Southern Missouri Bancorp(SMBC) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Earnings per share for the December quarter was $1.62, an increase of $0.24 or 17.4% from the linked September quarter, and up $0.32 or 24.6% from the December 2024 quarter [3] - Provision for credit loss expense decreased by $2.8 million to approximately $1.7 million compared to the linked September quarter [4] - Net interest margin for the quarter was 3.57%, unchanged from the linked September quarter, and up from 3.34% reported for the year-ago period [6][17] - Tangible book value per share increased by $5.74 or almost 15% over the last 12 months, reaching $44.65 [7] Business Line Data and Key Metrics Changes - Gross loan balances increased by $35 million during the second quarter, and are up almost $200 million or 5% compared to December 31st of the prior year [4] - Loan originations reached nearly $312 million, marking the strongest quarter in several years, although growth was slowed by seasonal agricultural paydowns and larger loan payoffs [5] - Deposit balances increased by about $28 million in the second quarter and by $98 million or 2.3% compared to December 31st of the prior year [5] Market Data and Key Metrics Changes - The company experienced strong growth in the East region, followed by good growth in the West region [4] - Over the last 12 months, brokered deposits decreased by $72 million, while core deposit growth was approximately $170 million or 4.3% [6] Company Strategy and Development Direction - The company is focused on disciplined execution, prudent risk management, and thoughtful capital deployment to deliver consistent, attractive returns for shareholders [26] - A new share repurchase program was approved to repurchase up to 550,000 shares, approximately 5% of shares outstanding, indicating a commitment to returning capital to shareholders while maintaining capacity for future growth [25] - The company is optimistic about potential M&A opportunities as market conditions stabilize, with a focus on banks within their footprint or adjacent markets [25][61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength and quality of earnings, indicating that current profitability levels are sustainable [24] - The company anticipates limited net loan growth in the March quarter due to normal seasonality but expects a typical pickup in growth in the fourth quarter, aiming for mid-single-digit growth for fiscal year 2026 [5][35] - Management remains vigilant on credit quality and is focused on improving it while feeling good about progress being made across several problem credits [12] Other Important Information - Non-interest income increased by 3.1% compared to the linked quarter, driven by higher wealth management fees and increased interchange income [19] - The allowance for credit losses totaled $54.5 million, representing 1.29% of gross loans, an increase from the previous quarter [21] Q&A Session Summary Question: Loan growth and paydowns - Management noted that several unexpected paydowns occurred, including a larger C&I relationship that moved to a larger bank, and overall prepayment rates have been higher than historically seen [31][32] Question: Outlook on net interest margin - Management indicated potential for increased spread in the March quarter due to decreased deposit costs, but did not provide specific guidance on NIM [37] Question: Personnel costs expectations - Management expects a mid-single-digit increase in personnel costs due to annual merit increases, with no major deviations anticipated in run rates [44][45] Question: Buyback activity and M&A appetite - Management will remain disciplined regarding buyback activity, balancing between capital deployment for buybacks and potential acquisition opportunities [50] Question: Charge-offs on commercial real estate loans - Management anticipates charge-offs to return to historical averages in upcoming quarters, with no significant additional impact expected from specific relationships [52][53]