Introduction

Southern Missouri Bancorp, Inc. (SMBC) is a bank holding company that has demonstrated a consistent track record of community-focused banking and strategic acquisitions. Headquartered in Poplar Bluff, Missouri, the company's wholly-owned subsidiary, Southern Bank, has been serving its local markets for over three decades, building a reputation for personalized service and a deep understanding of the financial needs of its customers.

Company History

Southern Missouri Bancorp, Inc. was organized in 1994 as the parent company of Southern Bank. The Bank's primary focus has been providing a full range of banking and financial services to individuals and corporate customers in its market areas. Since its inception, the company has operated in a competitive environment, facing challenges from other financial institutions while navigating regulatory requirements imposed by federal and state agencies.

Growth Strategy

The company's growth strategy has been characterized by a combination of organic expansion and strategic acquisitions. In 2009, Southern Missouri Bancorp completed its acquisition of Southern Bank of Commerce through a stock-for-stock transaction, which expanded the company's footprint and customer base in Missouri. The integration process was smooth, allowing the company to quickly realize cost savings and revenue synergies.

Continuing its expansion efforts, Southern Missouri Bancorp merged with Central Federal Savings & Loan Association in 2020, adding three branch locations and strengthening its presence in existing markets. This was followed by the merger with FortuneBank in 2022, which provided entry into new geographical areas and enhanced the company's commercial and agricultural lending capabilities.

The most recent acquisition in the company's history was the purchase of Citizens Bancshares Co. and its subsidiary Citizens Bank Trust Company in 2023. This transaction significantly bolstered Southern Missouri Bancorp's position as a leading community bank in its markets, adding scale and diversifying its revenue streams through the acquired trust and wealth management business. The integration of Citizens Bank was executed successfully, enabling the company to capitalize on cross-selling opportunities between the legacy Southern Bank and newly acquired operations.

Resilience and Adaptability

Throughout its history, Southern Missouri Bancorp has demonstrated resilience and adaptability in the face of various economic conditions, regulatory changes, and competitive challenges. The company has consistently shown its ability to integrate new businesses and grow its franchise prudently, establishing itself as a respected community banking institution serving customers across Missouri.

Financials

The company's financial performance has been consistent, with a solid track record of profitability and growth. As of the latest fiscal year ended June 30, 2024, Southern Missouri Bancorp reported revenue of $164.33 million and net income of $50.18 million, up from $39.24 million in the prior year. The company's return on average assets (ROA) and return on average equity (ROE) stood at 1.10% and 10.30%, respectively, reflecting its ability to effectively deploy its capital and generate strong returns for its shareholders. Operating cash flow for the fiscal year was $70.27 million, with free cash flow of $61.22 million.

For the first quarter of fiscal 2025, SMBC reported revenue of $67.38 million, representing a year-over-year increase of 16.0%. However, net income decreased by 5.3% to $12.46 million. This decrease was primarily due to an increase in noninterest expense, including a one-time $840,000 cost associated with a performance improvement project, as well as an increase in the provision for credit losses. These factors were partially offset by increases in net interest income and noninterest income. Operating cash flow and free cash flow for the quarter both stood at $9.99 million.

The bank's loan portfolio has also demonstrated steady growth, with total gross loans reaching $3.85 billion as of June 30, 2024, up from $3.16 billion a year earlier. This growth has been driven by strength across various lending segments, including commercial real estate, commercial and industrial, and agricultural loans. The company's focus on diversification has helped to mitigate concentration risks, with no single industry representing more than 20% of the total loan portfolio.

Southern Missouri Bancorp's asset quality has remained robust, with a nonperforming asset ratio of just 0.21% as of June 30, 2024. The company's allowance for credit losses, which stood at $52.52 million or 1.36% of gross loans, provides a solid buffer against potential loan losses.

Liquidity

The bank's strong liquidity position is another key strength, with a loan-to-deposit ratio of 96.30% as of the end of the fiscal year. This, combined with its access to various funding sources, including the Federal Home Loan Bank (FHLB) and the Federal Reserve's discount window, positions the company well to support its growth initiatives and navigate any potential market disruptions.

As of the most recent quarter, Southern Missouri Bancorp reported a debt-to-equity ratio of 0.29, indicating a conservative approach to leverage. The company held $75.35 million in cash and cash equivalents, providing ample liquidity for day-to-day operations and potential investment opportunities. Additionally, the bank had pledged $1.5 billion of its loan portfolio to the FHLB, providing available credit of approximately $870.3 million, of which $107.1 million was advanced. The company's current ratio and quick ratio both stood at 4.40, further underscoring its strong liquidity position.

Geographic Diversification and Revenue Streams

In terms of geographic diversification, Southern Missouri Bancorp's loan portfolio is primarily concentrated within its core markets of Missouri and Illinois, with some exposure to other regions through its acquisition strategy. The company's insurance brokerage and wealth management operations further diversify its revenue streams, accounting for a growing portion of its noninterest income.

Southern Missouri Bancorp operates through three main product segments: Community Banking, Wealth Management, and Insurance.

The Community Banking segment is the primary business of SMBC and includes traditional banking products and services offered to individual and commercial customers. This segment accounts for the majority of SMBC's total revenue and assets. The company has been actively originating loans secured by commercial and agricultural real estate, as well as commercial and agricultural business loans. It has also been focused on growing its deposit base, including through the use of brokered deposits.

The Wealth Management segment offers trust, investment, and financial planning services through the bank's Southern Wealth Management division. As of September 30, 2024, the Wealth Management division held $113.1 million in fiduciary assets and $516.9 million in investment management assets.

The Insurance segment provides insurance brokerage services through its Southern Insurance Associates subsidiary, generating fee-based revenue from commissions on insurance product sales.

Future Outlook

Looking ahead, Southern Missouri Bancorp remains focused on organic growth and strategic acquisitions that align with its community-centric approach. The company has demonstrated a willingness to invest in technology and operational improvements, as evidenced by its recent performance improvement project aimed at enhancing customer experience and operational efficiency.

Despite the challenges posed by the COVID-19 pandemic, Southern Missouri Bancorp has navigated the uncertain environment effectively, maintaining strong asset quality and continuing to support its local communities. The company's commitment to its core values of integrity, adaptability, and community engagement has been a key driver of its success.

In terms of future guidance, SMBC expects to achieve at least a mid-single-digit level of loan growth for the fiscal year. The company anticipates continued net interest income growth through the year, despite a potential slowdown in loan growth and increase in deposits in the December quarter, which could weigh on the net interest margin. Management remains optimistic about earnings and profitability for fiscal year 2025, especially in light of recent Federal Reserve rate cuts.

The ongoing performance improvement project is expected to pay for itself over the course of the year and potentially achieve a low single-digit percentage improvement in the company's non-interest expense run rate in the longer term. While SMBC has seen some preliminary M&A conversations, management has indicated that nothing is imminent at this time.

Conclusion

In conclusion, Southern Missouri Bancorp is a well-positioned community bank that has consistently delivered solid financial performance, driven by its strategic focus, disciplined lending practices, and dedication to serving the needs of its customers and local communities. The company's diversified revenue streams, strong liquidity position, and prudent risk management practices provide a solid foundation for continued growth. As the company continues to execute on its growth initiatives and adapt to the evolving financial landscape, it remains positioned to create long-term value for its shareholders.