have between 100 and 125 million of month - of TD, time deposits that are maturing and I think those probably have a weighted rate of somewhere around 140 or something like that. So we're replacing those at substantially lower rates than that. But it just - at 100 and 125 million a month, it takes a little time for it to work through, like we said, so we've got six months of that kind of stuff already through the pipeline, and we've got six to nine more months probably of time deposits that will roll off that will be able to re-price down.

Okay. That's, that's very helpful commentary. I really appreciate it. I will step back. Thank you. But

Thank you.

[Operator Instructions] Thank you. Our next question comes from a line of Michael Schiavone with KBW. Your line is now open.

Hi, good afternoon. How's everyone doing?

Good. Thank you.

Good. Thank you.

Good. So fee income in particular mortgage sales were really strong in the quarter. Can you just share some color on the mortgage pipeline going forward as well as your outlook for fee income in general?

I mean, I think we're still originating quite a lot of mortgage loans and we've got quite a few commitments out there.

Do we have the mortgage pipeline in our pipeline numbers?

Trying to look back and see if we've got that commitment number in here. Yes. It's about - well, it's lower here. No, I'm sorry. It's a little bit lower than it was in the previous quarter end, but it's still like $94 million in commitments that are not closed. We've had a couple of quarter ends that were higher than that, but substantially higher than were year or two ago. And I don't - I mean, I haven't seen or heard anything that leads me to think that the fourth quarter is going to be much less than the third quarter. Yeah, I mean, we still - I think we're still doing very busy in the mortgage group. And I think they're still producing quite a bit in new loan commitments. So I don't know, I mean, we get to the very end of the year, around the holidays, maybe it'll slow down a little bit for that. So we may see a little bit slow down late in the quarter, but so far, the first part of the quarter, not really much change.

All right, thank you, that helps. And then the release noted some initiatives the bank is making toward modernizing and consolidating branch and office space. When you review your overall footprint, you see further opportunity for like a larger scale rationalization of offices or branches?

I don't really think so. I mean, there may be - keep in mind, we've probably closed what 25% of our branches over the last four or five years.

35 branches.

Yeah, maybe more than that, maybe 30% or something, so yeah, there could be further consolidation. But it would be one or two banking centers here or there. I don't think there will be kind of large wholesale changes. Now, that's with customer behavior as it is in 2020, if that continues to change and people start accessing banks for - they do access, but in a number of different ways, but we found that for big transactions, borrowing money, opening deposit accounts, those sorts of things, they like to come in and do that in person. And so long is that the case, I don't know that there will be large scale rationalization.

Okay, thank you. Last question, so capital is pretty healthy levels and you guys have actively been buying back shares and you refresh share repurchase program, but can you just talk about your capital allocation priorities in terms of M&A, buybacks, dividend, organic growth, et cetera?

Well, I mean, I think, we see the ability to continue to pay our dividend. Obviously, we're going to - to the extent we can grow, we want to grow. We think we can grow a lot and that would certainly not impact our ability to pay our dividend. The third priority among those would be buying our stock back and I end I think we would rather buy our stock back at 80% of book or 90% of book, certainly than buy somebody else's stock at some multiple above book. So that's kind of how we would prioritize.

Great, thank you. Thanks for taking my question.

Thank you.

Thank you. We have no further questions in the queue at this time. I would now like to turn the call back to Mr. Joe Turner for closing remarks.

Well, we appreciate, as I said earlier, we appreciate everybody being on the call today. We'll look forward to talking to you after the end of the year and hopefully we will have a President and have a vaccine and hopefully things will be looking up. I certainly hope everybody has a wonderful and healthy holiday season. And we'll talk to you in about three months. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.