Central Plains Bancshares, Inc. — Form 10-Q Summary
Period: Quarter ended June 30, 2023. The filing’s unaudited financial statements are for Home Federal Savings and Loan Association of Grand Island and Subsidiary, not the holding company: Central Plains Bancshares had no assets, liabilities, or substantive business activity as of June 30, 2023. Financial amounts below are in U.S. dollars; figures are rounded to millions unless otherwise indicated.
Financial performance and condition
| Metric | June 2023 quarter / June 30, 2023 | Comparable / prior period |
|---|---|---|
| Total assets | $450.4 million | $437.8 million at March 31, 2023; up 2.9% |
| Loans held for investment, gross | $365.4 million | $353.7 million at March 31; up 3.3% |
| Total deposits | $403.2 million | $391.0 million at March 31; up 3.1% |
| Cash and cash equivalents | $16.7 million | $16.6 million at March 31 |
| Available-for-sale securities | $58.6 million | $57.8 million at March 31 |
| Total equity | $38.7 million | $38.7 million at March 31 |
| Interest income | $4.8 million | $3.6 million in the June 2022 quarter |
| Net interest income | $3.3 million | $3.3 million in the June 2022 quarter |
| Net income | $946,000 | $675,000 in the June 2022 quarter |
| Operating cash flow | $1.2 million | $387,000 in the June 2022 quarter |
- Net income rose 40.1% year over year. The quarter included a $27,000 credit to provision for credit losses, compared with a $152,000 provision in the prior-year quarter; noninterest income also increased.
- Interest expense increased to $1.4 million from $288,000, largely reflecting higher deposit rates and certificate-of-deposit costs. Net interest income was nearly unchanged despite higher interest income.
- Net interest margin was 3.15% in the average-balance table, versus 3.28% a year earlier; MD&A separately states 3.16% for the current quarter. Net interest rate spread declined to 2.70% from 3.47%. The filing does not reconcile the 3.15%/3.16% margin difference.
- Noninterest income was $652,000, up 15.2%; noninterest expense was $2.8 million, essentially unchanged. The effective tax rate was 19.7%, versus 22.1%.
- Cash flow from investing activities was negative $12.9 million, mainly from loan growth and securities purchases; financing activities provided $11.9 million, primarily from deposit growth. Cash increased $112,000 during the quarter.
Material changes and credit quality
- Consumer and other loans grew $6.2 million, or 24.5%, with management attributing the increase to consumer dental-financing loans. Residential mortgage balances were relatively unchanged as the Association resumed loan sales; it sold $2.4 million of mortgage loans during the quarter.
- Noninterest-bearing deposits increased $10.5 million. Management believes some new accounts followed the announcement and anticipation of the proposed conversion; certificates of deposit also grew as customers sought higher yields.
- The Association adopted CECL on April 1, 2023. Adoption increased the loan allowance by $299,000, established a $210,000 allowance for unfunded commitments, and reduced opening retained earnings by $402,000 after tax. The ending allowance for credit losses was $5.7 million, or 1.56% of gross loans.
- At June 30, nonaccrual loans were $606,000, down from $850,000 at March 31. Loans at least 90 days past due and still accruing were $137,000. The filing reports no loan modifications to borrowers experiencing financial difficulty in the quarter.
- Available-for-sale securities had $6.6 million of gross unrealized losses at June 30, principally attributed to interest rates and market conditions. Management said it did not intend, and was not likely to be required, to sell the securities before recovery.
Liquidity, debt, and capital
- No borrowings were outstanding at June 30. Available FHLB borrowing capacity was approximately $40.6 million, subject to the FHLB’s discretion; additional private-bank borrowing capacity was $5.0 million. The Association also cited potential access to the Federal Reserve’s Bank Term Funding Program.
- Regulatory capital ratios were above the stated well-capitalized thresholds: total risk-based capital 13.58%, Tier 1 risk-based capital 12.32%, common equity Tier 1 12.32%, and Tier 1 leverage 10.07%.
- Approximately $8.1 million of brokered deposits were outstanding, maturing in November 2023. Certificates of deposit totaled $91.3 million, including $29.2 million in jumbo certificates. The filing identifies deposit flows, competition, and the cost and availability of funding as important liquidity considerations.
Outlook, risks, and unusual items
- The filing provides no numerical earnings, revenue, or margin guidance. Management describes loan growth, deposit funding, liquidity, and interest-rate risk management as ongoing priorities.
- Interest-rate risk is material. The modeled one-year net interest income impact was negative 1.64% for a gradual 200-basis-point rate increase and positive 1.27% for a 200-basis-point decrease. The modeled market value of equity fell 22.93% for an immediate 200-basis-point decrease. Management cautions that these models rely on assumptions and are not precise forecasts.
- Other stated risks include economic and real-estate-market deterioration, loan delinquencies and losses, deposit competition and funding access, inflation and rate changes, securities-market movements, regulatory changes, cyber and operational risks, and third-party service disruptions. Management notes future CECL estimates could require material provision increases and may be reviewed by the OCC.
- The mutual-to-stock conversion plan was adopted June 6, 2023, conditionally approved by the Federal Reserve and OCC, and remained subject to member approval. The estimated conversion cost was $1.9 million; $608,000 had been paid and deferred at June 30. If the conversion is unsuccessful, those costs are to be expensed. The proposed stock price is $10 per share, with an employee stock ownership plan expected to subscribe for up to 8% of shares sold.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material pending litigation or significant subsequent event requiring adjustment or disclosure.
Important facts for investors to verify
- Conversion status, member approval, regulatory conditions, offering size, and treatment of deferred conversion costs.
- Deposit pricing, certificate maturities, brokered-deposit renewal, and the practical availability of contingent borrowing sources.
- Loan growth composition and credit trends, including consumer dental-financing exposure, nonaccruals, delinquencies, and CECL reserve assumptions.
- Interest-rate sensitivity and the effect of deposit repricing on net interest margin; reconcile the filing’s 3.15% versus 3.16% margin figures.
- Unrealized securities losses and the assumptions supporting management’s ability and intent to hold securities through recovery.
- The holding company had no outstanding common shares as of September 27, 2023, according to the cover page; verify subsequent offering and ownership developments.