CSB Bancorp Inc

Previous wording

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company on June 30, 2024 as compared to December 31, 2023, and the consolidated results of operations for the three and six months ended June 30, 2024 compared to the same periods in 2023. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim condensed Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report.

Current wording

The following management’s discussion and analysis focuses on the consolidated financial condition of the Company on September 30, 2024 as compared to December 31, 2023, and the consolidated results of operations for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The purpose of this discussion is to provide the reader with a more thorough understanding of the Consolidated Financial Statements. This discussion should be read in conjunction with the interim condensed Consolidated Financial Statements and related footnotes contained in Part I, Item 1 of this Quarterly Report.

Previous wording

Total assets decreased $11.4 million to $1.167 billion at June 30, 2024 compared to $1.179 billion at December 31, 2023. During the six months ended June 30, 2024, securities decreased $22 million, net loans increased $17 million, and cash and cash equivalents decreased $8 million. Deposits and short-term borrowings decreased $12 million.

Current wording

Total assets increased $30 million to $1.21 billion at September 30, 2024 compared to $1.18 billion at December 31, 2023. During the nine months ended September 30, 2024, securities decreased $23 million, net loans increased $18 million, and cash and cash equivalents increased $32 million. Deposits and short-term borrowings increased $26 million.

Previous wording

Net loans increased $17 million, or 3%, as commercial and commercial real estate loans increased $9 million, or 2% compared to December 31, 2023 and residential real estate loans increased $4 million, or 3%, from December 31, 2023. Consumer refinance activity slowed from previous periods on mortgage loans, while home purchase activity remained stable despite limited inventory, and home equity line balances increased by $1 million. Residential mortgage loan originations for the six months ended June 30, 2024 totaled $22 million, a decrease from $25 million in mortgage originations during the six months ended June 30, 2023. Originations sold into the secondary market were $3 million and $2 million, respectively during the six months ended June 30, 2024 and June 30, 2023. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

Current wording

Net loans increased $18 million, or 3%, as commercial and commercial real estate loans increased $1 million, or less than 1%, compared to December 31, 2023 and residential real estate loans increased $8 million, or 5%, from December 31, 2023. Construction loans increased $8 million, or 16%, from December 31, 2023. Consumer refinance activity slowed from previous periods on mortgage loans, while home purchase activity remained stable despite limited inventory, and home equity line balances increased by $2 million. Residential mortgage loan originations, including home equity lines, for the nine months ended September 30, 2024 totaled $39 million, a slight increase from $38 million in mortgage originations during the nine months ended September 30, 2023. Mortgage loan originations sold into the secondary market were $7 million and $3 million, respectively during the nine months ended September 30, 2024 and September 30, 2023. The Bank originates and sells primarily fixed rate thirty-year mortgages into the secondary market.

Previous wording

The allowance for credit losses for loans increased $4 million from the year ago quarter to $10.6 million. A previously identified commercial lending relationship totaling $6.4 million experienced credit deterioration and was placed on nonaccrual during the second quarter 2024 while the company was being offered for sale. On July 23, 2024 the bank was notified that the borrower's company would cease operations. The relationship has a specific reserve of $4.1 million within the combined total allowance for expected credit losses.

Current wording

The allowance for credit losses for loans increased $617 thousand from December 31, 2023 to $7.2 million. A previously identified commercial lending relationship totaling $6.4 million experienced credit deterioration and was placed on nonaccrual during the second quarter 2024 while the company was being offered for sale. On July 23, 2024 the bank was notified that the borrower's company would cease operations. The credit was charged down in third quarter 2024 by $4.1 million as the liquidation of assets is in process.

Previous wording

Net charge-offs were $320 thousand, or an annualized 0.09% of average loans, in the current six-month period compared to net recoveries of $6 thousand, or 0.00% of average loans in the year-ago six-month period. At June 30, 2024, the allowance for credit losses to total loans was 1.47%. We believe the allowance level remains acceptable as a significant loss reserve has been established for one commercial loan relationship.

Current wording

Net charge-offs were $4.3 million, or an annualized 0.81% of average loans, in the current nine-month period compared to net recoveries of $125 thousand, or (0.03%) of average loans in the year-ago nine-month period. At September 30, 2024, the allowance for credit losses to total loans was 1%. We believe the allowance level is appropriate given the level of problem loans and composition of the overall loan portfolio in the current economic environment.

Previous wording

Nonperforming loans increased $6.3 million to $6.7 million, or 0.93%, of total loans from $396 thousand, or 0.06% of total loans, on December 31, 2023. For the six months ended June 30, 2024, $6.4 million in loans were placed on nonaccrual status, $142 thousand in paydowns were received, and $26 thousand in personal loans were charged-off due to non-payment.

Current wording

Nonperforming loans increased $3 million to $3.4 million, or 0.47%, of total loans from $396 thousand, or 0.06% of total loans, on December 31, 2023. For the nine months ended September 30, 2024, $7 million in loans were placed on nonaccrual status, $253 thousand in paydowns were received, and $4.1 million in loans were charged-off due to non-payment.

Previous wording

The ratio of gross loans to deposits was 71% at June 30, 2024, compared to 68% at December 31, 2023.

Current wording

The ratio of gross loans to deposits was 67% at September 30, 2024, compared to 68% at December 31, 2023.

Previous wording

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $44.8 million within the available-for-sale and held-to-maturity portfolios as of June 30, 2024, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on June 30, 2024, are considered temporary and no allowance for credit loss is necessary.

Current wording

The Company has no exposure to government-sponsored enterprise preferred stocks, collateralized debt obligations, or trust preferred securities. Management has considered industry analyst reports, sector credit reports, and the volatility within the bond market in concluding that the gross unrealized losses of $34 million within the available-for-sale and held-to-maturity portfolios as of September 30, 2024, was primarily the result of current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. As a result, all embedded security losses on September 30, 2024, are considered temporary and no allowance for credit loss is necessary.

Previous wording

The weighted average life of total debt securities was 5.54 years at June 30, 2024 as compared to 5.09 years at December 31, 2023. If interest rates declined 100 basis points, the weighted average life was estimated to fall to 5.30 years at June 30, 2024 and 4.98 years at December 31, 2023. If interest rates rose 100 basis points the weighted average life would be expected to increase to 5.67 years at June 30, 2024 and 5.16 years at December 31, 2023.

Current wording

The weighted average life of total debt securities was 5.23 years at September 30, 2024 as compared to 5.09 years at December 31, 2023. If interest rates declined 100 basis points, the weighted average life was estimated to fall to 4.98 years at September 30, 2024 and 4.98 years at December 31, 2023. If interest rates rose 100 basis points the weighted average life would be expected to increase to 5.42 years at September 30, 2024 and 5.16 years at December 31, 2023.

Previous wording

Deposits decreased $4 million, or less than 1%, from December 31, 2023 with noninterest-bearing deposits decreasing approximately $24 million, or 8%, and interest-bearing deposit accounts increasing approximately $20 million, or 3%. Total deposits as of June 30, 2024 are $1.02 billion, or less than 1%, above June 30, 2023 deposit balances. On a year over year comparison, decreases were recognized in noninterest-bearing demand deposits of $37 million, interest bearing demand accounts of $35 million, and savings of $13 million. Increases were recognized in money market accounts of $24 million, and time deposits of $63 million. Deposits have increased somewhat as customers use excess liquid funds by moving funds into time certificates of deposit to take advantage of the increased interest rates. The estimated amount of uninsured deposits was $249 million, $254 million, and $272 million as of June 30, 2024, December 31, 2023, and June 30, 2023, respectively.

Current wording

Deposits increased $43 million, or 4%, from December 31, 2023 with noninterest-bearing deposits decreasing approximately $15 million, or 5%, and interest-bearing deposit accounts increasing approximately $58 million, or 8%. Total deposits as of September 30, 2024 are $1.07 billion, or 5%, above September 30, 2023 deposit balances. On a year over year comparison, decreases were recognized in noninterest-bearing demand deposits of $13 million, interest bearing demand accounts of $19 million, and savings accounts of $7 million. Increases were recognized in money market accounts of $29 million, and time deposits of $63 million. Deposits have increased as customers move excess liquid funds into money market accounts and time certificates of deposit to take advantage of the increased interest rates. The estimated amount of uninsured deposits was $275 million, $254 million, and $267 million as of September 30, 2024, December 31, 2023, and September 30, 2023, respectively.

Previous wording

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $8 million, or 22%, to $28 million at June 30, 2024 as compared to December 31, 2023 and other borrowings decreased $428 thousand as the Company repaid FHLB advances.

Current wording

Short-term borrowings consisting of overnight repurchase agreements with retail customers decreased $17 million, or 46%, to $19 million at September 30, 2024 as compared to December 31, 2023 as customers moved money into higher interest rate money market and time deposit accounts. Other borrowings decreased $458 thousand as the Company repaid FHLB advances.

Previous wording

Total shareholders’ equity amounted to $110 million, or 9.5%, of total assets at June 30, 2024, an increase of $2 million, or 2%, from $108 million at December 31, 2023. The increase in shareholders’ equity during the six months ended June 30, 2024 was due to net income of $4.5 million, accumulated other comprehensive income (“AOCL”) of $185 thousand, less cash dividends of $2 million, and treasury stock repurchase of $225 thousand. AOCL decreased during the six months ended June 30, 2024 caused the AOCL primarily due to maturities with the US Treasury portfolio and improvements to pricing on the US Agency and Corporate bonds as AFS securities are marked to fair market value. This remaining unrealized loss in securities is temporary and is adjusted monthly for additional interest rate fluctuations, principal paydowns, calls, and maturities. The Company and the Bank met all regulatory capital requirements at June 30, 2024 as shown in the Capital Resources section of this report.

Current wording

Total shareholders’ equity amounted to $115 million, or 9.5%, of total assets at September 30, 2024, an increase of $7 million, or 7%, from $108 million at December 31, 2023. The increase in shareholders’ equity during the nine months ended September 30, 2024 was due to net income of $7.7 million, other comprehensive income of $3 million, less cash dividends of $3 million, and treasury stock repurchase of $397 thousand. Total accumulated other comprehensive loss ("AOCL") decreased during the nine months ended September 30, 2024 due to decreases in interest rates and improvements in pricing in government agency and corporate bonds as AFS securities are marked to fair market value. This remaining unrealized loss in securities is temporary and is adjusted monthly for additional interest rate fluctuations, principal paydowns, calls, and maturities. The Company and the Bank met all regulatory capital requirements at September 30, 2024 as shown in the Capital Resources section of this report.

Previous wording

For the quarters ended June 30, 2024 and 2023, the Company recorded net income of $1.6 million and $3.6 million and $0.61 and $1.36 per share, respectively. The $2 million decrease in net income for the period was primarily the result of the provision for credit losses and off-balance sheet commitments of $2.9 million compared to the provision for credit losses in the prior year period of $140 thousand. The decrease of $69 thousand in net interest income was offset by a $235 thousand decrease in noninterest expenses, and an $8 thousand increase in noninterest income. The federal income tax provision decreased $546 thousand. Pre-provision net revenue ("PPNR"), (a non-GAAP measure), totaled $4.9 million for the quarter ended June 30, 2024, an increase of $174 thousand, or 4%, from the prior year's second quarter.

Current wording

For the quarters ended September 30, 2024 and 2023, the Company recorded net income of $3.1 million and $3.5 million and $1.18 and $1.30 per share, respectively. The $300 thousand decrease in net income for the period was primarily the result of the provision for credit losses and off-balance sheet commitments of $700 thousand compared to the provision for credit losses in the prior year period of $177 thousand. The increase of $377 thousand in net interest income and $104 thousand increase in noninteret income was offset by a $388 thousand increase in noninterest expenses. The federal income tax provision decreased $94 thousand. Pre-provision net revenue ("PPNR"), (a non-GAAP measure), totaled $4.6 million for the quarter ended September 30, 2024, an increase of $93 thousand, or 2%, from the prior year's third quarter.

Previous wording

Return on average assets and return on average equity were 0.56% and 5.89%, respectively, for the three-month period of 2024, compared to 1.27% and 14.62%, respectively for the same quarter in 2023.

Current wording

Return on average assets and return on average equity were 1.05% and 11.14%, respectively, for the three-month period of 2024, compared to 1.19% and 13.63%, respectively for the same quarter in 2023.

Previous wording

Interest income for the quarter ended June 30, 2024, was $12.5 million representing a $1 million increase, or 12%, compared to the same period in 2023. This increase was primarily due to increased rates and volume on loans, and increased rates on interest-earning deposits and taxable securities. These increases were partially offset by the volume decreases in interest-earning deposits and taxable securities to the comparable period. Average interest-earning deposit rates increased 42 basis points while loan rates increased 44 basis points, and taxable securities interest rates rose 8 basis points for the quarter ended June 30, 2024 as compared to the same period in 2023. Interest expense for the quarter ended June 30, 2024 was $3.6 million, an increase of $1.4 million, or 62%, from the same quarter in 2023. The increase in interest expense occurred primarily due to the increase in interest rates on all deposit types as well as an increase in volume of time deposit accounts for the quarter ended June 30, 2024.

Current wording

Interest income for the quarter ended September 30, 2024, was $13.2 million representing a $1.5 million, or 13% increase, compared to the same period in 2023. This increase was primarily due to increased interest rates and increased volumes on loans and interest-earning deposits in other banks. These increases were partially offset by the volume decreases in taxable securities to the comparable period. Average interest-earning deposit rates decreased 4 basis points while loan rates rose 41 basis points, and taxable securities' interest rates rose 7 basis points for the quarter ended September 30, 2024 as compared to the same period in 2023. Interest expense for the quarter ended September 30, 2024 was $4 million, an increase of $1.1 million, or 38%, from the same quarter in 2023. The increase in interest expense occurred primarily due to the increase in interest rates and volume increases of money market and time deposit accounts for the quarter ended September 30, 2024.

Previous wording

For the quarter ended June 30, 2024, the bank recognized net charge-offs of $246 thousand, compared to $10 thousand net recoveries for the same quarter in 2023. The provision for credit losses on loans in the current quarter of $3.7 million, compared to a provision of $242 thousand in the same quarter ended 2023. The company recorded an $808 thousand recovery provision for off-balance commitments in the second quarter 2024 compared to a recovery of $102 thousand provision in the second quarter of 2023. The quarter increase results primarily from a single commercial credit facility that ceased operations on July 23. The credit facility is on nonaccrual with the company's assets being marketed.

Current wording

For the quarter ended September 30, 2024, the bank recognized net charge-offs of $4 million, compared to $119 thousand net recoveries for the same quarter in 2023. The provision for credit losses on loans in the current quarter of $645 thousand, compared to a provision of $13 thousand in the same quarter ended 2023. The company recorded a $55 thousand provision for credit loss on off-balance commitments in the third quarter 2024 compared to a $164 thousand provision in the third quarter of 2023. The quarter increase results primarily from a single commercial credit facility that ceased operations on July 23, 2024. The credit facility has been charged down by $4.1 million with the company's assets being liquidated through the court system which increased the historical loss component of the calculation.

Previous wording

Economic indicators reflect a leveling off in residential real estate prices and increases in unemployment. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends.

Current wording

Economic indicators reflect a leveling off in residential real estate prices and increases in unemployment rates. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends.

Previous wording

Federal income tax expense decreased $546 thousand, or 61%, for the quarter ended June 30, 2024 as compared to the second quarter 2023. The provision for income taxes was $348 thousand (effective rate of 17.7%) for the quarter ended June 30, 2024, compared to $894 thousand (effective rate of 19.7%) for the same quarter ended 2023.

Current wording

Federal income tax expense decreased $94 thousand, or 11%, for the quarter ended September 30, 2024 as compared to the third quarter 2023. The provision for income taxes was $756 thousand (effective rate of 19.4%) for the quarter ended September 30, 2024, compared to $850 thousand (effective rate of 19.6%) for the same quarter ended 2023.

Previous wording

For the six months ended June 30, 2024, and 2023, the Company recorded net income of $4.5 million and $7.6 million and $1.71 and $2.82 per share, respectively. The $3 million decrease in net income for the six-month period was primarily the result of the provision for credit losses and off-balance sheet commitments of $4 million compared to the provision for credit losses in the prior year period of $109 thousand and an increase in noninterest expenses of $188 thousand. These decreases to net income were partially offset by an increase in noninterest income of $152 thousand and an increase in net interest income of $114 thousand.

Current wording

For the nine months ended September 30, 2024, and 2023, the Company recorded net income of $7.7 million and $11.1 million and $2.89 and $4.12 per share, respectively. The $3.4 million decrease in net income for the nine-month period was primarily the result of the provision for credit losses and off-balance sheet commitments of $4.7 million compared to the provision for credit losses in the prior year period of $286 thousand and an increase in noninterest expenses of $576 thousand. These decreases to net income were partially offset by an increase in noninterest income of $256 thousand and an increase in net interest income of $491 thousand. PPNR totaled $14.2 million for the nine months ended September 30, 2024, an increase of $171 thousand, or 1%, from the prior year's nine months.

Previous wording

The federal income tax provision was $824 thousand lower during the six-month period in 2024 than in 2023. Return on average assets and return on average equity were 0.79% and 8.35%, respectively, for the six months ended June 30, 2024, compared to 1.33% and 15.49%, respectively for the same period in 2023.

Current wording

The federal income tax provision was $918 thousand lower during the nine-month period in 2024 than in 2023. Return on average assets and return on average equity were 0.88% and 9.30%, respectively, for the nine months ended September 30, 2024, compared to 1.28% and 14.85%, respectively for the same period in 2023.

Previous wording

Interest income for the six months ended June 30, 2024, was $25 million representing a $3 million increase, or 15%, compared to the same period in 2023. This increase was primarily due to volume and yield increases on loans along with rate increases on interest-earning deposits in other banks and taxable securities for the period ended June 30, 2024, as compared to the same period in 2023. Interest expense for the six months ended June 30, 2024, was $7 million, an increase of $3 million, or 81%, from the same period in 2023. The increase in interest expense occurred primarily due to an increase in rates on all interest-bearing liabilities for the six months ended June 30, 2024, as well as a shift in balances into higher rate time deposits.

Current wording

Interest income for the nine months ended September 30, 2024, was $38 million representing a $5 million increase, or 14%, compared to the same period in 2023. This increase was primarily due to volume and yield increases on loans along with rate increases on interest-earning deposits in other banks and taxable securities for the period ended September 30, 2024, as compared to the same period in 2023. Interest expense for the nine months ended September 30, 2024, was $11 million, an increase of $4 million, or 62%, from the same period in 2023. The increase in interest expense occurred primarily due to an increase in rates on most interest-bearing liabilities for the nine months ended September 30, 2024, as well as a shift in balances into higher rate time deposits.

Previous wording

For the six months ended June 30, 2024, the provision for credit losses and off-balance sheet was $4 million, compared to $109 thousand for the same period in 2023. For more discussion see Results of Operations, three months. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends.

Current wording

For the nine months ended September 30, 2024, the provision for credit losses and off-balance sheet was $5 million, compared to $286 thousand for the same period in 2023. For more discussion see Results of Operations, three months. The provision for credit losses is determined based on management’s calculation of the adequacy of the allowance for credit losses, which includes provisions for classified loans as well as for the remainder of the portfolio based on historical data, including past charge-offs and current economic trends.

Previous wording

Noninterest income for the six months ended June 30, 2024, was $3.5 million, an increase of $152 thousand, or 5%, compared to the same period in 2023. Fees from trust and brokerage services increased $166 thousand for the period due to a one time fee collected in the first quarter. The gain on the sale of mortgage loans to the secondary market increased $50 thousand to $109 thousand for the six months ended June 30, 2024, as improved pricing for smaller balance mortgage loans attracted buyers and some mortgage loan refinancing. Earnings on bank owned life insurance policies increased $41 thousand for the period. Service charges on deposit accounts decreased $21 thousand, or 4%, compared to the same period in 2023 primarily from decreases in overdraft fees. Credit card fee income decreased $47 thousand, or 13%. Debit card interchange income decreased $19 thousand, or 2%.

Current wording

Noninterest income for the nine months ended September 30, 2024, was $5.3 million, an increase of $256 thousand, or 5%, compared to the same period in 2023. Fees from trust and brokerage services increased $182 thousand for the period due to a one time fee collected in the first quarter. The gain on the sale of mortgage loans to the secondary market increased $109 thousand to $215 thousand for the nine months ended September 30, 2024, as improved pricing for smaller balance mortgage loans attracted buyers and some mortgage loan refinancing. Earnings on bank owned life insurance policies increased $65 thousand for the period. Service charges on deposit accounts decreased $52 thousand, or 6%, compared to the same period in 2023 primarily from decreases in overdraft fees. Credit card fee income decreased $51 thousand, or 10%.

Previous wording

Noninterest expenses for the six months ended June 30, 2024, increased $188 thousand, or 2%, compared to the same period in 2023. Debit card expense increased $67 thousand, or 21%, primarily due to processing increases. Professional and director fees increased $62 thousand for the six months ended June 30, 2024, as compared to the same period in 2023. Financial institutions tax increased $48 thousand, or 13%, based on increased capital. Occupancy and equipment expenses increased $40 thousand over the same period in 2023 with an increase in maintenance expense. Software increased $22 thousand, or 3%. FDIC assessment increased $15 thousand, or 6%. Marketing and public relations expense increased $11 thousand, or 4%, with marketing, brand recognition initiatives. Salaries and employee benefits decreased $158 thousand, or 2%, a result of decreased incentive accruals.

Current wording

Noninterest expenses for the nine months ended September 30, 2024, increased $576 thousand, or 3%, compared to the same period in 2023. Professional and director fees increased $87 thousand for the nine months ended September 30, 2024, as compared to the same period in 2023.Debit card expense increased $74 thousand, or 15%, primarily due to processing increases. Financial institutions tax increased $72 thousand, or 13%, based on increased capital. Occupancy and equipment expenses increased $70 thousand over the same period in 2023 with an increase in maintenance expense. Salaries and employee benefits increased $69 thousand, or less than 1%. Marketing and public relations expense increased $49 thousand, or 13%, with increases in community related activities. Software increased $35 thousand, or 3%.

Previous wording

Federal income tax expense decreased $824 thousand, or 44%, for the six months ended June 30, 2024, as compared to the same period in 2023. The provision for income taxes was $1.0 million (effective rate of 18.6%) for the six months ended June 30, 2024, compared to $1.9 million (effective rate of 19.8%) for the same period ended 2023.

Current wording

Federal income tax expense decreased $918 thousand, or 34%, for the nine months ended September 30, 2024, as compared to the same period in 2023. The provision for income taxes was $1.8 million (effective rate of 18.9%) for the nine months ended September 30, 2024, compared to $2.7 million (effective rate of 19.7%) for the same period ended 2023.

Previous wording

The Company maintained a strong capital position with tangible common equity to tangible assets of 9.1% at June 30, 2024 compared with 8.8% at December 31, 2023.

Current wording

The Company maintained a strong capital position with tangible common equity to tangible assets of 9.2% at September 30, 2024 compared with 8.8% at December 31, 2023.

Previous wording

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered deposits, and borrowing at the Federal Reserve discount window. Management believes its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future.

Current wording

Liquidity refers to the Company’s ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, pay operating expenses, and meet other obligations. Liquidity is monitored by the Company’s Asset Liability Committee. Other sources of liquidity include, but are not limited to, purchases of federal funds, advances from the FHLB, adjustments of interest rates to attract deposits, brokered deposits, and borrowing at the Federal Reserve discount window. Additionally, the Company could sell all of its AFS securities and the loss would not cause a change in the capital adequacy classification. Management believes its sources of liquidity are adequate to meet cash flow obligations for the foreseeable future.