Southern Missouri Bancorp, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2014. The requested metadata refers to “2013 Q4,” but the supplied filing is an annual Form 10-K for fiscal 2014, not a quarterly filing.
Business Context
Southern Missouri Bancorp is a Missouri bank holding company whose principal subsidiary, Southern Bank, provides community banking services in Missouri and Arkansas. The Bank primarily gathers retail deposits and invests in residential, commercial real estate, agricultural, commercial business, construction and consumer loans. At June 30, 2014, the Company reported 25 full-service offices, approximately $1.0 billion of assets, $785.8 million of deposits and $111.1 million of stockholders’ equity.
Financial Performance and Key Metrics
| Metric | Fiscal 2014 | Fiscal 2013 | Change |
|---|---|---|---|
| Total assets | $1.021 billion | $796.4 million | +28.3% |
| Net loans receivable | $801.1 million | $647.2 million | +23.8% |
| Deposits | $785.8 million | $632.4 million | +24.3% |
| Net interest income | $33.0 million | $28.8 million | +14.6% |
| Net income | $10.1 million | $10.1 million | Approximately flat |
| Net income available to common stockholders | $9.9 million | $9.7 million | +1.6% |
| Diluted EPS | $2.91 | $2.88 | +1.0% |
| Net interest margin | 3.81% | 4.02% | Down 21 basis points |
| Return on average assets | 1.09% | 1.32% | Down 23 basis points |
| Return on average common equity | 11.55% | 12.34% | Down 79 basis points |
Interest income increased 11.5% to $40.5 million, primarily from balance-sheet growth, while interest expense was essentially unchanged at $7.5 million. Noninterest income increased 37.2% to $6.1 million, but noninterest expense rose 35.0% to $23.6 million, including merger-related costs and a bank-card contract termination charge. The effective tax rate was 27.1%, compared with 28.1% in fiscal 2013.
Net cash provided by operating activities was $13.5 million. Investing activities used $85.7 million, principally because of net loan growth, securities purchases, capital expenditures and acquisitions. Financing activities provided $74.3 million, primarily through deposit growth and FHLB borrowings. Cash and cash equivalents increased by $2.1 million to $14.9 million.
Balance Sheet, Credit Quality and Liquidity
- Gross loans totaled $829.5 million. Commercial real estate represented 38.5% of loans, residential real estate 37.9%, commercial business 17.6% and construction 5.1%.
- The allowance for loan losses increased to $9.3 million, or 1.14% of gross loans, from $8.4 million, or 1.28%, in the prior year. Net charge-offs declined to $773,000 from $822,000.
- Nonperforming assets declined to $4.4 million, or 0.43% of total assets, from $4.6 million, or 0.58%. Nonperforming loans were $1.4 million, or 0.17% of net loans.
- Troubled debt restructurings totaled $5.1 million, of which $300,000 was nonperforming. Classified assets totaled $11.6 million, or 1.14% of total assets; management reported no assets classified as doubtful or loss.
- FHLB advances increased to $85.5 million from $24.5 million. Repurchase agreements declined to $25.6 million from $27.8 million. Total subordinated debt was $9.7 million.
- The Bank had approximately $195.8 million of additional FHLB borrowing capacity and $72.8 million of approved Federal Reserve discount-window capacity, with no discount-window borrowings outstanding.
- Outstanding commitments to extend credit were approximately $112.8 million, and standby letters of credit totaled $3.4 million.
- The Bank was categorized as well capitalized. Its total risk-based capital ratio was 15.07%, Tier 1 risk-based capital ratio was 13.81% and Tier 1 leverage ratio was 10.69% at June 30, 2014.
Material Changes Versus the Prior Comparable Period
- The Company completed acquisitions of Ozarks Legacy Community Financial and Bank of Thayer in October 2013 and Citizens State Bankshares of Bald Knob in February 2014. These transactions added approximately $153.0 million of assets and $132.6 million of deposits at acquisition and contributed materially to balance-sheet growth.
- Loan originations increased to $289.7 million from $250.2 million. The loan portfolio became more concentrated in commercial real estate and agricultural lending.
- Available-for-sale securities increased to $130.2 million from $80.0 million, while mortgage-backed securities increased to $58.2 million from $16.7 million, largely due to acquired securities.
- Net interest margin contracted as asset yields declined, despite higher average earning-asset balances and lower funding costs.
- Noninterest expense rose substantially because of acquisition-related costs, expanded operations, higher personnel and occupancy expenses, additional intangible amortization and a $376,000 bank-card contract termination charge.
- Quarterly common dividends increased from $0.15 to $0.16 per share, resulting in fiscal-year dividends of $0.64 per share.
Outlook, Commentary, Risks and Unusual Items
Management expected continued focus on residential, commercial real estate, commercial business, agricultural and consumer lending. It expected agricultural lending to continue growing, but at a slower rate, and expected to maintain or increase the commercial real estate proportion of the portfolio. Management also expected the benefit from accretion of acquired-loan fair-value discounts to decline over time.
On August 5, 2014, after year-end, the Company acquired Peoples Service Company and Peoples Bank of the Ozarks. The transaction added approximately $267.0 million of assets, $192.9 million of net loans and $221.2 million of deposits; consideration included $12.1 million of cash and 345,897 common shares. The Company assumed $6.5 million of junior subordinated debt and retired $2.9 million of notes. Purchase accounting was incomplete when the filing was issued, so final goodwill or bargain-purchase effects were not yet determined.
The principal risks include commercial real estate, construction and agricultural concentration; relatively unseasoned commercial loan portfolios; changes in real estate values and local economic conditions; interest-rate and liquidity risk; deposit retention and refinancing requirements; acquisition integration and control risks; regulatory and capital changes; potential investment-security impairments; and the adequacy of the allowance for loan losses.
The $20.0 million SBLF preferred stock carried a 1% dividend rate during fiscal 2014. The rate is scheduled to increase to 9% after January 2016, potentially increasing annual preferred dividends from approximately $200,000 to $1.8 million. The outstanding TARP warrant was exercisable for 115,469 shares at $12.41 per share at June 30, 2014.
The Company reported an unqualified audit opinion and an unqualified opinion on internal control over financial reporting. Management disclosed no material pending legal proceedings, unresolved SEC staff comments or material changes in internal controls.
Investor Verification Checklist
- Verify the final purchase accounting, goodwill and integration results for the August 2014 Peoples acquisition.
- Assess whether commercial real estate, agricultural and construction concentrations remain appropriate as the loan portfolio seasons.
- Monitor net interest margin, asset yields, deposit pricing and the effect of FHLB borrowing on funding costs.
- Review allowance coverage, classified assets, troubled debt restructurings, delinquencies and net charge-offs.
- Evaluate the liquidity impact of certificate maturities, overnight FHLB advances and outstanding loan commitments.
- Confirm the timing and funding implications of the SBLF preferred dividend increase to 9%.
- Review the valuation and cash-flow assumptions supporting pooled trust preferred securities and other securities with unrealized losses.
- Confirm regulatory capital ratios after the Peoples acquisition and under Basel III requirements taking effect beginning in 2015.