Southern Missouri Bancorp, Inc. (SMBC) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance with a notable increase in EPS, loan and deposit growth, and a solid net interest margin. Share repurchase plans and improved credit loss provisions add to the positive sentiment. While some concerns exist regarding increased non-performing loans and competitive loan pricing, the overall outlook is optimistic with expected margin improvements and disciplined capital deployment. The company's strategic focus on M&A and share repurchases further supports a positive stock price movement in the short term.
Key Financial Performance
Earnings per share (EPS) $1.62 per share diluted in the December quarter, up $0.24 or 17.4% from the linked September quarter and up $0.32 or 24.6% from the December 2024 quarter. The increase is attributed to improved earnings and profitability due to a lower provision for credit losses, a larger earning asset base, and an increase in noninterest income.
Provision for credit loss expense $1.7 million, a decrease of $2.8 million compared to the linked September quarter. The decrease is due to positive movement with the workout of specialty CRE loans.
Gross loan balances Increased by $35 million during the second quarter and up almost $200 million or 5% compared to December 31 of the prior year. Growth was led by 1-4 family residential, C&I, and construction and loan development loans.
Deposit balances Increased by $28 million in the second quarter and by $98 million or 2.3% compared to December 31 of the prior year. Core deposit growth was $170 million or 4.3% over the 12-month period, offset by a $72 million reduction in brokered deposits.
Net interest margin (NIM) 3.57% for the quarter, unchanged from the linked September quarter and up from 3.34% in the year-ago period. Adjusted for reversed interest income from nonaccrual loans, the NIM would have been 3.63%.
Net interest income Up just over 1% quarter-over-quarter and up 12.4% year-over-year. The increase is attributed to a larger earning asset base and lower cost of funds.
Tangible book value per share $44.65, an increase of $5.74 or almost 15% during the last 12 months.
Non-performing loans (NPLs) $30 million at December 31, totaling 0.7% of gross loans, an increase of $3.6 million compared to the last quarter. The increase is primarily attributed to two borrowing relationships placed on nonaccrual status.
Allowance for credit losses (ACL) $54.5 million, representing 1.29% of gross loans and 184% of non-performing loans, up from $52.1 million or 1.24% of gross loans at September 30, 2025. The increase is due to additions to individually reviewed loans and net recoveries.
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Operating Highlights
Loan Growth: Gross loan balances increased by $35 million during the second quarter and by almost $200 million or 5% compared to December 31 of the prior year. Growth was led by 1-4 family residential, C&I, and construction and loan development loans. Strong growth was observed in the East region, followed by the West region.
Deposit Growth: Deposit balances increased by $28 million in the second quarter and by $98 million or 2.3% compared to December 31 of the prior year. Core deposit growth was $170 million or 4.3% over the last 12 months, offset by a $72 million reduction in brokered deposits.
Net Interest Margin (NIM): Net interest margin for the quarter was 3.57%, unchanged from the linked September quarter but up from 3.34% in the year-ago period. Adjusted for reversed interest income from nonaccrual loans, the NIM would have been 3.63%.
Earnings Per Share (EPS): EPS for the December quarter was $1.62 per share diluted, up $0.24 or 17.4% from the linked September quarter and up $0.32 or 24.6% from the December 2024 quarter.
Provision for Credit Losses: Provision for credit loss expense was $1.7 million, a decrease of $2.8 million compared to the linked September quarter, driven by positive movement in specialty CRE loans.
Share Repurchase: Repurchased 148,000 shares at an average price of $54.32 per share, totaling $8.1 million. A new program to repurchase up to 550,000 shares (approximately 5% of shares outstanding) was approved.
M&A Activity: Continued M&A discussions as market conditions stabilize. The company is optimistic about potential opportunities, with a focus on banks in its footprint with assets between $500 million and $2 billion.
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Risk or Challenges
Non-performing loans and assets: Non-performing loans increased to $30 million, representing 0.7% of gross loans, with a $3.6 million increase compared to the last quarter. Non-performing assets also rose by $4 million, primarily due to two borrowing relationships placed on nonaccrual status.
Credit quality and problem assets: Adversely classified loans increased to $59 million, or 1.4% of gross loans, up $4 million from the previous quarter. The increase was attributed to specific commercial real estate and agricultural production loans.
Agricultural sector challenges: Lower commodity prices and elevated production costs are expected to result in operating shortfalls for some farm customers, particularly larger producers. Weather conditions and heat stress also affected crop yields, adding to financial pressures.
Loan delinquencies: Total delinquent loans increased by $2.7 million to $32 million, primarily due to the commercial real estate and equipment loan relationship.
Interest income and nonaccrual loans: Interest income was negatively impacted by $678,000 due to two nonaccrual loans, which affected the net interest margin.
Economic and market conditions: Declining interest rates are beginning to pressure loan yields, with $619 million of fixed-rate loans maturing at lower rates, potentially impacting profitability.
Agricultural borrower risks: Some agricultural borrowers are expected to face financial challenges in 2026 due to lower commodity prices and higher operating costs, despite government assistance programs.
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Guidance & Outlook
Momentum into the second half of the fiscal year: The company expects positive trends in earnings and profitability to continue into the second half of the fiscal year.
Loan growth expectations: Limited net loan growth is expected in the March quarter due to normal seasonality, but the company anticipates achieving mid-single-digit growth for the fiscal year 2026.
Deposit growth: Deposit balances increased by $28 million in the second quarter and are expected to continue growing, supported by a reduction in brokered deposits and core deposit growth.
Net interest margin (NIM) outlook: The NIM for the December quarter was 3.57%, with an adjusted run rate of 3.63%. The company expects further improvement in funding costs as CDs mature and reprice at lower rates.
Agricultural segment outlook: The company anticipates shifts in crop acreage towards corn and soybeans due to cost dynamics. While lower commodity prices and elevated production costs may result in operating shortfalls for some farm customers, the company expects satisfactory performance of agricultural credits over the near term.
Credit quality and reserves: The company remains focused on resolving problem loans and reducing nonperforming assets. It expects to maintain sufficient reserves to manage potential credit pressures.
Capital deployment and M&A activity: The company plans to continue share repurchases under a new authorization and remains optimistic about potential M&A opportunities in its footprint and adjacent markets.
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Shareholder Return Plan
Share Repurchase: In the second quarter, the company repurchased 148,000 shares at an average price of $54.32 per share, totaling $8.1 million. The average purchase price was 122% of the tangible book value as of December 31, 2025. Additionally, the Board approved a new program to repurchase up to 550,000 shares, approximately 5% of shares outstanding. The company intends to remain disciplined and opportunistic in deploying capital for share repurchases.
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Key Q&A
Q:What was the reason for the unexpected loan paydowns this past quarter?
A:Several unexpected paydowns occurred, including a larger C&I relationship that outgrew the bank and moved to a larger bank for their operating lines. Overall, loan prepayment rates have been higher than historically seen.
Q:What is the general commentary on loan pricing competition in the marketplace?
A:Treasuries have been fluctuating, with rates in the low 6s to high 5s for top-flight credit quality. There is still aggressive competition in the market.
Q:What is the outlook on net interest margin (NIM) for the March quarter?
A:The NIM is expected to see potential for increased spread due to a decrease in deposit costs. Seasonal inflows have been partially offset by a decrease in broker deposits.
Q:What are the expectations for margin trends over the next several quarters?
A:Additional tailwinds are expected to support the margin, primarily driven by deposit cost reductions rather than loan repricing.
Q:What is the expected increase in personnel costs for the March quarter?
A:A mid-single-digit increase is expected due to annual merit increases, historically in the 4% to 5% range.
Q:What is the company's approach to buyback activity in the next quarter?
A:The company will remain price-dependent and disciplined, balancing capital deployment between buybacks and potential acquisition opportunities.
Q:What is the outlook for charge-offs on commercial real estate loans?
A:Charge-offs are expected to return to historical averages over the upcoming quarters, with no material further impact anticipated from the specific relationship mentioned.
Q:What are the expectations for terminal betas for deposits?
A:Deposit betas are around the 40% level, which is suggested for modeling purposes.
Q:What is the company's preference for M&A opportunities?
A:The company prefers M&A within its footprint but is open to adjacent opportunities depending on the underlying performance and contribution to shareholder returns.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance on the net interest margin (NIM) for the March quarter, offering only general commentary on potential trends. Additionally, they did not provide detailed insights into the size or specific targets for M&A opportunities, emphasizing a case-by-case evaluation.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO Principal
CRE equipment
CRE relationship
Executive VP
Financial Officer
NIM basis
NPLs increase
Principal Financial
VP CFO
asset level
assistance
assumption
borrower cash
broker deposit
compensation expense
cotton
coverage
date
decrease provision
deposit account
focus
increase cost
level capital
liquidity
loan recovery
loan relationship
period interest
position
problem asset
progress specialty
rate origination
relationship quarter
return
risk
season
specialty CRE
underwriting
workout
SMBC Transcript
CACI International Inc (CACI) Q2 2026 Earnings Call Transcript
Positive1-22
The earnings call summary indicates positive developments such as optimistic loan growth, net interest income, and M&A opportunities. The Q&A session highlights strong growth prospects from government funding and strategic acquisitions, while addressing concerns about federal acquisition reform. The sentiment is bolstered by the potential for increased shareholder returns and strategic investments, suggesting a positive outlook for the stock price.
Southern Missouri Bancorp, Inc. (SMBC) Q2 2026 Earnings Call Transcript
Positive1-22
The earnings call reflects strong financial performance with a notable increase in EPS, loan and deposit growth, and a solid net interest margin. Share repurchase plans and improved credit loss provisions add to the positive sentiment. While some concerns exist regarding increased non-performing loans and competitive loan pricing, the overall outlook is optimistic with expected margin improvements and disciplined capital deployment. The company's strategic focus on M&A and share repurchases further supports a positive stock price movement in the short term.
Southern Missouri Bancorp, Inc. (SMBC) Q1 2026 Earnings Call Transcript
Positive10-23
The earnings call summary indicates strong financial performance with increased loan balances and deposit growth. The Q&A section provides confidence in future loan growth and cost control, despite some risk in the agricultural sector. Positive factors include increased buyback activity and optimistic M&A discussions. The overall sentiment is positive, suggesting a likely stock price increase of 2% to 8% over the next two weeks.
Southern Missouri Bancorp, Inc. (SMBC) Q4 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents a mixed picture: strong loan growth and margin improvement are positive, but increasing nonperforming loans and credit losses are concerning. The Q&A reveals uncertainty in M&A and charge-offs, and management's lack of clarity on certain issues. Despite optimistic profitability guidance, the economic outlook and credit provisions temper expectations. Without market cap data, a neutral sentiment is appropriate given the balance of positive and negative factors.
SMBC Report
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