Good day, and welcome to the Southern Missouri Bancorp Quarterly Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Funke. Please go ahead.

Thank you, 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 presented in our quarterly earnings release dated Monday, January 25, 2021, 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 today on the call by Greg Steffens, our President and CEO. And to lead us off, 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. This is Greg Steffens, and thank you for joining us today. I want to start again this quarter with an update on our operations as we continue to deal with the pandemic. When we spoke a quarter ago, we noted that our communities, in general, were seeing increasing virus cases and hospitalization. Today, the most recent data indicates that we're at similar levels as we were 3 months ago for new cases and hospitalizations, but we are thankfully currently trending lower from peak levels that were noted 4 to 8 weeks ago in most of our markets. While the virus remains an issue for business activity, we're hopeful that we will continue trending in the right direction. And as the vaccine distribution ramps up, we're hopeful for the end of this difficult time being in sight. We continue to have limited restrictions on actual activity in most of our markets, and our schools are generally open. We continue to have limited instances where we have needed to temporary close a facility or move to drive-through-only service for a period of time, and our facilities have generally remained open for business. For an update on our loans that have been deferred or modified, our borrowers have continued to make good progress in returning to their originally contracted payment terms and obligations. As you noted in the final table of the earnings release that since June 30, when the modifications under the CARES Act that we had agreed to reached $380 million, we're down to approximately $40 million at December 31 at the end of the quarter. All of those were also at least requiring interest-only payments. We continue to remain in discussion with a limited number of borrowers who may need additional relief or…

Sure. Thanks, Greg. Well, in the December quarter, we earned $1.32 diluted. December is the second quarter of our fiscal year. And that's an increase from $0.23 diluted in the September quarter, and it's up $0.48 from the same quarter a year ago when we earned $0.84. Sequentially, net interest income increased due mostly to acceleration of deferred fee accretion on PPP loans as those balances were forgiven. Noninterest income increased due mostly to nonrecurring factors, provision for loan losses declined modestly and noninterest expense was little changed. Compared to a year ago, noninterest income was up a little more than $2 million as gains on residential loan sales were $1.2 million higher and that nonrecurring, bank-owned, life insurance benefit added almost $700,000. In the -- as compared to the linked quarter, that BOLI item accounted for most of the noninterest income increase of almost $800,000, while an increase in secondary market gains was mostly offset by the inclusion in the linked quarter of a nonrecurring wealth management benefit. Year-over-year, excluding the onetime item, we saw higher interchange income and servicing income, partially offset by lower-deposit service charges. In mortgage, our volume originations was more than 4 times the year ago period, and the average gain per loan remains slightly higher as well. We're also generating more in mortgage servicing income as the dollars under servicing continued to increase sharply, and we generated new mortgage servicing rights with our increase in originations. Compared to a year ago, our loans under servicing were up by about $80 million, which is a 50% increase. Debit card interchange and deposit service charges continue to follow similar trends from recent quarters. And as a percentage of average assets, our noninterest income annualized was 89 basis points, of which 11 basis points was attributed to…

Right. Thanks, Matt. When we're looking at the present quarter and just where we're anticipating loan growth, we're really -- we would have had modest loan growth in the last quarter, if it would not have been for PPP forgiveness. As we're looking forward, we're anticipating March quarterly growth to be tough to maintain balances, that is really unclear, depending upon how much second draw PPP loans occur. When we look at some of our specific portfolios, our nonowner-occupied CRE concentration was at 264% of capital at 12/31 as compared to 272% at 9/30 and 274% a year ago. In the current quarter, loan balances were up modestly, while regulatory capital levels grew a little faster. Our volume of loan originations was almost $230 million in the December quarter, which is relatively high and up from $205 million in the September quarter. A year ago, originations were $195 million in the comparable quarter. Compared to the year ago quarter, we saw a $45 million increase in secondary market residential production. So we'd be slightly down outside of that product. Our loan pipeline for loans to fund in 90 days was at $85 million at 12/31, down from $123 million at September 30 as compared to $73 million 1 year earlier. The current figure doesn't include any impact from second draw PPP loans, which we would expect that those could have a modest impact on production. But again, we really don't have good insight there yet. Right at 25% of our pipeline at 12/31 was loans that were targeted for sale in the secondary market. As we move into the new calendar year, we are looking to hold in our loan portfolio some of those 15- and 20-year fixed rate residential loans that would normally have been originated for sale. Over…

Okay. Thanks, Greg. And at this time, we'd like to take questions from any of our participants. So if our operator would remind folks how they might queue for questions, we'll do that at this time.

[Operator Instructions] The first question comes from Andrew Liesch with Piper Sandler.

Greg, just a follow-up question on one of your comments here. It sounds like you're willing to retain some of the 15- and 20-year fixed rate residential mortgages. Within [ the last year here, did I hear you correctly ] that you actually think the securitized mortgages present a better opportunity to retain on the balance sheet. Was I hearing that right?

We just feel like the -- look, we wouldn't be securitizing them. We're originating with secondary standards, but we're just going to put them in our portfolio instead of sell them at the present time.

Got it. Okay. Helpful. Then I just want to then talk about the margin trajectory, certainly benefited from the PPP origination fees. I guess as those go away, do you think that the core margin is going to shake out kind of near this 3.67%, 3.68% level, where it's been the last couple of quarters once those fees dissipate?

We've really been a little positively surprised that it's held up through the December quarter so far. When we were looking at this in May, June, we anticipated our asset yields would have dropped a little bit faster than this, a little faster than we could bring down our core cost of funds in the second half of the year, but we've really kept pace on that side. It still seems to me, just intuitively, that there's a little bit further to fall on the asset side than what we'll be able to bring the cost of funds down, but we'll do our best to maintain.

Got it. All right. And then just one follow-up for me on expenses. Some good expense control here this quarter and then the lower it was the last -- well, at the last 2 quarters, at the end of your last fiscal year. So is this $13.4 million or so a good run rate to build off of?

We always see some upward pressure as we enter the new year, especially on the compensation front. I don't feel like there's really anything else significant out there to warn you about just between benefits and compensation adjustments, which take effect for us in January. Payroll taxes and things like that, we always have a tougher quarter in March. We have to kind of grow into it over the calendar year.

[Operator Instructions] The next question comes from Kelly Motta with KBW.

Maybe going to capital. You obviously repurchased some shares in the quarter and did the penny dividend increase. What is your appetite for continued share repurchases given where your stock is trading?

Well, we have to complete this one before we will elect to opt for a new one, but that's something that we regularly would talk about once this buyback is completed.

As long as we don't see a huge run-up in pricing, I think we would have some appetite just to deploy capital more so than even considering where pricing is on it. But if we're not able to achieve much in the way of asset growth over the coming year and if these levels of profitability hold up, we'll certainly be building capital faster than we're wanting to.

Got it. Yes. Okay. I just wanted to make sure you're going to continue to use your current authorization. With the reserve, we've seen a lot of banks release reserves this quarter. You kind of held steady if you strip out the PPP loans. Assuming the outlook continues to improve, do you think you might start to release reserves in the coming quarters?

We feel like at our present level of 1.72%, we're at the high end of reserve levels needed. Given that we're expecting loan growth to be pretty muted, we would anticipate additional provisioning to be limited. And depending upon how our portfolio performs, it may drop a little.

Got it. And then I just want to make sure I'm understanding your commentary about mortgage. I appreciate that you're going to portfolio some of the mortgage that you would have otherwise originated for sale. Are you going to continue to sell a portion of those loans still?

The 2/3 of the loans we originate for sale in the secondary market, our 30-year fixed rate mortgages, so we are going to be continuing to sell those. We just will be retaining the 15- and 20-year production and so that will offset some of our loan shrinkage.

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

Okay. Thank you again. Thanks for your interest in the company and participation in the call, and we'll speak with you again in about 3 months. Thanks.

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