Southern Missouri Bancorp (SMBC) Q1 2027 earnings review
Southern Missouri Bancorp widens lending margins, but modified loans jump
Southern Missouri Bancorp, the parent of regional lender Southern Bank, widened its lending spread while reworking more loans for struggling borrowers. Net interest income rose 8% from a year ago as lower deposit rates lifted net interest margin to 3.70%. Profit per share climbed 25% to $1.73, or 22% by our math excluding a one-off consulting fee from last year.
| Net interest income | $45.9M +8.3% from a year ago |
|---|---|
| Profit per share | $1.73 +25.4% from a year ago (+22% excluding one-offs, by our math) |
| Net interest margin | 3.70% 3.57% a year ago |
| 90-day loan pipeline | Raised $3M $184.8M, down 5% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because deposit costs fell faster than loan yields and loan write-offs dropped to near zero. The regional bank also trimmed its commercial real estate concentration and grew retail deposits enough to pay down wholesale funding. One caution: loans modified for borrowers in financial difficulty jumped by $20 million to $51 million because of a reworked business loan.
The question now is whether the jump in reworked loans is an isolated fix or the start of wider credit trouble. If the modified borrower pays on schedule and autumn crop sales cover farm lines, credit costs stay low; if modified loans default, loan loss provisions will climb. Next quarter's nonperforming loan table and winter farm repayments will tell.
🐂 Bull Case
Lower Deposit Costs Lifted the Lending Margin
Southern Missouri Bancorp, the parent of regional lender Southern Bank, makes most of its money from the spread between what it earns on loans and what it pays on deposits. That spread, called net interest margin (NIM), rose to 3.70% from 3.57% a year ago and 3.67% last quarter. The regional lender paid 0.19 percentage points less on deposits and borrowings than a year ago, while asset yields dipped only 0.04 points.
Because funding costs fell faster than loan yields, net interest income grew 8.3% from a year ago to $45.9 million. The bank also grew its average interest-earning assets by 4.5% over the past year. Accounting gains from past bank acquisitions added 0.05 percentage points to NIM, down from 0.07 points a year ago, so core lending drove the improvement.
What to watch: certificate of deposit (CD) balances and interest expense next quarter. Retail CDs grew by $95.1 million this quarter while non-interest-bearing accounts shrank, which could limit how much further deposit costs can fall.
Loan Write-Offs Dropped and Problem Loans Shrank
After writing off higher loan balances over the past year for troubled farm and commercial real estate borrowers, Southern Bank saw loan losses fall this quarter. Net charge-offs, which are debts the bank writes off as uncollectible, dropped to $494,000, or 0.04% of average loans on an annualized basis. That is down from 0.40% last quarter and 0.36% a year ago.
- Provision for credit losses: $3.0 million, down from $4.5 million a year ago
- Nonperforming loans: $26.7 million, or 0.60% of gross loans, down from 0.63% last quarter
- Allowance for credit losses: 1.31% of gross loans, up from 1.25% last quarter
Even with lower write-offs, management added $3.4 million to its loan loss reserve to reach $58.3 million, or 218.6% of nonperforming loans. The company said the build came from its "assessment of reserve adequacy amid the economic uncertainty and to support loan growth". Lower credit provisions still helped lift net income 22.0% from a year ago, or 18.7% by our math excluding last year's one-off consulting charge.
What to watch: agricultural loan quality in the December and March quarters after farmers sell their autumn crops. Agricultural real estate and production loans rose to $548.3 million this quarter, and crop sales will show whether farm borrowers can pay down their lines.
Commercial Real Estate Concentration Kept Falling
Bank regulators closely watch lenders whose non-owner-occupied commercial real estate (CRE) loans — which include apartments, hotels and construction projects — exceed 300% of capital and reserves. Southern Bank has worked to bring this ratio down by retaining profit and shifting loan growth toward home mortgages, farm loans and business lending.
This quarter, the bank's non-owner-occupied CRE concentration fell to 277.7% of Tier 1 capital and credit reserves, down 10 percentage points from 287.7% in June and down from 295.7% a year ago. Multi-family apartment loans and non-owner-occupied commercial property balances both shrank slightly from June, while 1-4 family residential mortgages grew by $33.0 million.
What to watch: the regulatory CRE ratio and construction loan balances next quarter. A continued drop below 275% would give the Missouri lender more room to bid for smaller rival banks without running into regulatory limits.
🐻 Bear Case
Loan Modifications for Struggling Borrowers Jumped
While headline nonperforming loans ticked down this quarter, the volume of reworked loans to struggling customers rose sharply. Performing loan modifications to borrowers experiencing financial difficulty — loans where the bank changes payment terms to help a customer avoid default — jumped 64.9% from last quarter to $51.1 million, by our math.
The company said the $20.1 million increase came primarily from the "modification of payment terms on a commercial and industrial loan". Because these modified loans still count as performing, they do not appear in the 0.60% nonperforming loan ratio that headlines the credit report. Yet they now equal 1.15% of the entire loan book, nearly double the 0.65% share a year ago by our math.
What to watch: whether this modified business loan stays current or slips into nonaccrual status in the second quarter. If the borrower misses payments under the new terms, nonperforming loans and credit provisions will rise.
Higher Staff Pay Drove Operating Costs Up
Southern Missouri Bancorp improved its efficiency ratio — noninterest expense as a share of total revenue — from 51.1% a year ago to 50.0% this quarter. However, last year's expenses included a $572,000 one-off consulting fee to renegotiate a vendor contract, which lowered legal and professional fees by 1.2 percentage points of revenue this quarter by our math.
Outside of that one-off comparison, day-to-day running costs rose. Total noninterest expense increased 6.1% from a year ago to $26.6 million. Employee compensation and benefits, the bank's largest overhead cost, climbed 11.7% to $14.6 million, rising by 0.8 percentage points of total revenue by our math because of annual pay raises, a larger staff and lower deferred loan origination costs. Card fraud and loan collection costs also rose.
What to watch: compensation and other operating expenses in the December quarter. If staff and collection costs keep growing above 10% while loan growth stays near 6%, the efficiency ratio will climb back above 50%.
👓 Other Themes
High Interest Rates Cut Bond Portfolio Values
Southern Missouri Bancorp warned of "potential effects of elevated and uncertain interest rates, as inflation remains above the Federal Reserve's long-term target". Higher market interest rates pushed down the market value of the bank's available-for-sale bond portfolio this quarter. As a result, accumulated unrealized losses in stockholders' equity rose by $4.7 million from June to $14.4 million, partially offsetting retained profit.
💲 Other KPIs
Up 11.9% from a year ago and 2.3% from June. Tangible book value per share — the company's net worth per share excluding goodwill and other intangible assets from past bank purchases — grew as retained earnings outpaced quarterly dividends and higher unrealized bond losses.
Deposits rose by $66.1 million, or 1.5%, during the quarter and 4.5% from a year ago. In the same quarter last year, deposits shrank by $0.9 million by our math. Growth in retail certificates of deposit and money market accounts allowed the bank to cut wholesale brokered deposits by $19.3 million and trim its loan-to-deposit ratio to 98.8%.
Down 2.3% from 11.27 million a year ago by our math, which lifted profit per share growth (+25.4%) above net income growth (+22.0%). The Missouri group slowed its buybacks this quarter as its share price rose, repurchasing 19,000 shares for $1.4 million at 150% of tangible book value.
🔮 Guidance
Raised. Loans expected to fund over the next 90 days rose by $3.1 million, or 1.7% by our math, from June's level. Compared with a year ago, the pipeline is down 5.0% from $194.5 million, pointing to steady rather than rapid loan growth heading into the winter quarters.
Unchanged. The board kept the quarterly payout at $0.27 per share after raising it from $0.25 last quarter. The dividend is up 8.0% from a year ago by our math and represents 15.6% of this quarter's profit per share.
❓ Key Questions
What drove the $20 million jump in modified loans?
Performing loan modifications to struggling borrowers jumped 65% in one quarter to $51.1 million because of a commercial and industrial loan. Investors need to know the borrower's industry, collateral coverage and how much specific reserve the bank holds against it.
How are farm borrowers handling low crop prices this autumn?
Agricultural real estate and production loans grew to $548.3 million, or 12.3% of the loan book. Last quarter, a farm relationship caused a $2.6 million write-off and a $603,000 interest reversal, so autumn harvest repayments will be a key test.
Can deposit costs keep falling as CD balances grow?
Non-brokered certificates of deposit rose by $95.1 million while non-interest-bearing checking accounts fell by $20.1 million. Management has not disclosed the average rate on maturing CDs versus new CDs for the coming year in the release.
Will the bank pause buybacks at 150% of book value?
The company bought back 19,000 shares at an average price of $72.63, or 150% of tangible book value, after buying 304,000 shares in the middle two quarters of fiscal 2026 near 122% to 135% of tangible book value.