Good afternoon, everyone, and welcome to the Southern Missouri Bancorp Incorporated Quarterly Earnings Conference Call. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I would like to turn the conference call over to Mr. Matt Funke, Chief Financial Officer. Sir, please go ahead.

Thank you, Jamie. Good afternoon, everyone. This is Matt Funke, CFO for Southern Missouri Bancorp. Purpose of this call is to review the information and data presented in our quarterly earnings release that was dated Tuesday, January 22, 2019, and to take your questions. We may make certain forward-looking statements during today's call. And we refer you to our cautionary statement regarding forward-looking statements contained in the press release. So thanks again for joining us today. I appreciate your interest. I want to start by reviewing the preliminary results highlighted in our quarterly earnings release the quarter ended December 31, 2018 is the second quarter of our 2019 fiscal year. During the December quarter, we closed the acquisition of Gideon Bancshares on November 21, that accounted for most of the changes in our balance sheet quarter-over-quarter and it had an impact though less pronounced on the income statement. We also completed the merger of Gideon subsidiary First Commercial Bank into our bank subsidiaries Southern Bank a few weeks later on December 7 coincident to our debt conversion. So for the December quarter, we earned $0.81 diluted, that is up $0.05 from the linked September quarter and it is up $0.21 from the $0.60 diluted that we earned in the December 2017 quarter. Compared to the year-ago and linked quarter, we reported less discount accretion from acquired loan portfolios currently. More non-core expenses as merger and acquisition charges picked up. But in the current quarter, our non-core expenses were roughly offset by what we would identify as non-core, non-recurring income. We provision less for loan losses in the current period, and we grew our average balance sheet and leveraged our capital somewhat through the mid-quarter acquisition of Gideon. Compared to the year-ago period, we benefited from the full impact of the…

Thank you, Matt. We're pleased with our loan growth for this point of the year thus far, and our loan growth has exceeded our expectations. And part of this is due to this continuing to look at a number of loan opportunities and we're pleased with our volume and the amount of loans we're looking at. One of the things I wanted to talk about was how our loan portfolio proposition has changed due to the acquisition as well as our organic loan growth. Over the year-to-date, the largest changes we've had an $82 million increase in our non-residential non-owner-occupied real estate portfolio, $60 million in commercial loans, $29 million in owner-occupied non-residential real estate and then $22 million each in agricultural real estate and multifamily, filing an additional $10 million in one- to four-family. Our overall growth was aided this quarter after the year-to-date by reduced prepayments in our commercial loan portfolio as we've experienced fewer owners selling their properties as well as refinancing with other lending institutions when compared to recent quarters. With our growth and changes in our loan portfolio, our CRE concentration has moved from 233% at June 30, 2018 to approximately 270% at 12/31/2018, which is slightly above our CRE level of 251% at 12/31/2017. Our organic loan growth was centered primarily on our East and West regions as well. We are pleased with the volume of our loan originations, which totaled at $156 million for the quarter and $334 million for the year-to-date, which is up from $131 million and $268 million respectively over the same periods of the prior year. I would also like to give a brief update on our agricultural portfolio. Agricultural real estate and production loan balances grew $22 million and $3 million respectively for the fiscal year-to-date, primarily due…

All right. Thank you, Greg. Jamie, if you would you please remind callers how they can queue for questions.

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Andrew Liesch from Sandler O'Neill. Please go ahead with your question.

Good afternoon, guys.

Good afternoon, Andrew.

Good afternoon.

Just curious where you stand on the full integration for First Commercial. Have you guys realized all the cost savings in the transaction yet?

No, we have not. The offices are targeted to close March 1.

Okay.

And then there is still things related to that and then just general personnel.

Got you. So, I mean, if I just look at the expense base here if we take out the merger charges in the past quarter where we had about $12.1 million, it sounds like maybe before we get the cost saves maybe they’ll also start to flow and meaningfully overall will be realized by the start of the year fourth fiscal quarter. But then you also have the partial quarter effect of the deal so far. So what do you think where the expense run rate can shake out once you finish the cost saves and you get the full quarter of the deal right about $12.5 million a quarter? Or anything may be larger?

We don't have a number to share with you on it. It's fair to say that 331 target for achieving the full cost savings should be accurate. We do have a little bit of seasonality in the non-interest expense in terms of our wage adjustments for our team members who are usually effective January 1, so we did go through that process. It's not a huge impact on the number, but we do generally see a little bit of slowdown in efficiency gains in the January – in this March quarter. It's usually being a softer quarter for non-interest income.

Okay. And then, Matt, you referenced more depositors are accelerating maybe moving towards – more towards having non-time deposits in the CDs. So curious, what's the typical rate on a new CD right now?

We're running specials as high as 270, 275, that's for approximately two-year CD.

Got you. Very helpful. I will step back.

Our next question comes from comes from Kelly Motta from KBW. Please go ahead with your question.

Hi, guys, good evening. I had a question about capital, you mentioned M&A has kind of the opportunities that slowdown a bit. And I wanted to ask you about the buyback authorization that you announced this quarter, potentially it's M&A opportunities don't present themselves. How were you thinking about the buyback? Are you anticipating potentially using that in order to deploy some of the capital you have on hand?

Yes. As you may have noticed the announcement on that plan was, I think, just before we went into quiet period on our earnings that we've had not had any activity on it so far. But that's certainly the idea that as we see your opportunities to leverage our capital approved activity we can be opportunistic and looking at the repurchasing some of our shares and could return to shareholders.

Great. And then I also wanted to talk about the sizes of balance sheet and kind of the makeup there. The size was this quarter a bit bigger than what I had modeled having build the securities book more substantially from Gideon. You mentioned – you talked overnight funding, I believe, in order to fund the strong growth that you had. How are you thinking about the securities book? Is that a potential source of liquidity for you as you look to fund what turning out to be a very strong year for loan growth?

It is. It's not a silver bullet for our liquidity situation, but it is generally unencumbered. They had a relatively low level of public units. They were utilizing that for – we will work with the public units payments, we do our own started transitioned to those reciprocal deposit insurance arrangements. Hopefully, we will free up even more collateral. But there is some degree of balance sheet where we do want to maintain, but I wouldn't look at necessarily a substantial part of that paying down keep borrowing.

Okay. So your securities turning out, it went to 10% from 9% last quarter, fair to say that it might shake out somewhere in the middle of that? Is that…

Yes. I think that at the low end, somewhere in the low end.

Okay. Got you. And then on your prepared remarks, Matt, you mentioned core expenses acts the provision for balance sheet funding as well as CDI and the provision has been in the release. Do you have a dollar amount of CDI that you reported this quarter?

I can, one second. CDI, $374,000, and then that is down from the prior quarter as we had couple maybe just one over acquisition during this quarter, but then we'll have a full quarter first commercial launch in the following quarter.

Understood. Okay.

Commercial, we've been talking about it with Gideon as the…

A final question, if I may, with your NIM outlook. How are you thinking about the NIM going forward with the curve being as flat as it is and kind of the migration you talked about towards CDs. Should be – it is fair to assume little bit more pressure there? Or do you think you should be able to offset that?

Our anticipated modest per share NIM at this point in time.

Tell me if I'm wrong, Greg, I think we've seen a little less move back in loan yield than what we had maybe release on the deposit side here in the last six weeks since the…

We have been getting a little of pricing on our loans compared to where we have in the been similar loans have extended out a little bit further on the maturity mix. So are there initial repricing periods. So that's stabilizing some of it. So we're anticipating just a very modest reduction potentially in the NIM.

Thank you. I will step back.

[Operator Instructions] Our next question comes from Don Koch from Koch Investments. Please go ahead with your question.

Thanks, guys, nice quarter. You did a nice job here. Help us a little bit – you clearly, in your prepared remarks, you really clear about the challenge you had with Gideon. Many times when you go through this process, there is always a prize at the end of the marriage or the hug. Do you think it's through all that? Or do you think – do you think there’s – more that you got to uncover that's going to materially raise your NPAs going forward.

We feel like we have a pretty good handle on the loan book that we acquired. And really from all of our acquisitions to date, we really haven't been surprised by any credit issues. If anything, our credit surprises have been to the positive side and to the negative. And we haven't seen anything, we indicate anything on the contrary on this.

Okay. Keep on doing the great job guys. Thanks.

Thank you.

And at this time, I'm showing no additional questions. I would like to turn the conference call back over for any closing remarks.

Okay. Thanks, again, Jamie, and thanks for everyone for interest in our call. We look forward to talking to again in three months.

Ladies and gentlemen, that concludes today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.