Thank you for standing by and welcome to the Great Southern Bancorp Inc. Second Quarter 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] As a reminder today's conference call is being recorded. I would like to turn the conference to your host Ms. Kelly Polonus, Investor Relations. You may begin.

Thank you, Valerie. Good afternoon, and welcome. The purpose of this call today is to discuss the company's results for the quarter ending June 30, 2021. Before we begin, I need to remind you that during this call you may -- 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 forward-looking statements disclosure in our second 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 Turner.

Okay. Thanks. Thanks, Kelly, and good afternoon to everybody. I appreciate you joining us today. We are very pleased with our second quarter earnings and our continued strong operations and financial condition. Our associates' continued focus on taking care of our customers' lending deposit and other financial needs has enabled us to achieve strong operating results. I'll provide some brief remarks about the company's performance and then 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. For the second quarter of 2021, we earned $20.1 million or $1.46 per share compared to $13.2 million or $0.93 per share in the same period in 2020. The primary drivers of our higher earnings this year were higher net gains on mortgage loan sales, increased point-of-sale debit card and ATM fees, Paycheck Protection Program net deferred fee income accretion of $1.1 million and a negative credit loss provision of $1.3 million related to both our outstanding loan portfolio and the unfunded commitments. The after-tax effect of this on earnings was $0.07 per diluted share. Our earnings performance ratios improved with an annualized return on average assets of 1.44% and an annualized return on average equity of 12.84% and an efficiency ratio of 55.63%. The net interest margin was down a few basis points from a year ago, but we really believe was greatly improved. Rex will get into more color there. As we anticipated, overall loan growth decreased from the end of 2020, which is a reflection of how loan growth has a tendency to ebb and flow over relatively short periods of time and is dependent on economic and competitive factors. Total gross loans which include unfunded loan amounts decreased by $40 million from the end of…

All right. Thank you, Joe. I'll start off with a little discussion on net interest income and net interest margin and Joe alluded to a few topics on that. So I'll just state a few things here and then we'll work our way through that. So net interest income for the second quarter of this year increased about $1.2 million or 2.8% to $44.7 million compared with $43.5 million in the second quarter of 2020. Net interest income was $44.1 million in the first quarter of 2021. So we did increase our dollar amount a little bit here in the second quarter. Included in that was some accretion of net deferred fees related to the PPP loans that we originated both last year and this year. That amortization amount was $1.1 million in the second quarter of this year and we had $1.2 million in the first quarter of the year. We didn't have any material amounts in 2020 at that point. June 30 of this year our remaining net deferred fees related to PPP loans is $3.7 million. So we anticipate that those will flow into income over the next few quarters. It's going to depend somewhat on customer activity how quickly they work through the process to get their loans forgiven and repaid. But we would anticipate that a fair amount of those truly will be done in the third and fourth quarters this year. Net interest margin for the second quarter was 3.35% this year compared to 3.39% in the previous year quarter, so a decrease of four basis points. For the three months ended June 30 of this year compared to the first quarter of this year, we decreased our net interest margin by six basis points versus 3.41% in Q1 of 2021. So, comparing the…

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

Hi everyone. Good afternoon.

Hi, Andrew.

Hi. So just a question kind of on the balance sheet mix and the margin here going forward, so, I mean cash and equivalents that's $681 million. I mean, that -- it looks like it was a record high balance for you guys and some of it a bit used for the sub-debt redemption. But what plans do you guys have for that? Do you think some is going to flow out as liquidity is spent by your clients, or are there securities portfolio purchases that you're looking at possibly doing? Just kind of curious what your thoughts are on deploying this.

A couple of things Andrew, we do think that we will see some of that flow out. I mean the customers' deposit balances definitely are higher. We think we'll see a bit of that flow out. But probably fairly slow and steady not like big pieces of it going right away. So we do believe there's going to be some of that. We did -- back in March, when rates kind of ticked up a little higher. We did buy some additional securities around $75 million or so. But our -- as you say our cash balances have continued to grow a bit since then. It just fluctuates a lot. And I can tell you those balances were $100 million lower about a month ago and they just -- it just fluctuates. And so, we are trying to be mindful of that. As rates have gotten pretty low, it's just -- it's not overly attractive to put on a lot of securities right now. I mean we could look at some things. The thing that is a little bit concerning would be yes we can go and put some securities on but to get a meaningful yield we probably have to have at least like a five-year type duration maybe or something like that and then maybe rates start moving up and at the end of next year or whatever they do. And those securities go under water and that kind of thing. So we're trying to balance it a little bit as we move forward. And we do analyze it. And we do look at it within our ALCO group. And Joe and I spent some time talking about it separately as well. So we're going to continue to look at it. But I really I mean as it stands right now I don't really have like a forward-looking answer for you on that.

Okay. That's helpful though.

Yeah. Perhaps very excited Andrew about -- yeah, I mean, obviously the cash balances are earning yeah, almost nothing. But we're not -- as Rex said, we're not excited about stretching out five years in getting less than 1% yield either.

And we have -- as Joe mentioned earlier, I mean, our loan pipeline is still strong. We are originating a fair amount of loans. And it doesn't show up in the ending balance, because there's a lot paying off. But we do believe we're going to have some loans to fund here too. So we don't want to get too carried away. But yeah, you're right. I mean, your question is good, but we are mindful of that level.

Got it. And then just on the loan side, yeah, I mean, it sounds like production continues to be strong. But is there any light at the end of the tunnel for payoffs to possibly slow, or is it just continue to be at a very elevated pace?

It's hard to understand – it's hard to estimate, Andrew. We don't have a lot of visibility on loan payoffs. I can just say – I would say, what's driving it is a bit of what you guys were just talking about. There's – the alternatives to loans are not very good. So there are people out there that are not necessarily banks, but other kinds of lenders that are out there and are very aggressive. And I think in that environment loan payoffs will continue to be fairly strong for – until we sort of break into a new environment. That would be my guess. I mean, it's good news bad news. Good news is our projects are operating as expected and are attractive to lots of different people. It's bad news, because we hate to lose the yield.

Right.

Some of it too is construction loans, where the project finishes. And in some cases, it stays on our books as a permanent loan. But in other cases, they've got permanent financing, put together somewhere else. So when that construction's done then it pays off and moves on to our books somewhere else. In the second quarter too we did – our PPP loan balances did go down about $45 million. So that was part of what was driving our second quarter balances down. So at the end of June, we still had $56 million of PPP loan balances left. So as I said, before presumably that $56 million is going to roll off a fair amount of that over the next two quarters. We don't have total visibility in that. I know, we're working with our customers and trying to kind of encourage them to get the paperwork done and go through the process here before the end of the year. But it's going to be kind of up to them on their time line when they want to do that. And our consumer auto portfolio continues to pay down some, but that portfolio is fairly small now, I'd say less than $50-or-so million. So – and we're not originating new stuff there. So that's another piece of it as well.

Right, right. Thank you for all the detail. Really appreciate it. And I'll step back. Thank you.

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

Good afternoon, guys. Hope everybody is doing well today.

Hi, Damon.

So first question on the margin. Rex, based on what you're saying is it fair that the outlook for the core margin is somewhat positive just given the impact from the redemption on the $75 million redemption? And then kind of the commentary on additional re-pricing on the CV side, do you think that's enough to offset the compression on the asset side?

Well, it should go a long way toward it, because the sub debt, I mean we still – we're still going to have a half a quarter of it – of expense in Q3, but that runs about $1 million a quarter. So we'll see a little bit of benefit there. As far as like the CD benefit, our CD portfolio is like what 74 basis points or something like that, yeah, 74 basis points. And so new CDs as we put them on the books and renew right now are like at around half-ish at that level 40 basis points, 35 basis points maybe something like that on a weighted average. So there is some benefit still yet there. But they don't all mature tomorrow, right? So I mean, we've got a lot of them that mature over the next six months. But we're seeing a little bit of slippage on the asset side as far as the loans too, because as loans pay off some of those are paying off at rates that are at or higher than the overall portfolio yield, and some of the new loans that come on maybe a little bit lower than the overall portfolio yield. So we've seen – as you can tell I mean if you look at our loan rate, it's come down some obviously quarter-by-quarter. It's not dramatic because LIBOR rates haven't been really moving around too much. So our $2 billion LIBOR portfolio those rates aren't changing much, and a lot of those loans have floors too. So they're not moving around very much right now. But for all the loans that we pay off that are fixed rate at a higher average rate in our portfolio, we do have a little bit of a headwind there. So I think those things being said, I mean, we do feel like our margin, I think has stabilized now from where it was. And as I said before as far as the dollars go, we earned more net interest income this quarter than we did in the first quarter and we did in the second quarter last year. So on a dollar basis even with the additional cash equivalents that we have we are making some headway in terms of just additional dollars anyway in the margin.

Got it. Okay. Okay. That's helpful. Thank you. And then with regards to the outlook for credit, I mean, credit trends are very, very strong, very minimal, non-performing loans. Using the economic guidelines for reserving continues to point towards a minimal to in some cases future reserve releases. How are you guys thinking about the provision over the next couple of quarters? Do you think you could see like what we saw in the first half of the year, or do you think you go back to having to provide a little bit?

I think you hit the nail on the head Damon. I mean, there's a couple of different -- obviously, many different factors that fit into your CECL calculation. Certainly, one of the biggest is what your loss history is. And as we have more and more quarters about loss history with no losses or relatively low losses, obviously, that's all other things being equal going to result in lower provision expense. But hopefully, we'll have some loan growth that could require provision expense going forward. My guess is we wouldn't expect to see allowance to total loans that ratio a lot lower than it is right now. Would you agree with that Rex?

Not in the near term at least I think.

Yes. Yes, not in the near term, but -- so that's probably going to limit reserve releases going forward.

Got it. Okay. That's helpful. That's all that I had it for now. So I’ll step back. Thank you.

Hey, David. David before you jump off.

Yes.

I want to add one other comment on the margin that I was saying earlier. And to keep in mind, I mean, we -- as we said, we did have $1.1 million of net deferred fee income, take go to income on our PPP loans in the second quarter. And that basically we paid off almost all if not all of the first tranche of the PPP loans. So we've got like I said $3.7 million still left of net deferred fees. But the timing of that when that's going to come in if it's going to come in the third quarter, fourth quarter or even next year it's pretty unclear to us right now. So that makes it a little harder to -- for you guys as well as us to forecast that particular line item.

Yes. Yes. That's a good point.

Got it. Okay. Very helpful. Appreciate that. Thank you.

Thanks, Damon.

Thank you. [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to management for any closing remarks.

Okay. Again, we appreciate everybody being on the call with us today, and we'll look forward to speaking with you at the end of the third quarter. Thank you.

Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.