Isabella Bank Corp(ISBA) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This part contains the unaudited interim condensed consolidated financial statements and management's discussion and analysis of Isabella Bank Corporation for the reporting period Item 1. Financial Statements This section presents the unaudited interim condensed consolidated financial statements of Isabella Bank Corporation, including balance sheets, income statements, statements of comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Interim Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheet Highlights (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Assets | | | | Total cash and cash equivalents | $25,218 | $33,672 | | AFS securities, at fair value | $517,585 | $528,148 | | Net loans | $1,352,118 | $1,336,355 | | TOTAL ASSETS | $2,057,576 | $2,058,968 | | Liabilities | | | | Total deposits | $1,768,307 | $1,723,695 | | Total borrowed funds | $72,355 | $116,136 | | Total liabilities | $1,856,902 | $1,856,566 | | Shareholders' Equity | | | | Total shareholders' equity | $200,674 | $202,402 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,057,576 | $2,058,968 | Interim Condensed Consolidated Statements of Income (Unaudited) Condensed Consolidated Statements of Income Highlights (Three Months Ended March 31, Dollars in thousands except per share amounts) | Item | 2024 | 2023 | | :--------------------------------- | :----- | :----- | | Total interest income | $21,380 | $18,595 | | Total interest expense | $8,138 | $3,244 | | Net interest income | $13,242 | $15,351 | | Provision for credit losses | $392 | $41 | | Total noninterest income | $3,468 | $3,293 | | Total noninterest expenses | $12,676 | $12,198 | | Income before federal income tax expense | $3,642 | $6,405 | | Federal income tax expense | $511 | $1,084 | | NET INCOME | $3,131 | $5,321 | | Basic earnings per common share | $0.42 | $0.70 | | Diluted earnings per common share | $0.42 | $0.70 | | Cash dividends per common share | $0.28 | $0.28 | Interim Condensed Consolidated Statements of Comprehensive Income (Unaudited) Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net income | $3,131 | $5,321 | | Unrealized gains (losses) on AFS securities, net of tax | $(2,294) | $6,880 | | Comprehensive income (loss) | $837 | $12,201 | Interim Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - Total shareholders' equity decreased from $202,402 thousand at January 1, 2024, to $200,674 thousand at March 31, 2024, primarily due to cash dividends paid and common stock repurchases, partially offset by net income and issuance of common stock[21] Key Changes in Shareholders' Equity (Three Months Ended March 31, 2024, Dollars in thousands) | Item | Amount | | :------------------------------------------ | :----- | | Balance, January 1, 2024 | $202,402 | | Comprehensive income (loss) | $837 | | Issuance of common stock | $447 | | Common stock repurchased | $(740) | | Cash dividends paid | $(2,095) | | Balance, March 31, 2024 | $200,674 | Interim Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, Dollars in thousands) | Activity Type | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $3,341 | $7,569 | | Net cash provided by (used in) investing activities | $(9,796) | $11,802 | | Net cash provided by (used in) financing activities | $(1,999) | $40,428 | | Increase (decrease) in cash and cash equivalents | $(8,454) | $59,799 | | Cash and cash equivalents at end of period | $25,218 | $98,723 | Note 1 – Basis of Presentation - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all footnotes required for complete annual statements[29] - Operating results for Q1 2024 are not necessarily indicative of the full year[29] Note 2 – AFS Securities AFS Securities Fair Value and Unrealized Losses (Dollars in thousands) | Category | March 31, 2024 Fair Value | December 31, 2023 Fair Value | Gross Unrealized Losses (March 31, 2024) | | :--------------------------------- | :-------------------------- | :--------------------------- | :--------------------------------------- | | U.S. Treasury | $214,226 | $214,801 | $16,888 | | States and political subdivisions | $90,470 | $92,876 | $3,904 | | Mortgage-backed securities | $31,044 | $32,815 | $2,718 | | Collateralized mortgage obligations | $171,831 | $177,775 | $10,711 | | Corporate | $7,001 | $6,950 | $1,149 | | Total | $517,585 | $528,148 | $35,557 | - The unrealized loss on the AFS securities portfolio increased due to rising short-term and intermediate-term interest rates[35] - Management does not believe any securities are credit-impaired and does not intend to sell them before recovery of cost[36] Note 3 – Loans and ACL Loan Portfolio Composition (Dollars in thousands) | Loan Type | March 31, 2024 Balance | Percent of Total (2024) | December 31, 2023 Balance | Percent of Total (2023) | | :--------------------------------- | :--------------------- | :---------------------- | :------------------------ | :---------------------- | | Commercial and industrial | $226,281 | 16.58% | $209,738 | 15.54% | | Commercial real estate | $561,123 | 41.09% | $564,244 | 41.82% | | Advances to mortgage brokers | $29,688 | 2.17% | $18,541 | 1.37% | | Agricultural | $93,695 | 6.86% | $99,994 | 7.41% | | Residential real estate | $356,658 | 26.12% | $356,418 | 26.41% | | Consumer | $98,063 | 7.18% | $100,528 | 7.45% | | Total | $1,365,508 | 100.00% | $1,349,463 | 100.00% | - Nonaccrual loans increased to $1,283 thousand at March 31, 2024, from $982 thousand at December 31, 2023, primarily driven by an increase in secured commercial and industrial loans and commercial mortgage owner-occupied loans[47] Allowance for Credit Losses (ACL) Activity (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | | :--------------------------------- | :----- | :----- | | ACL at beginning of period | $13,108 | $9,850 | | Charge-offs | $(191) | $(101) | | Recoveries | $145 | $110 | | Credit loss expense | $328 | $37 | | ACL at end of period | $13,390 | $12,640 | Note 4 – Borrowed Funds Borrowed Funds Balances (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | Securities sold under agreements to repurchase | $42,998 | $46,801 | | FHLB advances | $— | $40,000 | | Subordinated debt, net | $29,357 | $29,335 | | Total borrowed funds | $72,355 | $116,136 | - The company had no FHLB advances at March 31, 2024, compared to $40,000 thousand at December 31, 2023, indicating a paydown of these higher-cost borrowings[13][82] - Subordinated notes bear a fixed interest rate of 3.25% until June 15, 2026, then reset quarterly to a floating rate of 3-month SOFR plus 256 basis points until maturity on June 15, 2031[83] Note 5 – Computation of Earnings Per Common Share Earnings Per Common Share (Three Months Ended March 31, Dollars in thousands except per share amounts) | Item | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net income | $3,131 | $5,321 | | Basic earnings per common share | $0.42 | $0.70 | | Diluted earnings per common share | $0.42 | $0.70 | | Average number of common shares outstanding for basic calculation | 7,493,334 | 7,556,585 | | Average number of common shares outstanding used to calculate diluted earnings per common share | 7,507,739 | 7,634,417 | Note 6 – Restricted Stock Plan - The Restricted Stock Plan (RSP) awards restricted stock bonuses to eligible employees (currently CEO and President) based on annual performance targets, with vesting conditions and clawback provisions[87] Nonvested Restricted Stock Awards (Three Months Ended March 31) | Item | 2024 Number of Shares | 2024 Fair Value ($) | 2023 Number of Shares | 2023 Fair Value ($) | | :--------------------------------- | :-------------------- | :------------------ | :-------------------- | :------------------ | | Balance, January 1 | 27,072 | 592 | 27,072 | 592 | | Granted | 6,686 | 130 | 3,705 | 91 | | Vested | (16,240) | (345) | — | — | | Balance, March 31 | 17,518 | 377 | 30,777 | 683 | - Compensation expense related to RSP awards was $25 thousand for Q1 2024, down from $42 thousand in Q1 2023[88] - Remaining unrecognized compensation expense is $202 thousand, expected to be recognized over 2.11 years[88] Note 7 – Other Noninterest Expenses Other Noninterest Expenses (Three Months Ended March 31, Dollars in thousands) | Expense Category | 2024 | 2023 | | :--------------------------------- | :----- | :----- | | Audit, consulting, and legal fees | $513 | $535 | | ATM and debit card fees | $469 | $400 | | FDIC insurance premiums | $252 | $228 | | Marketing costs | $244 | $245 | | Memberships and subscriptions | $228 | $240 | | Loan underwriting fees | $183 | $215 | | Donations and community relations | $182 | $184 | | Director fees | $176 | $204 | | All other | $708 | $756 | | Total other noninterest expenses | $2,955 | $3,007 | Note 8 – Federal Income Taxes Federal Income Tax Expense Reconciliation (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Income taxes at statutory rate (21%) | $765 | $1,345 | | Effect of nontaxable income | $(178) | $(202) | | Effect of nondeductible expenses | $8 | $9 | | Effect of tax credits | $(84) | $(68) | | Federal income tax expense | $511 | $1,084 | Note 9 – Accumulated Other Comprehensive Income Changes in AOCI (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Balance, January 1 | $(25,896) | $(37,194) | | OCI before reclassifications | $(2,926) | $8,610 | | Tax effect | $632 | $(1,729) | | OCI, net of tax | $(2,294) | $6,880 | | Balance, March 31 | $(28,190) | $(30,314) | - Unrealized losses on AFS securities, net of tax, contributed $(2,294) thousand to OCI in Q1 2024, compared to unrealized gains of $6,880 thousand in Q1 2023[92][93] Note 10 – Fair Value - Fair value measurements are categorized into three levels based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[94] Assets Measured at Fair Value on a Recurring Basis (March 31, 2024, Dollars in thousands) | Item | Total | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :---- | :------ | :------ | :------ | | AFS securities | $517,585 | $— | $517,585 | $— | | Collateral dependent (net of ACL) | $1,168 | $— | $— | $1,168 | | Total | $518,753 | $— | $517,585 | $1,168 | - Collateral dependent loans measured at fair value on a nonrecurring basis use discounted value techniques with unobservable inputs (Level 3), applying discounts of 20% for real estate, 25%-35% for equipment, and 50% for accounts receivable as of March 31, 2024[101] Note 11 – Operating Segments - Isabella Bank, the Corporation's subsidiary, represents approximately 90% or more of consolidated total assets and operating results, thus no additional segment reporting is presented[107] Note 12 – Parent Company Only Financial Information Parent Company Only Condensed Balance Sheets (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | TOTAL ASSETS | $230,386 | $231,826 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $230,386 | $231,826 | Parent Company Only Condensed Statements of Income (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | | :--------------------------------- | :----- | :----- | | Total income | $6,111 | $5,025 | | Total expenses | $895 | $825 | | Net income | $3,131 | $5,321 | Parent Company Only Condensed Statements of Cash Flows (Three Months Ended March 31, Dollars in thousands) | Activity Type | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $5,700 | $4,706 | | Net cash provided by (used in) financing activities | $(2,808) | $(3,049) | | Increase (decrease) in cash and cash equivalents | $2,892 | $1,657 | | Cash and cash equivalents at end of period | $27,902 | $10,182 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2024, compared to the same period in 2023 and December 31, 2023. It highlights key trends in net interest income, loan growth, credit quality, deposit changes, and capital adequacy Executive Summary Q1 2024 vs. Q1 2023 Performance Highlights (Dollars in thousands except per share amounts) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--------------------------------- | :------ | :------ | :--------- | :--------- | | Net Income | $3,131 | $5,321 | $(2,190) | (41.16%) | | EPS (Basic) | $0.42 | $0.70 | $(0.28) | (40.00%) | | Net Interest Income | $13,242 | $15,351 | $(2,109) | (13.74%) | | Provision for Credit Losses | $392 | $41 | $351 | 856.10% | | Noninterest Income | $3,468 | $3,293 | $175 | 5.31% | | Noninterest Expenses | $12,676 | $12,198 | $478 | 3.92% | - Net interest income decreased due to higher interest rates causing a slower repricing of earning assets compared to interest-bearing liabilities[116] - The net yield on interest-earning assets decreased from 3.22% in Q1 2023 to 2.78% in Q1 2024, while the cost of interest-bearing liabilities increased from 0.95% to 2.27%[117] - Total assets were $2,057,576 thousand at March 31, 2024[121] - Gross loans increased by $16,045 thousand since December 31, 2023, driven by commercial portfolio growth and advances to mortgage brokers[123] - Total deposits increased by $44,612 thousand, allowing for the paydown of $40,000 thousand in FHLB advances[125] - The AFS securities portfolio had net unrealized losses of $34,752 thousand at March 31, 2024, impacting tangible book value per share, which decreased to $20.35 from $20.59 at December 31, 2023[122] Results of Operations (Unaudited) Quarter-to-Date Performance Trends (Dollars in thousands except per share amounts) | Metric | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | | :--------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Net income | $3,131 | $3,803 | $4,413 | $4,630 | $5,321 | | Basic earnings per share | $0.42 | $0.51 | $0.59 | $0.62 | $0.70 | | Net interest margin yield (FTE) | 2.78% | 2.85% | 3.02% | 3.11% | 3.22% | | Return on average total assets | 0.61% | 0.74% | 0.86% | 0.91% | 1.04% | | Return on average shareholders' equity | 6.16% | 8.05% | 9.24% | 9.47% | 11.35% | - Net income and profitability ratios (Return on average total assets, Return on average shareholders' equity, Net interest margin yield) have shown a declining trend over the past five quarters, with Q1 2024 being the lowest[127] Year-to-Date Performance (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | 2022 | | :--------------------------------- | :----- | :----- | :----- | | Interest income | $21,380 | $18,595 | $14,762 | | Interest expense | $8,138 | $3,244 | $1,283 | | Net interest income | $13,242 | $15,351 | $13,479 | | Net income | $3,131 | $5,321 | $4,734 | Average Balances, Interest Rates, and Net Interest Income Average Balances and Yields/Rates (Three Months Ended March 31, 2024 vs. 2023, Dollars in thousands) | Item | Average Balance (2024) | Yield/Rate (2024) | Average Balance (2023) | Yield/Rate (2023) | | :--------------------------------- | :--------------------- | :---------------- | :--------------------- | :---------------- | | Interest Earning Assets | | | | | | Loans | $1,348,749 | 5.36% | $1,268,269 | 4.70% | | Total earning assets | $1,943,758 | 4.45% | $1,939,998 | 3.89% | | Interest Bearing Liabilities | | | | | | Interest bearing demand deposits | $345,842 | 0.48% | $379,717 | 0.15% | | Savings deposits | $633,904 | 2.10% | $645,987 | 0.91% | | Time deposits | $357,541 | 3.82% | $267,463 | 1.82% | | Total interest bearing liabilities | $1,434,944 | 2.27% | $1,362,129 | 0.95% | | Net interest income (FTE) | $13,488 | | $15,623 | | | Net yield on interest earning assets (FTE) | | 2.78% | | 3.22% | Volume and Rate Variance Analysis Net Change in Interest Margin (FTE) Due to Volume and Rate (Three Months Ended March 31, 2024 vs. 2023, Dollars in thousands) | Item | Volume Change | Rate Change | Net Change | | :--------------------------------- | :------------ | :---------- | :--------- | | Total changes in interest income | $419 | $2,340 | $2,759 | | Total changes in interest expense | $867 | $4,027 | $4,894 | | Net change in interest margin (FTE) | $(448) | $(1,687) | $(2,135) | - The net interest margin decreased by $2,135 thousand from Q1 2023 to Q1 2024, primarily driven by a larger increase in interest expense due to rising rates on deposit accounts and borrowed funds, outpacing the increase in interest income[134] Past Due and Nonaccrual Loans Total Past Due and Nonaccrual Loans (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :------------- | :---------------- | :------------- | | Commercial and industrial | $1,182 | $656 | $291 | | Commercial real estate | $3,356 | $— | $2,844 | | Agricultural | $217 | $205 | $588 | | Residential real estate | $4,279 | $3,910 | $2,365 | | Consumer | $187 | $193 | $43 | | Total | $9,221 | $4,964 | $6,131 | | Total past due and nonaccrual loans to gross loans | 0.68% | 0.37% | 0.48% | - Total past due and nonaccrual loans significantly increased to $9,221 thousand at March 31, 2024, from $4,964 thousand at December 31, 2023, mainly due to a large increase in commercial real estate and residential real estate past due loans[137] Nonaccrual Loans (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :------------- | :---------------- | :------------- | | Commercial and industrial | $567 | $491 | $20 | | Commercial real estate | $234 | $— | $57 | | Agricultural | $189 | $205 | $232 | | Residential real estate | $293 | $286 | $179 | | Total | $1,283 | $982 | $488 | | Nonaccrual loans as a % of loans at end of period | 0.09% | 0.07% | 0.04% | Nonperforming Assets Nonperforming Assets (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :------------- | :---------------- | :------------- | | Nonaccrual loans | $1,283 | $982 | $488 | | Accruing loans past due 90 days or more | $— | $87 | $— | | Total nonperforming loans | $1,283 | $1,069 | $488 | | Foreclosed assets | $579 | $406 | $414 | | Debt securities | $12 | $12 | $77 | | Total nonperforming assets | $1,874 | $1,487 | $979 | | Nonperforming loans as a % of total loans | 0.09% | 0.08% | 0.04% | | Nonperforming assets as a % of total assets | 0.09% | 0.07% | 0.05% | - Total nonperforming assets increased to $1,874 thousand at March 31, 2024, from $1,487 thousand at December 31, 2023, and $979 thousand at March 31, 2023, indicating a deteriorating trend in asset quality[139] ACL - Loans ACL Balances and Ratios (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :------------- | :---------------- | :------------- | | ACL | $13,390 | $13,108 | $12,640 | | ACL as a % of loans at end of period | 0.98% | 0.97% | 0.99% | | ACL as a % of nonaccrual loans | 1,043.65% | 1,334.83% | 2,590.16% | | Net loan charge-offs (recoveries) to average loans outstanding | 0.00% | 0.03% | 0.00% | | Provision for credit losses - loans | $328 | $722 | $37 | | Provision for credit losses to average loans outstanding | 0.02% | 0.05% | 0.00% | - The ACL increased to $13,390 thousand at March 31, 2024, from $13,108 thousand at December 31, 2023, and $12,640 thousand at March 31, 2023[141] - The provision for credit losses was $328 thousand in Q1 2024, significantly higher than $37 thousand in Q1 2023[141] - The ACL coverage of nonaccrual loans decreased substantially from 2,590.16% in Q1 2023 to 1,043.65% in Q1 2024, reflecting the increase in nonaccrual loans[141] Noninterest Income and Noninterest Expenses Noninterest Income (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Total service charges and fees | $2,046 | $1,978 | $68 | 3.44% | | Wealth management fees | $939 | $786 | $153 | 19.47% | | Earnings on corporate owned life insurance policies | $243 | $226 | $17 | 7.52% | | Net gain on sale of mortgage loans | $34 | $67 | $(33) | (49.25%) | | Total noninterest income | $3,468 | $3,293 | $175 | 5.31% | - Wealth management fees increased by 19.47% due to new accounts and higher market valuations, and are expected to exceed 2023 levels for the remainder of 2024[144][145] Noninterest Expenses (Three Months Ended March 31, Dollars in thousands) | Item | 2024 | 2023 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Compensation and benefits | $7,015 | $6,589 | $426 | 6.47% | | Furniture and equipment | $1,675 | $1,597 | $78 | 4.88% | | Occupancy | $1,031 | $1,005 | $26 | 2.59% | | ATM and debit card fees | $469 | $400 | $69 | 17.25% | | Total noninterest expenses | $12,676 | $12,198 | $478 | 3.92% | - Compensation and benefits increased by $426 thousand due to annual merit increases and medical claim adjustments, and are expected to exceed 2023 levels for the remainder of 2024[147] Analysis of Changes in Financial Condition Balance Sheet Changes (March 31, 2024 vs. December 31, 2023, Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :--------------------------------- | :------------- | :---------------- | :--------- | :--------- | | TOTAL ASSETS | $2,057,576 | $2,058,968 | $(1,392) | (0.07%) | | Net loans | $1,352,118 | $1,336,355 | $15,763 | 1.18% | | Total deposits | $1,768,307 | $1,723,695 | $44,612 | 2.59% | | Borrowed funds | $72,355 | $116,136 | $(43,781) | (37.70%) | | Shareholders' equity | $200,674 | $202,402 | $(1,728) | (0.85%) | - Total assets slightly decreased, driven by a decline in cash and investment securities to fund loan growth[150] - Total loans grew by $16,045 thousand, primarily in commercial and industrial loans (7.89% increase) and advances to mortgage brokers (60.12% increase)[152] - Total deposits increased by $44,612 thousand, with significant growth in interest-bearing demand deposits (8.94%) and certificates of deposit (5.71%), which helped fund the paydown of borrowed funds[150][153] Contractual Obligations and Loan Commitments - The company has various financial obligations and loan commitments, including unused lines of credit, commercial and standby letters of credit, and commitments to grant loans[156] - Many of these commitments historically expire without being drawn upon[156] - Credit-related financial instruments with off-balance-sheet risk are managed using the same credit policies as for extending loans, and no significant losses are anticipated from these commitments[157][158] Capital Regulatory Capital Ratios (March 31, 2024 vs. December 31, 2023) | Capital Ratio | March 31, 2024 Actual | Minimum Required (BASEL III) | Required to be Well Capitalized | December 31, 2023 Actual | | :--------------------------------- | :-------------------- | :--------------------------- | :------------------------------ | :----------------------- | | Common equity tier 1 capital | 12.36% | 7.00% | 6.50% | 12.54% | | Tier 1 capital | 12.36% | 8.50% | 8.00% | 12.54% | | Total capital | 15.31% | 10.50% | 10.00% | 15.52% | | Tier 1 leverage | 8.80% | 4.00% | 5.00% | 8.76% | - The Bank exceeded all minimum capital requirements at March 31, 2024, indicating a strong capital position[162] - The company repurchased 36,484 shares ($740 thousand) of common stock in Q1 2024, and as of March 31, 2024, was authorized to repurchase an additional 234,322 shares[160] Liquidity - Primary liquidity sources (cash and cash equivalents, unencumbered AFS securities) decreased to $353,893 thousand (17.20% of assets) at March 31, 2024, from $381,417 thousand (18.52% of assets) at December 31, 2023, due to increased loans and decreased unencumbered AFS securities[164] Total Cash and Liquidity (Dollars in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Total cash and cash equivalents | $25,218 | $33,672 | | Total available lines of credit | $374,707 | $338,080 | | Unencumbered lendable value of FRB collateral, estimated | $310,000 | $320,000 | | Total cash and liquidity | $709,925 | $691,752 | | Uninsured deposits | $658,564 | $600,381 | | Coverage ratio of uninsured deposits with total cash and liquidity | 108% | 115% | - The coverage ratio of uninsured deposits with total cash and liquidity remained strong at 108% at March 31, 2024, despite a slight decrease from 115% at December 31, 2023[166] Fair Value - The company uses fair value measurements for recurring adjustments to AFS securities and certain liabilities, and nonrecurring adjustments for assets like mortgage loans AFS, collateral dependent loans, and OMSR[167] Market Risk - Primary market risks are interest rate risk (IRR) and liquidity risk[169] - IRR is managed through simulation analysis and gap analysis, which forecast effects on the balance sheet and net interest income under various interest rate scenarios[171][172] - The Asset-Liability Committee (ALCO) regularly monitors projected net interest income sensitivity to ensure it remains within established limits and manages risks according to FRB policies[170][171] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the market risk disclosures provided in the Management's Discussion and Analysis of Financial Condition and Results of Operations, specifically the 'Market Risk' subsection - The information regarding quantitative and qualitative disclosures about market risk is incorporated by reference from the 'Market Risk' section within Management's Discussion and Analysis of Financial Condition and Results of Operations[175] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2024[176] - No material changes occurred in internal control over financial reporting during the most recent fiscal quarter[177] PART II – OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity security sales, defaults, mine safety, other disclosures, and a list of exhibits Item 1. Legal Proceedings This section states that the company is not involved in any material legal proceedings and that routine litigation is not expected to have a material adverse effect on operations, earnings, financial condition, or cash flows - The company is not involved in any material legal proceedings[180] - Routine litigation incidental to business is not expected to result in any material adverse effect on operations, earnings, financial condition, or cash flows[180] Item 1A. Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[181] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase plan, including the number of shares repurchased during the first quarter of 2024 and the remaining authorization - The company has a publicly announced common stock repurchase plan, last amended on April 28, 2021, authorizing an additional 500,000 shares with no expiration date[182] Common Stock Repurchases (Three Months Ended March 31, 2024) | Period | Number of Shares Repurchased | Average Price Per Share ($) | Maximum Shares That May Yet Be Purchased | | :---------------- | :--------------------------- | :-------------------------- | :--------------------------------------- | | January 1 - 31 | 8,711 | 21.58 | 262,095 | | February 1 - 29 | 12,945 | 20.47 | 249,150 | | March 1 - 31 | 14,828 | 19.36 | 234,322 | | Total (Q1 2024) | 36,484 | 20.28 | 234,322 | Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities - Not applicable[184] Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures - Not applicable[185] Item 5. Other Information This section reports that none of the company's directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024[186] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including indentures, purchase agreements, registration rights agreements, and certifications required by the Sarbanes-Oxley Act - Exhibits include Indenture and Form of Subordinated Note due 2031, Subordinated Note Purchase Agreement, Registration Rights Agreement, and Section 302 and 1350 Certifications[188]