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Southern Missouri (SMBC) Up on Deal to Buy Fortune Financial

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Southern Missouri Bancorp Inc. SMBC will be acquiring Fortune Financial Corporation in a stock and cash transaction worth $30 million. Following this announcement, shares of Southern Missouri Bancorp gained 1.3%.

The deal, expected to close in the first quarter of calendar year 2022, is still subject to regulatory and shareholder approvals. Both companies’ board of directors have given their consent to the transaction. Following the completion of the deal, the combined company will operate from 51 locations across Missouri, Arkansas, and Illinois.

Greg Steffens, president and CEO of Southern Missouri Bancorp said, “Fortune has developed a number of business lines that complement our organization well, and provides a point of entry to a large and growing banking market where we believe our community banking model will perform well.”

Terms

Per the deal terms, shareholders of Fortune Financial are expected to get either a fixed exchange ratio of 0.2853 shares of Southern Missouri Bancorp or $12.55 in cash for each Fortune Financial share. Individual Fortune Financial shareholders will decide whether they want stock or cash.

It must be noted that the merger consideration will consist of stock and cash at a 60:40 ratio. As part of the deal, Southern Missouri Bancorp will assume nearly $7.5 million in subordinated debt.

Further, Daniel Jones, founder, chairman & CEO of Fortune Financial, will likely join the boards of directors of Southern Missouri Bancorp.

Financial Benefits

Southern Missouri Bancorp expects the deal to be roughly 8.8% accretive to its fiscal 2022 (ended Jun 30) earnings and 9.1% to fiscal 2023 earnings. This excludes certain one-time merger-related charges, including the company’s additional provision for credit losses as required under CECL.

The deal is anticipated to result in 30% cost savings. Additionally, at closure, tangible book value per common share is expected to be diluted by almost 3.8%.

The deal will aid Southern Missouri Bancorp to foray into St. Louis, MO, MSA as Fortune Financial operates two branches in Jefferson and St. Louis Counties in the state. On a pro forma basis, following the completion of the deal, the combined company will have total assets of $3.0 billion, total net loans of $2.4 billion, and total deposits of $2.5 billion.

Steffens, further added, “Entering the St. Louis MSA will help us achieve our long-term growth goals, which we know are necessary for our organization to remain competitive and continue to invest in the technological advances required in our industry.”

Our Take

At the time when all banks, big or small, face low interest rate environment and have been trying to scale revenue mix with technology upgrades, such opportunistic buyouts are becoming a norm. In 2020, Southern Missouri Bancorp had acquired Central Federal Bancshares, Inc. for $22 million. Such strategic expansion initiatives are expected to be accretive to earnings and support profitability.

Shares of Southern Missouri Bancorp have rallied 47.6%, outperforming the growth of 27.3% for the industry it belongs to.

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Currently, Southern Missouri Bancorp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Expansion Efforts by Other Banks

At present, several banks are moving toward consolidation to dodge the heightened costs of investments in technology and counter lower rates in a bid to remain competitive. Last week, in an effort to diversify revenues, Valley National Bancorp VLY signed a deal to acquire Bank Leumi Le-Israel B.M.’s U.S. banking arm — Bank Leumi USA — for $1.15 billion.

In August, Seacoast Banking Corporation of Florida SBCF announced two separate merger agreements. It agreed to acquire Sabal Palm Bancorp, Inc. and Business Bank of Florida, Corp. Further, Webster Financial Corporation WBS and Sterling Bancorp have received respective shareholder approval for the all-stock merger between the companies, which was announced in April.


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Webster Financial Corporation (WBS) : Free Stock Analysis Report

Seacoast Banking Corporation of Florida (SBCF) : Free Stock Analysis Report

Valley National Bancorp (VLY) : Free Stock Analysis Report

Southern Missouri Bancorp, Inc. (SMBC) : Free Stock Analysis Report

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