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Southern Missouri Bancorp(SMBC) - 2023 Q3 - Quarterly Report

PART I. Financial Information Item 1. Condensed Consolidated Financial Statements The condensed financial statements detail the company's financial position, operations, and cash flows, reflecting asset growth and net income changes driven by an acquisition Condensed Consolidated Balance Sheets Total assets grew to $4.29 billion, driven by increased net loans and deposits, with stockholders' equity rising due to an acquisition Condensed Consolidated Balance Sheet Comparison (in thousands) | Account | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total Assets | $4,292,666 | $3,214,782 | | Cash and cash equivalents | $114,540 | $86,792 | | Available for sale securities | $429,798 | $235,394 | | Loans receivable, net | $3,434,519 | $2,686,198 | | Goodwill | $50,657 | $27,288 | | Total Liabilities | $3,856,019 | $2,894,010 | | Deposits | $3,755,193 | $2,815,075 | | Total Stockholders' Equity | $436,647 | $320,772 | Condensed Consolidated Statements of Income Net income significantly decreased for both the quarter and nine-month periods, primarily due to a substantial increase in the provision for credit losses Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $33,767 | $25,114 | $90,526 | $75,808 | | Provision for Credit Losses | $10,072 | $1,552 | $16,266 | $1,247 | | Net Income | $2,409 | $9,351 | $23,676 | $34,082 | | Diluted EPS | $0.22 | $1.03 | $2.41 | $3.80 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the quarter increased to $3.1 million, while the nine-month period saw a slight decrease to $23.1 million Comprehensive Income (in thousands) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,409 | $9,351 | $23,676 | $34,082 | | Total other comprehensive income (loss) | $703 | $(7,471) | $(590) | $(9,371) | | Comprehensive Income | $3,112 | $1,880 | $23,086 | $24,711 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $436.6 million, primarily driven by common stock issuance for an acquisition and net income - Key drivers for the increase in stockholders' equity during the nine months ended March 31, 2023, were the issuance of common stock valued at $98.3 million, net income of $23.7 million, and stock-based compensation, offset by dividends paid of $6.3 million and a $0.6 million increase in unrealized losses on securities13 Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $39.4 million, while investing activities used $73.7 million, resulting in a $27.7 million increase in cash Net Cash Flow Summary (Nine Months Ended March 31, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,366 | $45,874 | | Net cash used in investing activities | $(73,719) | $(172,012) | | Net cash provided by financing activities | $62,101 | $251,130 | | Increase in cash and cash equivalents | $27,748 | $124,992 | - The company completed the acquisition of Citizens Bancshares Company on January 20, 2023, which involved assuming liabilities of $887.0 million15 Notes to Condensed Consolidated Financial Statements The notes provide detailed accounting policies, including ACL under CECL, and information on loan portfolio quality and recent business combinations - The company adopted ASU 2022-02, which eliminates Troubled Debt Restructuring (TDR) accounting guidance for entities that have adopted CECL, effective for fiscal years beginning after December 15, 202266 - On January 20, 2023, the Company completed its acquisition of Citizens Bancshares, Co. for a total consideration of $130.8 million, resulting in $23.4 million of goodwill and $24.6 million of identifiable intangible assets151153 - The Allowance for Credit Losses (ACL) on loans was $45.7 million as of March 31, 2023, up from $33.2 million at June 30, 2022. The increase was driven by provisions for the acquired Citizens loan portfolio and organic loan growth100243 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting the Citizens merger's impact on balance sheet growth, decreased net income, and changes in asset quality and capital Executive Summary The Citizens Bank & Trust acquisition significantly impacted results, leading to a 30.5% net income decrease and $1.1 billion asset growth for the nine months Nine-Month Performance vs. Prior Year (FY2023 vs FY2022) | Metric | Nine Months FY2023 | Nine Months FY2022 | Change | | :--- | :--- | :--- | :--- | | Net Income | $23.7 million | $34.1 million | -30.5% | | Diluted EPS | $2.41 | $3.80 | -36.6% | | Net Interest Income | $90.5 million | $75.8 million | +19.4% | | Provision for Credit Losses | $16.3 million | $1.2 million | +1258% | | Noninterest Income | $17.3 million | $14.7 million | +17.4% | | Noninterest Expense | $61.6 million | $46.0 million | +33.7% | - The acquisition of Citizens Bank & Trust was a primary driver of balance sheet growth and increased expenses during the period183184 Comparison of Financial Condition Total assets grew 33.5% to $4.3 billion due to the Citizens merger, driving increases in net loans, deposits, and stockholders' equity - The company's concentration in non-owner occupied commercial real estate stood at 334% of regulatory capital as of March 31, 2023, up from 299% a year ago199 - Uninsured deposits, excluding collateralized public unit funds, were estimated at 14% of total deposits as of March 31, 2023200 Results of Operations Net income significantly decreased for both the quarter and nine-month periods, primarily due to merger-related expenses and increased provision for credit losses - Q3 2023 net income was significantly reduced by merger-related charges, including a $7.0 million provision for credit losses on the acquired loan portfolio and off-balance sheet exposures216 - The net interest margin for Q3 2023 was 3.48%, flat compared to Q3 2022. For the nine-month period, it decreased to 3.52% from 3.74% YoY, as the cost of interest-bearing liabilities rose faster than the yield on earning assets205208218 - Noninterest expense for Q3 2023 increased 61.1% YoY to $27.0 million, with $3.3 million directly related to merger and acquisition activities226 Allowance for Credit Loss Activity The Allowance for Credit Losses (ACL) increased to $45.7 million, primarily due to provisions for acquired loans and organic growth, impacting off-balance sheet exposures ACL Summary | Metric | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | ACL Balance | $45.7 million | $33.2 million | | ACL as % of Gross Loans | 1.31% | 1.22% | | ACL as % of Nonperforming Loans | 618% | 806% | - The provision for credit losses for the nine months ended March 31, 2023, was $16.3 million, a sharp increase from $1.2 million in the prior-year period, driven by loan growth and the Citizens merger237 - Adversely classified loans increased to $46.9 million (1.35% of total loans) from $27.1 million (1.00% of total loans) at June 30, 2022, partly due to loans acquired from Citizens252 Nonperforming Assets Nonperforming assets increased to $12.7 million, primarily due to nonperforming loans and other real estate owned from the Citizens merger Nonperforming Assets (in thousands) | Category | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Nonperforming loans | $7,397 | $4,118 | | Foreclosed assets held for sale | $5,283 | $2,191 | | Total nonperforming assets | $12,680 | $6,309 | Liquidity and Capital Resources The company maintains adequate liquidity and remains well-capitalized, with strong Tier 1 leverage and Common Equity Tier 1 capital ratios above regulatory minimums - At March 31, 2023, the company had outstanding commitments to extend credit of approximately $1.1 billion, including $723.2 million in unused lines of credit260 Consolidated Capital Ratios (Actual vs. Required for Adequacy) | Ratio | March 31, 2023 (Actual) | Required for Adequacy | | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 12.22% | 8.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 10.99% | 6.00% | | Common Equity Tier 1 Capital | 10.58% | 4.50% | | Tier 1 Capital (to Average Assets) | 10.02% | 4.00% | - The Company and the Bank have elected the five-year transition period to phase in the effects of CECL adoption on regulatory capital265 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk, showing a moderately liability-sensitive position where a 200 basis point rate increase would decrease NPV by 17% Net Portfolio Value (NPV) Sensitivity Analysis (March 31, 2023) | Change in Rates (bp) | NPV Change (%) | | :--- | :--- | | +300 | -26% | | +200 | -17% | | +100 | -10% | | -100 | +10% | | -200 | +23% | | -300 | +34% | - The company's interest rate sensitivity has declined since June 30, 2022, benefiting from the asset-sensitive balance sheet acquired in the Citizens merger276277 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023281 - The company acknowledges the inherent limitations of any control system, stating it can provide only reasonable, not absolute, assurance against errors or fraud282 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to any pending legal proceedings expected to materially affect its financial condition or operations - Management states that the Company is not involved in any pending claims or lawsuits that are expected to materially impact its financial condition or operations285 Item 1a. Risk Factors A new risk factor highlights industry uncertainty, potentially leading to deposit outflows, increased funding costs, and heightened competition for liquidity - A new risk factor highlights the uncertainty in the financial services industry following recent events, which could drive deposit outflows, increase funding costs, and intensify competition for liquidity287 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a stock repurchase program with 306,375 shares remaining available, though no shares were repurchased in Q3 2023 Stock Repurchase Activity (Q3 2023) | Period | Total of Shares Purchased | Average Price Paid Per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Jan 2023 | 0 | $— | 306,375 | | Feb 2023 | 0 | $— | 306,375 | | Mar 2023 | 0 | $— | 306,375 | Item 3. Defaults upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, material contracts, and required certifications - The filing includes certifications from the Chief Executive Officer, Chief Administrative Officer, and Chief Financial Officer pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act295