Good day, and thank you for standing by. Welcome to the Great Southern Bancorp, Inc. First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kelly Polonus, Investor Relations. Please go ahead.

Thank you, Judy. Good afternoon and welcome. The purpose of this call is to discuss the company's results for the quarter ending March 31, 2021. Before we begin, I need to remind you that during this call we may make forward-looking statements about future events and financial performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date they are made. Please see our disclosure in our first quarter 2021 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.

Thanks, Kelly. Good afternoon, everybody. I also want to thank you for joining us today. I am pleased to report that we began 2021 with strong operating results in the first quarter. As is typical, I'll provide preliminary remarks about the company's performance, and then turn it over to our CFO, Rex Copeland, who will go into more detail about our financial results. Hope that you've had a chance to at least glance at the earnings release. If you have, you've seen that we earned $18.9 million or $1.36 in the first quarter per share compared to $14.9 million or $1.04 for the same period a year ago. The primary drivers of our earnings increase this year were higher net gains on mortgage loan sales. Of course that's the result of the very robust mortgage market we're in, lower credit cost provision and generally well contained expenses. That was partially offset by slightly lower net interest income that was really almost exclusively driven by lower levels of FDIC accretion income. I think our net interest income was down about $850,000 for the quarter and our accretion income was down like $1.1 million or $1.2 million for the quarter. So that's really the culprit there, but generally a pretty good level of net interest income. And then, higher income tax rate; I think just as a result of higher levels of income result generally in a higher income tax rate for us because our tax credit have a lower impact on our ultimate tax expense. Our performance metrics for the quarter were good. Annualized return on common equity was 12.18% and that's return on robust levels of common equity, I think we ended the quarter at 10.8%. Our annualized return on average assets was 1.38%, our efficiency ratio was 56.33%. During…

Thank you, Joe, and thank you everybody for joining us again today. I'll talk a little bit first about net interest income and margin. Joe mentioned earlier that our first quarter net interest income was down about $849,000 from a year ago to a total of $44.1 million this year's quarter. One component of that I'll make note of we mentioned in our earnings release is the net deferred fees on the PPP loans. Joe was talking about the number of loans earlier. We recorded income -- interest income of about $1.2 million related to the net deferred fees accretion in the first quarter this year. I'll remind you that we deferred fees and costs related to that and accreted to income over the expected life of the loans at the loans pay-off, then anything remaining gets taken to income at that point. So we will expect to see some more of that probably here in the second quarter. As Joe mentioned, we're still working with some of the first round stuff to get forgiveness and repayment on some of those PPP loans. At the end of March, the net deferred fees related to those loans, the PPP loans for both of the groups, the loans that we originated was about $3.9 million; so that will be taking the income over the upcoming quarters. The net interest margin was 3.41% in the first quarter this year, that compared to 3.84% in the first quarter of 2020, which was a decrease of 43 basis points. The net interest margin was also 3.41% in the fourth quarter of 2020. So no change between fourth quarter 2020 and first quarter this year. In comparing the first quarter of 2021 and 2020, the average yield on loans decreased about 76 basis points, while the…

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

Good afternoon, everyone.

Hi, Andrew.

Hi. Sorry if I missed it, but what is the balance of PPP loans at the end of the quarter?

It's around $120 million or so, I believe. I don't have the exact number.

I mean, I think it would be, Andrew, I think we funded $53 million and we've received forgiveness on $35 million. So I would think of $120 million, I would think it'd be $118 million, $119 million, something like that.

Got it. Yes, that makes sense. If I take the $3.9 million, that's yet to be -- of fee income that's yet to be realized and back into a 3% yield or so on. It's right around $120 million. Okay, thank you. And then it sounds like forgiveness on that is going pretty smoothly. Is there any timing you can provide on how you think that's going to be forgiven? It will be more weighted towards the second quarter or third quarter, what are your thoughts there?

It would be a total guess, from my perspective, I would think the second quarter would be bigger than the third quarter when you...

I would think so. I know a lot of our lenders are working with our customers. We've got several things in the pipeline, and I know they're doing some outreach to talk to the customer. So I would think that they're going to try to get more of this done in the second quarter, but I mean, I'm going to guess some of this is going to the third.

Yes.

And that what the original grouping, and then the more recent originations here that happened since the beginning -- or since mid-January. I mean I'm going to guess we're not going to see those forgiveness items until maybe fourth quarter to start probably.

Right.

Got it. I mean -- and then, just rolling in those fees and all the different dynamics that play here on the margin, like how do you think the margin should perform from this 3.41% level? I mean, do you have the benefit from the fees, but it seems like the core trend with although liquidity coming on might be a detractor from that?

Well, I mean, certainly the liquidity that we have, and as I said, the mix has dropped a little bit. So that's really been a lot of the story if you look back to where our margin was in the first quarter of 2020 before the pandemic sort of a little more normalized time. We -- probably like I said, half of that drop or so is really related to the mix. Just having a lot more liquidity, we probably have maybe $400 million more of liquidity now than we had then probably. And so, the other part of it, as I mentioned, the sub debt that we issued, that was another 8 basis points. And then the income that we're going to derive from the FDIC loans obviously is 5 basis points, I think in the first quarter of this year, and I believe it was 16 basis points in the first quarter last year. So there is not going to be a whole lot more of that income coming on the books. So as I mentioned, $800,000 or so, the rest of this year. So in the next three quarters, it's going to be $800,000 and they get spread in there, so.

Yes. If you exclude the -- if you exclude the FDIC income, yes, I think there is -- Andrew, I think there is still some remaining pickup as a result of primarily time deposits continue to reprice. But I don't think there is -- I don't think anybody thinks there is meaningful increase in our margin from here until we see higher interest rates. Would you agree with that, Rex?

Yes. I mean what we're probably going to see is like Joe said our time deposits are going to reprice down over the next two or three quarters. We might see a little bit further reduction in rates on the non-time deposit balances. But I think those are like 19 basis points or something now, so there's going to be a limit at how much lower they can go. And what we're seeing on the loan side is a little bit of a reduction in loan balance rates, really because of the things that are repaying. Like Joe said, we've booked a lot of new loans, we generate a lot of loans. We just have a lot of repayments going on due, and a lot of those loans that are repaying or maybe going to be 4.5% kind of rates and the new loans going out may be closer to 4% or something like that. So we're seeing a little bit of headwind from that as well that's offsetting the good that we have from CD rates continuing to go down.

Got it. Okay, thank you so much for taking the questions.

Thanks, Andrew.

Thank you. Our next question comes from the line of Damon DelMonte from KBW. Your line is now open.

Hey, good afternoon, guys. Hope everyone is doing well today.

Hi, Damon.

Hi, Damon.

So, my first question, just on the -- I apologize if you covered this in your prepared remarks, I was jumping between conference calls. But just in terms of how we should think about the reserve level and the provision going forward? I mean obviously the adoption of CECL was quite a big boost. And just given the strong underlying credit trends of the portfolio, is it -- is there a way you can kind of frame out what a range for the provision could look like in the upcoming quarters?

I think -- I mean I think a lot is going to depend on loan growth really frankly. So I would think if you assumed a flat loan portfolio, we sort of believe with our loan portfolio at the level is that right now. We've got the right reserve levels. So if you have a flattish loan portfolio and no charge-offs, there might not be -- you wouldn't think provision expense would be too high. If you have a little bit of charge-offs, then you're going to have to probably -- not replace your charge-offs, but you would generally think you're going to have to have some provision expense, if you have the level of charge-offs.

The other piece of it that you'd had to think through too is, what your forecast is for the economy moving forward as well, so.

Yes, that's right.

How you see that looking into the next 12 to 18 months that [indiscernible].

Yes, right.

If there's drastic chances there. And the other piece of that too is the unfunded. As we mentioned earlier, the unfunded commitments have to have a reserve against them are not part of the allowance for credit loss. They are different than over the liability section, but same kind of concept, so as that pipeline grows or declines, there's going to be differences that you're going to reflect there too.

Yes, I mean that's a good point. You know, if you had -- I mean we have about $1.3 billion in unfunded. If that went up 10%, it would be reasonable to assume that that allowance for the unfunded commitments might go up 10% as well, and that's $800,000, so.

Okay. But from a pure loan loss reserve perspective here at like 1.59 excluding PPP, you don't think you need to go higher than that right. If anything, there should be a bias for some reserve release going forward?

Well, I mean, I think, we think we're appropriately reserved at this point. So, yes, I mean, I guess I agree with what you're saying.

Okay, fair enough. That's helpful. Thank you. And then I guess my other question, you know, on expenses, again I apologize Rex if maybe you called out some one-time items that weren't repeatable, but can you help us think a little bit about a good quarter run rate going forward to go off?

I don't think really in the first quarter of this year, we really had too much that was not fairly standard. Our expenses are going to be a little higher related to the mortgage business, because I mean as long as the mortgage business is still robust, we're going to generate a lot of fee income from the profit on loan sales probably, but we're also having a decent compensation to our producers and things like that. So those expenses, all things being equal, should be fairly consistent, I would think as we move forward. I don't really think there was...

We didn't call out anything on the expense lines being sort of unusual.

Okay, that's all that I had. Thank you very much. Appreciate it.

Thanks, Damon.

Thank you. Our next question comes from the line of John Rodis from Janney. Your line is now open.

Good morning or good afternoon, guys. Hope you're doing well.

Hi, John.

Hi, John.

Just -- I guess just a question on capital, obviously, so you adopted CECL. But Joe, I think as you alluded to your capital levels remain pretty strong. TCE is north of 10%. Can you maybe just remind us again you're sort of bias towards uses of capital going forward? And I know you bought back some stock during the quarter, but just sort of give us an update?

Yes, I think, what we've said before, you know, obviously, if there was something really opportunistic on the acquisition side, we would be interested in that. But to remind you, the way we view acquisitions as we're going to have conservative assumptions and based on very conservative assumptions, particularly with respect to growth in the -- with the target company. Based on those assumptions we want the thing to be accretive, be a good deal to our existing shareholders. And generally we don't find those kind of deals out there. We did 10 years ago when we were buying banks from the FDIC, but we really haven't seen any big extent since. So as between stock buybacks and dividends, we would probably prefer stock buyback, especially given where we were able to buy our stock back in 2020 at close to book value. It spreads out from book value now, and so stock buybacks are not quite -- not quite as attractive as they were. It's not to say that we wouldn't buy back some stock at these levels, but there is -- it's not as attractive as it was back in 2020. And so that would leave special dividends or any increase in the current dividend possibly.

Okay, sounds good. Thank you, Joe.

Okay.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Joe Turner, President and CEO, for closing remarks.

Okay. Well, again, we appreciate everybody for taking the time to be with us on our call today. And we look forward to talking to you in about three months. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.