Southern Missouri Bancorp, Inc.

Hello, and welcome to the Southern Missouri Bancorp Cursed Quarterly Earnings Call. My name is Alex. I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, please press star, followed by one on your pad. And I'll hand it over to our host, Stephan Chikotovich, CFO, to begin. Please go ahead.

Thank you, Alex. Good morning, everyone. This is Stephan Chikotovich, 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 29th, 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 Stephens, our Chairman and CEO, is attending an investor conference today. Matt will lead off our conversation today with some highlights from our most recent quarter and fiscal year.

Thank you, Stephan. 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 20 cents per share from the linked March quarter, but it's down 18 cents 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 11 cents more in fiscal 24, 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 95 cents 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. It 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 lost 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 position with the earnings release, we also announced a $0.02 or 9.5% increase in our quarterly dividend, bringing it to $0.23 a share, which is just over 20% of our fiscal year 2024 results as an annualized rate. Head interest margin for the quarter was $3.25% as compared to 3.15% reported for the linked third quarter of fiscal 24. Due to the increase in deposit costs, however, our net interest margin compared to the same quarter a year ago is down by 35 basis points. Net interest income was up 1.7% quarter over quarter as the net interest margin expansion more than offset the 1.3% decrease in average earning assets, but it's down 3.1% year over year primarily due to the decrease in margin. Non-interest income for the quarter was $2.2 million or 39 was up $2.2 million or 39.1% compared to the linked quarter, partially due to losses realized on the sale of securities in the prior quarter and other seasonal fee income realized this quarter. Year over year, fee income was down 13.2% due to reduced loan fee income, including the gain on sale of loans. Non-interest expense was down 0.2% for the current quarter compared to the linked quarter and up just 0.5% compared to the same quarter a year ago. Stephan will give more detail later on some of the moving parts within operating expenses, but big picture, we feel like our team has done a good job at expense control. On the balance sheet, gross loan balances increased by $79 million or 8.3% annualized compared to March 31st. and by $231 million, or 6.4%, compared to June 30 a year ago. Cash equivalent balances as of June 30 decreased by $107 million compared to March 31 due to outflows of seasonal deposits and the strong loan growth. During the quarter, we had some opportunistic stock repurchase activity, utilizing $3.7 million to acquire about 88,000 shares at an average price of just over 41.5, or a little more than 95% of our June 30, 2024 book value. In addition to our improved sequential quarterly earnings, credit quality has remained strong with adversely classified loans at 41 million or 1.06% of total loans, a decrease of about 1.5 million or six basis points during the quarter. Non-performing loans were 6.7 million at June 30, down a little more than 700,000 compared to last quarter, and they totaled 0.17% of gross loans. By comparison, at June 30, 23, Non-performing loans were 7.7 million and 21 basis points on total loans. Loans passed due 30 to 89 days were 6.1 million, up a little more than 600,000 from March, and 16 basis points on gross loans, one basis point higher than March compared to a year ago. Total delinquent loans were 9.2 million or 24 basis points on gross loans, up one basis point compared to March 31st, and down six basis points compared to June 30 a year ago. This quarter, our ag real estate balances totaled $233 million, or just over 6% of total loans, and ag production and equipment loans were $176 million, or a little more than 4.5% of total loans. Compared to the prior quarter end, ag real estate balances were down $1 million, And they were down, ag real estate balances were down about $6 million compared to June 30 a year ago. Our production and equipment loans were up $36 million quarter over quarter due to normal seasonality mostly. And they were also up $38 million year over year. Our lenders report that the majority of our ag borrowers began planting earlier in 2024 due to more favorable weather conditions. Corn and soybeans were planted as early as March and are maturing well. with some corn expected to be harvested in August and soybeans in September. Despite heavy rains in June that required some replanting of cotton and soybeans, the damage was manageable with crop insurance. The wetter weather through June helped to hold down irrigation costs for a while, but as summer progresses, hot, dry conditions are leading to increased fuel costs for irrigation and chemicals for weed control. We are seeing increased loan draws to cover higher costs with some farmers already returning for draws on supplemental lines of credit that were pre-approved when we renewed annual lines ahead of this crop year. The earlier start to this planting season also means that our balances at June 30 this year are a little higher than last and also that lines could be paid down earlier this fall. Although we could see some of our borrowers delay sales of their crop to take advantage of the most advantageous delivery dates for pricing given overall commodity pricing challenges this year. Lower corn prices this spring led to a decrease in corn acreage with farmers hoping for better prices in 25. Rice acreage increased slightly and is in good condition. Cotton is reported to be in average condition with hopes for a good yield if the dry weather continues. Specialty crops like popcorn are in better condition than last year, and early planted soybeans show promise of a higher yield compared to 23. Farm equipment prices remain high, but used equipment prices are falling and real estate values are generally stable. The 24 crop year could be challenging for our farmers due to high production costs and lower commodity prices. Helping to offset this, yields in our area look set to come in quite strong. Our lenders are making their farm crop progress inspections over the next few months, which should give us a reliable projection on estimated yields and a better indicator of the outcome of the 24 crop by early fall. Due to our stringent underwriting, including stressed commodity pricing and assumed higher operating costs, we anticipate that our borrowers will generally be able to navigate this challenging year. Looking at the loan portfolio overall, it was a good, well-rounded quarter for loan growth, stemming from non-owner-occupied commercial real estate loans, residential real estate loans, and drawn construction loan balances. This loan growth was also spread through our footprint with good growth in our south, northwest, and east regions. And for the overall fiscal year, our south, east, and west regions led the way. We're continuing to prioritize growing our credit portfolio with full banking relationships. We're optimistic about keeping the mid-single-digit pace of loan growth we experienced in 24 going into fiscal 25 as we look to increase our market share. Producers that we have brought on are adding to the pipeline. At quarter end, our pipeline for loans to fund in the next 90 days totaled $157 million. as compared to $117 million at March and $135 million one year ago. Our volume of loan originations was approximately $205 million in the June quarter, compared to $241 million in the linked March quarter. And in the June quarter a year ago, our originations totaled $272 million. The leading categories in the current quarter were construction, one-to-four family, CRE, and CNI. Our non-owner CRE concentration at the bank level was approximately 318% of Tier 1 capital and allowance for credit losses at June 30, down from 327% at March 31st and 330% at June 30 a year ago. On a consolidated basis, our non-owner occupied CRE ratio is about 305%. Our intent would be to hold relatively steady on this measure and to grow CRE commensurate with capital. As pointed out in the earnings release, our office portfolio is minimal, with 35 loans totaling $25 million, or 0.65% of total loans. The remainder of our CRE is rather diverse, and our multifamily lending is primarily either in our Midwest footprint or with developers who operate from our footprint. Stephan, would you provide some additional details on the financial numbers?