Southern Missouri Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2024, filed May 10, 2024. The supplied metadata identifies “2023 Q3,” but the filing itself reports fiscal 2024 third-quarter results.
Business context
Southern Missouri Bancorp is the parent of Southern Bank, which provides deposit, lending, wealth management, insurance and related financial services. At March 31, 2024, the Bank operated 62 full-service and three limited-service branches. The January 2023 Citizens Bancshares acquisition continued to affect the comparison period, including the acquired loan portfolio, deposit base, employees, facilities, intangible amortization and operating expenses.
Key financial metrics
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net interest income | $34.5 million, up 2.2% | $104.4 million, up 15.3% |
| Provision for credit losses | $0.9 million | $2.7 million |
| Noninterest income | $5.6 million, down 11.1% | $17.1 million, down 1.0% |
| Noninterest expense | $25.0 million, down 7.2% | $72.6 million, up 18.0% |
| Net income | $11.3 million, versus $2.4 million | $36.7 million, up 54.8% |
| Diluted EPS | $0.99, versus $0.22 | $3.22, versus $2.41 |
| Net interest margin | 3.15%, versus 3.48% | 3.28%, versus 3.52% |
| Return on average assets | 0.97%, versus 0.23% | 1.08%, versus 0.87% |
| Return on average equity | 9.5%, versus 2.3% | 10.6%, versus 8.9% |
Balance sheet at March 31, 2024: Total assets were $4.647 billion, up 6.6% from June 30, 2023. Net loans were $3.720 billion, up 4.2%; deposits were $3.996 billion, up 7.2%; available-for-sale securities were $433.7 million; and stockholders’ equity was $479.6 million, up 7.5%.
Liquidity and debt: Cash and cash equivalents were $168.3 million, compared with $54.0 million at June 30, 2023. FHLB advances declined to $102.0 million from $133.5 million, while subordinated debt was $23.1 million. Brokered certificates totaled $176.9 million. The average third-quarter loan-to-deposit ratio was 92.5%.
Cash flow: For the nine months, operating activities provided $55.0 million, investing activities used $172.3 million, and financing activities provided $231.5 million. Cash increased by $114.3 million to $168.3 million. Investing cash use primarily reflected $149.7 million of net loan growth and $41.5 million of net purchases of available-for-sale securities. Financing cash inflows primarily reflected a $280.3 million increase in certificates of deposit, partly offset by $31.5 million of net FHLB advance repayments.
Credit quality: The allowance for credit losses on loans was $51.3 million, or 1.36% of gross loans, versus $47.8 million, or 1.32%, at June 30, 2023. Nonperforming loans were $7.4 million and nonperforming assets were $11.3 million, broadly unchanged from June 30, 2023. Total past-due loans declined to $8.6 million from $10.7 million. Adversely classified loans were $43.3 million, or 1.15% of total loans. The allowance for off-balance-sheet credit exposures declined to $4.1 million from $6.3 million.
Capital: Southern Bank remained categorized as well capitalized. At March 31, 2024, the Bank’s total risk-based capital ratio was 12.52%, Tier 1 risk-based capital ratio was 11.27%, common equity Tier 1 ratio was 11.27%, and Tier 1 leverage ratio was 9.42%.
Material changes versus prior comparable periods
- Net income increased substantially because the prior-year periods included significant Citizens acquisition-related costs and credit-loss provisions. The March 2023 quarter included approximately $3.3 million of merger-related expenses and $7.0 million of provisions related to acquired loans and off-balance-sheet exposures.
- Nine-month net interest income benefited from asset growth and higher earning-asset yields, but net interest margin compressed to 3.28% from 3.52% as funding costs rose faster than asset yields.
- Nine-month interest-bearing liability costs increased 152 basis points, while average earning-asset yields increased 102 basis points. Management noted that deposit pricing competition and the inverted yield curve remain pressures.
- Noninterest expense increased year to date because of higher compensation, occupancy, data processing, deposit insurance premiums and intangible amortization associated partly with the Citizens acquisition. Current-period merger-related costs were $98,000 versus $4.1 million in the prior-year period.
- Noninterest income included realized losses on available-for-sale securities of $1.5 million year to date, including $807,000 in the third quarter. Management reinvested the proceeds in higher-yielding fixed-rate securities and expects to earn back the loss in less than two years.
- Total non-owner-occupied commercial real estate loans represented 42.6% of total loans and approximately 329.3% of Tier 1 capital plus the allowance for credit losses. Management is monitoring the concentration, particularly hospitality, multifamily, care facilities and retail properties.
Outlook, commentary and risks
Management expects to continue growing assets through loan originations and investment purchases, funded primarily by retail deposits, brokered funding and FHLB borrowings. No specific earnings or revenue guidance was provided. Management believes liquidity is sufficient and expects deposit pricing stabilization, higher-rate loan originations and repriced deposits to provide some future relief to margin pressure.
Key risks include continued interest-rate volatility, an inverted yield curve, higher funding costs, inflation or recession, commercial real estate and hotel credit performance, agricultural conditions, deposit outflows, access to cost-effective funding, regulatory changes, cybersecurity threats, and the possibility that merger synergies or cost savings will not be realized. Management believes the allowance for credit losses is adequate, but acknowledges that estimates are subject to economic and regulatory uncertainty. The filing reports no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether deposit costs continue to rise faster than loan and securities yields, further reducing net interest margin.
- The performance and collateral values of the $1.6 billion commercial real estate portfolio, including the non-owner-occupied concentration and hotel relationships.
- Whether the $51.3 million loan allowance remains adequate as economic forecasts, delinquencies and classified loans change.
- The sustainability of earnings after the year-ago Citizens acquisition charges and other unusually low current-period provisions.
- The expected timing and magnitude of the stated earn-back from the $1.5 million securities-sale loss.
- Liquidity coverage for approximately $853.6 million of outstanding loan commitments and approvals, including $637.9 million of unused lines of credit.
- The effect of interest-rate changes on the investment portfolio, fixed-rate loan book, deposits and modeled net portfolio value.
- Future merger-related expenses, intangible amortization, deposit insurance costs and the ability to realize acquisition-related synergies.