Citizens Community Bancorp Inc

Previous wording

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024 (“2023 10-K”), the matters described in “Risk Factors” in Item 1A of this Form 10-Q, and the following:

Current wording

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024 (“2023 10-K”), the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 8, 2024; the matters described in “Risk Factors” in Item 1A of this Form 10-Q, and the following:

Previous wording

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2024, and our consolidated results of operations for the three months ended March 31, 2024, compared to the same period in the prior fiscal year for the three months ended March 31, 2023. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2023 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Current wording

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of June 30, 2024, and our consolidated results of operations for the six months ended June 30, 2024, compared to the same period in the prior fiscal year for the six months ended June 30, 2023. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2023 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Previous wording

Non-interest income increased $1.0 million in the first quarter of 2024 compared to the first quarter of 2023 due to higher gain on sale of loans and higher loan fees due to customer activity.

Current wording

Non-interest income decreased $1.0 million in the second quarter of 2024 compared to the second quarter of 2023 due to $0.7 million lower gain on sale of loans and $0.7 million higher loss on sale of securities, partially due to $0.4 million loss recognized as result of an exchange of senior debt for preferred equity. These decreases were partially offset by $0.2 million higher loan fees due to customer activity and BOLI death benefit income realized of $0.2 million.

Previous wording

Non-interest expenses increased $0.7 million in the first quarter of 2024 from $10.1 million in the first quarter of 2023. The increase was primarily related to a $0.4 million establishment of a SBA recourse reserve recorded in other expense, along with inflationary increases in compensation and data processing costs.

Current wording

Non-interest expenses increased $0.5 million in the second quarter of 2024 from $9.8 million in the second quarter of 2023. The increase was primarily related to $0.3 million of higher compensation expense due to both the impact of 2024 merit raises and higher incentive compensation, along with inflationary increases in and data processing costs.

Previous wording

The decrease in the effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which was recognized in the third quarter of 2023.

Current wording

. Provision for income taxes decreased to $1.0 million in the second quarter of 2024, from $1.1 million in the second quarter of 2023, despite pre-tax income growth of $0.4 million due to a 3.4% decrease in the effective tax rate. The decrease in the effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023.

Previous wording

We reported net income of $4.1 million, or $0.39 per diluted share for the quarter ended March 31, 2024, compared to net income of $3.7 million or $0.35 per diluted share for the quarter ended March 31, 2023.

Current wording

We reported net income of $3.7 million and $7.8 million, or $0.35 and $0.75 per diluted share for the three and six months ended June 30, 2024, compared to net income of $3.2 million and $6.9 million or $0.31 and $0.66 per diluted share for the three and six months ended June 30, 2023.

Previous wording

The following is a summary of some of the significant factors that affected our operating results for the three months ended March 31, 2024, and March 31, 2023. Compared to first quarter 2023, first quarter 2024 net interest income decreased, primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, and customer account shifts to higher-cost certificates, along with increased borrowing costs, partially offset by higher yields on assets. The Company’s cost of interest-bearing liabilities increased from 2.00% in the first quarter 0f 2023 to 3.11% for the first quarter of 2024. This resulted in an increase in interest expense of $3.9 million. The reduction in net interest income, due to higher interest expense, was partially offset by higher interest income on interest earning assets of $3 million primarily due to the impact of higher interest rates and $0.6 million of interest income recorded primarily due to nonaccrual loan payoffs. As a result, net interest income fell $0.9 million.

Current wording

Compared to 2023, for the six-month period ending June 30, 2024, net interest income decreased $1 million, primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, and customer account shifts to higher-cost certificates, along with increased borrowing costs, partially offset by higher yields on assets. The Company’s cost of interest-bearing liabilities increased from 2.31% for the six months ended June 30, 2023, to 3.14% for the same period in 2024. This decrease was partially offset by higher interest income on interest earning assets of $4.7 million primarily due to the impact of higher interest rates and 0.4 million of loss recognized as a result of an exchange of senior debt to preferred equity.

Previous wording

Total benefit, i.e., negative provision, for credit losses for the three months ended March 31, 2024, was $0.8 million. The provision for credit losses was $0.05 million in the first quarter of 2023. The negative provision in the first quarter of 2024 was primarily due to: 1) a decrease in reserves on individually evaluated loans of $0.5 million; 2) the reduction in commitments to fund construction loans; and 3) net loan recoveries.

Current wording

The total benefit, i.e., negative provision, for credit losses was $2.325 million for the six months ended June 30, 2024, compared to a provision for credit losses of $0.5 million for the six months ended June 30, 2023. For the six months ended June 30, 2024, the negative provision was due to decreases in ACL related to: (1) the $0.9 million impact of loan portfolio decreases and credit quality improvements; (2) $0.6 million due to improvements in the Moody’s economic scenario per our third-party provider; (3) reductions in off-balance sheet reserves to fund commitments of $0.6 million; (4) 1st quarter 2024 a decrease in the allowance for credit losses on individually evaluated loans of $0.5 million; and (5) net loan recoveries.

Previous wording

Allowance for Credit Losses - Loans. We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.

Current wording

We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.

Previous wording

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the three-month periods ended March 31, 2024, and March 31, 2023, respectively.

Current wording

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, and net interest margin for the three-month and six-month periods ended June 30, 2024, and June 30, 2023, respectively.

Previous wording

Net interest income was $11.9 million for the three months ended March 31, 2024, compared to $12.8 million for the three months ended March 31, 2023. Interest income for the three months ended March 31, 2024, decreased from the same period one year ago due to higher net interest-bearing balances and costs. This was partially offset by: 1) positive loan volume variance due to growth in loans outstanding; 2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans and investments in excess of portfolio yield; and 3) the realization of $0.6 million of interest income principally due to nonaccrual loans payoff.

Current wording

Net interest income was $11.6 million for the three months ended June 30, 2024, compared to $11.7 million for the three months ended June 30, 2023. Interest income for the three months ended June 30, decreased from the same period one year ago due to higher net interest-bearing balances and costs. This was partially offset by: (1) positive loan volume variance due to growth in loans outstanding; (2) increases in loan and investment yields due to (a) contractual repricing and higher coupons on new loans; (b) investments in excess of portfolio yield; and (c) one-time income of $0.2 million recognized from curing technical defaults on performing loans

Previous wording

The net interest margin for the three-month period ended March 31, 2024, was 2.77%, compared to 3.02% for the three-month period ended March 31, 2023. The net interest margin decrease was due to higher deposit costs due to higher market interest rates and customers moving from lower cost savings and money market accounts to higher yielding certificate accounts and the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs. This was partially offset by: 1) increases in loan and investment yields due to contractual repricing; 2) rates on new loans and investments exceeding the portfolio as a whole; and 3) a thirteen-basis point increase in yield due to income realized principally on the payoff of a nonaccrual loans.

Current wording

The net interest margin for the three-month period ended June 30, 2024, was flat at 2.72%, compared to 2.72% for the three-month period ended June 30, 2023. The net interest margin was due to higher deposit costs due to higher market interest rates and customers moving from lower cost savings and money market accounts to higher yielding certificate accounts and the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs. This was offset by: (1) increases in loan and investment yields due to contractual repricing; (2) rates on new loans and investments exceeding the portfolio as a whole; and (3) a five-basis point increase in yield due to income recognized on curing technical defaults on performing loans.

Previous wording

Rate/Volume Analysis. The following tables present the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: 1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant) and 2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate changes have been discussed previously in the net interest income section above. For the three months ended March 31, 2024, compared to the same period in 2023, the loan volume increased due to organic growth. The increase in certificate volumes is due to CD growth, with some of this growth moving from non-maturity deposits and to a lesser extent, brokered CD growth. Investment securities volume decreases for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, are primarily due to: 1) principal repayments and 2) unrealized losses in the available for sale securities portfolio.

Current wording

Rate/Volume Analysis. The following tables present the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate changes have been discussed previously in the net interest income section above. For the three and six-month periods ended June 30, 2024, compared to the same periods in 2023, the loan volume increased due to organic growth. The increase in deposit volume is due to: (1) increased certificate volumes due to CD growth, some as a result of movement from non-maturity deposits and, to a lesser extent, brokered CD growth; and (2) growth in money market accounts due to organic growth. Investment securities volume decreases for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 are primarily due to: (1) principal repayments; and (2) unrealized losses in the available-for-sale securities portfolio.

Previous wording

Management believes that the provision recorded for the current year’s three-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Current wording

Management believes that the provision recorded for the current year’s three and six-month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Previous wording

Non-interest Income. The following table reflects the various components of non-interest income for the three-month periods ended March 31, 2024 and 2023, respectively.

Current wording

Non-interest Income. The following table reflects the various components of non-interest income for the three and six-month periods ended June 30, 2024 and 2023, respectively.

Previous wording

Gain on sale of loans increased in the current three-month period ended March 31, 2024, compared to the three-month period ended March 31, 2023, primarily due to higher SBA gains.

Current wording

Gain on sale of loans decreased in the three-month period ended June 30, 2024, compared to the three-month period ended June 30, 2023, primarily due to lower gains on SBA loan sales. For the six-month periods ending June 30, 2024, and 2023, loan sale gains increased due to higher first quarter 2024 SBA gain on sale.

Previous wording

Loan fees and services charges are higher for the three-month period ended March 31, 2024, compared to the same period in 2023 due to higher late charges and forbearance fees.

Current wording

Loan fees and services charges are higher for the three-month and six-month periods ended June 30, 2024, compared to the same periods in 2023 due to forbearance fees and higher late charges.

Previous wording

The change in net gains (losses) on investment securities between the three-month period ended March 31, 2024, and the three-month period ended March 31, 2023, is primarily a result of gains recognized in the first quarter of 2024 due to increased valuations of equity securities.

Current wording

The change in net (losses) gains on investment securities between the three-month period ended June 30, 2024, and the three-month period ended June 30, 2023, is primarily the result of the $0.4 million loss recognized as a result of an exchange of senior debt for preferred equity of a community development financial institution. See Investment Securities for more detail. In addition, there were other equity mark-to-market losses in the second quarter of 2024. For the six-month period ended June 30, 2024, from the same period in 2023, the change is due to the second quarter 2024 losses, partially offset by gains recognized in the first quarter of 2024 due to increased valuations of equity securities.

Previous wording

Non-interest Expense. The following table reflects the various components of non-interest expense for the three-month periods ended March 31, 2024 and 2023, respectively.

Current wording

Non-interest Expense. The following table reflects the various components of non-interest expense for the three and six-month periods ended June 30, 2024 and 2023, respectively.

Previous wording

Compensation expense for the three months ended March 31, 2024, increased from the same period in 2023, largely due to 2023 annual employee pay raises effective late first quarter of 2023.

Current wording

Compensation expense for the three and six-month periods ended June 30, 2024, increased from the same period in 2023, largely due to annual employee pay raises effective late first quarter of 2024, along with higher incentive compensation in the second quarter of 2024 than in the second quarter of 2023.

Previous wording

Data processing for the three months ended March 31, 2024, increased from the same period in 2023 largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

Current wording

Data processing for the three and six months ended June 30, 2024, increased from the same 2023 periods, largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

Previous wording

Amortization of intangible assets for the three months ended March 31, 2024, compared to March 31, 2023, decreased from the same prior year period, as intangible assets related to certain acquisitions have been fully amortized.

Current wording

Amortization of intangible assets for the three and six months ended June 30, 2024, decreased from the comparable prior year periods, as intangible assets related to certain acquisitions have been fully amortized.

Previous wording

The increase in other expenses during the three months ended March 31, 2024, from the comparable prior year period is largely due to the establishment of a SBA valuation reserve of $0.4 million.

Current wording

The increase in other non-interest expense during the three and six months ended June 30, 2024, from the comparable prior year period is largely due to: 1) the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024, and 2) the second quarter 2024 write down of the remaining lease asset of a closed branch of $0.2 million, partially offset by selected one-time expense recoveries of $0.1 million.

Previous wording

Income Taxes. Provision for income taxes decreased to $1.1 million in the first quarter of 2024 from $1.3 million in the first quarter of 2023. The effective tax rate was 21.3% for the quarter ended March 31, 2024, and 25.5% for the quarter ended March 31, 2023.

Current wording

Income Taxes. Provision for income taxes decreased to $1.0 million in the second quarter of 2024 from $1.1 million in the second quarter of 2023, despite a corresponding increase in pre-tax income of $0.4 million due to a lower effective tax rate. Provision for income taxes for the six-month period ending June 30, 2024, decreased $0.21 million, to $2.1 million, compared to $2.4 million for the six-month period ended June 30, 2023, as pre-tax income increased $0.688 million. The decrease in the effective tax rate in 2024 is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023.

Previous wording

Investment Securities. We manage our securities portfolio to provide liquidity and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity. Securities available for sale decreased $4.0 million during the quarter ended March 31, 2024, to $151.7 million from $155.7 million at December 31, 2023. The decrease was due to principal repayments of $3.1 million and a decrease in the market value of the AFS portfolio of $0.9 million.

Current wording

Investment Securities. We manage our securities portfolio to provide liquidity, modify interest rate risk and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity. Securities available for sale decreased $9.3 million during the six months ended June 30, 2024, to $146.4 million from $155.7 million at December 31, 2023. Along with principal repayments and changes in fair value, there was an exchange of a community development financial institution’s senior debt for a preferred equity security in the company’s operating subsidiary of $2.25 million, resulting in a decrease in AFS securities and an increase in equity securities. The senior debt to preferred equity exchange resulted in recognition of a $0.4 million loss, reflected in net losses on investment securities on the consolidated statement of operations, and a $0.168 million reduction of unrealized losses in accumulated other comprehensive loss on the consolidated balance sheet at June 30, 2024.

Previous wording

Securities held to maturity decreased $1.3 million to $89.9 million during the quarter ended March 31, 2024, from $91.2 million at December 31, 2023, due to principal repayments.

Current wording

Securities held to maturity decreased $2.6 million to $88.6 million during the six-month period ended June 30, 2024, from $91.2 million at December 31, 2023, due to principal repayments.

Previous wording

At March 31, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $28.9 million as collateral to secure a line of credit with the Federal Reserve Bank. As of March 31, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of March 31, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.4 million and mortgage-backed securities with a carrying value of $1.9 million as collateral against specific municipal deposits. As of March 31, 2024, the Bank also has mortgage-back securities with a carrying value of $0.1 million and U.S. Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Current wording

At June 30, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $28.5 million as collateral to secure a line of credit with the Federal Reserve Bank. As of June 30, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of June 30, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.4 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits. As of June 30, 2024, the Bank also has mortgage-back securities with a carrying value of $0.1 million and U.S. Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Previous wording

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $10.6 million, to $1.45 billion as of March 31, 2024, from $1.46 billion at December 31, 2023. The following table reflects the composition, of our loan portfolio at March 31, 2024, and December 31, 2023:

Current wording

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $32.2 million, to $1.43 billion as of June 30, 2024, from $1.46 billion at December 31, 2023. The following table reflects the composition, of our loan portfolio at June 30, 2024, and December 31, 2023:

Previous wording

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.975 million at March 31, 2024, and $1.25 million at December 31, 2023, classified in other liabilities on the consolidated balance sheets.

Current wording

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.712 million at June 30, 2024, and $1.25 million at December 31, 2023, classified in other liabilities on the consolidated balance sheets.

Previous wording

Nonperforming assets were $10.6 million at March 31, 2024, compared to $15.4 million at December 31, 2023. Nonperforming assets decreased primarily due to nonperforming loan payoffs of $5.4 million during the current quarter.

Current wording

Nonperforming assets were $10.3 million at June 30, 2024, compared to $15.4 million at December 31, 2023. Nonperforming assets decreased primarily due to nonperforming loan payoffs of $5.4 million during the first quarter of 2024.

Previous wording

The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters. Since March 31, 2023, special mention credit additions were two loan relationships, each totaling $9 million added in the second quarter of 2023, with a $5 million relationship in the second quarter of 2023 moving to substandard and a payoff in the first quarter of 2023. Substandard loans increased largely due to the movement of a $5 million loan from special mention in the second quarter of 2023 and a new loan relationship addition of $3.7 million in the fourth quarter of 2023. These increases were more than offset by the first quarter 2024 payoffs of nonaccrual loans, which were also categorized as substandard and the $3 million decrease in 3Q 2023.

Current wording

The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters. Since June 30, 2023, special mention credit loan decreased in each quarter. In the first and second quarters of 2024, this was due to loan payoffs. Substandard loans have decreased significantly since June 30, 2023, largely due to first quarter 2024 payoffs of nonaccrual loans, which were also categorized as substandard, and the $3 million decrease in 3Q 2023, partially offset by a new loan relationship, adding $3.7 million to substandard loans in the fourth quarter of 2023.

Previous wording

In addition to our discussion of criticized, special mention, and substandard loans above, the following information provides further insights about our loans to certain industries. As of March 31, 2024, hotel loans totaled $95 million with a weighted average LTV of 54% and average balance of $4.5 million. $4.6 million of these loans are nonaccrual and classified as substandard. Restaurant loans totaled $57 million, at March 31, 2024. The weighted average LTV percentage on these restaurant loans was 44% and the average loan balance was $801 thousand. There were no restaurant loans in special mention or substandard loans. Approximately 66% or $38 million of restaurant loans are to franchise quick-service restaurants. At March 31, 2024, we have $40 million of office loans with a weighted average LTV of 64% and average loan balance of $581 thousand. A large percentage of the related office properties are located outside of large cities.

Current wording

In addition to our discussion of criticized, special mention, and substandard loans above, the following information provides further insights about our loans to certain industries. As of June 30, 2024, hotel loans totaled $92 million with a weighted average LTV of 51% and average balance of $4.6 million. $4.5 million of these loans are nonaccrual and classified as substandard. Restaurant loans totaled $58 million, at June 30, 2024. The weighted average LTV percentage on these restaurant loans was 46% and the average loan balance was $816 thousand. There was one restaurant loan in criticized loans totaling $0.05 million. Approximately 67% or $38 million of restaurant loans are to franchise quick-service restaurants. At June 30, 2024, we have $29 million of office loans with a weighted average LTV of 59% and average loan balance of $421 thousand. A large percentage of the related office properties are located outside of large cities.

Previous wording

The fair market value of the Company’s MSR asset was $5.4 million at March 31, 2024, compared to $5.6 million at December 31, 2023. At March 31, 2024, the Company identified MSR impairment, and recorded a related valuation allowance of $5 thousand. At December 31, 2023, there was no MSR impairment or related valuation allowance.

Current wording

The fair market value of the Company’s MSR asset was $5.4 million at June 30, 2024, compared to $5.6 million at December 31, 2023. At June 30, 2024 and at December 31, 2023, there was no MSR impairment or related valuation allowance.

Previous wording

The unpaid balances of one-to-four family residential real estate loans serviced for others as of March 31, 2024, and December 31, 2023, were $489.7 million and $495.5 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2024, and December 31, 2023, was 1.11% and 1.13%, respectively.

Current wording

The unpaid balances of one-to-four family residential real estate loans serviced for others as of June 30, 2024, and December 31, 2023, were $483.3 million and $495.5 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2024, and December 31, 2023, was 1.12% and 1.13%, respectively.

Previous wording

At March 31, 2024, the deposit portfolio composition was 54% consumer, 27% commercial, 13% public and 6% brokered deposits compared to 54% consumer, 28% commercial, 12% public and 6% brokered deposits at December 31, 2023.

Current wording

At June 30, 2024, the deposit portfolio composition was 54% consumer, 27% commercial, 12% public and 7% brokered deposits compared to 54% consumer, 28% commercial, 12% public and 6% brokered deposits at December 31, 2023.

Previous wording

Uninsured and uncollateralized deposits were $265.1 million, or 17% of total deposits, at March 31, 2024, and $275.8 million, or 18% of total deposits, at December 31, 2023. Uninsured deposits alone, i.e., excluding fully secured government deposits, at March 31, 2024, were $429.1 million, or 28% of total deposits, and $427.5 million, or 28% of total deposits at December 31, 2023.

Current wording

Uninsured and uncollateralized deposits were $246.7 million, or 16% of total deposits, at June 30, 2024, and $275.8 million, or 18% of total deposits, at December 31, 2023. Uninsured deposits alone, i.e., excluding fully secured government deposits, at June 30, 2024, were $401.6 million, or 26% of total deposits, and $427.5 million, or 28% of total deposits at December 31, 2023.

Previous wording

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability totaled $696.8 million, or 263% of uninsured and uncollateralized deposits at March 31, 2024. At December 31, 2023, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $673.6 million, or 244% of uninsured and uncollateralized deposits.

Current wording

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $714.1 million, or 289% of uninsured and uncollateralized deposits at June 30, 2024. At December 31, 2023, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $673.6 million, or 244% of uninsured and uncollateralized deposits.

Previous wording

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $1,115.2 million and $1,106.3 million at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $397.2 million compared to $370.6 million as of December 31, 2023.

Current wording

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $1,100.0 million and $1,106.3 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $416.1 million compared to $370.6 million as of December 31, 2023.

Previous wording

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $64.0 million and $217.5 million, during the three months ended March 31, 2024 and the twelve months ended December 31, 2023, respectively.

Current wording

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $81.0 million and $217.5 million, during the six months ended June 30, 2024 and the twelve months ended December 31, 2023, respectively.

Previous wording

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of March 31, 2024 and December 31, 2023 were 2.73% and 4.16%, respectively.

Current wording

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of June 30, 2024 and December 31, 2023 were 3.54% and 4.16%, respectively.