Business Context and Reporting Period
Company: Southern Missouri Bancorp, Inc. (SMBC)
Reporting Period: Fiscal year ended June 30, 2010
Business Overview: SMBC is a bank holding company for Southern Bank (formerly Southern Missouri Bank & Trust Co.), a state-chartered trust company with banking powers. The Bank operates 14 full-service offices in Southeast Missouri and Northwest Arkansas. Its primary business involves attracting retail deposits and investing in residential and commercial real estate loans, commercial business loans, and consumer loans. The Company is a "smaller reporting company" and a participant in the TARP Capital Purchase Program.
Key Financial Metrics
| Metric | Value (as of June 30, 2010) |
|---|---|
| Total Assets | $552.1 million |
| Total Deposits | $422.9 million |
| Stockholders' Equity | $45.6 million |
| Total Loans (Gross) | $431.8 million |
| Net Loans Receivable | $418.7 million |
| Allowance for Loan Losses | $4.5 million (1.06% of total loans) |
| Non-Performing Assets | $2.0 million (0.37% of total assets) |
| FHLB Advances Outstanding | $43.5 million |
| Repurchase Agreements | $30.4 million |
Material Changes vs. Prior Period
- Asset Growth: Total assets increased to $552.1 million from $496.6 million (implied by loan/deposit growth) in the prior year, driven by loan originations and the acquisition of Southern Bank of Commerce (SBOC) in July 2009.
- Loan Portfolio Expansion: Total loans grew by approximately $43.4 million year-over-year. The loan portfolio increased by $68 million since obtaining TARP proceeds in December 2008. Commercial real estate loans grew significantly to $121.5 million (29.0% of net loans), and commercial business loans reached $97.5 million.
- Deposit Growth: Total deposits increased by $110.9 million (35.6%) to $422.9 million. This growth was supported by the SBOC acquisition and organic growth in NOW accounts and savings accounts.
- Asset Quality: Non-performing loans decreased to $332,000 (0.08% of net loans) from $796,000 in the prior year. However, total non-performing assets increased to $2.0 million, primarily due to an increase in Real Estate Owned (REO) to $1.5 million.
- Allowance for Loan Losses: The allowance increased to $4.5 million from $4.0 million, with a provision for loan losses of $925,000 for the year. Net charge-offs were $409,000.
Guidance, Outlook, Risks, and Unusual Items
- TARP Restrictions: The Company is subject to restrictions on dividends and stock repurchases under the TARP Capital Purchase Program until the Series A Preferred Stock is redeemed or transferred. The dividend rate on this stock is 5% for the first five years, increasing to 9% thereafter if not redeemed by December 2013.
- Regulatory Environment: The Dodd-Frank Act imposes new regulatory requirements, including the establishment of the Consumer Financial Protection Bureau (CFPB) and changes to deposit insurance assessments. The Bank is currently categorized as "well capitalized."
- Interest Rate Risk: The Company faces risk from rising interest rates, which could reduce net interest income if funding costs rise faster than asset yields. Approximately 24.7% of the loan portfolio consists of fixed-rate residential loans.
- Market Concentration: The Bank's operations are concentrated in Southeast Missouri and Northwest Arkansas, making it susceptible to local economic downturns, particularly in the real estate and agricultural sectors.
- Unusual Items: The Company recorded an impairment charge of $375,000 in the prior fiscal year for a trust preferred security. In the current period, no further impairment was recorded, though three pooled trust preferred securities have deferred interest payments.
Investor Verification Checklist
- TARP Redemption Status: Verify the Company's plan and ability to redeem the $9.55 million Series A Preferred Stock before the dividend rate increases to 9% in December 2013.
- Commercial Real Estate Exposure: Review the concentration of commercial real estate loans ($121.5 million) and the specific performance of the $28.3 million in agricultural real estate loans.
- Non-Performing Asset Trends: Monitor the $1.5 million in Real Estate Owned (REO) and the timeline for liquidation to prevent further erosion of the allowance for loan losses.
- Deposit Stability: Assess the stability of the $85.5 million in jumbo certificates of deposit and the impact of rising rates on deposit costs.
- Regulatory Capital: Confirm continued compliance with "well capitalized" status under Prompt Corrective Action regulations, especially given the potential impact of new Dodd-Frank capital rules.