Good afternoon. Welcome to Southern Missouri Bancorp Quarterly Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, that this event is being recorded. I now would like to turn the conference over to Matt Funke, CFO. Please go ahead.

Thank you, Kate. Good afternoon, everyone. This is Matt Funke, CFO with Southern Missouri Bancorp. The purpose of this call is to review the information and data presented in our quarterly earnings release, which was dated Monday, January 27, 2020 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 thank you all for joining us today. I'll begin by reviewing the preliminary results highlighted in the quarterly earnings release. The quarter-ended December 31, 2019 is the second quarter of our 2020 fiscal year. We earned $0.84 diluted in the current December quarter, that is down $0.01 from the linked September quarter and it's up $0.03 from $0.81 diluted that we earned in the December 2018 quarter. Our net interest margin for the second quarter was 3.70%, that included about 10 basis points of contribution from fair-value discount accretion on acquired loan portfolios and premium amortization on assumed deposit, which was about $525,000 in dollar terms. Additionally, the current period's margin included about 4 basis points benefit, $194,000 in dollar terms from interest collected on a few larger loans that had been treated as non-accrual.In the year ago period our margin was 3.71% of which, again, 10 basis points resulted from fair-value discount accretion; in dollar terms that was $467,000. On what we see as a core basis then, our margin was down about 5 basis points comparing the December 2019 quarter to the December 2018 quarter. Our core asset yield in that time was up about 8 basis points, that's less than the increase in our core cost of deposits which we see as 21 basis points higher, but our total core cost of funds is up a little…

Thank you, Matt. I'm going to talk a little bit more about loans briefly.So overall, we're pleased with our rate of growth in our gross loan portfolio for the second quarter and fiscal year. For the quarter, we generated $48.4 million or 2.6% growth and which has typically been one of our weaker quarters for growth. For the six months of our fiscal year we've realized gross loan portfolio growth of $77 million for a little over 4% which puts us modestly ahead of pace on achieving our guidance of 5% to 7% loan growth. However, it should be noted that our seasonal growth factors have been less pronounced over recent periods, and we were able to reduce our NPAs, our non-performing assets as expected from the Gideon acquisition which has slightly reduced overall loan growth.Our organic loan growth has been led by increases in one-to-four family residential loans, multi-family housing, and drawn construction balances while our other loan portfolios have had more modest changes. Overall, our loan portfolio mix has changed slightly as we have grown more in residential property over the last several quarters than we had in prior periods. During recent periods, Southern Missouri Bancorp's commercial real estate concentrations has moved from 260% at 12/31/2018 to 255% at June 30 of 2019, and now has backed up to 265% at 12/31. Our organic loan growth continues during the fiscal year and has been spread fairly evenly over each of our three regions. Our volume of loan originations which totaled $195 million during the current quarter was up $39 million as compared to the same period at the prior year. However, for the fiscal year-to-date loan originations have totaled $319 million, which is down $15 million from the same period of the prior year.Now I'd like to provide…

All right. Thank you, Greg. And Kate, at this time we'd like to take any questions our participants may have. So, if you would remind folks how they could queue for those, we'll wait.

We will begin the question-and-answer session. [Operator Instructions] Our first question is from Andrew Liesch from Piper Sandler. Go ahead.

Good afternoon, everyone. So Matt, you were just talking about the fee income quarter-over-quarter; NSF fees from upward adjustment there, and then other loan fees and brokerage income rose but mortgage down a little bit, maybe from seasonal factors there. If I just look at the fee income going forward; is this a good run rate to build off of? It seems like what some of the changes you guys have made that your fee income should be higher than it has been in previous years?

Well, we're hoping that the NSF charges will hold up with the fee increase. We always do see some seasonality on that in the March quarter, especially; so we'll be mindful of that. It's been a pretty good year so far for mortgage originations; some of our servicing has taken a hit with refi activity but I think we're relatively optimistic, that should continue and we've got no - a good start on the brokerage and insurance business, so we should be building from that as well.

Great. And then just following up on the margin; I think in the last conference call you guys referenced some higher cost CDs that you might have paying off earlier - early this year which could provide some funding relief. How do you expect [indiscernible] margin to trend from this 356 level?

Well, it's not just CDs, we've made some concessions on money market pricing and basically guaranteed some rates a year ago when we were crunched for funding a little bit more than what we are right now. But those new roll-off somewhat during the March quarter and we should see some cost of fund relief. I'd say 3-4 weeks ago, we would have probably thought to look more optimistically about margin for the March quarter but we're seeing some additional loan pressure at this time; what we're seeing in the treasury market right now may cause some of that to continue or even be more aggressive loan pricing on the other side of that. So, I think at this point we'll be happy to maintain margin in the March quarter, especially when you consider it the 90-day quarter, we always struggle a little bit with that on the reported number as well. But then we should have seen the peak on cost of funds, we should continue to see some benefits that I should say going into the March quarter.

Great, that's very helpful. I will step back. Thanks.

Thanks, Andrew.

[Operator Instructions] Our next question is from Kelly Motta from KBW. Go ahead.

Hi guys. Thank you so much for taking my question. I thought I'd maybe start off - I think, Matt, in your prepared remarks you've mentioned being more active in the investment portfolio. Wondering any strategies are implementing there and how we should be thinking about maybe building securities as a percentage of average earning assets? Thanks.

Yes, nothing is really novel in terms of the investments we're going into, it's just been a little faster growth in the portfolio this year-to-date compared to what we've typically pursued. I don't think it will be anything that moves the needle on our overall investment yield.

Okay, and then - and then, the size; should we kind of keep it at this 9% of average earning assets than kind of where you were last quarter? Is that good or…

Yes, I think modeling [ph] just to grow along with our overall balance sheet. It might lag a little bit in the second half of the year, especially if this interest rate environment continues.

Got it. And I - I know you mentioned the pressure on loan yields; I was wondering if you could provide more color on what you're seeing in your markets and how pricing is trending in the competitive landscape?

We've seen increased competition primarily in our West region where loan pricing has become a lot more aggressive than what it had been. We're looking at a lot of deals, but we're losing a lot more than what we're getting; deals of larger size, no. Overall, I think that - for the quarter, it's going to be basically flat on margin to slightly positive.

Thanks. Thanks for that, Greg. And then, maybe on expenses; it looks like you had an increased provision for off balance sheet in the expenses there. Excluding that is that a good run rate to build off of kind of around the $30 million dollar range?

Well, we don't anticipate having another loss of the disposition of branches acquired. So that will be one thing we won't have.

Kelly, we always do see a little bit more cost pressure in the March quarter with compensation expense. We generally do a lot of our annual legitimates [ph] in the month of January; so that always hurts us a little bit in the first quarter. I think otherwise, most of our expenses should remain pretty steady.

Great. And then lastly, the amount of the FDIC benefit you had this quarter?

We should be running 1.60, 1.70 [ph] a quarter on it.

Great, thank you.

You're welcome.

This concludes our question-and-answer session. I would now like to turn the conference back to Matt Funke for closing remarks. Go ahead.

Okay. Thank you, Kate. And thank you again, everyone for joining us. We appreciate your interest and we'll talk with you again in three months. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.