Good morning, everyone, and welcome to the Southern Missouri Bancorp earnings call. [Operator Instructions] I would now like to turn the conference call over to Stefan Chkautovich, CFO of Southern Missouri Bancorp. Please go ahead.

Thank you, Kathy. Good morning, everyone. This is Stefan Chkautovich, CFO with Southern Missouri Bancorp. Thank you for joining us. The purpose of this call is to review the information and data presented in our quarterly earnings release, dated Monday, January 29, 2024, 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 Chairman and CEO; and Matt Funke, President and Chief Administrative Officer. Matt will lead off our conversation today with some highlights from our most recent quarter.

Thank you, Stefan, and good morning, everyone. This is Matt Funke. Thanks for joining us. I'll start off with the highlights from our December quarter, the second quarter of our fiscal year. Quarter-over-quarter profitability was down a bit as a higher cost of funds weighed on our margin, but for this current environment, we remain relatively pleased with the results and the outlook ahead. We believe we’ve -- excuse me, we've absorbed the largest part of the impact of the prior year's sharp increase in short-term rates, and we've seen 22.1% net interest income growth year-over-year due to a larger balance sheet, with the addition of the Citizens loan and securities portfolio early in the third quarter of the prior fiscal year, along with continued solid deposit and loan growth so far this fiscal year. We earned $1.07 diluted in the December quarter, that's down $0.09 from the linked September quarter and down $0.19 from the December 2022 quarter. During the quarter, the bank executed a securities loss trade, selling bonds with a book value of $12.4 million, realizing a loss of $682,000 or $0.05 of earnings per fully diluted share after tax. These proceeds were reinvested into $11.9 million of higher rate bonds, which are expected to result in an earn back of the realized loss in less than 2 years. Excluding this loss for the quarter, noninterest income would have been $6.3 million, net income after tax $12.7 million, earnings per diluted share $1.12, and our return on average assets would have been 1.12%. Book value per share was $41.66 and has increased by $4.98, or 13.6%, over the last 12 months with AOCI roughly unchanged since the year ago period. Net interest margin for the quarter was 3.25%, as compared to 3.45% reported for the year ago…

Thank you, Matt, and good morning, everyone. I'm pleased to report overall our asset quality remains strong as of December 31 with adversely classified assets at $39 million or a little over 1% of total loans, a decrease of about $3 million or 10 basis points, over the last quarter. Nonperforming loans were $5.9 million in 12/31, which was relatively flat compared to last quarter and totaled 0.16% of gross loans. In comparison to December of 2022, the nonperforming loans increased a little over $1 million, but in line as a percentage of total loans outstanding. Loans past due 30 to 89 days were $7 million, down nearly $20 million from September and at a low 19 basis points on gross loans. This is a decrease of 53 basis points compared to the linked quarter and down 5 basis points from 1 year ago. Total delinquent loans were $0.3 million, down $20 million from September. This quarter's drop in past due in delinquent loans is primarily from the cure of the large relationship that was delinquent that we noted in last quarter's call. As compared to the prior quarter ended September 30, ag real estate balances were down nearly $2 million, and they were up $15 million compared to December 31 a year ago. Ag production and equipment loan balances were down $18 million over the quarter due to normal seasonality, but they were up $33 million year-over-year due in part to Citizens acquired loans and slower marketing periods for some of our farmers this year. In the 2023 agricultural season, our farmers experienced a successful harvest with above-average yields, particularly in cotton, rice and corn. Despite facing a similar drought in most markets, water availability for irrigation contributed to better-than-average yields. Looking ahead to 2024, we anticipate our farmers…

Thanks, Greg. Matt hit some of the key financial items already, but I wanted to share a few details. Looking at this quarter's net interest margin of 3.25% and included about 14 basis points of fair value discount accretion on acquired loan portfolios and premium amortization on assumed deposits compared to the linked September quarter of 16 points -- 16 basis points, and the prior year's December quarter of 6 basis points. The primary contributor to the net interest margin compression compared to the linked quarter was the increase in the cost of deposits by 42 basis points to 2.61% primarily led by CDE and savings specials, which partially offset from lower FHLB balances. At the end of last quarter, we paid off all overnight borrowings. In total, the cost of liabilities increased 38 basis points to 3.11%. In comparison, our yield-on-average earning assets was up only 15 basis points in the same period. As our asset repricing lags the impact of higher rates more than our liabilities, we continue to see some net interest margin pressure through the quarter, which resulted in the net interest margin for the month of December being modestly lower than the quarter average. The monthly compression has slowed as a significant percentage of the CD portfolio now rolling over each month has already been impacted by higher rates offered in periods following the [ sharp ] move higher in short-term rates. Also, we have reduced special deposit rates offered, as we balance availability of liquidity and near-term loan growth expectations as we have seen an inflection point in the competitive landscape for deposits. Looking at our liabilities that are repricing in comparison to our earning assets, we could continue to see some additional pressure. With this coming spring, we are optimistic that we should…

Thanks, Stefan. We're now a year past our merger with Citizens Bancshares and 11 months past the systems conversion. We remain focused on core deposit retention in those markets and elsewhere and have seen steady improvements over the quarters and how we're integrating those team members into our operations and procedures, and our team is doing a great job. We have achieved the cost savings we'd anticipated at the merger, and from here forward, we are looking to expand in our metro markets. As Stefan noted, and we are also looking to recruit community bankers in some of our new markets, so there could be modest incremental upticks in noninterest expense. We are 100% committed to providing our excellent services in the more rural and middle-market communities we added through the Citizens merger, in addition to the Kansas City metro area. We're not currently actively pursuing additional merger opportunities. That being said, continued regulatory and macroeconomic factors pressuring other banks could eventually lead to an uptick in potential interested partners.

Thank you, Greg. At this time, Kathy, we're ready to take questions from our participants. So if you would please remind folks how they may queue for questions at this time.

[Operator Instructions] So our first question comes from the line of Kelly Motta of KBW.

I think, maybe, starting out, you noted that you repositioned a small portion of your securities book during the quarter. Just wondering -- the timing of it, relative, within that December quarter 1 as well as to appetite for, at the margin potentially doing another piece as we look ahead?

We completed the repositioning of those securities in mid- to late December. So we didn't see much of an impact in the December's results at all from the securities transaction, and we would anticipate that we're going to continue to evaluate whether we do a little more.

Kelly, it's pretty limited as to the dollar amount of securities that we have that's at a low enough yield where it's made a lot of sense for it. But there is a little bit additional that we could clean up there.

Got it, appreciate it. And then, I think when we last spoke last quarter at this time, you were looking for mid-single-digit loan growth. It seems like near term, the ag seasonality might be slow, but you noted you expect to pick up in the summer. Just wondering is mid-single-digits over -- for the full fiscal year, still something that you think is a reasonable expectation?

Yes. I think going forward, we would anticipate somewhere between 3% to 5% annual growth. So if you look at our 12/31 figures, we'd look at another 3% to 5% over the course of calendar year '24.

Got it. Appreciate it. Maybe 1 or 2 more from me. On the deposit side, it looks like 0.33% of the growth was from public deposits. Can you remind us, any seasonality with that? And as we look ahead, you mentioned that margin the month-over-month trends appear to be stabilizing, which is good. Just kind of where incrementally you're adding on the rate at which you're adding on new deposits? And do you think in order to get a stabilization in the cost, does it take a rate cut? Or provided that were likely done with rate cuts, would you still expect a stabilization there in funding costs?

So on the public units, yes, we did have some dollars come in this quarter. We would expect some of those to go back out. It's always a little tricky to know exactly how that will play out. We do have some new public unit customers from our merger that was - just at a year ago now. So we're not 100% familiar with what their flows would be. But definitely, some of that growth would wash back out in the March quarter. Margin overall, we have reduced our CD specials a little bit. Some savings products are really stable. But where we look at how much in CDs has already absorbed the higher pricing. We really feel pretty good that we're past an inflection point on the pace of those increases, and really ought to see -- as long as rates stay here or move lower, that we ought to see a decrease in the uptick on cost of funds.

Our next question comes from the line of Andrew Liesch of Piper Sandler.

I guess this might be related to the public funds question, but cash balances were a little bit elevated at year-end. I'm just curious what -- is that what drove that? And any plans for these funds or for this cash here going forward?

Yes, we would expect, obviously, to use some of that to fund outflows on any of those seasonal deposits. Some of it would fund our seasonal ag book as we move through the first half of calendar '24; some of it is just we did a little better than we had anticipated in the second half of calendar '23 with deposit specials. So we're pulling the reins back a little bit on that. It wouldn't surprise us if we have some deposit outflows as some of those specials reprice again. But we do have some brokered funding that long term, we wouldn't like to maintain at the same levels we are. And then Stefan and Greg both noted, we would look to be incrementally a little more optimistic about loan growth as we get into the middle of calendar '24.

Got it. All right. That's helpful. And then Stefan, did you quantify what each 25 basis point reduction in the Fed funds rate could do to the margin? I'm just sorry if I missed that, if you did?

Policy...

No, I didn't quantify 25 basis points. But on a big picture, 100 basis points on a static balance sheet would be about a mid-single-digit benefit to net interest income. And with our sort of budgeted growth, it would be about low single-digit benefit.

As there are no additional questions waiting at this time, I'd like to hand the conference back over to Southern Missouri Bancorp's CFO, Stefan Chkautovich, for closing remarks.

Thanks, Kathy, and thanks, everyone, for joining us. Appreciate your interest in the company and speak again in about 3 months. Have a good day.

Everybody, have a good day.

Ladies and gentlemen, thank you for joining us for today's call. Have a great rest of your day. You may now disconnect your lines.