Southern Missouri Bancorp, Inc.

Hello, and welcome to the Southern Missouri Bancorp Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question once the presentation is finished, please press star followed by one on your telephone keypad. I'll now hand it over to your host, Stefan Cikatovich, CFO to begin. Please go ahead.

Thank you, Alex. Good morning, everyone. This is Stefan Cikatovich, CFO with Southern Missouri Bancorp. Thank you for joining us today. The purpose of this call is to review the information and data presented in our quarterly earnings release, dated Monday, October 28, 2024, and to take your questions. We may make certain forward-looking statements during today's call, and we may 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. Matt, We'll lead off our conversation today with some highlights from our most recent quarter.

Thanks, Stephan, and thanks, everyone. This is Matt Funke. Appreciate you joining us today. I'll start off with some highlights on our financial results for the September quarter, the first quarter of our fiscal year. Quarter over quarter, we showed some pressure in profitability as a larger provision for credit losses, an increase in non-interest expense, and lower non-interest income weighed on earnings and profitability. Offsetting some of this pressure was an increase in net interest income, which stemmed from loan growth and further net interest margin expansion. And despite the lower reported earnings, there were several underlying highlights that caused us to view the quarter favorably and to remain optimistic about future periods. The diluted EPS figure for the current quarter was $1.10, down 9 cents from the linked June 2024 quarter, and down 6 cents from the September quarter a year ago. During the quarter, the bank realized one-time costs of $840,000 associated with a performance improvement project reported as legal and professional fees to enhance the bank's operations and revenues. Recognition of this expense during the quarter reduced after-tax net income by $652,000, diluted EPS by $0.06, and ROA by six basis points. At this time, we're still in the early stages of the performance improvement project, but we're looking forward to considering the recommendations in future quarters with the ultimate goal of improving our customer and team member experience and creating greater long-term value for shareholders. Reported non-interest expense was up 3.4% compared to the linked quarter, but excluding those one-time performance review costs, expenses would have been flat quarter over quarter. Net interest margin for the quarter was 337, down from the 344 reported for the year-ago period, but up from 325 for the fourth quarter of fiscal 24, the linked quarter. Net interest income was up 4.5% quarter-over-quarter and about 3.5% year-over-year as we grew average earning asset balances. On the balance sheet, gross loan balances increased by 117 million, or 3%, during this first quarter. and they increased by 267 million or 7.2% over the prior 12 months. Loans anticipated to fund in the next 90 days totaled 168 million at September 30th. Deposit balances increased by 97 million during the first quarter and by 208 million over the prior 12 months. Due to attractive pricing in comparison to local markets, we utilized 89 million in broker CDs in the first quarter. In total, we have $60 million in brokered CDs maturing by the end of the calendar year when we anticipate a seasonal inflow of funds from ag customers and public units. Tangible book value was $38.26, and that reflected an increase of $5.14, or 15.5%, over the prior 12 months. That's attributed to both earnings retention and improvement in the bank's unrealized loss in the investment portfolio from the decrease in market interest rates. Our asset quality remains strong at September 30th with adversely classified loans at about 40.5 million or just over 1% of total loans, a decrease of about 400,000 or four basis points during the quarter. Non-performers, non-performing loans were 8.2 million at September 30th, up a million and a half compared to June 30, and up to 0.21% on gross loans. Roughly 40% of the increase in non-performing loans was due to one loan collateralized by single-family residents. Loans passed due 30 to 89 days were 7 million, up a million three from June, and at 18 basis points on gross loans. This was an increase of three basis points compared to the linked quarter. Total delinquent loans were $13.4 million or 34 basis points, up $4.1 million or 10 basis points from June. This increase is primarily due to an increase on past due loans in construction, loans secured by one to four family residences, and commercial and industrial loans. From June 30th, our ag real estate balances were up about $7 million for the quarter and but flat compared to September 30th a year ago, while our ag production loan balances increased $24 million for the quarter, and they're up $35.5 million year over year. We have seen a general increase in ag production line utilization due to increased input costs. Our farmers are making good progress with their harvest, having completed their corn and rice into soybeans and cotton. Early planting and favorable dry fall weather led to a strong start and quicker harvest. While some have experienced drought, it had minimal impact on irrigated crops, with yields reported as average to above average. Corn yields are strong, especially for irrigated farms, but pricing remains low. We're hopeful that the better yields will mostly offset the low price levels. Rice yields are promising and prices are stable, so we're optimistic about profitability there. Cotton farmers are optimistic despite some weather impacts with contracted prices hovering around 75 cents a pound. Soybean yields vary with prices fluctuating, though farmers who can may benefit from holding some of the crop in storage until 2025. Overall this year, farmers faced higher input costs, but early planting helped with fuel savings and USDA loans on stored grain may assist with cash flow at this late point in the year. We could see less paid down next quarter on credit lines due to crop storage. Equipment values are softening, and lenders are preparing to help any distressed farmers restructure loans, as our farmers generally have strong equity positions to allow them to withstand a tough period. 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. Speaking to the loan portfolio as a whole, the growth mentioned earlier would equate to 12% annualized led by construction, ag production lines, and one to four family loans. We experienced strong growth in our east region where we have much of our ag activity, and our south region was just behind with good growth in those markets too. The September quarter is historically our strongest period of loan growth, and we would expect to see this pace slow next quarter as we start receiving ag line paydowns and a general slowing in new projects in the winter months. That said, we had a great quarter of loan growth, and we feel optimistic about achieving at least the mid-single-digit level of loan growth that we've discussed for the fiscal year. Stephan, I know you have some thoughts on our performance.