Southern Missouri Bancorp(SMBC) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The diluted EPS for the current quarter was $1.10, down$ 0.09 from the linked June 2024 quarter and down $0.06 from the September quarter a year ago [6] - Reported noninterest expense was up 3.4% compared to the linked quarter, but excluding one-time performance review costs, expenses would have been flat quarter-over-quarter [8][29] - Net interest margin for the quarter was 3.37%, down from 3.44% reported for the year-ago period, but up from 3.25% for the fourth quarter of fiscal '24 [8][22] Business Line Data and Key Metrics Changes - Net interest income was up 4.5% quarter-over-quarter and about 3.5% year-over-year due to growth in average earning asset balances [9] - Gross loan balances increased by$ 117 million or 3% during the first quarter, and increased by $267 million or 7.2% over the prior 12 months [9] - Nonperforming loans were$ 8.2 million at September 30, up $1.5 million compared to June 30, representing 0.21% of gross loans [12] Market Data and Key Metrics Changes - Deposit balances increased by$ 97 million during the first quarter and by $208 million over the prior 12 months [9] - The company utilized$ 89 million in brokered CDs in the first quarter due to attractive pricing compared to local markets [9][34] - The allowance for credit loss as of September 30, 2024, totaled $54.4 million, representing 1.37% of gross loans [31] Company Strategy and Development Direction - The company is in the early stages of a performance improvement project aimed at enhancing operations and revenues, with a goal of improving customer and team member experience [7][36] - The management is optimistic about achieving at least mid-single-digit loan growth for the fiscal year [20] - The company is seeing a small incremental pickup in M&A conversations, with expectations for more interest from potential sellers as regional bank valuations have improved [38] Management Comments on Operating Environment and Future Outlook - Management noted pressure on profitability due to a larger provision for credit losses and increased noninterest expenses, but remains optimistic about future periods [4][5] - The company expects continued net interest income growth through the year, despite a seasonal slowdown in loan growth anticipated in the December quarter [24][25] - Management expressed confidence in borrowers' ability to navigate challenging conditions due to stringent underwriting practices [19] Other Important Information - Tangible book value increased by$ 5.14 or 15.5% over the prior 12 months, attributed to earnings retention and improvement in the bank's unrealized loss in the investment portfolio [10] - The company experienced strong growth in its East region, which is significant for agricultural activity, and good growth in the South region [20] Q&A Session Summary Question: Local competition on deposit pricing - Management indicated that local competition has begun to lower pricing following the FOMC cuts, making their rates more competitive [40] Question: Loan pricing competitive pressures - Management noted that they were on the high end of asking rates for loans but are seeing the market return to them with the uptick on the longer end of the treasury curve [41] Question: Guidance on margin and NII - Management expects continued NII growth but anticipates that the margin could move sideways or down in the December quarter due to liquidity build [43][44] Question: Performance improvement project details - The project is reviewing various aspects of the bank, with the goal of improving operations and positioning for future merger opportunities [46][47] Question: Update on M&A landscape - Management stated that while there are preliminary conversations, nothing imminent is on the horizon, but they expect more activity as valuations improve [53]