Southern Missouri Bancorp NASDAQ: SMBC executives told investors they saw improved earnings and profitability in the December quarter, driven by a lower provision for credit losses, growth in earning assets that lifted net interest income, and higher non-interest income. Management said the company carried positive momentum from the first half of its fiscal year and sees favorable trends continuing into the second half.
Quarterly performance and capital actions
President and Chief Administrative Officer Matt Funke said the company earned $1.62 per diluted share in the December quarter, which represented an increase of $0.24, or 17.4%, from the linked September quarter and an increase of $0.32, or 24.6%, from the December 2024 quarter.
The provision for credit losses was about $1.7 million, down $2.8 million from the prior quarter. Funke said management had expected provision expense to decline, citing positive movement in the workout of specialty commercial real estate (CRE) loans discussed in prior quarters.
Funke also highlighted balance sheet and shareholder return activity. Tangible book value per share was $44.65, up $5.74, or nearly 15%, over the past 12 months. During the quarter, the company repurchased 148,000 shares at an average price of $54.32 per share, totaling $8.1 million. Funke said the average purchase price represented 122% of tangible book value as of Dec. 31, 2025.
Chairman and CEO Greg Steffens later said that with the prior repurchase authorization nearly complete, the board approved a new program to repurchase up to 550,000 shares, or about 5% of shares outstanding. He said the company intends to remain “disciplined and opportunistic,” comparing buybacks to an acquisition-style decision based on internal return thresholds.
Loan and deposit trends, with mid-single-digit growth outlook
Funke said gross loan balances increased $35 million during the quarter and were up nearly $200 million, or 5%, from the prior year period. He said growth was led by one-to-four family residential, C&I, and construction and land development lending. He also cited strong growth in the East region and “good growth” in the West region.
Loan originations totaled nearly $312 million, which management characterized as its strongest quarter in several years. Funke said net growth was tempered by seasonal agricultural paydowns and some larger loan payoffs. The loan pipeline for the next 90 days declined to $159 million as the company entered a slower season for agricultural and real estate lending, though management described the pipeline as healthy.
Based on seasonal patterns, Funke said the company would expect limited net loan growth in the March quarter, but given year-to-date growth of just over 3% and an expected pickup in the fourth quarter, management said it remained positioned to achieve mid-single-digit loan growth for fiscal 2026.
During the Q&A, management acknowledged that some paydowns were unexpected. The team cited a larger C&I relationship that “outgrew” the bank and moved to a larger institution for operating lines. Executives said prepayment rates have been higher than historical levels and are expected to remain somewhat elevated, though they did not attribute the unexpected paydowns to being rate-driven.
On funding, Funke said deposit balances rose about $28 million in the quarter and were up $98 million, or 2.3%, year over year. He also noted a $72 million reduction in brokered deposits over the past 12 months, putting core deposit growth at about $170 million, or 4.3%.
Net interest margin: flat headline, improved underlying run rate
The company’s net interest margin (NIM) was 3.57%, unchanged from the linked quarter and up from 3.34% a year earlier. Net interest income increased just over 1% quarter over quarter and rose 12.4% year over year.
Funke and CFO Stephen Chkautovich noted that two credit relationships were placed on non-accrual status during the quarter, triggering an interest income reversal of $678,000. Adjusting for that reversal, management said NIM would have been 3.63%.
Chkautovich said the quarter’s NIM included about 5 basis points of fair value discount accretion and deposit premium amortization (down from 7 basis points in the prior quarter and 9 basis points in the year-ago period). Excluding the interest reversal, he characterized the 3.63% adjusted result as a better run-rate level and said it represented a 6 basis point increase from the linked quarter, driven primarily by a 16 basis point decrease in the cost of funds.
Chkautovich said the cost improvement reflected indexed non-maturity deposit accounts repricing down through the quarter; these deposits were about 27% of total deposits at Dec. 31.
Looking ahead, management said declining rates are beginning to pressure loan yields as fixed-rate loans mature, with approximately $619 million of fixed-rate loans maturing over the next 12 months at rates closer to current origination levels of around 6.50%. However, Chkautovich said the company sees an opportunity for additional improvement in funding costs as roughly $1.2 billion of CDs mature over the same period, with an average rate near 4% compared to current originations at about 3.6%.
In response to analyst questions, Chkautovich said the bank does not provide specific NIM guidance but sees potential for spread improvement in the March quarter from lower deposit costs. He added that seasonal liquidity inflows appear to be less pronounced this year because they have been partially offset by brokered deposit reductions. On deposit sensitivity, management said deposit betas have been around the 40% level.
Credit trends: modest uptick in problem assets, specialty CRE progress
Steffens said overall problem asset levels increased slightly from the prior quarter but remained “at modest levels.” Adversely classified loans totaled $59 million, or 1.4% of gross loans, up $4 million from last quarter. Non-performing loans were about $30 million, or 0.7% of gross loans, up $3.6 million quarter over quarter. Non-performing assets totaled about $31 million, up about $4 million, largely due to higher non-performing loans.
Management attributed most of the increase in classified and non-accrual loans to two borrowing relationships placed on non-accrual during the quarter:
- A CRE and equipment relationship totaling $5.8 million, described as a seasonal business where the bank expects increased spring and summer cash flows and is working to add collateral support; the relationship carried a 23% specific reserve.
- Two related agricultural production loans totaling $2.2 million, where the bank is pursuing formal resolution processes with counsel, targeting repayment, refinancing, and “limited potential losses.”
Steffens also said the company continued to make “positive progress” in resolving the specialty CRE relationship discussed in prior quarters. During the December quarter, the bank received a $2 million recovery on that overall relationship, contributing to net recoveries of $704,000 for the quarter. One property secured a new tenant supported by a one-year letter of credit, and the related loan returned to accrual status and was no longer classified. The other loan is in foreclosure and had been materially charged down in a prior quarter; management said it did not expect significant additional impact. The combined carrying value of the two loans was $2.7 million.
Loans past due 30 to 89 days were $12 million, down slightly from September, while total delinquent loans were $32 million, up $2.7 million, primarily due to the CRE and equipment relationship.
Chkautovich reported the allowance for credit losses totaled $54.5 million, or 1.29% of gross loans, representing 184% of non-performing loans, compared to $52.1 million, or 1.24% of gross loans and 200% of non-performing loans, at Sept. 30, 2025. He said the increase was primarily due to additions to individually reviewed loans and net recoveries, partially offset by a small reduction in pooled-loan reserve requirements. As a percentage of average loans, the company recorded net recoveries of 7 basis points annualized during the quarter, compared with net charge-offs of 36 basis points in the linked quarter.
Expenses, fee income, and operating outlook
Non-interest income increased 3.1% from the linked quarter, driven by higher wealth management fees tied to market appreciation and net inflows, increased interchange income (helped by lower issuer expenses netted within that line item), and higher deposit account charges, including increased non-sufficient fund charges and check order fees.
Non-interest expense rose less than 1% quarter over quarter, reflecting higher compensation, other non-interest expense, and data processing costs. Chkautovich said compensation increased due to less deferred loan origination expense and a seasonal rise in paid time off. Other expenses increased due to travel and training and other smaller items, while data processing costs rose with transaction volumes and software licensing. These increases were partially offset by lower legal and professional costs after a consultant expense in the September quarter related to renegotiating a card processor contract.
Looking to the March quarter, management expects a quarterly increase in compensation run rate from annual merit and cost-of-living adjustments, described as a mid-single-digit percentage increase including benefits. Executives said they were not expecting other material deviations in expense run rates.
Steffens said the company remains vigilant on credit but believes current profitability is sustainable, adding that capital generation provides flexibility for shareholder returns and potential acquisitions. Management said it has continued M&A discussions as industry conditions stabilized and activity increased, noting a sizable universe of potential partners in its footprint and adjacent markets.
About Southern Missouri Bancorp NASDAQ: SMBC
Southern Missouri Bancorp, Inc NASDAQ: SMBC is a bank holding company headquartered in West Plains, Missouri, serving as the parent of Southern Bank. The company focuses on delivering community banking services to individual and commercial customers across southern Missouri and northern Arkansas. It operates branch offices in local markets and provides a comprehensive suite of deposit and lending products tailored to both urban and rural communities.
Through its subsidiary, Southern Bank, the company offers deposit products such as checking and savings accounts, money market accounts and certificates of deposit, alongside digital and mobile banking platforms.
Further Reading
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