Hello, and welcome to the Southern Missouri Bancorp Quarterly Earnings Call. My name is Alex, and I’ll be coordinating the call today. [Operator Instructions] I’ll now hand it over to your host, Stefan Chkautovich, CFO to begin. Please go ahead.

Thank you, Alex. 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, July 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 Matt Funke, President and Chief Administrative Officer; Greg Steffens, our Chairman and CEO, is attending the investor conference today. Matt, will lead off our conversation today with some highlights from our most recent quarter and fiscal year.

Thank you, Stefan. Good morning, everyone. This is Matt Funke. Thank you for joining us. I’ll start off with some highlights on our financial results for the June quarter, which is the final quarter of our fiscal year. Quarter-over-quarter profitability was up a bit as we saw our net interest margin move higher in combination with an increase in non-interest income and a small decrease in expenses. Despite the challenging higher rate environment and its impact on our cost of deposits, we are pleased to report that we grew tangible book value per share by 13.4% during our fiscal 2024 year. In the June quarter, we earned $1.19 diluted, that’s up $0.20 per share from the linked March quarter, but it’s down $0.18 from the June 2023 quarter. For full fiscal year ‘24, we earned $4.42 compared to $3.85 in fiscal 2023. Excluding losses realized on the sale of securities, we would have earned about $0.11 more in fiscal 2024, so $4.53 while in 2023, if we had excluded the Citizens merger related provision for credit losses and non-interest expenses, we would have earned $0.95 more or about $4.80. The decrease from last year’s figure on an adjusted basis is primarily due to core expense growth that exceeded our net interest income growth as a result of margin compression. Expense growth also exceeded our non-interest income growth due to reduced loan fee income and NSF revenues. Tangible book value per share was $36.68 and has increased by $4.34 or that 13.4% that we mentioned over the last 12 months. If we were to back out the after tax impact of both the loss trades we executed and the year-over-year improvement in our AOCI, our tangible book value would have increased by about $4.05 or 11.8%. Due to our strong capital…

Thanks, Matt. You 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%, it included about 10 basis points of fair value discount accretion on acquired loan portfolios in premium amortization on assumed deposits compared to the linked March quarter of 11 basis points and 16 basis points in the prior year’s June quarter. The net interest margin expanded as the yield on interest earning assets increased 14 basis points, primarily due to loan yield expansion, while the cost of interest bearing liabilities increased 8 basis points. As we have indicated on prior calls, we continue to see a net benefit of high cost CDs raised in calendar 2023, repricing slightly lower, while our fixed rate loan portfolio yields steadily and modestly increased with renewals. In addition, the margin should benefit from any increase in new loan production at higher interest rates next quarter. With this, we could continue to see some additional margin expansion, but not at the same rate we experienced this quarter. If the FOMC does cut rates this year, we could also see further net interest margin expansion. A 100 basis points of cuts to the Fed funds rate is projected to result in low to mid-single-digit percentage growth of net interest income over the 12 months following the rate cut depending on our rate of growth. As Matt mentioned, non-interest income was up 39.1% compared to the linked quarter and excluding the $807,000 of realized losses from the March quarter’s bond sales, it would have increased by 21.5%, but it was down 13.2% year-over-year. The year-over-year comparison was negatively impacted by lower gains on sale of loans and other loan fees this quarter, but also due to NSF policy changes…

Thank you, Stefan. We have remained focused in the past fiscal year on core deposit retention, expansion in our Kansas City and St. Louis markets and taking care of our relationships. We have made some additions to our teams in a variety of markets and we are seeing progress on the business development front. The M&A conversations with potential partners in the first half of the calendar year, they remain somewhat preliminary and medium to longer term prospects, but we do continue to look to further explore opportunities to achieve scale in target markets. Additionally, we continue to look at other financial service providers we can partner with. We expect the uptick in bank valuations could lead to further discussions with some potential partners. As it’s been well over a year since our last merger, we’ve been focused recently on identifying operational efficiencies and fostering a strong culture so that we are better able to serve our clients, our local communities and shareholders and position for potential M&A activity in the future.

Thank you, Matt. At this time, Alex, 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.

Thank you. [Operator Instructions]. Our first question for today comes from Matt Olney from Stephens. Your line is now open. Please go ahead.

Hey, great. Good morning, everybody.

Good morning, Matt.

Stefan, good morning. Stefan, I think you mentioned that CD where pricing dynamics was favorable this past quarter and I guess this could be a nice tailwind for you going forward. Any more color on just the overall amount or just the level of CDs maturing the next few months? And where are some of those renewal rates and how those compare to what’s coming off? Thanks.

Yes. The next 12 months we have around billion of CDs repricing. And on average currently, the average renewal rate is about 4.79. And then on the flip side, we have about 12.5% of our loan book renewing from fixed rate.

12% renewing over the next 12 months, any color on just the roll off roll on rates there of the loan portfolio?

Yes, right now they’re renewing at about 8.15%, 8.17% or so and that 12.5% of the loan book is just our fixed rate that’s renewing.

Okay. Thanks for that. And then, on the expense side, Stefan, you mentioned a few moving parts during the quarter. As you weigh those moving parts against just the natural growth of the bank, where would you put us for forecasting expenses more near-term?

They would still probably continue to grow in line with the bank’s rate. So, it could be somewhere in the mid-single-digits plus depending on how much we’re growing.

Matt, our normal pattern is with compensation adjustments mostly effective in January. That would be the quarter when we see a little bit of catch up to our growth rate.

Okay. And then you gave us some good details as far as the rate sensitivity on any kind of Fed cut. So, appreciate the details there. On the credit front, this allowance ratio, I think it’s in the mid-130 range. I know that the CECL model handcuffs you here to a certain degree, but looks like credit trends remain really, really strong. Just curious, do you think there could be an opportunity, over the next year or so to move this slower, if there’s no role change to macro? Just curious any thoughts there.

Yes, I don’t want to commit to any kind of decrease in that percentage, but we do feel like we’re reasonably conservative on that. So, we hope not to have any surprises on the upside with provisioning.

Okay, I’ll step back. Thank you, guys.

Thank you.

Thank you. Our next question is from Andrew Liesch of Piper Sandler. Your line is now open. Please go ahead.

Good morning, guys. Hey. Question on the loan growth this quarter, Matt, you mentioned residential was part of it. Was that single family or multifamily?

I think what we would have described in the call as growth is single family. And good morning, Andrew.

Got it. Okay. Then if you look at the pipeline, how is that weighted right now as far as loan types? Anything that’s specifically driving it stronger than other areas?

Still a fair amount of construction draw anticipated over the next 90 days, some commercial real estate, anything there’s probably not a whole lot of additional ad draws within that, but there could be some.

Got you. And then if you just kind of look at like the next 12 months, do you think the growth pace might be something similar to what you had in fiscal ‘24, stronger or with weaker growth in the winter quarters and a little bit stronger in the spring and summer?

Yes, we would anticipate that to continue. If anything, with ag being a little above where we were last year, it might even be a little more pronounced. Yes, so we see a balance on that front.

Yes, makes sense. And then with the so some of the commentary on the fee income side, if you just kind of back out the mortgage servicing gains towards like 7 point or the fair value there, maybe $7.6 million but the other things you mentioned might be more spread out throughout the year. So, do you think fee income could be north of $7 million on a run rate here going forward?

Probably not a crazy number.

That’s manageable.

Okay. Got it. Wonderful. Alright, guys. You’ve answered all my other questions. Thanks so much.

Thank you, Andrew.

Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead.

Hey, good morning. Thanks for the question. Maybe carrying on that thought about the fees, it looks like mortgage has been running, gain on sales and running pretty low and I think you had mentioned production there had picked up. Just wondering what your outlook is for that line item potentially returning to a more normalized rate of gain on sale?

Good morning, Kelly. Long term, we would anticipate that to pick back up at some point. What we’ve seen probably on the residential side that’s been a little stronger is our in house, which would include some owner occupied, some rental properties that we maintain in portfolio. Really not any indication right now that we’re seeing stronger secondary market activity, but hopefully, we will at some point see a turnaround as folks have to make a move at some point or we do see a little bit of longer term rate movement improvement.

Got it. Maybe turning back to the M&A, I appreciate commentary that it’s more medium to longer term at this point. But just strategically from a high level, can you remind us the markets that you’re interested in, where you’d potentially like to add more density or expand out your footprint too? Thanks. [Technical Difficulty]

Thank you for your patience. We have reconnected with our speakers. Kelly, your line is now open. If you could just remind us of your question, please.

Hi, thanks for that. I’m not sure, if I got caught up with the last transcript. I was just asking about M&A. If you could remind us about, where you’re looking to add density to the footprint or potentially expand out.

Hi, Kelly. Yes. Our priorities we’ve always talked about, kind of a circle from St. Louis over to Kansas City down through Springfield and Southwest Missouri, Northwest Arkansas, Little Rock over to Memphis. With entry to St. Louis, that would definitely add some interest to us. We’ve got a little bit more density already in Kansas City, but we’d love to add there. Northwest Arkansas is an attractive market. We feel the same way about Little Rock.

Got it. That’s helpful. And maybe last question for me, just housekeeping with the balance sheet. Looks like average cash is down significantly quarter-over-quarter. Wondering if this, call it, $39 million level is a good run rate for liquidity or any consideration with that, the size of the balance sheet as we consider your mid-single digit wells growth ahead?

Yes. Total cash and due from should probably range in the $50 million plus range. That’s probably more of a lower point.

Got it. Thanks, Stefan. Appreciate that. I’ll step back.

Thanks, Kelly.

Thank you. [Operator Instructions]. Okay. At this time, we currently have no registered questions. So I’ll hand back to Matt Funke for any further remarks.

Thank you, Alex, and thanks to everyone for participating. I apologize for our technical snafu there, but appreciate your interest in the company. We’re looking forward to fiscal ‘25 and to speaking again with you in three months. Have a good day.

Thank you for joining today’s call. You may now disconnect your lines.