# Central Plains Bancshares, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Central Plains Bancshares, Inc.](/companies/cpbi.md) (CIK 1979332)
- Form: 10-Q
- Filed: 2023-09-27
- Accepted by EDGAR: Sep 27, 2023, 12:07 ET
- Period: 2023-06-30
- Accession: 0000950170-23-050079
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1979332/000095017023050079/cpbi-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1979332/000095017023050079/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $1.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $232.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $946.0k | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2023-04-01 to 2023-06-30 | $1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-04-01 to 2023-06-30 | $47.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $16.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $450.4m | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $411.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $38.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,029 characters.

### General

Management’s discussion and analysis of financial condition and results of operations at June 30, 2023 and March 31, 2023 and for the three months ended June 30, 2023 and 2022 is intended to assist in understanding the financial condition and results of operations of Home Federal Savings and Loan Association of Grand Island and Subsidiary. 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.

### Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

- statements of our goals, intentions and expectations;
- statements regarding our business plans, prospects, growth and operating strategies;
- statements regarding the quality of our loan and investment portfolios; and
- estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

- general economic conditions, including any recessionary conditions and/or increases in unemployment, either nationally or in our market areas, that are worse than expected;
- changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;
- our ability to access cost-effective funding and to maintain adequate liquidity, primarily through deposits;
- fluctuations in real estate values and in the conditions of the residential real estate, commercial real estate, and agricultural real estate markets;
- demand for loans, deposits and non-banking services in our market area;
- our ability to implement and change our business strategies;
- competition among depository and other financial institutions, including with respect to our ability to charge overdraft fees;
- inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and will make;
- adverse changes in the securities markets;
- changes in laws or government regulations or policies affecting financial institutions and/or their holding companies, including changes in regulatory fees, capital requirements and insurance premiums;
- monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
- changes in the quality or composition of our loan or investment portfolios;
- technological changes that may be more difficult or expensive than expected;
- the inability of third-party providers to perform as expected;
- a failure or breach of our operational or information security systems or infrastructure, including cyberattacks;
- our ability to manage market risk, credit risk and operational risk;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
- changes in consumer spending, borrowing and savings habits;
- changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
- changes in accounting and/or tax estimates;
- the effects of any national or global conflict, war or act of terrorism;
- the ability of the U.S. Government to remain open, function properly and manage federal debt limits;
- our compensation expense associated with equity allocated or awarded to our directors and/or employees;
- the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers;
- our ability to attract and retain key employees; and
- changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

### Critical Accounting Policies

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.

The estimates and assumptions that we use are based on historical experience, future forecasts and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. See Note 1, "Basis of Presentation" for additional information on the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans and investment securities, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses to be a critical accounting policy. Other than the adoption of ASC 326, there have been no significant changes to the Association's critical accounting policies since March 31, 2023.

### Comparison of Financial Condition at June 30, 2023 and March 31, 2023

***Total Assets.*** Total assets increased $12.6 million, or 2.9%, to $450.4 million at June 30, 2023 from $437.8 million at March 31, 2023. The increase was due to an increase in loans.

***Cash and Cash Equivalents.*** Cash and cash equivalents increased $112,000 to $16.7 million at June 30, 2023 from $16.6 million at March 31, 2023. We used excess cash, including cash provided by our deposit growth, described below, to fund loan growth and to invest in securities. We regularly review our liquidity position based on alternative uses of available funds as well as market conditions..

***Investment Securities Available for Sale.*** Securities available-for-sale increased $794,000, or 1.4%, to $58.6 million at June 30, 2023 from $57.8 million at March 31, 2023. We used excess cash provided by our deposit growth to primarily fund loan growth and, to a lesser extent, to invest in securities.

***Gross Loans.*** Gross loans held for investment increased $11.7 million, or 3.3%, to $365.4 million at June 30, 2023 from $353.7 million at March 31, 2023. Consumer and other loans increased $6.2 million, or 24.5%, to $31.7 million at June 30, 2023 from $25.4 million at March 31, 2023, due to an increase in loans for consumer dental financing. One- to four-family residential real estate loans remained relatively unchanged as we resumed loan sales during the quarter ended June 30, 2023.

***Total Deposits.*** Total deposits increased $12.3 million, or 3.1%, to $403.2 million at June 30, 2023 from $391.0 million at March 31, 2023. Noninterest-bearing demand deposits increased $10.5 million, or 14.3%, to $83.8 million at June 30, 2023 from $73.2 million at March 31, 2023, as we believe that new customers opened deposit accounts following the announcement and in anticipation of our proposed mutual-to-stock conversion. Certificates of deposit increased $4.4 million, or 6.2%, to $74.6 million at June 30, 2023 from $70.2 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 each of June 30, 2023 and March 31, 2023.

***Borrowings.*** We had no borrowings at June 30, 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 Federal Home Loan Bank advances as needed to support increased loan funding.

***Total Equity.*** Total equity increased by $38,000 and was $38.7 million at each of June 30, 2023 and March 31, 2023. Net income of $946,000 for the three months ended June 30, 2023 was offset by an increase in accumulated other comprehensive loss related to unrealized losses on securities available-for-sale of $506,000 for the three months ended June 30, 2023, as well as a reduction in equity of $402,000 resulting from our increasing our allowance for credit losses in connection with our adopting the Current Expected Credit Losses (CECL) accounting methodology effective April 1, 2023.

### Average Balance Sheets and Related Yields and Rates

The following table sets forth average balance sheets, average yields and costs, and certain other information at the date and for the years 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. Deferred loan fees for the quarter ended June 30, 2023 and 2022 were not material.

*(Dollars in thousands)*

| Interest-earning assets: | For the Three Months Ended June 30, 2023 Average Outstanding Balance | Interest | Average Yield/Rate | 2022 Average Outstanding Balance | Interest | Average Yield/Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans | $358,535 | $4,320 | 4.82% | $324,962 | $3,222 | 3.97% |
| Mortgage-backed securities | 52,231 | 343 | 2.63% | 63,290 | 299 | 1.89% |
| Investment securities (1) | 7,631 | 45 | 2.36% | 8,174 | 45 | 2.20% |
| Interest-bearing deposits and other | 4,554 | 58 | 5.09% | 4,159 | 9 | 0.87% |
| Total interest-earning assets | 422,951 | 4,766 | 4.51% | 400,585 | 3,575 | 3.57% |
| Non-interest-earning assets | 15,633 |  |  | 15,183 |  |  |
| Total assets | $438,584 |  |  | $415,768 |  |  |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Savings accounts | $46,324 | $27 | 0.23% | $54,681 | $8 | 0.06% |
| Money market accounts | 24,887 | 89 | 1.43% | 28,141 | 20 | 0.28% |
| NOW accounts | 150,367 | 530 | 1.41% | 161,015 | 115 | 0.29% |
| Certificates of deposit | 73,668 | 638 | 3.46% | 29,355 | 76 | 1.04% |
| Individual retirement accounts | 15,497 | 78 | 2.01% | 15,689 | 49 | 1.25% |
| Total interest-bearing deposits | 310,743 | 1,362 | 1.75% | 288,881 | 268 | 0.37% |
| Borrowings | 5,107 | 69 | 5.40% | 5,067 | 20 | 0.39% |
| Total interest-bearing liabilities | 315,850 | 1,431 | 1.81% | 293,948 | 288 | 0.10% |
| Other non-interest-bearing liabilities | 83,836 |  |  | 82,478 |  |  |
| Total liabilities | 399,686 |  |  | 376,426 |  |  |
| Total equity | 38,898 |  |  | 39,342 |  |  |
| Total liabilities and total equity | $438,584 |  |  | $415,768 |  |  |
| Net interest income |  | $3,335 |  |  | $3,287 |  |
| Net interest rate spread (2) |  |  | 2.70% |  |  | 3.47% |
| Net interest-earning assets (3) | $107,101 |  |  | $106,637 |  |  |
| Net interest margin (4) |  |  | 3.15% |  |  | 3.28% |
| Average interest-earning assets to interest-bearing liabilities | 133.91% |  |  | 136.28% |  |  |

(1) Represents investments in municipal bonds.

(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3) Net interest-earning assets repreent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

### Comparison of Operating Results for the Three Months Ended June 30, 2023 and June 30, 2022

***General.*** Net income increased $271,000, or 40.1%, to $946,000 for the three months ended June 30, 2023, compared to $675,000 for the three months ended June 30, 2022. The increase was due primarily to a decrease in the provision for credit losses and an increase in noninterest income, partially offset by an increase in income tax expense.

***Interest Income.*** Interest income increased $1.2 million, or 33.3%, to $4.8 million for the three months ended June 30, 2023 from $3.6 million for the three months ended June 30, 2022. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest income. Interest income on loans increased $1.1 million, or 34.1%, to $4.3 million for the three months ended June 30, 2023 from $3.2 million for the three months ended June 30, 2022. Our average balance of loans increased $33.6 million, or 10.3%, to $358.5 million for the three months ended June 30, 2023 from $325.0 million for the three months ended June 30, 2022. The increase is due to our continued focus on growing our loan portfolio consistent with maintaining asset quality. During the fiscal year ended March 31, 2023, we implemented a strategy to retain our one- to four-family residential real estate loan production in portfolio rather than sell these loans on the secondary market, which increased our loan portfolio during the course of the fiscal year prior to our resuming loan sales in the quarter ended June 30, 2023. In addition, we opened a loan production office in Lincoln, Nebraska, which provided loan growth in both our residential real estate and commercial real estate loan portfolios. Our yield on loans increased 85 basis points to 4.82% for the three months ended June 30, 2023 from 3.97% for the three months ended June 30, 2022. We have a significant amount of fixed-rate residential real estate loans where the interest rates did not increase commensurate with the increase in market interest rates. In addition, not all of our adjustable-rate loans reprice immediately, such that changes in market interest rates take a period of time to affect our portfolio yields.

***Interest Expense.*** Interest expense increased $1.1 million to $1.4 million for the three months ended June 30, 2023 compared to $288,000 for the three months ended June 30, 2022, due primarily to an increase in interest expense on deposits.

The increase in interest expense on deposits was due to an increase in average balances of and rates on certificates of deposit, and an increase in rates on other types of deposits. Interest expense on certificates of deposit increased $562,000 to $638,000 for the three months ended June 30, 2023 from $76,000 for the three months ended June 30, 2022, while the rate paid on certificates of deposit increased 242 basis points to 3.46% for the three months ended June 30, 2023 from 1.04% for the three months ended June 30, 2022. We believe that the increase in average balance resulted from customers seeking higher-yield deposit products during the current interest rate environment. Interest paid on other deposit types also increased (particularly interest on NOW accounts, which increased $414,000, due to an increase in rates).

***Net Interest Income.*** Net interest income was $3.3 million for each of the three months ended June 30, 2023 and 2022, as a result of our interest income and interest expense increasing by similar amounts. Our interest rate spread decreased 77 basis points to 2.70% for the three months ended June 30, 2023, compared to 3.47% for the three months ended June 30, 2022, and our net interest margin decreased 12 basis points to 3.16% for the three months ended June 30, 2023 compared to 3.28% for the three months ended June 30, 2022. Our net interest-earning assets increased to $107.0 million for the three months ended June 30, 2023 from $106.6 million for the three months ended June 30, 2022.

***Provision for Credit Losses.*** Effective April 1, 2023, we adopted the CECL accounting methodology. As a result, we now determine periodic estimates of lifetime expected credit losses on loans and unfunded commitments and recognize the expected credit losses as allowances for credit losses. Previously, provisions for loan losses were charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements.

We recorded a reduction of allowance for credit losses of $27,000 for the three months ended June 30, 2023 compared to a provision for loan losses of $152,000 for the three months ended June 30, 2022. In addition, we recognized a reduction in beginning retained earnings of $402,000 related to an increase in our allowance for credit losses in connection with our adoption of CECL. Our allowance for credit losses was $5.7 million at June 30, 2023 compared to an allowance for loan losses of $5.4 million at March 31, 2023 and $5.1 million at June 30, 2022. The ratio of our allowance for credit/loan losses to total loans was 1.56% at June 30, 2023 compared to 1.53% at March 31, 2023 and 1.54% at June 30, 2022, while the allowance for credit/loan losses to non-performing loans was 767.03% at June 30, 2023 compared to 526.46% at March 31, 2023 and 432.71% at June 30, 2022. We had charge-offs of less than $1,000 and recoveries of $20,000 during the three months ended June 30, 2023, compared to charge-offs of less than $1,000 and no recoveries during the three months ended June 30, 2022.

To the best of our knowledge, we have recorded all lifetime expected credit losses on loans and unfunded commitments at June 30, 2023. However, future changes could result in material increases in our provision for credit losses. In addition, the OCC, as an integral part of its examination process, will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses.

***Non-Interest Income.*** Noninterest income increased $86,000, or 15.2%, to $652,000 for the three months ended June 30, 2023 from $566,000 for the three months ended June 30, 2022. Service charges on deposit accounts increased $33,000, or 21.4%, to $187,000 for the three months ended June 30, 2023 compared to $154,000 for the three months ended June 30, 2022, primarily due to an increase in overdraft income and debit card usage. Gain on sale of loans increased $24,000 to $41,000 for the three months ended June 30, 2023 from $17,000 for the three months ended June 30, 2022, as we resumed loan sales during the quarter ended June 30, 2023. We sold $2.4 million of mortgage loans during the quarter ended June 30, 2023 compared to $980,000 of such sales during the quarter ended June 30, 2022.

***Non-Interest Expense.*** Noninterest expense increased $1,000 and was $2.8 million for each of the three months ended June 30, 2023 and 2022. Data processing expense decreased $36,000, or 7.5%, to $443,000 for the three months ended June 30, 2023 from $479,000 for the three months ended June 30, 2022. Federal deposit insurance premiums increased $41,000 to $81,000 for the three months ended June 30, 2023 compared to $40,000 for the three months ended June 30, 2022, due to a combination of an increase in deposits and an increase in federal deposit insurance premium rates.

***Income Tax Expense.*** We recognized income tax expense of $232,000 and $191,000 for the three months ended June 30, 2023 and 2022, respectively, resulting in effective rates of 19.7% and 22.1%. The most significant difference between our effective tax rate and statutory rates results from investment partnership tax credits.

### Management of Market Risk

***General.*** Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. All directors participate in discussions during the regular board meetings evaluating the interest rate risk inherent in our assets and liabilities, and the level of risk that is appropriate. These discussions take into consideration our business strategy, operating environment, capital, liquidity and performance objectives consistent with the policy and guidelines approved by them.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we are using to manage interest rate risk are:

- maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;
- maintaining adequate levels of liquidity;
- selling longer-term, fixed-rate loans, subject to market conditions; and
- continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or adjustable rates.

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

We have not engaged in hedging activities, such as engaging in futures or options. We do not anticipate entering into similar transactions in the future.

***Net Interest Income Analysis.*** We analyze our sensitivity to changes in interest rates through a third-party net interest income ("NII") model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period and then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases gradually by up to 400 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in the interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below.

The following table sets forth, at June 30, 2023, the calculation of the estimated changes in our NII that would result from the designated changes in the United States Treasury yield curve over a one-year period.

| Changes in Interest Rates (basis points)(1) | NII Year 1 Forecast (Dollars in thousands) | Change in Net Interest Income Year One (% change from year one base) |
| ---: | ---: | ---: |
| 400 | $15,071 | (3.31)% |
| 300 | 15,197 | (2.50) |
| 200 | 15,331 | (1.64) |
| 100 | 15,465 | (0.78) |
| Base | 15,587 | — |
| (100) | 15,685 | 0.63 |
| (200) | 15,785 | 1.27 |
| (300) | 15,932 | 2.21 |
| (400) | 16,107 | 3.34 |

(1) Assumes a gradual change in interest rates at all maturities over a one-year period.

The table above indicates that at June 30, 2023, we would have experienced a 1.64% decrease in NII in the event of a gradual, one-year 200 basis point increase in market interest rates and a 1.27% increase in NII in the event of a gradual, one-year 200 basis point decrease in market interest rates.

### 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.

The following table sets forth, at June 30, 2023, the calculation of the estimated changes in our MVE that would result from the designated immediate changes in the United States Treasury yield curve.

*(Dollars in thousands)*

| Changes in Interest Rates (basis points)(1) | Estimated MVE(2) | Estimated Increase (Decrease) in MVE Dollar Change | Percent Change | MVE as a Percentage of Present Value of Assets(3) MVE Ratio(4) | Increase (Decrease) (basis points) |
| --- | ---: | ---: | ---: | ---: | ---: |
| 400 bp | $62,098 | $(3,738) | (5.68)% | 17.71% | 146 |
| 300 bp | 63,939 | (1,897) | (2.88) | 17.61 | 136 |
| 200 bp | 64,619 | (1,217) | (1.85) | 17.18 | 93 |
| 100 bp | 64,083 | (1,753) | (2.66) | 16.45 | 20 |
| — | 65,836 | — | — | 16.25 | — |
| (100) bp | 59,536 | (6,300) | (9.57) | 14.14 | (211) |
| (200) bp | 50,739 | (15,097) | (22.93) | 11.67 | (458) |
| (300) bp | 39,477 | (26,359) | (40.04) | 8.80 | (745) |
| (400) bp | 40,143 | (25,693) | (39.03) | 8.69 | (756) |

(1) Assumes an immediate uniform change in interest rate at all maturities.

(2) MVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4) MVE Ratio represents MVE divided by the present value of assets.

The table above indicates that an June 30, 2023, we would have experienced a 1.85% decrease in MVE in the event of an instantaneous parallel 200 basis point increase in the market interest rates and a 22.93% decrease in MVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in NII and MVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For instance, the NII and MVE tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. However, the shape of the yield curve changes constantly and the value and pricing of our assets and liabilities, including our deposits, may not closely correlate with changes in market interest rates. Accordingly, although the NII and MVE tables may provide an indication of our interest rate risk exposure at a particular point in time and in the context of a particular yield curve, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on NII and MVE and will differ from actual results.

NII and MVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

### Liquidity and Capital Resources

***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 Federal Home Loan Bank of Topeka. The Association had remaining availability for Federal Home Loan Bank (FHLB) borrowings of approximately $40.6 million at June 30, 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 June 30, 2023. We could significantly increase our borrowing capacity from the Federal Home Loan Bank of 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.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period.

Our cash flows are compromised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For the three months ended June 30, 2023, cash flows from operations, 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, primary due to net income of $946,000. Net cash used in investing activities amount 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 the three months ended June 30, 2022, cash flows from operations, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $11.0 million. Net cash provided by operating activities amounted to $387,000, primary due to net income of $675,000. Net cash used in investing activities amount to $13.2 million, primarily due to a net increase in loans of $17.2 million, partially offset by proceeds from paydowns of available-for-sale investment securities of $4.2 million. Net cash provided by financing activities amounted to $1.8 million, primarily due to a net increase in proceeds from short-term borrowing of $15.0 million, offset by a decrease in deposits of $12.8 million. For further information, see the statements of cash flows contained in the consolidated financial statements.

### Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this prospectus have been prepared according to GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

## Market risk

As filed, 209 characters.

Information with respect to qualitative disclosures about market risk can be found in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Management of Market Risk."

## Controls and procedures

As filed, 1,088 characters.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by the quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Filed Sep 27, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-050079. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.