Southern Missouri Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three- and nine-month periods ended March 31, 2021, with comparative periods ended March 31, 2020. The request metadata identifies “2020 Q3,” but the filing is for fiscal 2021 third quarter. Financial statements are unaudited.
Business Context and Financial Position
Southern Missouri Bancorp is the parent of Southern Bank, which provides residential, commercial real estate, construction, commercial, agricultural, consumer and related banking services. At March 31, 2021, the Bank operated 46 full-service and two limited-service branches.
- Total assets were $2.732 billion, up 7.5% from June 30, 2020.
- Loans receivable, net, were $2.135 billion, down 0.3% from June 30, 2020.
- Deposits were $2.369 billion, up 8.4%; demand, NOW, savings and money-market balances increased while certificates of deposit declined.
- Stockholders’ equity was $272.9 million, up 5.6% from June 30, 2020.
- Cash and cash equivalents were $236.9 million, compared with $54.2 million at June 30, 2020; available-for-sale securities were $190.4 million.
Revenue, Profitability, Cash Flow, Debt and Liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net interest income | $23.1 million, versus $19.4 million | $68.7 million, versus $58.4 million |
| Net interest margin | 3.68%, versus 3.63% | 3.78%, versus 3.71% |
| Provision for credit losses | $(0.4) million, versus $2.9 million | $1.6 million, versus $4.1 million |
| Noninterest income | $4.5 million, versus $3.2 million | $15.2 million, versus $10.4 million |
| Noninterest expense | $13.5 million, versus $13.6 million | $39.8 million, versus $38.9 million |
| Net income | $11.5 million, versus $5.1 million | $33.5 million, versus $20.6 million |
| Diluted EPS | $1.27, versus $0.55 | $3.69, versus $2.24 |
| Return on average assets | 1.71%, versus 0.88% | 1.72%, versus 1.38% |
| Return on average equity | 16.9%, versus 8.1% | 17.0%, versus 12.8% |
| Efficiency ratio | 49.0%, versus 59.9% | 47.5%, versus 56.6% |
- Net cash provided by operating activities for the nine months was $32.6 million, compared with $28.4 million in the prior-year period.
- Net cash used in investing activities was $16.4 million, compared with $149.8 million used previously.
- Net cash provided by financing activities was $166.4 million, primarily reflecting deposit growth, partially offset by FHLB repayments.
- Cash increased by $182.7 million to $236.9 million.
- FHLB advances were $62.8 million, down from $70.0 million; subordinated debt was $15.2 million.
- The Bank had approximately $446.9 million of available FHLB credit and $203.2 million of Federal Reserve discount-window borrowing capacity based on pledged collateral.
Material Changes Versus Prior Comparable Period
- Nine-month net income increased 62.2%, driven by higher net interest income and noninterest income and lower credit-loss provisioning.
- Net interest income increased 17.8%, supported by 15.8% growth in average interest-earning assets and a seven-basis-point increase in net interest margin.
- Interest expense declined 38.4% as the average cost of interest-bearing liabilities fell 70 basis points.
- Noninterest income increased 46.1%, primarily from loan-sale gains, loan servicing income, bank-owned life insurance earnings and card interchange income.
- The July 1, 2020 adoption of CECL increased the allowance for credit losses by $9.3 million, including $434,000 related to the transition from PCI to PCD accounting, and reduced retained earnings by approximately $7.2 million after tax.
- Since restarting its repurchase program in October 2020, the Company repurchased 184,384 shares for approximately $6.0 million through March 31, 2021.
- Nonperforming assets declined to $9.4 million from $11.2 million at June 30, 2020 and $14.9 million at March 31, 2020.
Guidance, Outlook, Risks and Unusual Items
- Management expects asset growth to continue through loan originations, occasional loan purchases and securities purchases, funded primarily by retail deposits, brokered funding and FHLB borrowings.
- PPP loans outstanding totaled $100.5 million at March 31, 2021. The Company expects second-draw activity to be limited as the program approaches its May 2021 end, with forgiveness payments expected to increase in subsequent quarters.
- PPP fee accretion contributed approximately $2.1 million to nine-month interest income and $1.2 million in the third quarter; this benefit may not recur at the same level.
- The allowance for credit losses was $35.2 million at March 31, 2021. Management considered the economic outlook improved but continued to identify COVID-19, unemployment, hotel exposure, commercial real estate and potentially under-reported delinquencies as risks.
- COVID-19-related payment deferrals or interest-only modifications covered approximately $40.4 million of loans at March 31, 2021, versus approximately $380.2 million at June 30, 2020. Four hotel loans totaling $23.7 million were classified as special mention.
- Interest-rate risk remains material. Management states that the low-rate environment may pressure asset yields, while the ability to reduce funding costs further is limited. A modeled 300-basis-point rate increase reduced estimated net portfolio value by 11%, but these simulations depend on assumptions and are not forecasts.
- The Company and Bank were reported as meeting applicable capital requirements, and the Bank was categorized as well capitalized. The Bank’s March 31, 2021 Tier 1 leverage ratio was 10.23% and total risk-based capital ratio was 14.20%.
- Management reported no material pending litigation, no material changes to previously disclosed risk factors and effective disclosure controls.
Important Facts for Investors to Verify
- Whether PPP forgiveness, fee accretion and loan-sale gains continue at levels supporting current earnings.
- The adequacy of the $35.2 million CECL allowance if COVID-19 effects, unemployment, hotel weakness or commercial real estate stress worsen.
- The performance and modification status of the $40.4 million of COVID-19-affected loans, particularly the $23.7 million hotel exposure classified as special mention.
- The sustainability of unusually strong deposit growth and the resulting high cash balances and lower loan-to-deposit ratio.
- The impact of low interest rates, yield-curve changes, asset repricing and deposit-cost competition on future net interest margin.
- The effect of share repurchases, dividends and the CECL transition adjustment on future capital ratios and shareholder returns.