Central Plains Bancshares Inc

Previous wording

Management’s discussion and analysis of financial condition and results of operations at December 31, 2023 and March 31, 2023 and for the three and nine months ended December 31, 2023 and 2022 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Current wording

Management’s discussion and analysis of financial condition and results of operations at June 30, 2024 and March 31, 2024 and for the three and three months ended June 30, 2024 and 2023 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Previous wording

Our most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates.

Current wording

Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents decreased $4.9 million, or 29.4%, to $11.7 million at December 31, 2023 from $16.6 million at March 31, 2023. This decrease was primarily due to an increase in loan funding and a decrease in interest bearing deposits in other banks, partially offset by cash received in connection with the initial public offering of the Company's common stock. We regularly review our liquidity position based on alternative uses of available funds as well as market conditions.

Current wording

Cash and cash equivalents. Cash and cash equivalents decreased $6.0 million, or 51.9%, to $5.5 million at June 30, 2024 from $11.5 million at March 31, 2024. This decrease was primarily due to an increase in loan funding and a decrease in interest bearing deposits in other banks. We regularly review our liquidity position based on alternative uses of available funds as well as market conditions.

Previous wording

Investment Securities Available for Sale. Securities available-for-sale decreased $526,000, or 0.9%, to $57.3 million at December 31, 2023 from $57.8 million at March 31, 2023. We purchased $6.0 million in securities, received principal payments of $7.0 million, had net premium amortization and discount accretion of $131,000 and had an increase in the unrealized gain on the securities portfolio of $617,000 during the nine-month period ended December 31, 2023.

Current wording

Investment Securities Available for Sale. Securities available-for-sale decreased $215,000, or 0.4%, to $60.1 million at June 30, 2024 from $60.4 million at March 31, 2024. We purchased $1.9 million in securities, received principal payments of $2.1 million, had net premium amortization and discount accretion of $25,000 and had a decrease in the net unrealized losses on the securities portfolio of $18,000 during the three month period ended June 30, 2024.

Previous wording

Gross Loans. Gross loans held for investment increased $22.3 million, or 6.3%, to $376.1 million at December 31, 2023 from $353.7 million at March 31, 2023. We experienced increases in all loan categories except for construction real estate loans. The largest increase was in commercial real estate loans, which increased $21.4 million, or 20.8%, to $123.8 million from $102.4 at March 31, 2023.

Current wording

Loans, net. Our loans, net, increased $9.3 million, or 2.5%, to $383.7 million at June 30, 2024 from $374.4 million at March 31, 2024. We experienced increases in all loan categories except for commercial non-real loans and other consumer loans. The largest increase was in residential real estate loans, which increased $5.5 million, or 3.7%, to $155.4 million at June 30, 2024, from $149.9 million at March 31, 2024.

Previous wording

Noninterest-bearing deposits increased $9.1 million, or 12.5%, to $82.4 million at December 31, 2023 from $73.2 million at March 31, 2023. Time certificates of deposit increased $22.1 million, or 28.8%, to $107.7 million at December 31, 2023 from $85.6 million at March 31, 2023, as we believe that long-term customers have sought higher-yield deposits as a result of recent increases in market interest rates. We also had brokered deposits of $8.1 million at March 31, 2023 that are included in the $85.6 million total.

Current wording

Noninterest-bearing deposits increased $1.5 million, or 2.3%, to $68.4 million at June 30, 2024 from $66.9 million at March 31, 2024. Time certificates of deposit increased $1.3 million, or 2.6%, to $114.7 million at June 30, 2024 from $113.4 million at March 31, 2024, as we believe that long-term customers have sought higher-yield deposits as a result of recent increases in market interest rates. We also had brokered time deposits of $2.2 million at June 30, 2024. The Company had no brokered time deposits at March 31, 2024.

Previous wording

Borrowings. We had no borrowings at December 31, 2023 or March 31, 2023. We have had limited borrowings in recent periods, as we have generally been able to utilize cash provided by our increase in deposits to fund our operations, although we will utilize FHLB advances as needed to support increased loan funding.

Current wording

Borrowings. Outstanding borrowings increased to $2.0 million at June, 30 2024. We had no outstanding borrowings at March 31, 2024. We have had limited borrowings in recent periods, as we have generally been able to utilize cash provided by our increase in deposits to fund our operations, although we will utilize FHLB advances as needed to support increased loan funding.

Previous wording

The following tables set forth average annualized balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan fees are included in interest income on loans and are not material.

Current wording

The following table sets forth average annualized balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan fees are included in interest income on loans and are not material.

Previous wording

Interest and Dividend Income. Interest and dividend income increased $1.2 million, or 28.4%, to $5.4 million for the three months ended December 31, 2023 from $4.2 million for the three months ended December 31, 2022. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest income, due to increases in market interest rates.

Current wording

Interest and Dividend Income. Interest and dividend income increased $1.1 million, or 24.0%, to $5.9 million for the three months ended June 30, 2024 from $4.8 million for the three months ended June 30, 2023. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest income, due to increases in market interest rates and loan growth.

Previous wording

Interest income on loans increased $1.0 million, or 26.2%, to $4.9 million for the three months ended December 31, 2023 from $3.9 million for the three months ended December 31, 2022. The average balance of loans increased $26.2 million, or 7.7%, to $367.9 million for the three months ended December 31, 2023 from $341.7 million for the three months ended December 31, 2022. The increase was primarily due to our continued focus on growing our loan portfolio consistent with maintaining asset quality. Our yield on loans increased 78 basis points to 5.32% for the three months ended December 31, 2023 from 4.54% for the three months ended December 31, 2022. The increase in yield was due to increases in market interest rates.

Current wording

Interest income on loans increased $988,000, or 22.9%, to $5.3 million for the three months ended June 30, 2024 from $4.3 million for the three months ended June 30, 2023. The average balance of loans increased $19.9 million, or 5.5%, to $378.4 million for the three months ended June 30, 2024 from $358.5 million for the three months ended June 30, 2023. The increase was primarily due to our continued focus on growing our loan portfolio consistent with maintaining asset quality. Our yield on loans increased 79 basis points to 5.61% for the three months ended June 30, 2024 from 4.82% for the three months ended June 30, 2023. The increase in yield was due to increases in market interest rates.

Previous wording

Interest income on securities increased $100,000, or 29.2%, to $442,000 for the three months ended December 31, 2023 from $342,000 for the three months ended December 31, 2022, due to a 91 basis point increase in the average yield from 2.24% for the three months ended December 31, 2022 to 3.15% for the three months ended December 31, 2023. The increase was offset by a $4.9 million decrease in the average balance of securities to $56.2 million for the three months ended December 31, 2023 from $61.1 million for the three months ended December 31, 2022. This decrease in the average balance of securities is attributed to paydowns received over the period.

Current wording

Interest income on securities increased $145,000, or 37.4%, to $533,000 for the three months ended June 30, 2024 from $388,000 for the three months ended June 30, 2023, due to a 91 basis point increase in the average yield from 2.59% for the three months ended June 30, 2023 to 3.50% for the three months ended June 30, 2024. The average balance of securities increased $1.1 million, or 1.9%, to $61.0 million for the three months ended June 30, 2024 from $59.9 million for the three months ended June 30, 2023.

Previous wording

Interest Expense. Interest expense increased $833,000, or 96.7%, to $1.7 million for the three months ended December 31, 2023 compared to $861,000 for the three months ended December 31, 2022, due to increases in the average balance of and higher costs of interest-bearing liabilities.

Current wording

Interest Expense. Interest expense increased $514,000, or 35.9%, to $1.9 million for the three months ended June 30, 2024 compared to $1.4 million for the three months ended June 30, 2023, due to higher costs of interest-bearing liabilities.

Previous wording

Interest expense on deposits increased $983,000, or 138.6%, to $1.7 million for the three months ended December 31, 2023 compared to $709,000 for the three months ended December 31, 2022. The increase was due to a 127 basis point increase in the average cost of deposits to 2.24% for the three months ended December 31, 2023 from 0.97% for the three months ended December 31, 2022. The increase in the average cost of deposits was due to the higher interest rate environment and an increase in the average balances of certificates of deposit of $45.4 million to $88.1 million for the three months ended December 31, 2023 from $42.7 million for the three months ended December 31, 2022.

Current wording

Interest expense on deposits increased $558,000, or 41.0%, to $1.9 million for the three months ended June 30, 2024 compared to $1.4 million for the three months ended June 30, 2023. The increase was due to a 74 basis point increase in the average cost of deposits to 2.49% for the three months ended June 30, 2024 from 1.75% for the three months ended June 30, 2023. The increase in the average cost of deposits was due to the higher interest rate environment and an increase in the average balances of certificates of deposit of $24.5 million to $98.1 million for the three months ended June 30, 2024 from $73.6 million for the three months ended June 30, 2023.

Previous wording

Net Interest Income. Net interest income less provision for credit losses increased $2.7 million, or 316.5%, to $3.6 million for the three months ended December 31, 2023 compared to $854,000 for the three months ended December 31, 2022.

Current wording

Net Interest Income. Net interest income after provision for credit losses increased $609,000, or 18.1%, to $4.0 million for the three months ended June 30, 2024 compared to $3.4 million for the three months ended June 30, 2023.

Previous wording

Our interest rate spread decreased 28 basis points to 2.81% for the three months ended December 31, 2023, compared to 3.08% for the three months ended December 31, 2022, and our net interest margin increased 13 basis points to 3.47% for the three months ended December 31, 2023 compared to 3.34% for the three months ended December 31, 2022.

Current wording

Our interest rate spread increased seven basis points to 2.77% for the three months ended June 30, 2024, compared to 2.70% for the three months ended June 30, 2023, and our net interest margin increased 38 basis points to 3.53% for the three months ended June 30, 2024 compared to 3.15% for the three months ended June 30, 2023.

Previous wording

Non-Interest Expense. Noninterest expense increased $558,000, or 20.4% to $3.3 million for the three months ended December 31, 2023 from $2.7 million for the three months ended December 31, 2022. Salaries and employee benefits expense increased $522,000, or 37.8%, to $1.9 million for the three months ended December 31, 2023 from $1.4 million for the three months ended December 31, 2022, due to the reversal of the executive bonus accrual in November 2022. Executive bonus accruals are calculated monthly based on a forecast of year-end earnings. However, due to a significant provision for credit losses the Association recognized during 2022, it was determined that no executive bonus payouts would be made for the year ended March 31, 2023. Additionally, the Association entered into an Employee Stock Ownership Plan at the closing of the conversion, which resulted in additional ESOP related expenses of $126,000 during the three months ended December 31, 2023.

Current wording

Noninterest expense increased $637,000, or 22.5% to $3.5 million for the three months ended June 30, 2024 from $2.8 million for the three months ended June 30, 2023. Salaries and employee benefits expense increased $279,000, or 17.8%, to $1.8 million for the three months ended June 30, 2024 from $1.6 million for the three months ended June 30, 2023, due to additional lenders added to the Company. Additionally, the Association entered into an Employee Stock Ownership Plan at the closing of the conversion, which resulted in additional ESOP related expenses of $33,000 during the three months ended June 30, 2024.

Previous wording

Income Tax Expense. We recognized income tax expense of $218,000 for the three months ended December 31, 2023 and an income tax benefit of $260,000 for the three months ended December 31, 2022, respectively, resulting in effective rates of 18.9% for the three months ended December 31, 2023 and 19.9% for the three months ended December 31, 2022. The most significant difference between our effective tax rate and statutory rates results from investment partnership tax credits.

Current wording

Income Tax Expense. We recognized income tax expense of $207,000 for the three months ended June 30, 2024 and an income tax expense of $232,000 for the three months ended June 30, 2023, respectively, resulting in effective rates of 18.7% for the three months ended June 30, 2024 and 19.7% for the three months ended June 30, 2023. The most significant difference between our effective tax rate and statutory rates results from investment partnership tax credits and tax-exempt municipal bond interest.

Previous wording

The table above indicates that at December 31, 2023, we would have experienced a 1.38% decrease in NII in the event of a gradual, one-year 200 basis point increase in market interest rates, and a 1.26% increase in NII in the event of a gradual, one-year 200 basis point decrease in market interest rates.

Current wording

The table above indicates that at June 30, 2024, we would have experienced a 1.18% decrease in NII in the event of a gradual, one-year 200 basis point increase in market interest rates, and a 0.54% increase in NII in the event of a gradual, one-year 200 basis point decrease in market interest rates.

Previous wording

We also use a third-party model to compute amounts by which the net present value of our assets and liabilities (market value of equity or "MVE") would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 400 basis points.

Current wording

Market Value of Equity. We also use a third-party model to compute amounts by which the net present value of our assets and liabilities (market value of equity or "MVE") would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 400 basis points.

Previous wording

The table above indicates that at December 31, 2023, we would have experienced a 4.00% decrease in MVE in the event of an instantaneous parallel 200 basis point increase in the market interest rates and a 17.36% decrease in MVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Current wording

The table above indicates that at June 30, 2024, we would have experienced a 2.04% decrease in MVE in the event of an instantaneous parallel 200 basis point increase in the market interest rates and a 14.37% decrease in MVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Previous wording

Liquidity. Liquidity describes our ability to meet financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. The Association had remaining availability for FHLB borrowings of approximately $40.9 million at December 31, 2023. The FHLB has sole discretion to deny additional advances. Additionally, the Association had the capacity to borrow $5.0 from a private bankers’ bank at December 31, 2023. We could significantly increase our borrowing capacity from the FHLB Topeka if we pledged additional assets as security. We also have the ability to participate in the Federal Reserve Board's Bank Term Funding Program if needed.

Current wording

Liquidity. Liquidity describes our ability to meet financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. The Association had remaining availability for FHLB borrowings of approximately $38.1 million at June 30, 2024. The FHLB has sole discretion to deny additional advances. We could significantly increase our borrowing capacity from the FHLB Topeka if we pledged additional assets as security. We also have the ability to participate in the Federal Reserve Board's Bank Term Funding Program if needed. Additionally, the Association had the capacity to borrow $5.0 million from a private bankers’ bank at June 30, 2024.

Previous wording

For the nine months ended December 31, 2023, cash flows from operating, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $4.9 million. Net cash provided by operating activities amounted to $4.2 million, primarily due to net income of $2.9 million. Net cash used in investing activities amounted to $21.4 million, primarily due to a net increase in loans of $22.0 million and the purchase of available-for-sale investment securities of $6.0 million, partially offset by proceeds from paydowns of available-for-sale investment securities of $7.0 million. Net cash provided by financing activities amounted to $12.3 million, primarily due to the proceeds from the issuance of common stock.

Current wording

For the three months ended June 30, 2024, cash flows from operating, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $5.9 million. Net cash provided by operating activities amounted to $505,000, primarily due to net income of $903,000 and changes of other assets of $413,000, partially offset by changes in accrued expenses and other liabilities of $981,000. Net cash used in investing activities amounted to $9.6 million, primarily due to a net increase in loans of $9.3 million and the purchase of available-for-sale investment securities of $1.9 million, partially offset by proceeds from paydowns of available-for-sale investment securities of $2.1 million. Net cash provided by financing activities amounted to $3.2 million, primarily due to an increase in short-term FHLB advances and an increase in deposits.

Previous wording

For the nine months ended December 31, 2022, cash flows from operating, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $11.4 million. Net cash provided by operating activities amounted to $3.3 million. Net cash used in investing activities amount to $30.8 million, primarily due to a net increase in loans of $40.1 million, partially offset by proceeds from paydowns of available-for-sale investment securities of $9.7 million. Net cash provided by financing activities amounted to $16.1 million, primarily due to a net increase in proceeds from short-term FHLB advances of $14.5 million. For further information, see the statements of cash flows contained in the consolidated financial statements in Part 1, Item 1 of this Quarterly Report.

Current wording

For the three months ended June 30, 2023, cash flows from operating, investing, and financing activities resulted in a net increase in cash and cash equivalents of $112,000. Net cash provided by operating activities amounted to $1.2 million, primarily due to net income of $946,000. Net cash used in investing activities amounted to $12.9 million, primarily due to a net increase in loans of $11.4 million and the purchase of available-for-sale investment securities of $3.8 million , partially offset by proceeds from paydowns of available-for-sale investment securities of $2.3 million. Net cash provided by financing activities amounted to $11.9 million, primarily due to a net increase in deposits of $12.3 million. For further information, see the statements of cash flows contained in the consolidated financial statements in Part 1, Item 1 of this Quarterly Report.

Previous wording

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, the debt service coverage ratio on these loans is at least 1.20x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers.

Current wording

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, the debt service coverage ratio on these loans is at least 1.20x. A significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers.