Southern Missouri Bancorp (NASDAQ:SMBC) reported stronger quarterly and full-year earnings as net interest income improved, operating expenses declined and tax credit investments lowered its tax provision, executives said on the company’s fiscal fourth-quarter earnings call.
President and Chief Administrative Officer Matt Funke said the June quarter, which closed the company’s fiscal year, benefited from higher net interest income, higher non-interest income, lower non-interest expense and a reduced income tax provision. Those gains were partly offset by a higher provision for credit losses.
Funke said the 24% year-over-year increase in full-year earnings was “predominantly driven by stronger net interest income,” which reflected margin expansion as funding costs declined, along with nearly 5% average earning asset growth. He said the company generated a return on assets of 1.41% for fiscal 2026.
Loan Growth Remains Solid, But Management Expects Moderation
Gross loan balances increased $69 million during the fourth quarter and were up $291 million, or 7.1%, from a year earlier. Funke said growth during the quarter was driven largely by construction and land development loans, one-to-four-family residential real estate, multifamily loans, agricultural real estate and seasonal agricultural production lending.
Loan originations totaled about $335 million in the quarter, up $85 million from the year-ago period, though Funke said several larger payoffs muted the impact. The expected 90-day pipeline rose by about $4 million from the prior quarter to $182 million.
Looking to fiscal 2027, Funke said management continues to expect mid-single-digit loan growth. However, he said growth could moderate from the 7% achieved in fiscal 2026 because the company is prioritizing core deposit relationships rather than wholesale funding to support new loan production.
Deposits increased about $67 million, or 1.5%, in the fourth quarter and were up roughly $126 million, or about 3%, year over year. Funke said deposit growth in the quarter was primarily driven by brokered deposits, noting that brokered balances were up just under $56 million from a year earlier. He said local deposit rate competition has increased and wholesale funding has sometimes been more cost-effective.
The company has begun rolling out a new suite of business accounts and adjusted employee incentives in an effort to grow lower-cost operating accounts over time, Funke said.
Net Interest Margin Holds Steady, But Funding Costs Could Pressure Results
Net interest margin was 3.67% in the June quarter, unchanged from the March quarter and up from 3.47% a year earlier. Net interest income rose almost 3% from the linked quarter and about 10% year over year.
Chief Financial Officer Stefan Chkautovich said the margin included about three basis points of fair value discount accretion on acquired loan portfolios and premium amortization on assumed deposits, unchanged from the linked quarter. He also said the quarter included a $603,000 reversal of accrued interest income, which reduced the margin and average earning asset yield by about five basis points.
Chkautovich said Southern Missouri generated 22 basis points of net interest margin expansion in fiscal 2026, primarily due to lower-cost deposits in a declining rate environment. But he cautioned that the company could face core margin pressure in coming quarters because short-term rates have recently increased and deposit competition remains elevated. About 25% of total deposits are indexed to the 91-day Treasury bill, he said.
In response to an analyst question, Chkautovich said the 91-day Treasury rate was up about 14 basis points from the start of July for the company’s indexed deposits. He also said about $550 million of fixed-rate loans are maturing over the next 12 months, with new originations about 25 basis points above maturing loan rates. At the same time, roughly $1.3 billion of certificates of deposit are repricing, with new CD rates about 3 to 5 basis points above maturing rates.
Credit Costs Rise as Two Relationships Drive Charge-Offs
Chairman and Chief Executive Officer Greg Steffens said adversely classified loans improved from the prior quarter, declining to $54 million, or 1.2% of gross loans. Non-performing loans fell $2.5 million to about $28 million, or 0.63% of gross loans, at June 30.
Non-performing assets, however, increased $1.5 million from the prior quarter to about $33.5 million, primarily due to a rise in other real estate owned. Steffens said the increase followed the foreclosure of a previously disclosed commercial loan relationship secured by commercial real estate and equipment. The equipment was liquidated, and the commercial real estate was transferred to other real estate owned. The company recognized a $1.2 million charge-off on the transfer, leaving a remaining carrying value of about $3.6 million.
Steffens also said the company downgraded a separate agricultural lending relationship to non-accrual status during the quarter. The borrower filed for Chapter 7 bankruptcy, and Southern Missouri recognized a $2.6 million charge-off, leaving remaining exposure of $5.9 million supported by additional specific reserves.
The provision for credit losses was $3.2 million in the quarter, up from $2.1 million in the March quarter. Chkautovich said net charge-offs totaled $4.3 million, up $4 million from the linked quarter, mainly related to the agricultural production loan and the commercial loan relationship transferred to other real estate owned.
The allowance for credit losses totaled $54.9 million at June 30, representing 1.25% of gross loans and 199% of non-performing loans. That compared with $55.9 million, or 1.29% of gross loans and 186% of non-performing loans, at March 31.
In the question-and-answer session, Chkautovich said the company could see some increase in provision expense in fiscal 2027 following its annual model adjustment. He said a potential allowance range could be about 1.25% to 1.35% of loans, depending on problem asset levels.
Steffens said management expects charge-offs to improve from the past two fiscal years, when they were 17 basis points and 18 basis points. He said the company is targeting progress toward historical levels of roughly 3 to 5 basis points annually.
Agricultural Portfolio Outlook Improves, But Reserves Remain Elevated
Steffens said agricultural real estate balances totaled $296 million, or 7% of gross loans, while agricultural production and equipment loans totaled $219 million, or 5% of gross loans. Agricultural production and equipment balances rose $15 million from the prior quarter due to normal seasonality tied to planting and higher operating costs.
He said planting has been completed across Southern Missouri’s markets, with the projected 2026 crop mix consisting of about 30% soybeans, 30% corn, 20% cotton, 15% rice and 5% specialty crops. Steffens said favorable planting and timely rainfall have positioned most major crops for above-average yield potential.
Current commodity prices and expected yields are running about 10% to 15% above the company’s underwriting assumptions, partially offsetting elevated production costs and improving projected farm profitability, Steffens said. He added that higher USDA Price Loss Coverage and Agricultural Risk Coverage payments this fall should provide additional liquidity for many farmers.
Despite the improved outlook, Steffens said the company continues to maintain elevated reserves for its agricultural production portfolio because of prolonged pressure in the sector.
Capital Deployment, Expenses and M&A
Southern Missouri increased tangible book value per share to $47.43, up $5.56, or 13%, from a year earlier. During fiscal 2026, the company repurchased 317,000 shares, or nearly 3% of average common shares outstanding at the start of the year, at an average price of $58.59. In the fourth quarter, it repurchased 4,000 shares at an average price of just over $69.
The company also announced an 8% increase in its quarterly dividend, raising it by $0.02 to $0.27 per share.
Non-interest expense declined 2.6% from the linked quarter, Chkautovich said, due mainly to lower other non-interest expense, occupancy and equipment expense, and data processing costs. For fiscal 2026, non-interest expense totaled $102.1 million, unchanged from fiscal 2025. Looking ahead, he said operating expenses are expected to “re-accelerate” in fiscal 2027 as the company invests in new employees and technology, with expense growth potentially in the mid-single digits to the low-to-high single digits depending on timing.
Steffens said discussions around mergers and acquisitions have remained active. He said there are approximately 75 banks with $500 million to $2 billion in assets within the company’s footprint, in addition to institutions in adjacent markets. In response to an analyst question, he said the company’s improved trading multiples and capital position make M&A more attractive than buybacks at current valuation levels.
“Our focus remains on disciplined execution, prudent risk management, and thoughtful capital deployment to deliver sustained, attractive returns to our shareholders,” Steffens said.
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.
