Business context and reporting period
Central Plains Bancshares, Inc. filed this Form 10-Q for the quarter ended September 30, 2023. The company was formed as the holding company for Home Federal Savings and Loan Association of Grand Island. The reorganization was not complete at September 30, so the reported financial statements are those of the Association and its subsidiary; the conversion was completed October 19, 2023. The Association is a Nebraska-based lender focused on mortgage, consumer, commercial real estate and commercial lending, funded primarily by deposits.
Financial performance and condition
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Interest and dividend income | $5.0 million, up 24.6% | $9.8 million, up 28.7% |
| Net interest income | $3.5 million, approximately flat | $6.8 million, approximately flat |
| Net income | $973,000, down 9.2% | $1.9 million, up 9.8% |
| Net interest margin | 3.32%, down 19 basis points | 3.26%, down 13 basis points |
| Net interest rate spread | 2.84%, down 49 basis points | 2.75%, down 50 basis points |
At September 30, total assets were $453.9 million, up 3.7% from March 31. Gross loans held for investment were $367.0 million, up 3.8%; net loans were $361.4 million. Total deposits were $407.1 million, up 4.1%, including $102.1 million of noninterest-bearing deposits. Cash and cash equivalents were $21.4 million, versus $16.6 million at March 31. Equity was $38.5 million, compared with $38.7 million.
Six-month operating cash flow was $1.6 million; investing cash outflow was $12.2 million, principally reflecting loan growth; financing cash inflow was $15.4 million, principally from deposit growth. Cash and cash equivalents increased by $4.8 million. The Association had no borrowings at September 30 and reported approximately $40.9 million of remaining FHLB borrowing availability, subject to FHLB discretion, plus $5.0 million of capacity at a private bankers’ bank.
Allowance for credit losses was $5.7 million, or 1.54% of total loans. Regulatory capital ratios were above the stated well-capitalized thresholds: total risk-based capital was 13.43%, Tier 1 risk-based capital 12.17%, and Tier 1 leverage 10.25%. Available-for-sale securities were $54.7 million, with $8.1 million of gross unrealized losses and accumulated other comprehensive loss of $6.8 million.
Material changes versus comparable periods
- In the September quarter, net income declined as higher noninterest expense and taxes and slightly lower noninterest income more than offset increased net interest income after credit-loss provision.
- For the six months, net income increased, supported by higher interest income and noninterest income, partly offset by increased expenses and taxes.
- Higher market rates lifted loan yields but also sharply increased deposit costs. Six-month interest expense rose to $3.0 million from $808,000, while net interest income remained nearly unchanged.
- Deposits increased $16.1 million from March 31. Management attributed the increase in noninterest-bearing accounts partly to new accounts opened in anticipation of the mutual-to-stock conversion, and higher certificate balances partly to customers seeking higher yields.
- Effective April 1, 2023, the Association adopted CECL. The transition reduced retained earnings by $402,000, including an increase in the loan allowance and an allowance for unfunded commitments. The six-month credit-loss provision was a $92,000 recovery, compared with a $320,000 provision in the prior-year period.
Outlook, commentary and risks
No specific earnings or financial guidance is provided. Management emphasizes interest-rate risk, deposit funding and liquidity, loan quality, and the uncertainty inherent in estimating expected credit losses. Its rate-sensitivity model estimated that a gradual 200-basis-point rate increase would reduce one-year net interest income by 0.98%; an instantaneous 200-basis-point increase would reduce estimated market value of equity by 6.52%. Management cautions that these models rely on assumptions and are not precise forecasts.
Key risks identified include economic deterioration and unemployment, real estate values and market conditions, competition for loans and deposits, higher funding costs, changes in interest rates, credit losses, securities-market changes, regulatory requirements, and operational and cybersecurity risks. Management said it did not expect routine legal proceedings to materially affect financial condition or results. No modifications to loans for borrowers experiencing financial difficulty were reported for the six-month period.
The stock offering was completed October 19, 2023: 4,130,815 shares were sold at $10 per share for approximately $41.3 million in gross proceeds. As of September 30, $35.5 million from potential investors was held in a Bank deposit account. Trading on Nasdaq under CPBI began October 20.
Important facts for investors to verify
- Whether deposit growth and funding costs remain favorable as certificates mature; $91.1 million of certificates were scheduled to mature within 12 months after September 30, and $8.1 million of brokered deposits matured in November 2023.
- Whether loan credit quality and the $5.7 million CECL allowance remain adequate; nonaccrual loans were $577,000 at September 30, and management noted future estimates or regulatory review could require allowance changes.
- Whether the margin pressure from rising deposit costs persists, particularly given the decline in net interest margin and spread year over year.
- How unrealized securities losses, reported at $8.1 million gross, evolve and whether liquidity needs could require securities sales before recovery.
- How the completed conversion proceeds, offering-related costs, and post-conversion capital position are reflected in subsequent reports; the filing reports $928,000 of conversion costs paid and deferred at September 30.