SMBC — FY2026 (ended June 30) Annual Report Analysis

Cheaper deposits, not better loan pricing, drove the year

Southern Missouri Bancorp — the Poplar Bluff, Missouri holding company for Southern Bank, which runs 64 full-service offices across Missouri, Arkansas, Illinois and Kansas — earned $71.8 million, or $6.43 per diluted share, in the fiscal year ended June 30, 2026, up 22.6% and 24.1% respectively from fiscal 2025. Return on average assets rose to 1.41% from 1.21%.

Two things account for most of that. First, the bank paid materially less for its deposits while what it earned on loans barely moved. Second, a much lower tax bill. Neither is a story about stronger loan pricing, and one of the two — credit costs — moved the wrong way.

Source: Southern Missouri Bancorp Form 10-K for the fiscal year ended June 30, 2026, filed September 11, 2026. "bp" = basis point, one-hundredth of a percentage point.

Where the margin came from

Net interest margin — the spread the bank earns on its loans and securities after paying for the deposits and borrowings that fund them, expressed as a percentage of average interest-earning assets — widened from 3.40% to 3.62%. The 10-K is explicit that the gain came from the funding side: "The decrease in the average cost of funding, primarily attributable to a lower cost of deposits and a decline in the cost of borrowings, more than offset the decrease in earning asset yields."

The underlying rates make the point sharply:

Interest expense on deposits actually fell $6.6 million (-5.7%) even though average interest-bearing deposit balances rose $155.9 million, because certificates of deposit and savings accounts repriced down to lower market rates through the year. On the asset side, the average yield on loans slipped 3 basis points, which management attributes to "originations and repricing of loans and borrower refinancings at current lower market interest rates." Volume did the work there: average loan balances rose $244.3 million (+6.1%), lifting loan interest income $14.4 million.

One caveat on the headline margin. The company refined its accounting for loan fees under ASC 310-20 this year, so more origination fee income is recognized inside interest income over a loan's life instead of upfront as fee income. "Other loan fees" in noninterest income collapsed from $3.8 million to $0.5 million as a result, and compensation expense fell $0.9 million (to $54.9 million) because origination costs are now deferred the same way. So a slice of the year's net interest income growth is a line-item migration rather than a wider economic spread — and, symmetrically, the flat fee income and flat expense line both look better than they otherwise would.

Loan growth outran deposits, and funding got tighter

Gross loans grew $291.2 million (+7.1%) to roughly $4.39 billion, while deposits grew only $126.5 million (+3.0%). The gap was funded by running down liquidity and leaning on wholesale money:

• Cash equivalents and time deposits fell 52.9% to $91.0 million, "primarily utilized to fund loan generation that outpaced deposit growth."
• Brokered deposits (funds sourced through third-party brokers rather than local customers, generally more rate-sensitive and less sticky) rose $55.6 million to $290.6 million.
• Public unit deposits — balances from municipalities, school districts and similar entities — fell $33.0 million to $517.8 million on "competitive pricing dynamics."
• FHLB advances rose 25.3% to $130.4 million.
• Average loan-to-deposit ratio in the fiscal fourth quarter reached 99.7%, versus 94.5% a year earlier.

A bank lending out essentially a dollar for every dollar of deposits has less room to grow loans without paying up for funding. Liquidity backstops are ample — $918.4 million of additional FHLB borrowing capacity and $355.4 million available at the Federal Reserve discount window, none drawn — but backstop borrowing costs more than core deposits.

Growth by category was broad, with one notable exception. One- to four-family residential loans rose $93.1 million to $1.09 billion, agricultural real estate rose $50.8 million (+20.7%) to $295.8 million, multifamily rose $47.2 million to $470.0 million, and commercial and industrial rose $42.3 million to $552.6 million. Construction and land development shrank $22.4 million (-6.7%) to $310.0 million — the one portfolio the bank pulled back from.

Credit: the agricultural book is where the pressure is

This is the part of the year that argues against reading 22.6% earnings growth as clean improvement.

The provision for credit losses — the amount charged against earnings to cover expected future loan losses — rose to $11.5 million from $6.5 million. Net charge-offs (loans written off, less recoveries) totaled $10.3 million, or 0.18% of average loans. Nonperforming assets climbed to $33.5 million, or 0.64% of total assets, from $23.7 million and 0.47%.

The 10-K names the specific credits. The increase in nonaccrual loans traces to three borrower relationships: a $6.5 million commercial relationship secured by commercial real estate and equipment; $2.2 million of agricultural production loans secured by crops and equipment; and — added in the June 2026 quarter — "several related agricultural production loans totaling $5.9 million secured by crop insurance claims, restricted cash, crops, and equipment." The largest single charge-off, $2.6 million, was a partial write-down of an agricultural production relationship placed on nonaccrual during the year. Management ties the allowance build to "increased reserves on agriculture loans reflecting ongoing pressure in the agricultural sector," alongside its annual model update, which "reflected an increase in modeled loss drivers."

Agriculture is not a rounding error here: agricultural real estate ($295.8 million) plus agricultural production ($219.2 million) is about $515 million, roughly 12% of gross loans, concentrated in row-crop and livestock economies across southeast Missouri and northeast Arkansas. Reserve coverage of problem loans thinned as those credits surfaced — the allowance equals 199% of nonperforming loans, down from 224% — even though coverage of the total portfolio held near flat at 1.25% of gross loans.

Absolute levels remain low by any reasonable standard: 0.18% annual charge-offs and 0.64% nonperforming assets are not distress numbers. But the direction, the concentration, and the fact that the newest problem credit appeared in the final quarter all matter more than the level.

Takeaway: Earnings rose 22.6%, but pre-tax income rose only 17.7% — the difference is a tax rate that fell from 20.8% to 17.5% on $2.4 million of low-income-housing tax credit benefits, versus $0.7 million a year earlier. Held at last year's tax rate, fiscal 2026 net income would have been roughly $69.0 million, about $0.25 per share lower. Meanwhile the operating engine is running on cheaper deposits rather than better-priced loans, and credit costs nearly doubled in an agricultural book that keeps producing the problem loans. The quality of this earnings beat is thinner than the headline.

Expenses and capital: genuinely disciplined

Noninterest expense was $102.1 million, essentially unchanged from $102.1 million. Higher data processing (+$1.3 million, for new systems and software licensing), occupancy and advertising were offset by the deferred origination compensation described above, plus lower legal and professional fees (down $0.9 million, as fiscal 2025 carried $840,000 of one-time performance-improvement consulting and $425,000 of vendor-negotiation costs that did not repeat) and lower intangible amortization.

Flat expenses against 9.9% revenue growth moves the efficiency ratio — noninterest expense as a share of revenue, where lower is better — from about 55.9% to about 50.9% (calculated from reported figures). Noninterest expense as a percentage of average assets fell to 2.00% from 2.11%.

Capital and payout:

• Stockholders' equity rose 8.4% to $590.7 million, helped by a $1.6 million reduction in accumulated unrealized securities losses as credit spreads tightened. Remaining unrealized loss: $9.8 million — small, and the company holds no held-to-maturity securities, so there is no hidden unrealized loss sitting off the balance sheet.
• Company-level common equity tier 1 capital was 12.20% of risk-weighted assets, total risk-based 13.81%, leverage 11.03% — well above the "well capitalized" thresholds.
• Dividends of $1.00 per share, up from $0.92, a 15.5% payout ratio.
• The company repurchased 317,000 shares for $18.6 million at an average $58.59. A new 550,000-share (roughly 5% of shares outstanding) program was authorized January 20, 2026, of which 103,508 shares had been bought at an average $65.17 by fiscal year end. Shares outstanding were 11,013,279 at September 10, 2026.

The tax credit position deserves its own note, because it is not a one-quarter windfall: low-income housing tax credit equity investments went from $196,000 to $34.3 million during the year, with a further $29.4 million of unfunded commitments recorded as a liability. Federal credits on these are claimed over a ten-year period, so the lower effective tax rate should persist — but it is a deliberate balance-sheet allocation into tax-advantaged housing investments, not operating leverage, and the accounting (proportional amortization) routes both the cost and the benefit through the tax line.

Outlook

The 10-K contains no earnings guidance, which is normal for a bank this size. What it does disclose is the interest-rate positioning, and that is informative. Management's net portfolio value model shows economic value rising about 3% in an immediate 100 basis point rate cut and falling about 4% in a 100 basis point increase — a modestly liability-sensitive balance sheet, meaning its funding costs reprice faster than its assets. That is exactly what produced fiscal 2026: rates came down, deposits repriced down faster than loans did.

Our read on the trajectory:

• The funding tailwind has a limit. Deposit costs only fall so far, and with the loan-to-deposit ratio at 99.7% and cash down by half, incremental loan growth increasingly has to be funded with brokered CDs or FHLB advances priced near market. Expect the pace of margin expansion to slow considerably from +22 basis points even if the Fed keeps easing; a pause in cuts would likely stall it.
• Credit is the swing factor for fiscal 2027 earnings. A $5.9 million agricultural relationship went nonaccrual in the final quarter, and the allowance model was rebuilt upward for agricultural stress. If farm economics stay weak, provision expense stays elevated, and at $11.5 million a year it is already consuming a meaningful share of pre-tax income. Watch nonperforming assets and the allowance-to-nonperforming-loan ratio, not the charge-off rate, for the earliest signal.
• The cost line is the most durable piece of the story. A flat expense base against a growing balance sheet, plus a roughly 51% efficiency ratio, is a real structural gain — some of it accounting-driven, but the absence of merger integration costs (the last deal closed in January 2023) and the non-repeat of fiscal 2025 consulting charges are genuine.
• Buybacks at 15.5% payout leave room. With ROE at 12.66%, capital well above requirements, and 446,000 shares still authorized under the January 2026 program, repurchases can keep adding 1-2% a year to EPS growth without straining capital.

The shape of fiscal 2027 depends less on what management does than on two external variables: how far short-term rates fall, and how the 2026-27 crop year treats borrowers in southeast Missouri and northeast Arkansas.