Good day and welcome to the Southern Missouri Bancorp, Inc. quarterly earnings conference call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Matt Funke. Please go ahead, sir.

Thank you, Chuck, and good afternoon, everyone. This is Matt Funke, CFO with Southern Missouri Bancorp. The purpose of this call is to review the information and data we presented in our quarterly earnings release dated Monday, October 26, 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. I'm joined on the call today by Greg Steffens, our President and CEO. And Greg is going to provide a quick update on the bank's operations in the continuing pandemic environment.

Thank you, Matt, and good afternoon, everyone. Thanks for joining us today, and we're going to provide a brief update on our operations as we continue to deal with COVID-19. We're pleased to report that our communities are continuing to work to get back towards normal. Although we are currently seeing increasing virus cases and hospitalizations, we currently have very few restrictions on actual activity in most of our markets. Schools remain open. And we're hoping that the spread is brought under control soon before significant activity restrictions will be required. While we've had a few situations where some of our team members were affected by the virus and we have needed to temporarily close a facility or move to drive through-only service for a period of time, all of our facilities remain open for business at this time. We can -- we have focused a good deal of our earnings release on the loan payment deferrals and interest-only modifications that we began to make as early as March, as provided under the CARES Act without TDR designations and with the encouragement of our regulators. Those loans over the last few months have made substantial progress towards resuming amortizing payments, and we are continuing to see that in October. We've seen a significant reduction since June 30 levels when we had $380 million in such modifications, and we were below $94 million at September 30, and we expect a substantial majority of that to move back to contractual terms by the end of October. And most importantly, loans that are in full deferral were down to less than $10 million at September 30, from $141 million at June 30. On PPP, we have funded very few loans since our last call and have submitted a relatively small number of forgiveness…

Sure. Thanks, Greg. We earned $1.09 diluted in the September quarter. That's the first quarter of our fiscal year, and that's an increase of $0.33 from the linked June quarter and it's up $0.24 from the $0.85 diluted that we earned in the September 2019 quarter. Provision for loan losses declined somewhat as we had relatively slow loan growth compared to the year ago quarter, and we did not see much change in the economic outlook following our July 1 CECL adoption. Noninterest income remained strong, and we saw a reduction in noninterest expense from last quarter's elevated levels that included charges from the Central Federal acquisition and expenses and write-downs related to foreclosed property. Noninterest income continued to show significant increases compared to the year ago period. Gains on secondary market residential loan sales continued to lead the way. The volume of originations is more than 3x the year ago period, and the average gain per loan is a little bit better as well. We're also generating more in mortgage servicing income as the dollars under servicing continue to increase sharply, and we generated new mortgage servicing rights with our increase in originations. Compared to a year ago, loans under servicing were up by about 30% over $45 million. If you follow components of our noninterest income and expense reporting closely over time, you may notice that we've changed how we account for the debit card to interchange expenses, netting those now against interchange income instead of reporting them separately as noninterest expense. Compared to the year ago period, debit card income is up on an adjusted basis there, a little more than 10%, which is from a 9% increase in transactions and 17% increase in dollar volume. We still have some concern. The outlook here may be a…

Thanks, Matt. In terms of loan growth, our pace of growth is relatively slow over this last quarter, and that was roughly in line with our expectations. And with PPP loan forgiveness, with it getting started, we're going to anticipate gross declines that are fairly modest over the next quarter, depending upon the speed at which the SBA approves forgiveness. At 9/30, our nonowner-occupied CRE concentration was approximately 270% of regulatory capital, which is down from 280% at June 30, and up from 253% 1 year ago. Our volume of loan originations was lower in the September quarter than where we were in June. The June was artificially inflated by all the PPP lending, but we were up substantially from the same period of the prior year. Our loan pipeline for loans to fund in 90 days was $123 million at September 30, notably higher from where we were at June 30 when it was $87 million, and $102 million compared to a year ago. Our pipeline remains diverse in nature and similar to prior periods, but it does include a little bit more on secondary market production for loans that will be sold after they are closed. Even though our pipeline is larger than where it was last quarter, our expectation is for limited growth in the coming quarter due to the PPP forgiveness, expected seasonal pay downs on our ag operating balances and increased loan prepayment activity that we're seeing at present. In regard to M&A, we continue to not expect many opportunities over the upcoming months. We do believe that ultimately, disruption will lead to some deals. But for the moment, we aren't hearing the phone ring very often. In an 8-K filing last week and reiterated in our earnings release, we announced that our Board approved a resumption of our stock repurchase plan, originally announced in late 2018. We have around 232,000 shares remaining for repurchase under the plan. And given our current outlook on the credit portfolio and expectation for limited growth and few M&A opportunities, we believe that repurchasing shares near-term at current levels could represent a relative attractive use of capital. We maintained the quarterly dividend of $0.15 per share for the November quarter as well. Thanks, Matt.

Okay. Thanks, Greg. And Chuck, at this time, we'd like to take any questions that our participants may have. If you wouldn't mind reminding them how to queue for questions, and we'll do so.

[Operator Instructions] And our first question will come from Andrew Liesch with Piper Sandler.

Greg, in -- I think maybe in just last quarter's conference call, you spoke about a few hotel loans that you're monitoring as maybe having potential weakness. How do those stand right now? Where is occupancy at? Were these some of the credits that were downgraded? Just any sort of update on those few relationships.

We had 3 hotel relationships that we moved to watch list status. They remain in watch list status. The markets where they're at continue to struggle. They cater primarily to the business community and business travel, and they are struggling. They are currently on repayment status. We are monitoring how they are performing and we will make any adjustments as necessary, but we're presently negotiating with those customers.

Okay. And then beyond maybe these 3 -- the hospitality loans, are there any other areas of the portfolio that are -- that are giving you pause right now? Any other targeted areas of concern?

We really aren't seeing much. We do have one restaurant customer that is struggling, but they are making interest-only payments, but just their level of -- they're very limited on the amount of occupancy that they can allow in their restaurant, and it's relatively small. Really, the 3 hotels are our primary area of concern.

Got you. Got it. And then, Matt, just on your expense commentary, it sounds like there are a few line items that might have been a little bit below a natural run rate here in the quarter. So pretty safe to assume that you're seeing increase in expenses going as we head into this upcoming quarter?

Yes. We would probably see some of those bounce back to a more normalized level on the items we noted. Nothing huge there. But you probably see a little tick up in the December quarter. And then generally, into the March quarter, we have a little bit of expense build with our new calendar year.

[Operator Instructions] Our next question will come from Kelly Motta with KBW.

I wanted to ask about mortgage revenues, Matt. In your prepared comments, I believe you noted that volumes were 3x year-over-year what they had been. I was just wondering with what you're seeing in your markets, if you expect another couple of quarters of outsized mortgage banking revenues.

Kelly, we're seeing that the pipeline right now for what we have for mortgage production is really running pretty similar to where it was last quarter. We would anticipate after the end of the calendar year that some of those balances would start to wind down a little bit. But at present, the pipeline is really maintaining the same level where we were before.

At some point, those refi opportunities will go away. But right now, we're -- it seems like we're taking some market share just with the amount of increase in the loans under servicing. And just one -- Greg mentioned balances, but I think he means originations will wind down as the refi opportunities. Yes.

Understood. Do you have how much was refi this quarter?

And I don't add that in front of me. I think it's about 2/3, is probably refi.

We've been running about 64% refi and 36% purchase.

Got it. And then maybe if I could turn to credit. You obviously built your loan loss allowance a lot with CECL adoption. I was just wondering if your assumptions include any potential stimulus down the line, and kind of how we should be thinking about if any further reserve build is needed, if conditions kind of stay here without further deterioration.

So within the CECL model we're working from, we're looking primarily at GDP expectations and looking between the FOMC and a couple of outside economists for what their expectations are for GDP going forward, presuming that there -- I think most of those parties are presuming that there is some sort of stimulus in there. And as that would -- as those hopes would fade, you might see some downgrade in their expectations, but I don't know how to really quantify that.

This concludes our question-and-answer session. I would like to turn the conference back over to Matt Funke for any closing remarks. Please go ahead, sir.

Okay. Thanks, Chuck, and thank you, everyone, for participating. We appreciate your interest, and we'll talk again in 3 months.

Thank you, all.

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