Workflow
Southern Missouri Bancorp(SMBC) - 2021 Q4 - Annual Report

PART I Item 1. Description of Business The Company, a bank holding company for Southern Bank, provides community banking services across Missouri, Arkansas, and Illinois, expanding through acquisitions and managing pandemic impacts General Southern Missouri Bancorp, Inc. is a bank holding company for Southern Bank, providing community banking services and operating across three states - Southern Missouri Bancorp, Inc. is a bank holding company for Southern Bank, incorporated in Delaware in 1993 and reincorporated in Missouri in 1999, with common stock traded on NASDAQ Global Market under SMBC4 - The Bank, chartered in 1887, converted to a Missouri state-chartered trust company in 2004, renamed Southern Bank in 2009, and is regulated by the Missouri Division of Finance and Federal Reserve Board, with FDIC-insured deposits56 - The Bank's core business involves attracting retail deposits and using them, along with wholesale funding, to invest in various mortgage, commercial, construction, and consumer loans, as well as securities7 Company Financial Overview (June 30, 2021) | Metric | Amount (Millions USD) | | :------------------- | :------------------ | | Total Assets | $2.7 billion | | Total Deposits | $2.3 billion | | Stockholders' Equity | $283.4 million | COVID-19 Pandemic Response The Company implemented operational changes, participated in the SBA PPP, and offered loan deferrals in response to the COVID-19 pandemic - The Company closed lobbies from March 23, 2020, gradually re-opening from May 4, 2020, with 10-15% of team members working remotely in August 2021 and no furloughs1011 - The Company originated over 3,200 SBA PPP loans totaling $197.2 million through May 31, 2021, with outstanding balances reduced to $37.0 million by August 20, 2021, due to forgiveness processing12 - Loan modifications for pandemic-affected borrowers decreased from approximately 900 loans ($380.2 million) at June 30, 2020, to six loans ($23.9 million) at June 30, 2021, with $23.7 million now considered 'special mention'13 Acquisitions The Company actively pursued acquisitions to expand its market presence, commercial banking activities, and core deposit franchises - On May 22, 2020, the Company acquired Central Federal Bancshares, Inc. for its commercial banking activities and core deposit franchise, resulting in a bargain purchase gain of $123 thousand14 - On November 21, 2018, the Company acquired Gideon Bancshares Company, adding $217 million in assets and $1.0 million in goodwill, primarily for commercial banking expansion and core deposit value15 - On February 23, 2018, the Company acquired Southern Missouri Bancshares, Inc., adding $86.2 million in assets and $4.4 million in goodwill, aimed at expanding commercial banking and securing core deposits16 - Other significant acquisitions include Tammcorp, Inc. (June 2017), Peoples Service Company (August 2014), Ozarks Legacy Community Financial, Inc. (October 2013), and Citizens State Bankshares of Bald Knob, Inc. (February 2014), all contributing to market expansion and deposit growth171819 Capital Raising Transactions The Company engaged in common stock issuances to raise capital for general corporate purposes, including organic growth and acquisitions - On June 20, 2017, the Company completed an at-the-market common stock issuance, selling 794,762 shares for approximately $25.0 million in gross proceeds, used for general corporate purposes including organic growth and acquisitions20 - On November 22, 2011, the Company completed an underwritten public offering of 1,150,000 shares of common stock at $19.00 per share, raising $21.9 million in gross proceeds for loan growth and securities purchases21 Forward Looking Statements The document contains forward-looking statements about future performance, growth, and interest rates, subject to various risk factors - The document contains forward-looking statements regarding future operating and financial performance, growth, interest rates, and cost savings, identified by words like "believe," "anticipate," and "expect"2223 - Key factors that could cause actual results to differ materially include potential adverse impacts from the COVID-19 pandemic, integration risks from mergers and acquisitions, economic conditions, interest rate fluctuations, regulatory changes, and technological advancements24 Market Area The Bank operates 48 branch offices across Missouri, Arkansas, and Illinois, organized into three regional markets with diverse economies - As of June 30, 2021, the Bank operated from its headquarters in Poplar Bluff and 48 branch offices across Missouri, Arkansas, and Illinois, with a new branch opened in West Plains, Missouri, in August 202126 - The Bank's operations are organized into three regional markets: East (24 facilities, population ~248,000), South (13 facilities, population ~425,000), and West (12 facilities, population ~554,000), with economies supported by manufacturing, agriculture, healthcare, education, and retail2728 Competition The Bank faces strong competition in attracting deposits and originating loans from various financial institutions, with increasing competition expected from technological changes - The Bank faces strong competition in attracting deposits and originating loans from commercial banks, credit unions, digital payment applications, and other investment alternatives, with deposit competition ranging from $6.6 billion to $15.1 billion in its regions2930 - Competition is expected to increase due to legislative, regulatory, and technological changes, including lowered market entry barriers from internet services and the Gramm-Leach-Bliley Act allowing affiliations among financial services firms3031 Lending Activities The Bank's lending activities encompass residential, commercial, construction, and consumer loans, with oversight managed by senior lending officers - The Bank's lending activities include originating loans secured by residential and commercial real estate, construction loans, commercial business loans, and consumer loans, having purchased participations in 23 loans totaling $83.0 million as of June 30, 202132 - Loan portfolio oversight is managed by the Chief Lending Officer, Regional President, and Chief Credit Officer, with varying lending authorities for loan officers and committees based on loan size and type333435 Loan Portfolio Composition (June 30, 2021) | Loan Type | Amount (Thousands USD) | Percent of Total Loans | | :---------------------- | :------------------- | :--------------------- | | Residential real estate | $721.22 million | 32.78% | | Commercial real estate | $889.79 million | 40.44% | | Construction | $208.82 million | 9.49% | | Commercial business | $414.12 million | 18.82% | | Consumer | $77.67 million | 3.52% | Loan Originations, Sales, and Repayments (Fiscal Year Ended June 30, 2021) | Activity | Amount (Thousands USD) | | :----------------------------------- | :------------------- | | Total loans at beginning of period | $2.25 billion | | Loans originated | $971.84 million | | Loans purchased | $55.27 million | | Loans sold | $(157.41 million) | | Principal repayments | $(778.03 million) | | Total loans at end of period | $2.31 billion | Asset Quality The Company's asset quality improved in fiscal 2021, with decreased nonperforming assets and increased allowance for credit losses, despite pandemic-related loan modifications Loan Delinquencies (June 30, 2021) | Loan Type | 60-89 Days Delinquent (USD) | 90+ Days Delinquent (USD) | Total Delinquent (USD) | | :-------------------- | :----------------------------- | :--------------------------- | :------------------------ | | Residential real estate | $364 | $613 | $977 | | Commercial real estate | $0 | $30 | $30 | | Construction | $0 | $374 | $374 | | Consumer | $66 | $84 | $150 | | Commercial Business | $939 | $110 | $1,049 | | Totals | $1,369 | $1,211 | $2,580 | - The Company suspended TDR classification for eligible COVID-19 modified loans under the CARES Act, totaling $23.9 million at June 30, 2021, primarily in non-owner-occupied commercial real estate84 Non-Performing Assets (June 30, 2021 vs 2020) | Metric | June 30, 2021 (Thousands USD) | June 30, 2020 (Thousands USD) | | :--------------------------------- | :------------------------ | :------------------------ | | Nonaccruing loans | $5.87 million | $8.66 million | | Foreclosed assets held for sale | $2.23 million | $2.56 million | | Other nonperforming assets | $23 thousand | $9 thousand | | Total nonperforming assets | $8.12 million | $11.23 million | | Nonperforming loans to net loans | 0.27% | 0.40% | | Nonperforming assets to total assets | 0.30% | 0.44% | - The decrease in nonperforming assets in fiscal 2021 was mainly due to the resolution of nonaccrual loans acquired in the Gideon Acquisition, which declined from $10.2 million (June 30, 2019) to an immaterial amount (June 30, 2021)87 - Adversely classified assets totaled $20.3 million (0.75% of total assets) at June 30, 2021, down from $27.0 million (1.06%) at June 30, 2020, including $19.5 million substandard and $850 thousand doubtful assets93 - Other loans of concern, primarily construction and commercial real estate loans secured by hotel properties, totaled $48.4 million at June 30, 2021, down from $56.7 million at June 30, 2020, having received payment deferrals due to COVID-1994 Allowance for Credit Losses (ACL) (June 30, 2021 vs 2020) | Metric | June 30, 2021 (Thousands USD) | June 30, 2020 (Thousands USD) | | :--------------------------------- | :------------------------ | :------------------------ | | Allowance for Credit Losses (ACL) | $33.22 million | $25.14 million | | ACL as % of nonperforming assets | 409% | 224% | | ACL on off-balance sheet exposures | $1.8 million | $2.0 million | Investment Activities The Company's investment policy prioritizes liquidity and asset/liability management, investing in a diversified portfolio of government, municipal, and corporate securities - The Company's investment policy prioritizes liquidity, collateral for borrowings, financial performance, and asset/liability management, investing in U.S. Government, State of Missouri obligations, federal agency securities, municipal bonds, and corporate debt103 - All investment purchases are classified as available-for-sale (AFS) and reported at fair value, with unrealized gains/losses in stockholders' equity, totaling $207.0 million in AFS securities as of June 30, 2021105 Debt and Other Securities Portfolio (June 30, 2021 vs 2020) | Security Type | June 30, 2021 (Millions USD) | June 30, 2020 (Millions USD) | | :---------------------------- | :----------------------- | :----------------------- | | Debt and other securities | $68.7 million | $49.6 million | | Municipal bonds | $47.7 million | N/A | | Corporate obligations | $20.3 million | N/A | | Weighted average life | 47 months | N/A | Mortgage-Backed Securities (MBS) Portfolio (June 30, 2021 vs 2020) | Metric | June 30, 2021 (Millions USD) | June 30, 2020 (Millions USD) | | :-------------------- | :----------------------- | :----------------------- | | Total MBS | $138.3 million | $126.9 million | | % of Total Assets | 5.1% | 5.0% | | Purchases (FY2021) | $75.8 million | N/A | | Maturities/Prepayments (FY2021) | $47.5 million | N/A | | Weighted average life | 58 months | N/A | Deposit Activities and Other Sources of Funds Primary funding sources include deposits and borrowings, with deposit flows influenced by market interest rates and economic conditions - Primary funding sources include deposits, borrowings (FHLB advances, brokered deposits), loan/MBS principal and interest payments, and investment securities, with flows influenced by market interest rates and economic conditions118 - The Bank attracts deposits from Missouri, Arkansas, and Illinois residents and entities, offering various instruments like transaction accounts, money market accounts, savings accounts, and certificates of deposit, also utilizing brokered deposits and reciprocal deposit programs120 Deposit Composition (June 30, 2021) | Category | Amount (Thousands USD) | Weighted Average Interest Rate | | :-------------------------- | :------------------- | :----------------------------- | | Non-interest Bearing | $358.42 million | 0.00% | | NOW Accounts | $925.28 million | 0.96% | | Savings Accounts | $230.91 million | 0.66% | | Money Market Deposit Accounts | $253.61 million | 1.26% | | Certificates of Deposit | $562.59 million | 0.97% - 2.54% | | Total Deposits | $2.33 billion | | Deposit Flow (Fiscal Year Ended June 30, 2021 vs 2020) | Category | June 30, 2021 (Thousands USD) | June 30, 2020 (Thousands USD) | Increase (Decrease) (Thousands USD) | | :-------------------------- | :------------------------ | :------------------------ | :------------------ | | Noninterest bearing | $358.42 million | $316.05 million | $42.37 million | | NOW checking | $925.28 million | $781.94 million | $143.34 million | | Savings accounts | $230.91 million | $181.23 million | $49.68 million | | Money market deposit | $253.61 million | $231.16 million | $22.45 million | | Fixed-rate certificates | $562.59 million | $674.47 million | $(111.89 million) | | Total Deposits | $2.33 billion | $2.18 billion | $145.96 million | Borrowings (June 30, 2021 vs 2020) | Borrowing Type | June 30, 2021 (Thousands USD) | June 30, 2020 (Thousands USD) | | :----------------------- | :------------------------ | :------------------------ | | FHLB advances | $57.53 million | $70.02 million | | Subordinated debt | $15.24 million | $15.14 million | - The Bank had $57.53 million in outstanding FHLB advances at June 30, 2021, with $769.8 million in loans pledged as collateral, providing $440.9 million in available credit, plus an additional $216.8 million from the Federal Reserve Bank's discount window132133134135 Subsidiary Activities The Bank operates four subsidiaries engaged in financial services, low-income housing tax credits, real estate investments, and insurance brokerage - The Bank has four subsidiaries: SMS Financial Services, Inc. (inactive), SB Corning, LLC (low income housing tax credits), SB Real Estate Investments, LLC (REIT with $1.1 billion in assets), and Southern Insurance Services, LLC (insurance brokerage)142 Employees and Human Capital Resources The Company focuses on attracting, developing, and retaining diverse talent through competitive compensation, benefits, and internal promotion - As of June 30, 2021, the Company had 488 employees (457 full-time, 31 part-time), focusing on attracting, developing, and retaining diverse talent through competitive pay, benefits, and internal promotion (63% of leaders promoted internally)143144 - The Company offers a 401(K) retirement plan with matching and profit-sharing contributions, PPO and HSA-eligible health benefits, promotes diversity and inclusion, and supports communities through sponsorships and employee involvement145146147 - In response to COVID-19, the Company implemented public health directives, encouraged vaccination (providing additional paid time off for vaccinated team members), and supported remote work to ensure employee well-being and business continuity148 GOVERNMENT SUPERVISION AND REGULATION The Company and Southern Bank are subject to extensive federal and state regulations governing capital, lending, and operations, with recent legislative changes providing temporary pandemic relief - The Company and Bank are subject to extensive regulation, including the Dodd-Frank Act and the Economic Growth, Regulatory Relief and Consumer Protection Act, which modified regulatory oversight for financial institutions150151152 - The CARES Act temporarily reduced the Community Bank Leverage Ratio (CBLR) to 8.0% for 2020 and 8.5% for 2021, and allowed suspension of TDR classification for COVID-19 related loan modifications, though the Company has not elected to use the CBLR framework153154155156 - The Bank is a state-chartered, federally insured trust company regulated by the FRB and Missouri Division of Finance, with FDIC-insured deposits, and must comply with capital standards and lending requirements, subject to regular examinations157158159 - The Bank is a member of the FHLB of Des Moines, required to purchase stock and pledge collateral for advances, and also has borrowing capacity from the Federal Reserve Bank's discount window161162163 - The Bank and Company were categorized as "well capitalized" at June 30, 2021, meeting all regulatory capital requirements, including CET1, Tier 1, and total capital ratios, and the capital conservation buffer178179 TAXATION The Company and Bank are subject to federal and multi-state income taxation, with the Bank transitioning to a specific charge-off method for loan deductions, and Missouri tax returns for 2016-2018 are under audit - The Company and Bank are subject to federal income taxation, with the Bank transitioning from a bad debt reserve method to a specific charge-off method for loan deductions due to exceeding $500 million in average assets197198199 - The Company can exclude 100% of dividends received from the Bank as a member of the same affiliated group of corporations200 - The Bank is subject to Missouri bank franchise tax (4.48% on taxable income, 0.007% on net assets) and a 4.0% consolidated income tax, also facing Arkansas (6%) and Illinois (9.5%) income taxes due to multi-state operations201202203204205 - Missouri income tax returns for fiscal years ending June 30, 2016 through 2018 are currently under audit by the Missouri Department of Revenue206 INTERNET WEBSITE The Company's website, www.bankwithsouthern.com, provides access to SEC filings, but its content is not incorporated by reference into this report - The Company's website, www.bankwithsouthern.com, provides access to its Annual Report on Form 10-K and other SEC filings, though website content is not incorporated by reference into the report208 Item 1A. Risk Factors Investing in the Company's securities involves risks from the COVID-19 pandemic, credit quality, interest rate fluctuations, acquisitions, regulatory changes, cybersecurity, and potential stock price volatility - The COVID-19 pandemic has adversely impacted business operations, loan demand, and market interest rates, leading to uncertainty in credit quality and asset values, with remote work arrangements introducing heightened cybersecurity and operational risks212213214215 - The Company faces significant credit risks, including potential increases in loan delinquencies, problem assets, and foreclosures, particularly from construction, commercial real estate, and agricultural lending, which are sensitive to economic downturns and collateral value declines223224229233235236 - Changes in interest rates, including the replacement of LIBOR, may negatively affect net interest income and asset values; liquidity risk could impair funding operations; and the Company may fail to realize anticipated benefits from acquisitions due to integration challenges or unknown liabilities244246247248249 - Regulatory changes, non-compliance with laws like the USA Patriot Act, and increased operational costs from technology reliance and cybersecurity breaches pose significant risks, with potential impairment of intangible or deferred tax assets also impacting earnings253254255258259272 - The price of the Company's common stock may fluctuate significantly due to operating results, market conditions, and regulatory actions, while regulatory and contractual restrictions may limit dividend payments and share repurchases273276277278 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the Company's filings - The Company has no unresolved staff comments from the SEC283 Item 2. Description of Properties As of June 30, 2021, the Bank operated from its headquarters and 48 branch offices, owning 44 locations, with management deeming facilities adequate for current and future needs - As of June 30, 2021, the Bank operated from its headquarters and 48 branch offices (46 full-service, 2 limited-service), owning 44 of these offices, with the remaining four being leased or partially owned284 - Management believes current facilities are adequate for present and foreseeable needs, with plans to monitor customer growth and expand the branching network as necessary285 Item 3. Legal Proceedings Management believes the Bank is not a party to any pending claims or lawsuits that would materially affect its financial condition or operations, beyond routine business claims - Management believes the Bank is not a party to any pending claims or lawsuits expected to have a material effect on its financial condition or operations, aside from routine claims incident to ordinary business286 Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable287 Item 4A. Information About Our Executive Officers This section details the extensive banking and finance experience of the Company's executive officers, including the President and CEO, CFO, COO, and other key leadership roles - Greg A. Steffens, President and CEO, has over 31 years of banking experience, joining the Company in 1998 as CFO and appointed President and CEO in 1999290 - Matthew T. Funke, CFO, joined in 2003 and has over 22 years of banking and finance experience, previously serving as internal auditor and compliance officer291 - Kimberly A. Capps, COO, joined in 1994 and has over 28 years of banking experience, responsible for retail deposit operations, product development, marketing, and enterprise data292 - Lora L. Daves, Chief Risk Officer, joined in 2006 and oversees internal audit, loan review, BSA, CRA, and compliance functions, with over 32 years of banking and finance experience293 - Justin G. Cox, Regional President for the Bank's west region, joined in 2010 and is responsible for loan production and deposit-taking operations in his region294 - Mark E. Hecker, Chief Credit Officer, joined in January 2017, with over 31 years of banking experience, responsible for credit portfolio administration and quality monitoring296 - Rick A. Windes, Chief Lending Officer, joined in May 2018, with 28 years of commercial lending and management experience, responsible for the Company's loan production297 - Brett A. Dorton, Chief Strategies Officer, joined in November 2018 through the Gideon Acquisition, overseeing wealth management, insurance brokerage, and M&A activities298 - Martin J. Weishaar, Chief Legal Officer, joined in October 2019, responsible for legal needs and oversight of the information technology department, with over 21 years in banking legal roles299 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock trades on Nasdaq under "SMBC", with 8.9 million shares outstanding, and it maintains a quarterly dividend policy while actively engaging in share repurchase programs - The Company's common stock is traded on the Nasdaq Global Market under the symbol "SMBC", with 8,905,198 shares outstanding and approximately 249 common stockholders of record as of June 30, 2021301 - The Company intends to continue its policy of paying quarterly dividends, with future payments dependent on capital requirements, regulatory limitations, financial condition, and the Bank's ability to pay dividends302 - The Company completed a 450,000-share repurchase program on May 19, 2021, at an average cost of $33.32 per share, and announced a new program to repurchase up to an additional 445,000 shares on May 20, 2021303304 Stock Repurchase Activity (Q4 FY2021) | Period | Total of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares That May Yet Be Purchased | | :-------------------- | :-------------------------- | :--------------------------- | :----------------------------------------------- | | 04/01/21 - 04/30/21 | 14,542 | $40.03 | 33,125 | | 05/01/21 - 05/31/21 | 37,256 | $43.41 | 440,869 | | 06/01/21 - 06/30/21 | 2,300 | $44.01 | 438,569 | Stockholder Return Comparison (June 30, 2016 - June 30, 2021) | Index | 06/30/16 | 06/30/17 | 06/30/18 | 06/30/19 | 06/30/20 | 06/30/21 | | :------------------------------ | :------- | :------- | :------- | :------- | :------- | :------- | | Southern Missouri Bancorp, Inc. | 100.00 | 139.01 | 170.29 | 154.27 | 109.83 | 207.32 | | SNL All Financial Institutions | 100.00 | 137.68 | 151.08 | 155.16 | 134.57 | 216.65 | | SNL Bank NASDAQ | 100.00 | 142.98 | 159.20 | 145.32 | 104.42 | 175.06 | | SNL Bank $1B-$5B | 100.00 | 146.04 | 168.77 | 149.37 | 115.77 | 176.72 | | SNL Midwest Bank | 100.00 | 141.18 | 150.74 | 146.91 | 110.03 | 178.15 | Item 6. Selected Financial Data This section summarizes the Company's selected financial condition and operating data for the past five fiscal years, including assets, loans, deposits, net income, and key operating ratios Selected Financial Condition Data (June 30, 2017-2021) | Metric (Thousands USD) | 2021 | 2020 | 2019 | 2018 | 2017 | | :----------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Total assets | $2.70 billion | $2.54 billion | $2.21 billion | $1.89 billion | $1.71 billion | | Loans receivable, net | $2.20 billion | $2.14 billion | $1.85 billion | $1.56 billion | $1.40 billion | | Deposits | $2.33 billion | $2.18 billion | $1.89 billion | $1.58 billion | $1.46 billion | | Stockholder's equity | $283.42 million | $258.35 million | $238.39 million | $200.69 million | $173.08 million | Selected Operating Data (Fiscal Years Ended June 30, 2017-2021) | Metric (Thousands USD, except per share) | 2021 | 2020 | 2019 | 2018 | 2017 | | :--------------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Interest income | $109.48 million | $107.05 million | $97.48 million | $77.17 million | $61.49 million | | Net interest income | $92.69 million | $80.14 million | $72.78 million | $62.38 million | $51.12 million | | Net Income | $47.18 million | $27.55 million | $28.90 million | $20.93 million | $15.55 million | | Basic earnings per share | $5.22 | $3.00 | $3.14 | $2.40 | $2.08 | | Dividends per share | $0.62 | $0.60 | $0.52 | $0.44 | $0.40 | Key Operating Ratios (Fiscal Years Ended June 30, 2017-2021) | Ratio | 2021 | 2020 | 2019 | 2018 | 2017 | | :---------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Return on assets | 1.79% | 1.18% | 1.38% | 1.17% | 1.05% | | Return on average common equity | 17.69% | 11.11% | 13.13% | 11.30% | 11.70% | | Net interest margin | 3.77% | 3.72% | 3.78% | 3.78% | 3.74% | | Allowance for credit losses to gross loans | 1.49% | 1.16% | 1.07% | 1.15% | 1.10% | | Ratio of nonperforming assets to total assets | 0.30% | 0.44% | 1.12% | 0.69% | 0.37% | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Company's financial condition and operating results, including balance sheet growth, portfolio changes, net interest income, noninterest income, expenses, liquidity, and capital resources - The Company's financial condition saw total assets grow by $158.4 million (6.2%) to $2.7 billion at June 30, 2021, driven by increases in cash, loans, and available-for-sale securities325 - Net income for fiscal year 2021 increased by $19.6 million (71.3%) to $47.2 million, primarily due to a $12.6 million (15.7%) increase in net interest income and a $5.3 million (35.9%) increase in noninterest income342343353 - The Company recorded a negative provision for credit losses of $1.0 million in fiscal 2021, compared to a $6.0 million provision in fiscal 2020, reflecting an improved economic outlook and reduced credit risk352 - Deposits increased by $146.0 million (6.7%) to $2.3 billion at June 30, 2021, mainly in interest-bearing and noninterest-bearing transaction accounts, while FHLB advances decreased by $12.5 million (17.8%) due to strong deposit inflows337339 Net Interest Income and Margin Trends (FY2019-2021) | Metric | FY2021 | FY2020 | FY2019 | | :---------------- | :-------- | :-------- | :-------- | | Net Interest Income | $92.69 million | $80.14 million | $72.78 million | | Net Interest Margin | 3.77% | 3.72% | 3.78% | Item 7A Quantitative and Qualitative Disclosures About Market Risk The Company's asset/liability management strategy focuses on managing interest rate sensitivity to maximize net interest income and control risk, with an analysis of hypothetical interest rate changes on Net Portfolio Value - The Company's asset/liability management strategy focuses on managing interest rate sensitivity by matching repricing intervals of assets and liabilities, increasing commercial and agricultural loan originations, limiting investment portfolio volatility, and attracting non-maturity deposits400401 - The Company has increased long-term, fixed-rate residential loan originations and fixed-rate commercial, real estate, and multifamily loans, while also originating adjustable-rate loans and maintaining a relatively short weighted average maturity for its investment portfolio404 Interest Rate Sensitivity Analysis (June 30, 2021) | Change in Rates | Net Portfolio Value (Thousands USD) | % Change | NPV Ratio (%) | Change (basis points) | | :---------------- | :------------------------------ | :------- | :------------ | :-------------------- | | +300 bp | $252.80 million | (15) | 10.05 | (96) | | +200 bp | $277.90 million | (7) | 10.76 | (25) | | +100 bp | $297.37 million | (1) | 11.23 | 21 | | 0 bp | $299.07 million | — | 11.01 | — | | -100 bp | $334.71 million | 12 | 12.11 | 109 | | -200 bp | $347.52 million | 16 | 12.51 | 149 | | -300 bp | $352.76 million | 18 | 12.67 | 165 | - The Company has worked to limit exposure to rising rates by increasing non-maturity transaction accounts, limiting FHLB borrowings, and maintaining a short duration for its available-for-sale investment portfolio410 Item 8. Financial Statements and Supplementary Information This section presents the Company's audited consolidated financial statements, including balance sheets and income statements, along with the independent auditor's unqualified opinion and discussion of the CECL standard as a critical audit matter - BKD, LLP issued an unqualified opinion on the Company's consolidated financial statements for the years ended June 30, 2021, 2020, and 2019, confirming fair presentation in accordance with GAAP412 - The independent auditors also expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of June 30, 2021413 - The adoption of ASU 2016-13 (CECL standard) effective July 1, 2020, materially changed the accounting for allowance for credit losses, identified as a critical audit matter due to its complexity and subjective judgments414418419420 Consolidated Balance Sheets (June 30, 2021 vs 2020) | (dollars in thousands USD) | 2021 | 2020 | | :--------------------- | :---------- | :---------- | | Assets | | | | Cash and cash equivalents | $123.59 million | $54.25 million | | Available for sale securities | $207.02 million | $176.52 million | | Loans receivable, net | $2.20 billion | $2.14 billion | | Total assets | $2.70 billion | $2.54 billion | | Liabilities and Stockholders' Equity | | | | Deposits | $2.33 billion | $2.18 billion | | Advances from FHLB | $57.53 million | $70.02 million | | Subordinated debt | $15.24 million | $15.14 million | | Total liabilities | $2.42 billion | $2.28 billion | | Total stockholders' equity | $283.42 million | $258.35 million | | Total liabilities and stockholders' equity | $2.70 billion | $2.54 billion | Consolidated Statements of Income (Years Ended June 30, 2021, 2020, 2019) | (dollars in thousands USD except per share data) | 2021 | 2020 | 2019 | | :----------------------------------------- | :-------- | :-------- | :-------- | | Total Interest Income | $109.48 million | $107.05 million | $97.48 million | | Total Interest Expense | $16.79 million | $26.92 million | $24.70 million | | Net Interest Income | $92.69 million | $80.14 million | $72.78 million | | Provision for credit losses | $(1.02 million) | $6.00 million | $2.03 million | | Total Noninterest Income | $20.04 million | $14.75 million | $13.09 million | | Total Noninterest Expense | $54.05 million | $54.45 million | $47.89 million | | Income Before Income Taxes | $59.71 million | $34.43 million | $35.95 million | | Net Income | $47.18 million | $27.55 million | $28.90 million | | Basic earnings per share | $5.22 | $3.00 | $3.14 | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The Company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - There have been no changes in or disagreements with accountants on accounting and financial disclosure matters609 Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2021, with no material changes during the fiscal year - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2021, ensuring timely and accurate information disclosure610 - Management assessed and affirmed the effectiveness of the Company's internal control over financial reporting as of June 30, 2021, based on the COSO Internal Control-Integrated Framework (2013)612615 - BKD, LLP, the independent registered public accounting firm, issued an unqualified opinion on the Company's internal control over financial reporting as of June 30, 2021617618 - No changes in internal control over financial reporting occurred during the fiscal year ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting610625 Item 9B. Other Information There is no other information required to be disclosed in this section - There is no other information to report under this item626 PART III Item 10. Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance, including the independent Audit/Compliance Committee and Code of Conduct, is incorporated by reference from the 2021 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders628629 - The Audit/Compliance Committee consists of independent directors, with Mr. Love identified as an "audit committee financial expert"630 - The Company has adopted a written Code of Conduct and Ethics, applicable to all directors, officers, and employees, available on its website631 Item 11. Executive Compensation Executive compensation information is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders - Executive compensation information is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders633 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 89,500 outstanding options at $33.77 and 250,913 shares available for future issuance under equity compensation plans as of June 30, 2021 - Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders635 Equity Compensation Plan Information (June 30, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of Securities remaining available for future issuance under equity compensation plans | | :------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------- | | Equity Compensation Plans Approved By Security Holders | 89,500 | $33.77 | 250,913 | Item 13. Certain Relationships, Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders638 Item 14. Principal Accountant Fees and Services Information concerning fees and services provided by the principal accountants is incorporated by reference from the 2021 Proxy Statement - Information concerning fees and services by the principal accountants is incorporated by reference from the definitive Proxy Statement for the 2021 Annual Meeting of Stockholders639 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements from Part II, Item 8, confirms omission of schedules, and provides a comprehensive list of exhibits, including corporate governance documents and material contracts - The section lists the consolidated financial statements (Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes) contained in Part II, Item 8 of this Form 10-K642 - All financial statement schedules have been omitted as not required or applicable642 - A comprehensive list of exhibits is provided, including corporate governance documents (Articles of Incorporation, Bylaws), material contracts (incentive plans, employment agreements, director retirement agreements, change-in-control agreements), and regulatory certifications (Rule 13a-14(a) and Section 906)643644645 Item 16. Form 10-K Summary No Form 10-K Summary is provided in this report - No Form 10-K Summary is provided646 SIGNATURES The report is signed by Greg A. Steffens, President and CEO, and other directors and CFO Matthew T. Funke, on September 13, 2021 - The report is signed by Greg A. Steffens, President and Chief Executive Officer, and other directors and the Chief Financial Officer, Matthew T. Funke, on September 13, 2021651652