Southern Missouri Bancorp Q3 Earnings Call Highlights

Key Points

• Southern Missouri reported quarterly EPS of $1.60, down slightly from the prior quarter as higher operating expenses and a modest uptick in the provision for credit losses offset loan growth and improved non‑interest income.
• Net interest margin expanded to 3.67% and loans grew by $96 million in the quarter, but management cautioned NIM could face near‑term pressure as $646 million of fixed‑rate loans reprice and about $1.1 billion of CDs roll off over the next 12 months.
• Credit metrics remain elevated but manageable, with the allowance for credit losses at $55.9 million (1.29% of loans) after increased reserves for agricultural loans; the bank repurchased 156,000 shares for $9.7 million, has $7.5 million of subordinated debt callable, and continues to pursue M&A opportunities.

Southern Missouri Bancorp NASDAQ: SMBC executives pointed to continued profitability and solid loan growth in the March quarter, while noting higher operating expenses and a modest increase in the provision for credit losses. Management also discussed funding mix shifts, net interest margin dynamics, and the outlook for credit quality—particularly in agriculture—during the company’s fiscal third-quarter earnings call.

Quarter results: modest pullback from expenses and provisioning

Matt Funke, President and Chief Administrative Officer, said earnings and profitability were “down a bit” from the linked December quarter, attributing the change to “an increase in operating expenses and a modest uptick in provision for credit losses,” primarily driven by loan growth and “higher reserve for pooled loans.” He said the impact was partially offset by a lower provision for income taxes, improved non-interest income, and slightly higher net interest income.

Funke added that the March quarter is “typically our weakest quarter from a profitability perspective,” but said the company saw less seasonal impact than usual due to lower average cash balances after reducing brokered funding versus the year-ago quarter, alongside stronger loan growth.

The company earned $1.60 per diluted share in the March quarter, down $0.02 from the linked quarter but up $0.21 from the March 2025 quarter, according to Funke.

Net interest margin expands; management tempers near-term outlook

Funke reported net interest margin (NIM) of 3.67%, up from 3.57% in the prior quarter and 3.44% in the year-ago period. Net interest income rose just under 1% quarter-over-quarter and just over 9% year-over-year, driven by higher average earning asset balances and NIM expansion.

Chief Financial Officer Stefan Chkautovich said the quarter’s NIM included about three basis points of fair value discount accretion and deposit premium amortization, compared with five basis points in the linked quarter. The quarter-over-quarter NIM improvement was “primarily driven by a nine basis point improvement in our cost of funds to 2.52%,” which he said benefited from a 25 basis point rate cut in December 2025. Loan yields were flat at 6.26%.

Chkautovich said the loan portfolio has largely repriced up to current market origination levels, but outlined potential near-term yield headwinds. Over the next 12 months, he said the company has $646 million of fixed-rate loans repricing with an average rate of 6.33% compared to new and renewed loans around 6.50%, while noting that fiscal fourth-quarter 2026 maturities average about 7%—which “could” pressure loan yields next quarter.

On deposits, he said about $1.1 billion of CDs mature over the next 12 months at an average rate of 3.84%, with new originations in the 3.80% range and renewals “moderately lower.” With those dynamics, Chkautovich said the company does not expect “material near-term expansion of the NIM” without further Federal Reserve rate cuts.

Balance sheet: loan growth strong; deposits aided by brokered funding

Funke said gross loan balances increased by $96 million during the quarter and were up just under $300 million, or 7.4%, versus March 31 of the prior year. Growth was primarily in real estate-collateralized categories, with all segments rising except construction and land development after a larger project moved to term financing. The company also saw growth in C&I and agricultural production loans as planting season began later in the quarter.

Loan originations totaled about $282 million, which Funke described as “seasonally strong,” up $94 million from the same quarter a year ago. The expected loan pipeline for the next 90 days increased to $178 million from $159 million at December 31. Funke cautioned that anticipated larger payoffs in the fourth quarter could mute growth, but said the company is positioned to reach “the higher end” of its mid-single-digit loan growth range for fiscal 2026 after achieving 5.4% year-to-date loan growth.

Deposits increased by about $33 million in the quarter and were up $80 million, or about 2%, year-over-year. Funke said the quarter’s growth was “primarily driven by brokered deposits” as the bank was less competitive on local specials and wholesale sources offered more cost-effective funding. Year-over-year, brokered deposits declined by just over $9 million, but increased $36 million from the linked quarter-end.

In the Q&A, Funke said deposit gathering will be “a governing factor in how fast we can grow loans,” adding that the challenge is growing deposits “at a low cost.” He said the company remains confident it can achieve mid-single-digit growth “for the foreseeable future” on both sides of the balance sheet.

Funke also said the company plans to launch a new business account in the coming quarter and may adjust team member incentives, steps he said could help build lower-cost operating account balances over time.

Credit quality and agriculture: manageable but elevated problem assets

Chairman and CEO Greg Steffens said adversely classified loans improved to $56 million, or 1.3% of gross loans, down $3 million from the prior quarter. Non-performing loans were about $30 million, or 0.7% of gross loans, up $480,000 from the prior quarter. Non-performing assets were around $32 million, up $757,000 quarter-over-quarter, with Steffens noting “no material non-performing loans or other real estate” were added during the quarter.

Loans 30 to 89 days past due declined to $10.5 million, while total delinquent loans were $32 million, essentially flat from December. Steffens said non-performing assets and non-accrual loans remain elevated compared to historical levels, but called overall problem asset levels “manageable,” adding that earnings are sufficient to cover potential reserves while maintaining above-average profitability. He said management is focused on improving credit quality and is seeing progress on workout strategies.

Steffens provided an update on agriculture exposure, saying ag real estate loans totaled $279 million (6% of gross loans) and ag production and equipment loans were $204 million (5% of gross loans). He described deferred sales by producers following weak commodity prices and the use of Commodity Credit Corporation stored grain loans to generate liquidity. He said depressed prices and yield pressure in 2025 led to borrower shortfalls and restructurings, contributing to growth in ag real estate balances as the bank used strong equity positions to address operating shortfalls.

Looking ahead, Steffens said 2026 is shaping up to be another “high-cost environment,” though commodity prices have improved modestly relative to the bank’s conservative assumptions. He said borrowers are managing input costs and shifting acreage toward lower-cost crops, particularly soybeans, and added that the bank has incorporated prolonged agricultural pressure into its allowance for credit losses.

Chkautovich said the allowance for credit losses totaled $55.9 million, representing 1.29% of gross loans and 186% of non-performing loans, up from $54.5 million at December 31. The increase was primarily due to higher pooled-loan reserves, “driven largely by increased reserves on agricultural loans” and loan growth. Net charge-offs were four basis points annualized versus net recoveries of seven basis points in the linked quarter. Provision for credit losses was $2.1 million, up $400,000 from the prior quarter.

In response to an analyst question, Steffens said he was “pretty optimistic” non-performing asset levels would start trending lower in the current quarter and the following quarter, with some resolutions potentially moving to other real estate. He added that there “could be some charge-offs related to one,” but he did not anticipate an impact on the allowance or provisioning.

Capital deployment: buybacks, debt flexibility, and M&A activity

Funke said tangible book value per share was $45.80 at March 31, up $5.43, or 13.5%, over the prior 12 months. He also said the company repurchased 156,000 shares during the quarter at an average price of $61.97, totaling $9.7 million, or about 135% of tangible book value.

During Q&A, Funke said repurchase activity was “probably a little higher than what we would like to see” on a consistent basis, citing market volatility as a factor and suggesting activity could be more muted if prices improve. Steffens added that the bank generally targets a “three to 3.5-year earn back” on repurchased shares and said price will influence future buyback pace.

Steffens said the company continues to build capital with return on assets exceeding 1.4% over the past two quarters, increasing flexibility to return capital, reduce higher-cost debt, and fund growth. He said the company has the capacity to retire $7.5 million of subordinated debt when it becomes callable in May. On M&A, Steffens said discussions have remained active, citing approximately 75 banks in its footprint with $500 million to $2 billion in assets, plus additional adjacent-market opportunities.

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.

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