Good day and welcome to the Southern Missouri Bancorp Quarterly Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Matt Funke, Executive Vice President, Chief Financial Officer. Please go ahead.

Thank you, Andrew, and good afternoon everyone. This is Matt Funke, CFO of Southern Missouri. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Monday, April 26, 2021 and to take your questions. We may make certain forward-looking statements during today's call when 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.

Thank you, Matt and good afternoon everyone. Thanks for joining us today. Since our last call the most recent public data indicates that we have seen substantial reductions in COVID transmission in our market area since the peak between November and January. The relatively few business activities restrictions that we reported on a quarter ago have only been reduced further and we are hopeful that improving activity and reduced transmissions will continue at certain current level or even improve overtime. Within our organization we have had far fewer temporary closings or team member quarantines and our facilities are open for business. We continue to feel positive about our credit profile and borrower performance. In March 31, we remained at about $40 million in modifications under the CARES Act consistent with the prior quarter and about a tenth of the figure from nine months earlier. Nearly all of these balances require at least interest-only payments and the majority of these dollars are loans to borrowers in the hotel industry. We expect the hotels in particular may require continued relief in the near term and we're continuing to analyze this portfolio more closely. We do expect that nearly half of the remaining balance of modifications we have to return to full payment status around the middle of the year. Since we last spoke PPP forgiveness maintained a pretty good pace earlier in the March quarter. Then slowed late in the quarter and that's continued into the June quarter thus far. Until we see the SBA approve some of the larger balances we have submitted we may be approaching somewhat of a limit for the time being. The release notes that we've received $42 million in PPP forgiveness during the quarter but that was offset by the second round of PPP second draw funds during the March quarter. We're still originating some of these loans but we wouldn't expect them to have a meaningful impact on loan growth in the current quarter. Forgiveness on the second round of loans has also been submitted as we've had just approximately 46 loans submitted for 2.5 million and we have 37 loans from the first round of PPP totaling 21 million waiting on our SBA approval. And we have not received any approval on any loans over $2 million at this point.

Sure. Thanks Greg. We did earn a $1.27 diluted in the March quarter that's the third quarter of our fiscal year and it's down a nickel from the linked December quarter as well as being up $0.72 from $0.55 in March of 2020. March of 2020 included a large provision for loan losses and also recognition of impairment on our mortgage servicing rise. From the December quarter we saw net interest income decreased primarily as loan interest declined by more than deposit costs even though we recognized about 300,000 more between discount accretion and PPP deferred origination fees that were accelerated. The 90-day quarter was a contributor to the decline in loan interest.

Thanks Matt. I want to wrap up talking a little bit about loan growth which would have been basically flat this quarter outside of new PPP funding offsetting forgiveness and our retention of some loans that we normally would have sold in the secondary market which helped us add about $10 million to our loan balances. Ag lines and Ag real estate paydowns noted earlier were offset by growth in multi-family real estate and construction loan drops. Our South region has been our largest contributor to loan growth in the current fiscal year. Our outlook for the June quarter is much better for loan growth as our loan pipeline for loans to be funded within 90 days was $146 million at March 31 up from $85 million at December 31 and as compared to $77 million one year earlier. The figure noted that March 31 ended December 31 do not include any impact from second draw PPP loans and while we're still completing some of those we don't expect it will meaningfully impact the June quarter. Over the near to medium term, however, we expect that organic loan growth opportunities will be more limited than what we have experienced in prior years. We would anticipate organic growth over the medium term to be in the 3% to 5% range. One unknown on our future for loan growth will be really what is the impact on C&I balances as we returned from pre-COVID levels will borrowers draw their balances up to where they were pre-COVID or will they be permanently lowered as what they are right now and we just don't have clarity on where that is going at present. And looking at our non-owner commercial real estate concentrations they totaled approximately 262% of regulatory capital of March 31 as compared to 263% of December 31 and 282% one year ago. In the current quarter both loans and capital grew at roughly 2% levels. Our volume of loan originations was a little over $250 million in the March quarter which remains elevated up from $220 million in the year ago quarter and $229 million in the December quarter. We would be down year-over-year outside the secondary market production and PPP originations. Obviously like the rest of the industry we're blessed with a little much of a, too much of a good thing in regards to deposit growth over the last year. We continue to expect that eventually as the economy reopens some of this outsized growth will wash out as customers spend some of their deposit money and we also are cautious about moving too much of this excess liquidity or dollars into our investment portfolio at this time.

All right, thank you Greg. This time Andrew we'd like to take any questions our participants may have. So if you would remind them how they can queue for questions and we'll be ready.

Yes sir. We will now begin the question and answer session. The first question comes from Andrew Liesch with Piper Sandler. Please go ahead.

Hey good afternoon guys. How are you?

Good afternoon Andrew.

I don't think we've good question on the expenses here. I think we spoke on it last quarter I thought maybe they rise a little bit more than they did. Is this a good run rate to use going forward or should there be more expense growth from here?

Really there has been a few things that kind of went against us just from a timing standpoint on occupancy. We're running probably more positions vacant than we would like to long term. So we might see a little bit of a pickup in some compensation there. I don't think there's anything unusual to warn you off of on there other than maybe a little bit higher vacancy rate than normal.

Got it. Good expense control there. And then Greg on M&A, obviously nice improvement in the stock price currently it has come back a little bit. It doesn't sound like you've seen anything that might be interesting to you right now but I guess what's the, are there deals out there that you'd be interested in? Right now do you think you could afford them with the currency that you have? I guess just a little more comments on your M&A outlook would be appreciated.

We would really like the opportunity to participate in some M&A stock price has definitely improved from where it has but a lot of it's going to depend upon seller expectations and whether they're able to accept stocks similar to the tangible book value ratios that we're trading at but we're definitely interested in M&A. It's just people have to be interested in selling our market footprint. There is definitely been increases in activity around the country but we have not seen as many non-disclosure agreements as what we would have maybe anticipated at this point but we are anticipating receiving some in the near future.

Got it. Do you think that's driven just by what those private banks might be seeing in the market or what do you think might be driving a slower pace of prospective deal activity?

I think Missouri and Arkansas have just been less active or a little slower than some parts of the country on proceeding with M&A. I would expect more M&A to occur in some of our market footprint over the next six months.

Got it. Cool. Matt, you've actually covered all my other questions in your prepared comment. So thanks so much. I will step back.

Thanks Andrew.

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

Good afternoon Greg and Matt. I was hoping, I appreciate the color on loan growth. You mentioned one factor that could determine growth going forward is whether or not line utilization comes back. I was wondering if you had any stats on where line utilization stands now relative to perhaps historical loans.

We don't have any overall numbers we have a variety of industries to where part of our businesses have not been able to get inventory especially like car dealers, boat dealers, anybody selling all-terrain vehicles. A lot of that type of product has not been near as available. So a lot of balances are well more than 50% below the usage that we took typically would have seen. And then we have a variety of seasonal businesses are below levels where they would have been before. But some of what we're not on clear about is how many balances are temporarily related to PPP loans that they would have received or idle advances or other things that have helped also keep line usage lower. We would anticipate C&I balances to move higher. We just don't know and we don't know when inventories will get back to historic levels either. So I cover a lot --

Thank you. As always Andrew kind of got my question so I am all set. Thank you.

Thanks Kelly.

Thanks Kelly.

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

Thank you again Andrew and thank you everyone. We appreciate your interest and we'll look forward to talking again in about three months. Have a good day.

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