Hello and welcome to the Southern Missouri Bancorp Quarterly Earnings Conference Call. My name is Alex and will be coordinating the call today. I will now hand over to your host, Matt Funke, CFO for Southern Missouri, over to you. Matt.

Thank you, Alex. Good morning, everyone. This is Matt Funke, CFO with Southern Missouri Bancorp. Thanks for joining us today. The purpose of the call is to review the information and data presented in our quarterly earnings release dated Monday, April 25th, 2022 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. Greg will lead off our conversation and then with commentary on our current operations or lending activity and credit quality measures. Greg.

Thank you, Matt, and good morning, everyone. This is Greg Steffens. Thank you, and we appreciate you joining us today. First item I would like to note is that we completed our merger with Fortune Financial Corporation Locations in the St. Louis Metropolitan area in late February. We completed system conversions on that same weekend and operations have been running smoothly since the acquisition. As for our COVID update, as most of the U.S., our market areas saw a rapid decline in reporting cases of COVID and hospitalizations beginning in February, and dropped to the lowest levels since the beginning of the pandemic. Scheduled team members have not been an issue with COVID for the last several months, which has been a welcome relief. We do note that there are a few areas of the country where new variants may be pushing infection rates in the wrong direction. But it's hard to imagine that we would see another wave or anything in our areas that would result in any significant mitigation efforts that would affect our business activity or our customers. Our borrower's credit performance remained strong. We noted in January that we were working with two hotel industry relationship loans totaling just under $24 million with business models that were particularly impacted by the pandemic. We've seen improvement as hoped for on the performance on those properties and one is returned to scheduled principal and interest payments. The second comprised of 3 loans, has not yet moved to principal and interest. And we've moved it to substandard as a result of that. We do expect they return to principal and interest payments by the end of the June quarter on those credits. And we expect continued improvement in occupancy as the calendar year progresses for both properties. Non-performing loans…

Thanks, Greg. We did earn a $1.3 diluted in the March quarter marches the third quarter of our fiscal year net figure is down $0.32 from the linked December quarter. And we're also down $0.24 from the $1.27 diluted that we earned in the March 2021 quarter. Items primarily contributing to the decline include $1.1 million in non-recurring, non-interest expense attributable to the merger, $2 million in provision for credit losses needed to fund the allowance for credit losses per loan balances outstanding, as well as for off balance sheet credit exposures. Also with significant drop in the accretion of deferred loan origination fees from PPP loans, as Greg mentioned. In the year ago quarter, we had a modest negative provision and we would have done the same in the current quarter except for the provision required for the acquired non-PCD loans from the merger. Our net interest margin in the March quarter was 3.48%, which included about 6 basis points of contribution from fair value discount accretion on acquired loan portfolios, which was about $448,000 in dollar terms, off though PPP loan balances and forgiveness repayments dwindled. As did the accelerated accretion of deferred origination fees on those loans, dropping to a $180,000, which contributed just two basis points to the margin. A year ago, margin was 368. We had 10 basis points from fair value accretion and PPP forgiveness contributed 18 basis points. So on what we see as a core basis, our margin was down less than one basis point year over year, March 22 to March 20 -- from March 21, we see our core loan yield is dropping 22 basis points over that period while our core cost of deposits was down at 17 basis points and our cost of funds was down 19. Average…

Thanks, Matt. As expected, our loan growth tapered off during the March quarter following a very strong September, December quarter, excluding the loans acquired with Fortune, we saw a strong growth this quarter in our residential and multifamily real estate portfolio are , construction balances did decline during the quarter. Activity in our West region centered in Springfield, Missouri, led the way again in the current quarter and has shown very strong growth over the last 12 months. Our east and south regions were relatively little change in the current quarter. But at above, those shown, very good growth rates over the last 12 months. We expect loan growth to continue in the June quarter, which historically has been one of our best two quarters of the year. Our pipeline for loans to fund in 90 days was a $181 million in March 31st up from $158 million at 12/31 as compared to $146 million, we reported a year ago. As I mentioned, we had modest pay downs in the March quarter and that should reverse in the current quarter. And the impact from PPP forgiveness should be immaterial. Our non-owner occupied CRE concentration did rise during the quarter and totaled approximately 304% of regulatory capital at 331, up 16 percentage points as compared to December 31st, and as compared to 262% one year ago. Fortunes, concentration was the biggest factor to the increase as the loans they added outpaced new capital that we issued in the merger, and they had a higher CRE concentrations upon acquisition. Our volume per loan originations was about $268 million during the March quarter, down about $68 million from the December quarter. And the same quarter a year ago, we originated $251 million in loans, which was substantially elevated by PPP originations. Our December…

All right. Thank you, Greg, at this time, Alex, we're ready to take questions from our participants. So, if you would please remind them how they can queue for questions.

Thank you. . Our first question for today comes from Andrew Liesch of Piper Sandler. Andrew, your line is now open.

Thanks. Hi, everyone. Good morning.

Good morning, Andrew.

Good morning.

Got 2 questions on the margin here. So obviously deal added a lot of cash, rates are higher. Sounds like you want to put some of that to work in the securities book. Loan growth is going to improve here. What -- how should we looking at it on a core basis and the trend seems up from this 338 level or so just from those dynamics alone. But then there's rate hikes on top of that that should be beneficial. So how are you guys looking at the margin for the next couple of quarters?

Thanks. Some of it is going to be driven by how fast the Fed ultimately goes. We think these next couple of quarters as the Fed maybe moves a 100-150 basis points, we are generally positive to stable to a little bit positive there. Beyond that, it becomes a little cloudy are influenced by deposit competition more so. Anything further you'd say Greg?

And then just somehow the shape of the yield curve is going to change as the Fed continues to raise rates, what happens on the other parts of the yield curve and the loans that we'd be putting on the portfolio at that time.

Just given where the March quarter usually comes in, with the day count issue and everything, we would expect the reported numbers to look a little better as we look at it on a core basis. We'd expect maybe just marginal improvement there.

Got it. Okay. That's helpful. And then the cost saves related to Fortune with the conversion done, how are those tracking decent? They're all going to be in the run rate to start your next fiscal year or will there be any spillover in the July?

I think there'll be anything significant from the data processing side. I think we should have most of that cleared up by July. I think that would be at that point.

We've been progressing well on the numbers and we're within our target ranges. We estimated there's still going to be some hangover this quarter of just some different items, but we're pleased with where we're coming at.

Got it. That makes sense. Then I remember part of Fortune business was SBA loan sales. How has that business been tracking since the deal closed? And how is the outlook for that progressing so far this quarter?

Their pipeline of loans that are -- for the SBA is tracking ahead of what our internal estimates were upon the acquisition. And everything seems to be tracking in line at the present time.

Great. All right, that covers my questions. I'll step back. Thanks.

Thank you, Andrew.

As a reminder, . Our next question is from Allina Hagen from KBW. Allina, your line is now open.

Hi, everyone. Good morning. Thanks for the question. And having the sub in for Kelly today. So just I guess thinking about loan growth, I know you highlighted that is expected to continue in June and the pipeline is looking good. How should we think about loan growth looking out for the rest of 2022 and some of the drivers behind that?

But can you tell us how much demand we're going to have from customers after rates go higher. Right now our pipeline is really strong and we're now look at it compared to where we were a year ago. I mean, I think we have some pretty strong tailwinds behind us for the present quarter and so the June quarter early growth were optimistic. Historically the September quarter will do pretty well as we have a lot more add draws and advances. So I think we'll have some line draws during the September quarter. As you get further out in the course of the year, I think a lot of it's going to depend upon how successful the Fed is with some of their goals of taming inflation and what impact that's going to have on borrower activity. I would expect the latter part of the year to be slower and loan growth than what we historically have seen. Matt, do you have any?

Yeah, I think what we're hearing from the origination side is maybe a little bit of pessimism that whether we can keep up the rates from last year, we will see a little bit of a benefit probably from prepays slowing compared to where they were 2020, 2021.

Then we're seeing some good signs from the Fortune acquisition on lending activity from the team members acquired there. And that should have a positive impact on overall portfolio balances in the latter part of the year. They're continuing to adapt to our lending practices.

Great, that's helpful. Thank you. And I guess jumping around a little bit. Now with Fortune closed, what is your appetite for M&A looking forward? And if you do have an appetite, how are conversations progressing and all that? Thanks.

Well, we definitely have an appetite. So we are always in the process to talking in discussing with other people. With Fortune behind us, we would like to find the right partnership to put in place. And so we always have the conversations going along and now we're just hopeful that they will reach a positive conclusion.

Great. Thank you, that's helpful. I'll step back.

Thank you.

Thank you. We have no further questions. So I will hand back to Matt Funke for any closing remarks.

Okay. Thank you again, Alex. And thank you everyone for joining us. Appreciate your interest always and we'll speak with you again in about three months. Have a good day.

Thank you for joining today's call. You may now disconnect.