10-K: Security Midwest Bancorp Reports FY2025 Results

Security Midwest Bancorp, Inc. reported a net income of $299,000 for the fiscal year ended December 31, 2025, a decrease from the previous year, impacted by increased pension expenses and a loss on securities sale.

Summary

• Security Midwest Bancorp, Inc. reported a net income of $299,000 for the fiscal year ended December 31, 2025, a decrease of 56.3% from $683,000 in 2024.
• Total assets increased by 19.6% to $256.5 million, driven by growth in securities and cash.
• Net interest income increased by 10.5% to $7.9 million, with a favorable interest rate spread of 3.25%.
• Non-interest expenses rose by 10.4% to $9.0 million, primarily due to a significant increase in pension expense related to the company's withdrawal from a multi-employer pension plan.
• Non-interest income decreased by 21.1% to $1.6 million, largely due to a $419,000 loss on the sale of available-for-sale securities.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to the significant decrease in net income and increase in operating expenses, despite some positive trends in net interest income and asset quality.

Positives

• Net interest income increased by 10.5% to $7.9 million.
• The interest rate spread improved to 3.25% from 2.70% in the prior year.
• Net interest margin increased to 3.92% from 3.48%.
• Total assets grew by 19.6% to $256.5 million.
• Loan originations increased by 36.9% to $47.5 million.
• The allowance for credit losses as a percentage of total loans decreased to 0.87% from 1.02%.
• Non-performing loans as a percentage of total loans decreased to 0.27% from 1.08%.
• The company exceeded all regulatory capital requirements and was considered well capitalized.

Negatives

• Net income decreased by 56.3% to $299,000.
• Non-interest expenses increased by 10.4% to $9.0 million, largely due to a $922,000 increase in pension expense related to withdrawal from a multi-employer plan.
• Non-interest income decreased by 21.1% to $1.6 million, primarily due to a $419,000 loss on the sale of available-for-sale securities.
• The efficiency ratio increased to 95.16% from 89.37%, indicating higher costs relative to income.
• Deposits decreased by 1.4% to $196.5 million, with a notable decrease in certificates of deposit.

Risks

• The company's financial performance is subject to general economic conditions, including recessionary conditions and increases in unemployment.
• Adverse changes in the financial services industry, securities, and local real estate markets could impact operations.
• The company faces competition from other financial institutions, fintech, and internet banking companies.
• Significant increases in loan losses could occur, particularly from commercial real estate and commercial and industrial loans.
• Changes in interest rates could negatively impact margins, the fair value of financial instruments, and loan origination levels.
• Cybersecurity threats pose a risk to business operations and the compromise of sensitive data.
• Regulatory changes affecting financial institutions could have a material adverse impact.

Future Outlook

Management anticipates an increase in net interest income from the overall higher yields obtained along with an improved interest rate risk position following recent portfolio transactions. The company intends to continue efforts to increase its core deposit base, with an emphasis on growth in consumer and business demand deposits.

Management Comments

• Management anticipates an increase in net interest income from the overall higher yields obtained along with an improved interest rate risk position following these transactions.
• We intend to continue our efforts to increase our core deposit base, with an emphasis on growth in consumer and business demand deposits.
• We believe that we had enough sources of liquidity to satisfy our short and long-term liquidity needs as of December 31, 2025.
• We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis.
• We anticipate that we will have sufficient funds to meet our current funding commitments.

Industry Context

StockSavvy.ai notes that Security Midwest Bancorp's results reflect the broader banking industry's challenges with rising operating costs, particularly pension expenses, while also highlighting a strategic shift towards higher-yielding securities and growth in core deposits. The company's focus on cannabis-related businesses positions it in a niche but potentially volatile market segment.

Comparison to Industry Standards

• The company's net interest margin of 3.92% is competitive within the community banking sector, though specific industry benchmarks vary.
• The increase in the efficiency ratio to 95.16% is higher than many well-managed community banks, suggesting a need for cost control measures.
• The company's capital ratios (e.g., Total capital to risk-weighted assets of 20.72%) significantly exceed regulatory minimums, indicating a strong capital position compared to industry requirements.
• The reduction in non-performing loans to 0.27% of total loans is a positive indicator of asset quality, generally outperforming industry averages during periods of economic uncertainty.

Corporate Governance

Related Party Transactions

• Loans outstanding to executive officers, directors, and their related interests totaled $7.8 million at December 31, 2025, with transactions made in the ordinary course of business on substantially the same terms as comparable transactions with other persons.
• Deposits from related parties totaled approximately $9.7 million at December 31, 2025.

Stakeholder Impact

• Shareholders: Reduced net income and increased operating expenses may impact future dividend potential and stock performance.
• Employees: Increased pension expense due to withdrawal from a multi-employer plan could affect overall employee benefit costs.
• Creditors: The company's strong capital ratios and liquidity position suggest a low risk for creditors.
• Customers: Continued focus on deposit growth and service enhancement aims to maintain and grow the customer base.

Next Steps

• Continue efforts to increase core deposit base, with an emphasis on growth in consumer and business demand deposits.
• Monitor and adjust investments in liquid assets based on expected deposit flows, loan demand, yields, and asset/liability management objectives.
• Manage interest rate risk through strategies including increasing commercial loan portfolio, emphasizing core deposits, maintaining high cash levels, and investing in short- to medium-term securities.
• Continue to pursue growth in demand accounts and other lower cost core deposits by enhancing products and services, expanding cannabis-related business services, and streamlining commercial banking services.

Key Dates

Recommendation

While the company shows positive trends in net interest income and asset quality, the significant decrease in net income due to increased pension expenses and a loss on securities sale warrants a cautious approach. The company's strong capital position and strategic initiatives provide a foundation, but the recent performance decline suggests holding the stock until a clearer path to sustained profitability emerges.

Keywords

Security Midwest Bancorp, SEC Filing, 10-K, Annual Report, Financial Results, Net Income, Assets, Loans, Deposits, Interest Income, Interest Expense, Non-interest Expense, Pension Expense, Cannabis Banking, Regulatory Capital