Southern Missouri Bancorp, Inc.

My name is Sammy and I'll be coordinating the call today. During the presentation you can register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2 to remove yourself from the question key. I'll now like to hand over to our host, Stefan Shkotovich, CFO to begin. Please go ahead Stefan.

Thank you so much. Good morning everyone. This is Stefan Shkotovich, CFO with Southern Missouri Bank Group. Thank you for joining us. The purpose of this call is to review the information and data presented in our quarterly earnings release, dated Wednesday, July 23, 2025, and to take your questions. We may make certain forward-looking statements during today's call, and we refer you to our cost-higher statement regarding forward-looking statements contained in the press release. Joining on the call today is my Greg Stubbins, our Chairman and CEO, and Matt Funke, President and Chief Administrative Officer. Matt will lead off the conversation today with some highlights from our most recent quarter of fiscal year. Thank you Stefan. Good morning everyone. This is Matt Funke. Thanks for joining us. I'll start off with some highlights from our financial results for the June quarter, the final quarter of our fiscal year. Quarter over quarter earnings were up slightly as we saw our net interest margin and net interest income move higher, along with an increase in non-interest income and a lower provision for income tax expense. This was partially offset by an increase in provision for credit losses. We have seen improvement in the net interest margin this year with continued loan growth and moderate operating expense growth, which improved overall earnings and profitability in fiscal 25. Despite problem credits moving higher here in the year off to very low levels we've seen across the industry in the last few years, we do feel we have good momentum and see positive trends going into the next fiscal year. We earned $1.39 diluted in the June quarter, which remained unchanged from the late March quarter, but up 20 cents from the June 2024 quarter, or about 17% growth year over year. During the quarter we realized $425,000 in consulting expenses associated with the negotiation of a large long-term business contract, which will begin benefiting results in fiscal 26. Excluding these costs we would have earned $1.42 for the quarter. For full year fiscal 25 we earned $5.18 compared to $4.42 in fiscal 24. The increase year over year was predominantly driven by stronger net interest income, which stemmed from almost 7% earning asset growth and net interest margin expansion as our funding cost declined, and the loan portfolio adjusted up with higher market rates. With this earnings growth, cancel book value per share increased by $5.19 for just above 14% over the last 12 months to $41.87. Due to our strong capital position, with the earnings release we also announced a 2 cents or 8 cents 7% increase and our quarterly dividend bringing it to 25 cents a share. Net interest margin for the quarter was .46% up from .39% reported for the third quarter of fiscal 25, the next quarter. As we saw some spread increases, loan yields increased and we benefited from deploying lower yielding excess earnings, excess interest earnings cash balances into higher yielding loans. Stefan will go over more details in fiscal 26. We do plan to change our reported quarterly NIMM calculation to be based off the annualized day count, which should reduce the volatility in the NIMM due to the differences in each quarter's double day. If we calculated the net interest margin by annualizing the day count in the fourth quarter, it would have been .47% as compared to .44% in the late quarter if calculated similarly. Growth loan balances increased during the quarter by 76 million or .6% annualized and by 250 million or .5% as compared to 30 years ago. Prediction for credit losses was 2.5 million up 1.6 million over the late quarter. The increase was primarily attributable to providing for net charge-offs and to support loan growth in addition to an increase in available balances and an increase in the expected funding rate on those available balances. Greg will go into more detail on credit and Stefan will talk about the allowance for credit losses in a minute. Deposit balances as of June 30, 2025 increased by 20 million or about 2% annualized compared to the late quarter. This is a seasonally slower period for deposits due to seasonal outflows from our public units and as our agricultural clients deploy funds for the crop year. I'll hand it over now to Greg for some additional discussion.

Thanks Matt and good morning everyone. I'd like to start off talking about credit quality. Consistent with our discussion last quarter, credit quality has deteriorated somewhat from the very low levels of the last several years and remains relatively strong June 30 with adversely classified loans totaling $50 million or .2% of total loans, an increase of about $830,000 and flat as a percentage of total loans from this quarter. Non-performing loans were $23 million June 30 which increased $1.1 million compared to last quarter and totaled .56% of gross loans. In comparison to June 24, MPLs were up about $16 million or 39 basis points higher as a percentage of total loans. Non-performing assets were about $100,000 lower compared to a year ago as we totaled personal and other real estate in the fourth quarter. But the other real estate retest was mostly offset by additional non-performing loans. The increase in MPOs this quarter was mostly due to a participation that we originated of good car balances, $5.7 million on the construction loans related to the development of senior living facility in Kansas which was placed on our accrual tax. This loan was aspired to through the citizens merger and we're currently working through the foreclosure process. We are still having discussions with the borrower with the hopes to avoid foreclosures as the project included very significant capital investment by them actually exceeding our outstanding balance. As reported last quarter, we are continuing to work with borrowers on two specific purpose -over-occupied CRE properties in different states with parents worse in common than originally leased to a single tenant that has since become installed. Last quarter these balances totaled $10 million and were placed on non-accrual. Based on updated approvals, we took a $3.8 million debt charge in the quarter on one of the three loans taking the balance to $6.2 million as of June 30. As of year end in total, we have about 45% specific reserves remaining on the balances of these loans. Loans passed in 30 to 89 days were $6.1 million down $9 million from March and 15 basis points on growth times. This is a decrease of 23 basis points compared to the length quarter and in line compared to a year ago. Totaled the local loans for $25.6 million, up $1.2 million from the March quarter, about $16.4 million from the June 2024. The decrease in loans 30 to 89 days past due was primarily due to the special purpose hearing loans mentioned earlier, with the partial charge off for migration to 90 days for more past due. Despite increase in problem loans, these issues remain at a lot of levels and asset quality compares bravely to the industry. In combination with stronger deriding and adequate reserves, we feel comfortable with our ability to work through these credits and any potential wider deterioration that could occur as a byproduct of general economic conditions. So I don't want to give the impression that we're accepting these trends, but we're redoubling efforts to improve our credit quality results. This quarter ag real estate balances totaled $245 million with 6% of gross loans, and ag production in fiscal loans totaled $206 million with 5% of gross loans. As compared to the prior quarter in, ag real estate balances were down $2 million, but they were up $12.5 million compared to June 30th of the year ago. Ag production loan balances were up $20 million quarter over quarter due to normal seasonality and higher operating costs, and up $30 million year over year. Our access must begin 2025 with an early planting window due to mild weather. The heavy spring rains soon delay progress, especially from cotton and soybeans requiring summary planting. Early planted corn and soybeans are progressing well, with early corn harvest likely to begin in August, and early soybeans in September. Both early years as well. Later planted crops have improved over the past month. Overall nearly all of our farmers acres were planted. The crop dates projections for 2025 are 30% swingings, 30% corn, 20% cotton, 15% rice, and 5% specialty crops. Corn acreage is up slightly and may yield well, with weak pricing. Good crop farmers to score a drain again this year. Soybean acres rose modestly as producers diverted acres from other crops. Specialty in rice crops are in good condition, though price pressure is lowering expected returns. Cotton is showing average progress, with improvement ties to drier weather conditions. Across the board, farmers face rising input costs and expenses for insurance, labor, and repairs, expenses of which continue to climb. Dry weather is also pushing up fuel and chemical usage for irrigation and wheat control impresses. Farmers are growing more heavily on federal lines, with some tapping into pre-approved contingency lines. About 95% of our 2024 crop has been sold and applied to debt. The lower commodity prices this spring have reduced expected profitability for this year. Economic commodity assistance program payments from the government have helped. Many farmers are anticipating a difficult barge this year. Future pricing for key crops remains to solve relative to underwriting assumptions. Corn, rice, soybeans, and cotton, and wheat, are each down 6 to 8%, and many producers remain pessimistic about positive returns for 2025, and concerned about entering 2026 in a weakened position. We have seen some instances of farmers deciding to voluntarily wind down their operations earlier this year, and could see that trend continue as the profits over the outlook destitute. Farm equipment prices fell this spring, as dealers moved to clear inventory with lower rates, while most producers are deferring purchases of equipment. While 2024 was a strong production year, high costs and big prices left many farmers with lower working capital positions, or in some instances, needy restructure. Farmland values remain firm, particularly for irrigated acres, though inventor demand, not farmer demand, is driving the march. With equipment values falling in trans-flow type, lateral coverage is weaker. Lenders are actively inspecting 2025 crop progress, or will deliver yielding collateral analysis by October to get an early understanding of the outlook for our borrowers this May enter 2026. We are also monitoring the potential for further federal aid under the recently passed big beautiful bill of President Trump, which could be critical in supporting our farmers through what may be another financially challenging year. We are proactively working to address any potential shortfalls by leveraging FSA guarantee programs for restructuring loans. Despite these challenges, our distance-lifting practices, stress tests in the farm cash flows, and deep customer relationships should ensure satisfactory performance defense. In addition, due to the prolonged weakness in the agricultural segment, we've heard that increased reserves for watch-list ag borrowers in the March quarter in our population are allowed for federal loss. Looking at the loan portfolio as a whole, gross loans contribute $76 billion in the quarter. The quarter was led by growth in C&I, multifamily, and ag production loans. The stronger growth out of our South, West, and East regions all contributed to a great quarter for loan growth. The fourth and first quarter is seasonally the strongest part of our year for loan growth due to seasonal factors, including ag. Our pipewires are loans to fund in the next 90 days of scrolls in total $224 million, as compared to $163 million in the March quarter and $157 million a year ago. Despite the strong near-term eviction donation pipeline, we expect to have a higher than usual first quarter of prepayment activity that could slow some of the net loan rates. Although there remains some uncertainty surrounding the economy due to our strong pipeline, as we look into December 26, we feel optimistic about achieving another year of mid-single digits loan growth for the upcoming year. Our non-owner occupied TRE concentration at the bank level was approximately 302% of tier 1 capital, and our allowance at June 30, down about 2% of sports compared to the March quarter, due to almost $9 million in net paydowns of down-owner occupied CRE and growth in tier 1 capital. On a consolidated basis, our CRE ratio was 291% at the end of the fourth. In a year, we would expect our CRE ratio to increase somewhat, but should stay in the 300-325%. Stephen?

Thanks, Greg. Matt hits some of the key financial items already, but I wanted to share a few details. Looking at this quarter's net interest margin of 340 corrects, it included about five base points of fair value discount increase on acquired loan portfolios and premium amortization on assumed deposits compared to the linked quarter of 13 base points and 10 base points in the prior year's June quarter. The net interest margin expanded as the yield on interest earning assets increased four base points, primarily due to loan yield expansion, while the cost of interest bearing liabilities decreased one base point. Although the Fed funds rate hasn't been reduced further this calendar year, we are seeing opportunities to lower our CD specials as local deposit competition eased during the first fourth quarter. With this, in addition to our loan portfolio still repricing up the current market rates and originating loans at higher than the portfolio rate, we're optimistic we could see more margin expansion in fiscal 2026. As of June, our average loan origination rate was about .3% compared to the average loans we have maturing over the next 12 months of 6.3%. If the FOMC does cut rates later this year, we believe there is further opportunity for the net interest margin expansion as our deposit pricing strategy results well positioned to reduce funding costs if further rate cuts do occur. Looking at non-interest income, we're up about .2% compared to the linked quarter. This increase was largely driven by an additional hard network bonus, which is based on annual value expenses. The total bonus received on the fourth quarter was $537,000. In fiscal 2026, the estimated fee income for these annual bonuses will be approved through the year. This item was partially offset by a $108,000 charge to reduce the fair value of our mortgage purchasing rights, which stems from a decrease in market rates and associated expectations of increased repayments. As noted in the release, we have adopted ASU 2023-02 to now account for renewable energy cash credit benefits through a direct reduction to the pay income taxes. This has resulted in lower fee income for fiscal 2025 of $701,000 to get with moves to reduce tax provisions. Non-interest expense was up .3% compared to the linked quarter, which was primarily attributable to $425,000 consulting expense captured in legal and professional fees to negotiate a new contract with our debit card network. In addition, we saw increased expenses in data processing due to third-party and Toyota product expense. This is an area where we're trying to manage to stay commensurate with our mortgage rates. The investment in new systems could be a net benefit in the longer term as we work to create more efficient processes and manage the growing complexities of the business and customer expectations. The ATL of 2013-2025 holds $51.6 million, representing .26% of gross loans and 224% of non-performance as compared to an ATL of $54.9 million or $137 of gross loans and 250% of non-performing loans in the linked quarter. $5.3 million of net charge-offs were realized in the quarter, with $4.2 million of the increase from the linked quarter primarily due to the special purpose VRE relationship mentioned previously and $742,000 ANI credit related to a commercial contractor. Despite the increase in charge-offs for the quarter and overall year, our net charge-off ratio for fiscal 2025 was only 17 basis points and still compares well versus bank under 10 billion. The decrease in the ATL was primarily attributable to net charge-offs, which reduced the required reserves for individually evaluated loans, as well as a decline in terms of qualitative adjustments as well as to assessing expected credit losses. This decrease was partially offset by higher model losses following our annual methodology update for pooled loans, reflecting management's updated view of a deteriorating economic outlook compared to the linked quarter assessment. Due to these drivers, the company recorded a provision for credit losses of $2.5 million compared to $932,000 in the March quarter. Given where we see the economic cycle and our asset quality trends, we would expect to see an uptick in the normal quarterly provision. Despite some additional credit charges earned fiscal 2025, we delivered strong earnings growth for the year, increasing profitability to a .21% return on average assets and an .4% return on average equity. Looking back over the past five years, even with the margin pressure experienced in 2024, we have compounded tangible book value by 10% annually while returning an average of 17% of earnings to shareholders through cash skivvings. With this track record, we remain focused on driving continued growth in fiscal 2026 and sustaining long-term value creation for our shareholders. Greg, any closing thoughts?

Yes, sir. We are proud of our accomplishments in fiscal 25, highlighted by the progress on our performance improvement initiative, a key project that is already beginning to show positive results, thanks to the dedication of our exceptional team. We have continued to reinvest in the company, adding new channels to support our legacy of growth, with the goal of translating these investments into sustained earnings strength and improved profitability in the years ahead. Since the last quarter, we've seen a modest uptick in M&A discussions, while market conditions have stabilized somewhat. We remain optimistic about the potential for attractive opportunities with our solid capital gains proven financial performance. We believe we are well positioned to act when the right transaction arises. Notably, there are approximately 50 banks and quartered in Missouri and 24 in Arkansas, with assets between $500 million and $2 billion, along with a meaningful number of others in adjacent markets, providing a broad landscape for potential partnerships.

Thank you, Greg. At this time, Sammy, we're ready to take questions from our participants. So if you would, please remind folks how they may choose a question at this time.

Thank you very much. To ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. If parents ask your question, please enter your device as unmuted locally. Our first question comes from Matt Olney from Stevens. Your line is open. Please go ahead.

Hey, great. Thanks. Good morning. I appreciate taking my question. I want to start on the loan growth. Really good results you just saw. I'm curious, as the loan growth developed throughout the quarter, did it strengthen throughout the quarter, or was it steady? Just trying to get a better idea about the momentum you guys have into the upcoming October quarter. And then Greg mentioned, I think, potentially higher prepayments in the near term. I just want to dig into that statement. And is that something that you're already seeing early on in the quarter, or something that borrowers have indicated that they could do? Just look for any color. Thanks.

Our loan growth was pretty steady over the entire quarter, and loans in the pipeline were steadily added over the quarter. In regard to prepayment expectations, they have not occurred yet, but we do have several larger credits that have indicated that they plan to pay off in the very near term, which would increase our prepayment activity. And they're primarily in our non-overoccupied commercial rules statement.

Okay. Go ahead. Thanks, Greg. No, I think you hit on that. I appreciate it. And I guess changing gears over towards the margin, it sounds like Seth and the margin have got some nice tailwinds from here. Any more code you can provide about expectations more near term within the margin, and then if we do get those feds as admission, kind of what the impact could look like for the bank?

Yeah. I guess starting with the fed cuts, we are a bit more neutral to rate movements right now to the higher levels of excess cash compared to prior years. But as that cash is deployed through loan growth, you become a little more liability-sensitive again. And part of the driving force is on just the natural mid expansion that we could see, just from the loan origination activity when renewals repricing at higher rates than our current portfolio.

Yeah.

Okay. And it sounds like within the deposit competition, it sounds like you felt good enough this quarter, and you mentioned recently you took down some promotional offerings. So it sounds like your overall competitive levels on the deposit side remain reasonable?

It's been more reasonable over the last six to nine months. We just did a little bit of a kick-up in competition in July, so that might stall out a bit, but it's still not at the relatively high levels compared to the debt funds that we've seen in your Joseph's run.

Okay. And then on the credit front, I think you covered the charge job this quarter, and it sounds like that's the same loan that we discussed on the last quarter. And I think I heard on the preparatory march that the appraisal on one of the properties came in lower. I just want to dig in on that appraisal and just kind of appreciate just the collateral behind that and just kind of why I experienced the deterioration that it did. And then I think you mentioned that was just one of the appraisals. Are there still other appraisals on the other main loans from the same borrower that were still waiting on?

We have... We wrote down the balance on one of them after the appraisal came in. And with it being a special purpose entity that was operating it, we had a much higher than normal advance rate or lease rate that we advanced on. There was more above market conditions with that specialty provider going away from that market, term market rents to replace that tenant are much lower than what our original balance was, resulting in the large charge off. It would not surprise me if we would have additional charge off on the other remaining building and we're still doing some negotiations with the guarantors on that on where we end up. But it would not surprise me to have an additional price.

And Greg, on the Basinta for those additional appraisals coming in, is there any specific provision or reserve already allocated towards that? Or would that be an incremental from what you have now as far as the allowance?

We have 42% of the balance is specifically reserved. Got

it. Okay, great. I'll step back. Thanks for your help. Thank you, Matt.

As a reminder, to ask your question, page per star, put it by one under the other link to your site. Our next question comes from Kelly Motha from KBW. Our last door line is open. Please go ahead.

Good morning. This is Charlie. Thanks for the question. Just to highlight on the funding side, I know you mentioned a seasonally slow quarter for deposits. Do you still expect to fund years in growth with CDs mainly or anything you expect compliance on the deposit worth?

We wouldn't expect growth to be as heavily weighted towards CDs this year as it has been over the last couple of years. Also, just given the strong funding position we're entering the year with, we'll probably be able to do a little less aggressive on the CD side. That might drive a little bit slower growth on the CD side relative to the non-insurgency side.

Okay. Thank you. Can you give some specifics on the CDs that were on last quarter and the rates that are going to be replaced at?

Yeah. So, about on average over the next 12 months, the CE rates that we have are about 424. And on average we're replacing at about 4% And is there a difference in the next three months? I guess more towards the first half of our fiscal year. We have some higher rates going off and then towards the back end. Those become more in line with the current market rate.

Okay. Thank you. And then, just on the M&A environment, kind of picking up, are you guys seeing the pace conversations increase at all? And how are you hearing kind of the buyback here in this environment and then with prices where they're at?

We are having, you know, there are more problems according to investment bankers. We haven't really seen a big uptick in actionable items, but I think that could be coming up here over the next quarter. Buyback. And on the stock buyback, it's just going to depend upon where we are trading out relative to our tangible bulls value. At this time we believe that a potential M&A transaction could have a shorter earnback period than if we were repurchasing shares.

Okay. That's great. Thank you all for that.

We currently have no further questions, so I'd like to hand back to Matt Cunkey with closing remarks.

Thank you, Dan, and thank you everyone for your interest and attendance today. Appreciate the chance to visit with you and we'll talk again in three months. Have a good day.

This concludes the base call. Thank you everyone for joining. You may now disconnect your lines.