Southern Missouri: A Liability-Sensitive Bank Meets the Hike Cycle

A 3 bp NIM gain that was really a modest compression, an ag book that finally looks better, and a buyback pitch that flips with the share price

SMBC · Earnings Call · 2026-10-22

The headline, and the headline behind the headline

Southern Missouri Bancorp's fiscal first quarter reads clean on the surface: diluted EPS of $1.73, a 1.44% return on average assets, 12.7% return on common equity, tangible book value per share up 2.3% to $48.52, and a net interest margin that expanded 3 basis points to 3.70%. Loans grew $64 million (1.5%), deposits $66 million (1.5%), and the provision fell $240,000 to $3 million. Then Stefan Chkautovich took the shine off it in one sentence: “Excluding both the larger fair value accretion and the noted interest recovery, adjusted net interest margin would have been 3.65%, representing modest compression from the linked quarter.” — Stefan Chkautovich, Chief Financial Officer · 2026-10-22 The 5 basis points of accretion were a one-off — a single loan payoff carrying about a $500,000 credit mark — and another $200,000 came from an interest recovery on a nonaccrual ag credit. Strip both, and the core margin shrank. This is a bank whose profitability engine is being asked to run the other direction.

The regime flipped under the balance sheet

For roughly a year, Southern Missouri has been telling investors it was a beneficiary of falling rates. In October 2025 the CFO framed it plainly: “overall, we'll still be a net beneficiary of, call it, 1% to 3% net interest income per 100 basis points of rate cuts.” — Stefan Chkautovich, Executive Vice President and CFO · 2025-10-23 As recently as July 2026 the language was still about deposit beta coming down and CD repricing relief. That regime is over. This quarter the same CFO said: “a 100 basis point parallel increase in rates is estimated to reduce net interest income by about 1% over the next 12 months.” — Stefan Chkautovich, Chief Financial Officer · 2026-10-22 That is a genuinely new sign on the same balance sheet, and it is not idiosyncratic. The market's own keyword tape for the latest quarter is dominated by the other side of the trade — Fed rate hike, hiking cycle, basis points of hikes — and the regional-bank cohort reporting alongside SMBC is singing the same tune: BOK Financial on the lag effect from rate hikes, Home BancShares on rate hikes built into the model, Southern Michigan on a December hike, Banner on recent rate hikes. When every liability-sensitive community bank in the country starts flagging the same variable, it stops being a company story and becomes a sector signal. The mechanics sit in two numbers Matt Funke gave: about $815 million of loans repricing over the next twelve months at an average roll-off rate near 6.5% versus roughly 7% on new renewals, and about $1.4 billion of certificates of deposit renewing at 3.82% versus roughly 4.08% currently. Two-thirds more CDs than loans repricing, at a wider spread — the asset side is winning the argument, the liability side is winning the arithmetic. CFO guidance for the margin exit range into next year points toward the low 3.60s. Deposit strategy is the offset. Core CDs grew $95 million while brokered deposits declined $35 million — the same brokered-to-core substitution Fulton Financial, CNO Bancorp and CVB Financial all narrated this earnings cycle. The new business deposit account program reached $42 million, and management is trying to shift the mix toward noninterest-bearing: “We are emphasizing more carrying balances in noninterest-bearing with our new deposit products.” — Matthew Funke, Chief Banking Officer · 2026-10-22 Whether that is real behavior change or seasonal noise, they concede, is not yet knowable.

Agriculture finally cooperates — then a new wrinkle appears

The longest-running credit theme at this bank has been agricultural stress. For at least two years, management reserved heavily for ag watch credits and repeated the promise that problem assets would trend down. This quarter the ag book genuinely turned: rice and corn harvests complete, soybeans and cotton half-done, average-to-above-average yields on irrigated acreage, and prices for corn, soybeans, rice and cotton generally above spring underwriting assumptions. “Our loan officers are not currently reporting projected shortfalls for the '26 crop year,” — Greg Steffens, Chief Executive Officer · 2026-10-22 Greg Steffens said. For a lender with ~12% of gross loans in agriculture, that is the single most constructive sentence on the call. And yet the quarter's most interesting item is a new $21 million commercial and industrial modification that pushed performing modifications up roughly $20 million to $51 million. It carried a interest rate concession — modest, since the borrower sits at prime — to fund working capital for an expansion. Management insists it is a one-off with a twenty-year client, watch-rated, no specific reserve. The tension is that this is exactly the shape of credit that tends to escalate: a good relationship, a growth story, a concession, and a promise of resolution by fiscal year-end. The NPA record deserves more skepticism than it got. In January the CEO said he was “really pretty optimistic that we'll start trending lower this quarter.” — Greg Steffens, Likely Chief Credit Officer or similar senior credit executive · 2026-04-23 Three quarters later, nonperforming loans are down to $27 million, or 0.6% of gross loans, but the language softened markedly:

Well, I wish my crystal ball was totally clear on that. Workouts do take time. We have several larger relationships that are nonperforming that we're at various stages of working out. We really don't know how soon those workouts could happen.
Greg Steffens, Chief Executive Officer · 2026-10-22

That is not a broken promise — NPAs did fall, and coverage sits at a stout 219% of nonperforming loans on an allowance of 1.31% of gross loans. But the cadence of resolution is clearly not inside management's control, and the street should price it as such.

Capital allocation is a function of the share price, again

Here the story gets circular, and honestly a little revealing. In July, with the stock at better multiples, the CEO argued M&A was the better use of capital: “Where we're trading at on a price to tangible book value, we feel like M&A offers a much quicker return or earn back period.” — Greg Steffens, Executive (likely CEO or similar senior management) · 2026-07-23 Three months later, after a roughly 9.5% drawdown from the August 4 peak of $79.33, the pitch has flipped: “with the valuation coming back in a little, that increases the attractiveness of us buying stock back.” — Greg Steffens, Chief Executive Officer · 2026-10-22 Both statements are defensible; together they reveal that the capital-allocation story at SMBC is a price-taker, not a strategy. The bank repurchased 19,000 shares for $1.4 million this quarter at roughly 1.5x tangible book. Price to book of 1.4x is the fulcrum. Meanwhile M&A conversations are "more active," and notably more Missouri-centric — the Kansas City to St. Louis to Memphis to Little Rock corridor — with the new Kansas City branch opened in October as a flagship.

The bottom line

The capital deployment question is doing a lot of work in a quarter where organic growth is decelerating to mid-single digits, expense growth is tracking mid-to-high single digits, and the margin is being squeezed by a hiking cycle that arrived three quarters after the bank positioned for cuts. The fundamentals are still respectable — an efficiency ratio of 31.9% and $20 million of quarterly net income, up 28% year over year — and the ag inflection is real and underappreciated. But the story of this report is a balance sheet that was built for a different rate world, and a management team whose answers on nonperforming asset timing and capital allocation are becoming more reactive and less scripted. The stock has gone nowhere for ninety days. That may be the most honest verdict available.