Southern Missouri Bancorp(US:SMBC)2022-10-25 17:01Financial Data and Key Metrics Changes - The company reported earnings of $1.04 diluted for the September quarter, down $0.37 from the linked June quarter and down $0.39 from the September 2021 quarter [6] - Net interest margin for the quarter was 3.65%, compared to 4.01% for the same period last year and 3.66% for the linked quarter [6][22] - Net interest income was $28.5 million, an increase of $2.9 million or 11.2% compared to the same period last year [8] - The allowance for credit losses at September 30 was $37.4 million or 1.26% of gross loans, compared to $33.2 million or 1.22% at June 30 [30] Business Line Data and Key Metrics Changes - Gross loan balances increased by more than $257 million in the September quarter compared to one year ago, with a year-over-year increase of $695 million or almost 30% [9] - The investment portfolio remained relatively unchanged, while cash and equivalents decreased by almost $42 million [11] - Nonperforming loans were just under $4 million or 0.13% of gross loans at September 30, down from over $6 million or 0.27% one year ago [15] Market Data and Key Metrics Changes - Deposit balances increased by almost $36 million in the first quarter and have increased by $479 million compared to September 30 of last year [11] - The company experienced a higher than normal overnight position due to strong loan growth, with FHLB borrowings increasing by $187 million during the quarter [12] Company Strategy and Development Direction - The company announced a planned merger with Citizens Bancshares, which will enhance market share and provide opportunities for revenue growth [38][39] - The merger is expected to improve the company's asset-sensitive balance sheet and net interest margin in the current rising rate environment [40] Management's Comments on Operating Environment and Future Outlook - Management noted that credit performance remains strong, with low levels of nonperforming loans and charge-offs [13][15] - The company anticipates continued loan growth, with a pipeline of $230 million at September 30 [32] - Management expressed concerns about increased competition for deposits and the potential impact on cost of funds and margins [36] Other Important Information - Noninterest income was up just under $1 million compared to the year ago period, driven by increases in servicing and loan fees [26] - Noninterest expense increased by $2.7 million compared to the year ago quarter, primarily due to compensation and benefits [27] Q&A Session Summary Question: Loan growth and potential pay-downs - Management noted strong loan growth driven by increased usage of commercial lines of credit and a reduction in loan prepayment rates [46][47] Question: Funding growth and deposit costs - Management indicated that Citizens Bancshares has a low deposit cost, which will provide flexibility to replace borrowings with core funding [50][52] Question: Fee income and secondary market activity - Management mentioned that the decline in fee income was due to seasonal fluctuations and that they do not expect significant improvement in secondary market activity in the near term [55][56] Question: Yield on new loans and growth drivers - Multifamily loans, particularly LIHTC conversions, were identified as the primary growth driver, with current loan pricing in the upper fives to mid-sixes [64][65] Question: Provision for credit losses - The increase in the allowance for credit losses was attributed to economic conditions rather than specific loan performance, with management wanting to ensure a cushion for potential future downturns [68][69]