Hello and welcome to Southern Missouri Bancorp Quarterly Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Matt Funke. Mr. Funke, please go ahead.

Thank you, Keith, and good afternoon, everyone. This is Matt Funke, CFO of Southern Missouri Bancorp. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Monday, July 27, 2020 and to take your questions. We may make any -- we may make certain forward-looking statements during today’s call and we refer you to our cautionary statement regarding such forward-looking statements contained in the press release. I’m joined on the call today by Greg Steffens, our President and CEO. So thank you to all of you for joining us today and to start out, we want to just provide a quick update on the Bank’s operations in the COVID-19 environment. While the states where we primarily operate has significantly loosened restrictions since April, we have seen increased COVID cases and positivity rate. And some of our communities are ratcheting back up some restrictions. The Bank did reopen lobbies in May and we continue to remain fully open. Although, we do encourage our customers to continue to utilize drive-throughs when possible and we’re also seeing continued higher usage of our interactive teller machines and our mobile and online channels. We’re continuing to encourage a number of our administrative team to work remotely at least some of the time and we’re trying to use good judgment about the necessity of business travel. Greg?

Thanks, Matt. Good afternoon, everyone. I want to provide a brief update on our lending activities under the SBA PPP program. Since our last call in late April, the Bank are withstanding an additional $23 million in PPP loans and we have a total of $132 million outstanding at June 30th. We are also continuing to originate a relatively small amount of loans under the program and we anticipate beginning the forgiveness process around mid-August. We’re continuing to follow regulatory guidelines working with our borrowers affected by the pandemic by providing modifications and deferrals to loans that were otherwise current or performance, that anticipate difficulties to the pandemic. Through June 30th we’ve approved deferrals and modifications totaling $380 million to assist these customers. Almost all deferrals are for a three-month period, while our interest-only modifications have been for six-month periods. Approximately $35 million of our deferrals and modifications are in our single-family portfolio, $30 million in multifamily, $81 million in owner-occupied CRE, $119 million is in our non-owner-occupied CRE and $23 million in commercial loans. Within owner-occupied CRE, 42% of deferrals and modifications by dollar volume bars and restaurants, 18% are convenience stores, 10% are the manufacturers and 9% are the retail. Within non-owner-occupied CRE, 34% are the hotels, 30% of deferrals and modifications are multi-tenant retail, 12% were in restaurants, 8% worth of care facilities. All I was saying, C&I loans 26% of deferrals and modifications are the transportation warehousing, 15% manufacturing, 13% are the accommodation or food service, 12% to retail trade, 9% are to administrative support or waste management services and 7% were the healthcare or socialist systems firms. Also I want to touch at this time on credit quality. Our non-performing loans were down approximately $2.8 million or about 17 basis points on gross loans since…

Sure. Thanks, Greg. We earn $0.76 diluted in the June quarter which is the fourth quarter of our fiscal year that’s up from -- that’s up $0.21 from linked March quarter and it’s down $0.05 from the $0.81 we earned in the June 2019 quarter. Provision for loan losses remained relatively high compared to our normal levels, but it was down from the linked quarter. We had significant charges related to the acquisition of Central Federal Bancshares, good results on margin and good results on non-interest income. We also saw good results on our non-performing loans, non-performing asset balances this quarter, NPLs were down $2.8 million to end 40 basis points on gross loans and NPAs were down $3.6 million to end at 44 basis points on total assets. Both are down by more than half since the prior fiscal year end and that’s because we have worked to resolve problem loans from the Gideon acquisition that took place in the middle of the prior fiscal year. Net charge-offs were up a bit in the June quarter and they were 4 basis points annualized, which is the same as our trailing 12-month figure. A year ago, our trailing 12-month figure was 2 basis points. Outside of the Central Federal acquisition our loan portfolio shrank just slightly excluding the 100% SBA guaranteed Paycheck Protection Program loans, but we still provision that at a higher than normal level due to the continued economic uncertainty surrounding the COVID-19 pandemic we provisioned $1.9 million which increased the allowance by $1.6 million. As a percent of gross loans, our allowance decreased to 1.16% at June 30th, down 2 basis points from March 31st, but up 9 basis points from June 30th a year ago. Outside of the PPP loans the allowance would have been 1.24%…

Okay. Thanks, Matt. In regards to our loan growth, our portfolio would have grown slightly outside of the acquisition and the PPP loans, but we remain reasonably pleased with our rate of loan growth for the fiscal year. Looking forward, we would expect growth to be limited outside the impact of PPP loan forgiveness. Our organic growth for the year was led by increases in single-family, multi-family, residential, non-owner-occupied CRE loans and construction loans. Residential property loans including multi-family and single-family loans have grown faster over the recent quarters. During recent periods, our CRE concentration has moved from 255% of regulatory capital at June 30, ‘19 and 280% at March 31, ‘20, and has been relatively stable at $278 at June 30, 2020. Our volume of originations was strong in the June quarter, totaling $310 million, which includes PPP loans, which is up $186 million compared to the same period of the prior year. For the fiscal year loan originations totaled $848 million, up $242 million from the prior fiscal year. Our loan pipeline for loans to funds in 90 days was at $86.6 million at June 30th, as compared to $83 million at June 30, 2019 and $77 million at March 31st. The pipeline continues to be diverse in nature and fairly similar to our existing portfolio mix. We continue to like a good rate at this time as to what we should expect for growth within the pipeline and knowing what will ultimately close and what may fall out with changes in economic conditions. But again, we would expect slower loan growth in the next several quarters. Again, we’re pleased with the deposit growth for the year and we’re just really wondering what will happen with some of those balances as time progressed. When we look at M&A activity, we have not looked at any potential partners over the last quarter as anyone that we were talking with as putting plans for a partnership on hold since the outbreak of the pandemic. The company did complete its acquisition of Central Federal on May 22nd, but the data systems conversion completed over the weekend of June 5th to 7th. We don’t expect to hear much in the way of M&A opportunities or to be pursuing any for the time being. We did announce our stock repurchase plan of 450,000 shares in November 2018. During the June quarter, there were no purchases under this plan as we suspended activity at the close of business on March 26th. Repurchases during the fiscal year totaled 182,598 shares to the company’s stock at an average price of $31.61. The company will continue to evaluate whether it resumes activity under this repurchase plan, as the impact of the pandemic is more fully understood. We continued at our previous dividend level of $0.15 per share for the August quarterly dividend and intention would be to continue to pay regular dividends as long as it is safe and sound to do so. That concludes my remarks.

All right. Thank you, Greg. At this time, Keith, we’d like to take any questions our participants may have, so if you would, please remind folks how they can queue for questions and we’ll answer what we can.

Yes. Thank you. [Operator Instructions] And the first question comes from Andrew Liesch with Piper Sandler.

Good afternoon, guys.

Good afternoon, Liesch.

Hi. So a couple questions here. Just on, you mentioned, the cost of fund and the cost of deposits declining in the quarter. Do you have what those figures were for the fourth quarter?

Fourth quarter, one second, thinking they were just slightly below 1 in both case.

Okay. So if that’s the case than it sounds like with the margin now that you’d expect earning assets to re-price faster than funding costs, but -- then funding, but it seems like with the cost of deposit just below 1, there’s still some room to go just given the rate environment. Is there any like re-pricing or are there some higher priced CDs in there that are going to remain on the balance sheet, like, what’s to prevent some -- for some further reductions in funding costs this quarter?

I don’t think there’s anything that would prevent some further reductions and the CD portfolio is not -- it’s not particularly long or concentrated in any way. It’s just that generally we’ve had competition locally that has prevented us from going as low as maybe what you’ve seen with some of the larger regional banks in terms of their overall cost of deposits. And I -- certainly I don’t want to say we won’t continue to work to lower that further. But I wouldn’t expect continued declines like we had in this most recent quarter.

Got it. Okay. That’s helpful. And then of the $132 million of PPP, you said, sounds like going to start working through the forgiveness process next month. When we get to the end of this calendar year and how much of that $132 million do you think is still around? Do you think 80% of its left, how much spillover do you think remains in the next year? Just what’s your outlook, given your conversations with the PPP customers?

We would anticipate that somewhere between 80% and 90% of the PPP balances extended would be repaid by the end of the year or forgive -- end of the calendar.

Okay. Got you. That’s helpful. And then just of the $5.1 million in total non-interest income for the quarter, what was the mortgage banking gain on sale piece of that $5.1 million?

It would have been, Andrew, on your other question, cost of funds was 97 basis points for the quarter. Cost of deposits was 91 basis points.

Okay.

And the gains on loan sales have been a little less than $1 million.

Okay. Great. That covers my question. I’ll step back. Thanks.

Thank you. And the next question comes from Kelly Motta with KBW.

Hi. Hi. Good afternoon, everyone. And I wanted to ask you about the PPP recognition, that’s the fee recognition, about how much contribution was that this quarter to NII?

In dollar terms, it’s running, I think, about $200,000 a month, Kelly, and in terms of the yield on those loans, it’s along with the 1% coupon. It’s an effective yield of about 3% on those loans.

Okay. And -- got it. Let’s see and then, with CECL, you mentioned that your -- seems like you’re preparing to adopt as initially planned on July 1st. Are you at a point where you have a preliminary estimate on the reserve bill that would come under CECL, as you moved to that standard?

No. Unfortunately, we’re not.

Got it. All right. Thank you.

Thanks, Kelly.

Thank you. [Operator Instructions] All right. As there are no more questions at the present time, I would like to turn the floor to management for any closing comments.

All right. Thank you again to everyone for joining us. Appreciate your interest and we’ll speak again in three months.

Thank you so much. And thank you for attending today’s presentation. You may disconnect your lines.