SOUTHERN MISSOURI BANCORP, INC. (SMBC) stock intrinsic value fair value estimate & owner earnings analysis

Southern Missouri Bancorp is the holding company for Southern Bank of Poplar Bluff, Missouri. At June 30, 2026 it operated 63 full-service branches, two limited-service branches and three loan production offices across southern Missouri, the Kansas City and St. Joseph areas, northeast Arkansas, southern Illinois and Leawood, Kansas. It gathers local deposits ($4.41 billion) and lends them out ($4.39 billion of gross loans): a quarter to homeowners, about half against commercial and multifamily property and construction, 13% to local businesses and 12% to farmers. How we measure its earnings. For a bank, deposits and loans are the business itself, so we build owner earnings from net income: we add back depreciation and the amortization of intangibles from past acquisitions, replace the accounting provision for loan losses with the loans actually written off each year, remove the non-cash income booked as discounts on acquired loans wind down, and subtract stock compensation and spending on branches and equipment. A measure built from operating cash flow comes out higher in some years because it never charges written-off loans at all; we treat those write-offs as a real cost. On this basis owner earnings were $4.16 a share in fiscal 2024, $5.09 in fiscal 2025 and $7.00 in fiscal 2026 (year ended June 30, 2026), a 37.5% rise in the latest year. Fiscal 2026 was helped by a recovering interest margin (3.62% against a 3.27% low in fiscal 2024) and by a lower tax rate (17.5% against 20.8%) from $34.3 million of new low-income housing tax credit investments, which require cash up front. The normal level. We measure the bank's earning power as owner earnings per dollar of assets, which lets years before and after its acquisitions be compared. From fiscal 2019 to 2026, leaving out fiscal 2023 (when the Citizens merger brought a $5.2 million one-time charge to reserve for the loans it acquired), the median was 1.37% of assets. That window includes the pandemic years, when returns were high, and the fiscal 2024 trough, when deposit costs rose faster than loan yields. Applied to today's $5.24 billion of assets and about 11.04 million diluted shares, the normal level is about $6.52 a share, below the $7.00 just earned. The cost of growth. A bank can only grow its loans if it keeps shareholder capital alongside them. Tangible equity is about 9.9% of assets ($520 million, or $47.10 a share), so every case holds back 10 cents of earnings for each dollar of asset growth before anything counts as available to owners. Growth we credit. Branch-by-branch lending funded from retained earnings is a mechanism the bank has run for many years, including through the 2008 to 2010 credit crisis, when its loans still grew 13.5% in fiscal 2010, so we credit it, but only as fast as deposits allow. Loans grew 7.1% in fiscal 2026 while deposits grew 3.0%, and $55.6 million of the $126.5 million deposit increase was brokered money, so deposits from the bank's own customers grew only about 1.8%. The bank drew its cash down by $102 million to fund the gap, and its loans averaged 99.7% of deposits in the June 2026 quarter, against 94.5% a year earlier. Total deposits grew roughly 8.5% in fiscal 2025. We do not credit future acquisitions: they have been frequent but vary in size and none is in hand. Base case (about $134.02 a share, roughly $1.48 billion in total). Earnings start at the $6.52 normal level and assets grow 3% a year for ten years, between the recent 1.8% and 8.5% deposit growth, taking owner earnings to about $8.76 a share in year ten. The first-year rise is 3%, against 37.5% last year, because the case starts from the lower normal level. After year ten the case rests on the bank's local deposit and lending relationships across its markets; growth tapers to 1% over years 11 to 20 and earnings then hold flat at about $10.67 a share, with no further growth assumed. The add-back of acquisition intangibles does not overstate this case: the runoff of deposits acquired in past mergers is already inside the deposit growth the bank has actually reported. Bear case (about $69.16 a share, roughly $764 million in total). This case puts the bank through one full credit cycle of the depth the whole US banking industry suffered in 2008 to 2011, with losses on each type of loan taken from the Federal Reserve's record for that period. Commercial real estate lending (including multifamily and construction) loses about 2.35% a year for two years, the industry's 2009 and 2010 rate, with half that in the year before and after. Home loans follow the industry's 2008 to 2011 path of about 1.4%, 2.3%, 2.1% and 1.6%. Business, farm and consumer loans follow the industry's all-loan path of about 1.4%, 2.7%, 2.7% and 1.6%, which is harsher than farm loans saw in 2009 and 2010 but milder than the 1985 to 1987 farm crisis, a fair middle given that the bank already cites ongoing pressure in the agricultural sector. Losses total about $328 million, 7.5% of today's loans, over four years. Under current accounting the reserves for those losses are built a year ahead of the write-offs, so the bank reports a loss of about $6.95 a share in the first year. Throughout, the interest margin is held at the fiscal 2024 low, and we also charge lost interest on the loans that stop paying. Tangible equity falls from 9.9% of assets to about 7.8%, still well above the levels regulators require for a well-capitalized bank, so no new shares need to be issued, but nothing is available to owners for five years while capital is rebuilt to 10%. Afterwards earnings return only to about 1.12% of assets, the average of fiscal 2024 and 2025, the two weakest years of the past eight, grow 1.5% a year to about $5.83 a share in year ten, and stay flat from there. This value is above today's tangible book value of $47.10 because, even after absorbing an industry-scale loss cycle, the bank keeps a deposit franchise that earns more than 1% on its assets. Its own record supports that: in fiscal 2009 and 2010, when the industry was writing off around 2.6% of loans a year, the bank's net write-offs were 0.10% of loans and it earned 0.88% on its assets in fiscal 2010. We do not credit that record as a reason to soften the case, because the bank's deposits are now about ten times what they were then, half its loans are commercial property and much of the book was acquired. Non-owner-occupied commercial real estate equals 287.9% of the bank's core capital and reserves, close to the 300% level at which regulators apply closer scrutiny, and nonperforming loans have risen to $27.7 million (0.63% of loans) from $23.0 million, driven by one commercial relationship of $6.5 million and two farm production relationships of $2.2 million and $5.9 million. Bull case (about $173.67 a share, roughly $1.92 billion in total). The fiscal 2026 return of 1.53% of assets holds, so earnings start at about $7.23 a share on today's assets and share count. Deposits and loans grow 6% a year for five years, close to the average of the last two years, and 4% for five more, reaching about $11.77 a share in year ten, then taper to 1% by year 20 and stay flat. We do not assume a return to the higher returns of fiscal 2021 and 2022. Debt. For a bank, borrowed money is the raw material of the business: mainly $4.41 billion of deposits, of which $290.6 million are brokered and $517.8 million come from public bodies, plus $130.4 million of Federal Home Loan Bank advances and $15.8 million of subordinated debentures at the holding company. The interest on all of it is already charged in the earnings we value, so each case above is already the value of the shares after everything the bank owes, and nothing further is subtracted: the bank as a whole is worth about $764 million in the bear case, $1.48 billion in the base and $1.92 billion in the bull. The risk in roughly $9 of assets for each $1 of shareholder equity is charged in the bear case through the credit cycle and the margin squeeze. At June 30, 2026 the bank's core capital was 10.45% of assets and 12.12% of risk-weighted assets. The bank holds no securities in the held-to-maturity category. No maturity or covenant materially affects the outcome. Margin-of-safety price ($62). How sure are we of the earnings level? Fairly sure: in each of the past eight years the bank's owner earnings were between 1.05% and 1.79% of its assets, and the normal level sits below what it is earning now. The worst plausible outcome is the bear case or worse: a farm-sector collapse on the scale of the 1980s arriving together with a commercial property slump in a book already close to regulatory concentration limits. The structure is sturdy for a lender of its size: there is almost no holding-company debt, deposits are gathered locally through 63 branches, and capital stays above regulatory minimums even in the bear case, but public-body and brokered deposits ($808 million together) are rate-sensitive money that could leave or cost more under stress. If we are wrong about the two things we are most likely to be wrong about, the normal level and the growth rate, so that earnings settle at the fiscal 2024 to 2025 average and grow only 1.5% a year with no credit cycle at all, the shares would be worth about $94. Value builds slowly in a bank like this, so the price assumes a three-to-five-year holding period, during which the business currently pays a dividend of $1.00 a share. From $62, the base case implies roughly 25% a year if its value is reflected within four years and about 20% a year over five; the lower-earnings case without a credit cycle implies about 13% a year over four years; and the bear case, with no dividends, implies about 8% a year over five years. Change since our previous analysis. No new annual or quarterly report has been filed since our previous analysis. Our previous estimates (bear $81, base $134, bull $184, margin-of-safety price $76) were prepared on a different basis and are not directly comparable. Unreconciled item. The fiscal 2026 annual report says in one place that net charge-offs were $10.3 million, but its own reported ratio of 0.18% of average loans corresponds to about $7.7 million after recoveries. We used about $7.7 million. What would make this wrong: credit losses deeper than the industry's 2008 to 2011 record, concentrated in the bank's commercial property and farm lending; a lasting squeeze in the interest margin below the fiscal 2024 low; or customer deposits stalling so that lending has to shrink back.