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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2024

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 333-277630

FB Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

99-1859402

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

353 Carondelet Street, New Orleans, Louisiana

70130

(Address of Principal Executive Offices)

(Zip Code)

(504) 569-8640

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of Each Exchange on Which Registered

Common

FBLA

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

19,837,500 shares of the registrant’s common stock, par value $0.01 per share, were issued and outstanding as of November 12, 2024.

 

 

 


FB Bancorp, Inc.

Form 10-Q

Index

 

 

 

 

 

 

Page

 

Part I. - Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Balance Sheets

 

3

 

 

 

 

 

Statements of Operations

 

4

 

 

 

 

 

Statements of Comprehensive Income (Loss)

 

5

 

 

 

 

 

Statements of Changes in Equity

 

6

 

 

 

 

 

Statements of Cash Flows

 

7

 

 

 

 

 

Notes to the Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

48

 

 

 

 

Item 4.

Controls and Procedures

 

48

 

 

 

 

 

Part II. - Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

48

 

 

 

 

Item 1A.

Risk Factors

 

48

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

48

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

48

 

 

 

 

Item 4.

Mine Safety Disclosures

 

48

 

 

 

 

Item 5.

Other Information

 

48

 

 

 

 

Item 6.

Exhibits

 

49

 

 

 

 

 

Signature Page

 

50

 

 

 

1


 

EXPLANATORY NOTE

FB Bancorp, Inc. (the “Company,” “we” or “us”) was incorporated on February 29, 2024, to serve as the bank holding company for Fidelity Bank (“Fidelity” or the “Bank”) upon the consummation of the Bank’s conversion from the mutual form of organization to the stock form of organization. As of September 30, 2024, the conversion had not yet been consummated and the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, the financial statements, related notes, and other financial information included in this report relate primarily to the Bank.

The unaudited financial statements and other financial information contained in this report should be read in conjunction with the audited financial statements, and related notes, of the Bank as of and for each of the years ended December 31, 2023 and 2022, contained in the Company’s definitive prospectus dated August 12, 2024, as filed with the Securities and Exchange Commission ("SEC") on August 22, 2024.

 

 

2


 

 

 

 

Item 1. Financial Statements

FIDELITY BANK

BALANCE SHEETS (UNAUDITED)

 

 

 

September 30,
2024

 

 

December 31,
2023

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

7,654

 

 

$

5,795

 

Interest-bearing deposits at other financial institutions

 

 

285,890

 

 

 

81,313

 

Total cash and cash equivalents

 

 

293,544

 

 

 

87,108

 

 

 

 

 

 

 

 

Securities available for sale, at fair value (amortized cost of $256,444 and $269,378, respectively)

 

 

244,031

 

 

 

249,898

 

Derivative assets

 

 

328

 

 

 

184

 

Loans held for sale, at fair value

 

 

36,551

 

 

 

22,576

 

Loans held for investment

 

 

730,295

 

 

 

665,684

 

Less: allowance for credit losses

 

 

(5,824

)

 

 

(6,203

)

Loans held for investment, net

 

 

724,471

 

 

 

659,481

 

Federal Home Loan Bank stock, at cost

 

 

4,288

 

 

 

4,106

 

Bank owned life insurance

 

 

14,897

 

 

 

14,640

 

Accrued interest receivable

 

 

5,515

 

 

 

5,506

 

Premises and equipment, net

 

 

53,032

 

 

 

51,455

 

Other real estate owned

 

 

2,362

 

 

 

815

 

Goodwill

 

 

5,786

 

 

 

5,786

 

Mortgage servicing rights

 

 

1,062

 

 

 

2,231

 

Prepaid expenses

 

 

3,681

 

 

 

2,518

 

Other assets

 

 

18,132

 

 

 

18,628

 

 

 

 

 

 

 

 

Total assets

 

$

1,407,680

 

 

$

1,124,932

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing

 

$

384,110

 

 

$

142,032

 

Interest bearing

 

 

621,926

 

 

 

627,256

 

Total deposits

 

 

1,006,036

 

 

 

769,288

 

 

 

 

 

 

 

 

Advances by borrowers for taxes and insurance

 

 

7,229

 

 

 

11,774

 

Other borrowings

 

 

214,000

 

 

 

172,200

 

Accrued interest payable

 

 

4,701

 

 

 

524

 

Other liabilities

 

 

14,247

 

 

 

14,409

 

Total liabilities

 

 

1,246,213

 

 

 

968,195

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Retained earnings

 

 

171,273

 

 

 

172,126

 

Accumulated other comprehensive income (loss)

 

 

(9,806

)

 

 

(15,389

)

Total equity

 

 

161,467

 

 

 

156,737

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,407,680

 

 

$

1,124,932

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

3


 

FIDELITY BANK

STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

For the three months
ended September 30,

 

 

For the nine months
ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

13,910

 

 

$

11,525

 

 

$

39,453

 

 

$

31,377

 

Interest and dividends on investment securities

 

 

2,265

 

 

 

2,291

 

 

 

6,912

 

 

 

6,897

 

Interest on deposits in other banks

 

 

734

 

 

 

404

 

 

 

1,676

 

 

 

1,036

 

Total interest and dividend income

 

 

16,909

 

 

 

14,220

 

 

 

48,041

 

 

 

39,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,031

 

 

 

2,286

 

 

 

8,311

 

 

 

4,259

 

Borrowed funds

 

 

2,455

 

 

 

1,095

 

 

 

6,489

 

 

 

1,907

 

Total interest expense

 

 

5,486

 

 

 

3,381

 

 

 

14,800

 

 

 

6,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

11,423

 

 

 

10,839

 

 

 

33,241

 

 

 

33,144

 

Provision (benefit) for credit losses

 

 

300

 

 

 

725

 

 

 

820

 

 

 

349

 

Net interest income after provision (benefit) for credit losses

 

 

11,123

 

 

 

10,114

 

 

 

32,421

 

 

 

32,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fee income from deposit accounts

 

 

700

 

 

 

757

 

 

 

2,221

 

 

 

2,431

 

Gain on sales of mortgage loans

 

 

3,939

 

 

 

3,206

 

 

 

10,706

 

 

 

9,932

 

Gain (loss) on sales and disposal of assets

 

 

117

 

 

 

 

 

 

117

 

 

 

(1

)

Gain (loss) on sales of available for sale securities

 

 

(24

)

 

 

 

 

 

285

 

 

 

203

 

Gain on sales of mortgage servicing rights

 

 

334

 

 

 

4,738

 

 

 

2,584

 

 

 

4,738

 

Other non-interest income

 

 

306

 

 

 

1,068

 

 

 

1,434

 

 

 

3,205

 

Total non-interest income

 

 

5,372

 

 

 

9,769

 

 

 

17,347

 

 

 

20,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

10,745

 

 

 

10,610

 

 

 

31,215

 

 

 

31,619

 

Occupancy and equipment

 

 

2,027

 

 

 

2,018

 

 

 

6,105

 

 

 

6,040

 

Directors’ fees

 

 

162

 

 

 

205

 

 

 

466

 

 

 

600

 

Data processing

 

 

1,215

 

 

 

1,245

 

 

 

3,915

 

 

 

3,472

 

Advertising and marketing

 

 

404

 

 

 

433

 

 

 

1,632

 

 

 

1,287

 

Mortgage servicing rights amortization

 

 

94

 

 

 

515

 

 

 

397

 

 

 

1,574

 

Hedging activity, net

 

 

712

 

 

 

(364

)

 

 

581

 

 

 

(369

)

Other general and administrative

 

 

2,278

 

 

 

2,267

 

 

 

6,544

 

 

 

6,421

 

Total non-interest expenses

 

 

17,637

 

 

 

16,929

 

 

 

50,855

 

 

 

50,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

 

(1,142

)

 

 

2,954

 

 

 

(1,087

)

 

 

2,659

 

Income tax expense (benefit)

 

 

(247

)

 

 

545

 

 

 

(234

)

 

 

359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(895

)

 

$

2,409

 

 

$

(853

)

 

$

2,300

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

4


 

FIDELITY BANK

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

 

 

For the three months
ended September 30,

 

 

For the nine months
ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Net income (loss)

 

$

(895

)

 

$

2,409

 

 

$

(853

)

 

$

2,300

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on securities available for sale

 

 

8,400

 

 

 

(5,668

)

 

 

7,352

 

 

 

(5,222

)

Reclassification adjustment for (gains) losses realized on securities available for sale

 

 

24

 

 

 

 

 

 

(285

)

 

 

(203

)

Net unrealized gains (losses)

 

 

8,424

 

 

 

(5,668

)

 

 

7,067

 

 

 

(5,425

)

Tax effect

 

 

(1,769

)

 

 

1,190

 

 

 

(1,484

)

 

 

1,139

 

Total other comprehensive income (loss)

 

 

6,655

 

 

 

(4,478

)

 

 

5,583

 

 

 

(4,286

)

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

5,760

 

 

$

(2,069

)

 

$

4,730

 

 

$

(1,986

)

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

5


 

FIDELITY BANK

STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Retained

 

 

Comprehensive

 

 

Total

 

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

 

(dollars in thousands)

 

Balance at December 31, 2022

 

$

171,008

 

 

$

(18,989

)

 

$

152,019

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

229

 

 

 

 

 

 

229

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

4,534

 

 

 

4,534

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

4,763

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2023

 

$

171,237

 

 

$

(14,455

)

 

$

156,782

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(338

)

 

 

 

 

 

(338

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

(4,342

)

 

 

(4,342

)

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

(4,680

)

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

170,899

 

 

$

(18,797

)

 

$

152,102

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

2,409

 

 

 

 

 

 

2,409

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

(4,478

)

 

 

(4,478

)

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

(2,069

)

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

$

173,308

 

 

$

(23,275

)

 

$

150,033

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

$

172,126

 

 

$

(15,389

)

 

$

156,737

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(807

)

 

 

 

 

 

(807

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

(2,566

)

 

 

(2,566

)

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

(3,373

)

 

 

 

 

 

 

 

 

 

Balance at March 31, 2024

 

$

171,319

 

 

$

(17,955

)

 

$

153,364

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

849

 

 

 

 

 

 

849

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

1,494

 

 

 

1,494

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

2,343

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2024

 

$

172,168

 

 

$

(16,461

)

 

$

155,707

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(895

)

 

 

 

 

 

(895

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

6,655

 

 

 

6,655

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

5,760

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2024

 

$

171,273

 

 

$

(9,806

)

 

$

161,467

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

6


 

FIDELITY BANK

STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

For the nine months
ended September 30,

 

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

(853

)

 

$

2,300

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,899

 

 

 

1,738

 

(Gain) loss on sales and disposal of assets

 

 

(117

)

 

 

1

 

Net (accretion) amortization on securities

 

 

(584

)

 

 

(497

)

Provision (benefit) for credit losses

 

 

820

 

 

 

349

 

Increase in cash surrender value of life insurance

 

 

(257

)

 

 

(222

)

Amortization of mortgage servicing rights

 

 

397

 

 

 

1,574

 

Federal Home Loan Bank stock dividends

 

 

(182

)

 

 

(102

)

Net gain on sales of available for sale securities

 

 

(285

)

 

 

(203

)

Net gain on sales of mortgage servicing rights

 

 

(2,584

)

 

 

(4,738

)

Deferred income taxes (benefit)

 

 

(101

)

 

 

(544

)

Net (increase) decrease in derivative instruments

 

 

(144

)

 

 

(391

)

Changes in other operating assets and liabilities

 

 

1,118

 

 

 

265

 

Loans held for sale:

 

 

 

 

 

 

Originations

 

 

(286,563

)

 

 

(305,830

)

Proceeds from sale

 

 

283,877

 

 

 

301,254

 

Gain on sale of loans, net

 

 

(10,706

)

 

 

(9,932

)

Net change in fair value

 

 

(583

)

 

 

(73

)

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

(14,848

)

 

 

(15,051

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(16,963

)

 

 

(11,341

)

Proceeds from maturities, prepayments, and sales of securities available for sale

 

 

30,766

 

 

 

25,486

 

Proceeds from sale of mortgage servicing rights

 

 

4,194

 

 

 

10,000

 

Purchase of FHLB stock

 

 

 

 

 

(1,387

)

(Increase) decrease in loans held for investment, net

 

 

(67,838

)

 

 

(89,469

)

Purchases of premises and equipment

 

 

(3,476

)

 

 

(5,786

)

Proceeds from sale of other real estate owned

 

 

598

 

 

 

114

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(52,719

)

 

 

(72,383

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

(17,324

)

 

 

1,815

 

Net change in other borrowings

 

 

41,800

 

 

 

90,100

 

Net change in advances by borrowers for taxes and insurance

 

 

(4,545

)

 

 

5,840

 

Tentative proceeds from stock conversion held in escrow

 

 

254,072

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

274,003

 

 

 

97,755

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

206,436

 

 

 

10,321

 

Cash and cash equivalents at beginning of period

 

 

87,108

 

 

 

60,737

 

Cash and cash equivalents at end of period

 

$

293,544

 

 

$

71,058

 

 

 

 

 

 

 

 

Supplemental Disclosures For Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest on deposits and borrowings

 

$

10,623

 

 

$

5,941

 

Cash paid for income taxes

 

$

1,244

 

 

$

 

Loans transferred to other real estate owned

 

$

2,028

 

 

$

791

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

7


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

1.
Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements of Fidelity Bank ("the Bank") were prepared in accordance with GAAP for interim financial information, general practices within the financial services industry, and instructions for Regulation S-X. Accordingly, these interim financial statements do not include all of the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments necessary for a fair presentation of the financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Bank's audited financial statements and notes thereto for the year ended December 31, 2023, included in the Company's definitive prospectus dated August 12, 2024, as filed with the SEC on August 22, 2024.

Critical Accounting Policies and Estimates

In preparing the financial statements, the Bank is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Bank's financial condition, results of operations, comprehensive income, changes in equity, and cash flows for the interim period presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Recent Accounting Pronouncements

ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance issued in this update requires improvement to the disclosures about a public entity’s reportable segments and more detailed information about a reportable segment’s expenses and other segment items. The Bank has two reportable segment, all the disclosures required by this update are required. Under this guidance, public entities are required to disclose segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment that are currently required annually. The goal of these disclosures is to enable investors to develop more informed financial analyses. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all previous periods presented. The Bank does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. Any changes in presentation did not have a material impact on the Bank’s financial condition or results of operations.

 

 

8


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

2.
Investment Securities

The tables below show the amortized cost and fair value, by type, of the Bank’s available for sale debt securities as of September 30, 2024 and December 31, 2023:

 

 

 

September 30, 2024

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

unrealized

 

 

unrealized

 

 

Fair

 

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored agencies

 

$

141,411

 

 

$

371

 

 

$

7,140

 

 

$

134,642

 

Mortgage-backed securities: residential

 

 

83,827

 

 

 

123

 

 

 

5,187

 

 

 

78,763

 

Corporate bonds

 

 

31,174

 

 

 

80

 

 

 

660

 

 

 

30,594

 

Small Business Administration

 

 

32

 

 

 

 

 

 

 

 

 

32

 

Total available for sale

 

$

256,444

 

 

$

574

 

 

$

12,987

 

 

$

244,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored agencies

 

$

146,112

 

 

$

175

 

 

$

10,760

 

 

$

135,527

 

Mortgage-backed securities: residential

 

 

85,902

 

 

 

52

 

 

 

7,159

 

 

 

78,795

 

Corporate bonds

 

 

37,298

 

 

 

 

 

 

1,787

 

 

 

35,511

 

Small Business Administration

 

 

66

 

 

 

 

 

 

1

 

 

 

65

 

Total available for sale

 

$

269,378

 

 

$

227

 

 

$

19,707

 

 

$

249,898

 

 

As of September 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of Bank equity.

The Bank evaluates securities for impairment when there has been a decline in fair value below the amortized cost basis at least quarterly. Accordingly, management is able to effectively measure and monitor the unrealized loss position on these securities and because the Bank does not intend to sell the securities and it is not more-likely-than-not that the Bank will be required to sell the investments before recovery of their amortized cost basis, the Bank determined no allowance for credit loss was required as of September 30, 2024 or December 31, 2023.

Accrued interest receivable on investment securities totaled $1.5 million and $1.7 million as of September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the balance sheets.

 

 

9


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

A summary of securities with gross unrealized losses at September 30, 2024 and December 31, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

 

 

September 30, 2024

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored agencies

 

$

 

 

$

 

 

$

122,400

 

 

$

7,140

 

 

$

7,140

 

Mortgage-backed securities and small business administration

 

 

6,371

 

 

 

3

 

 

 

60,391

 

 

 

5,184

 

 

 

5,187

 

Corporate bonds

 

 

 

 

 

 

 

 

22,963

 

 

 

660

 

 

 

660

 

Total available for sale

 

$

6,371

 

 

$

3

 

 

$

205,754

 

 

$

12,984

 

 

$

12,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored agencies

 

$

5,491

 

 

$

9

 

 

$

126,532

 

 

$

10,751

 

 

$

10,760

 

Mortgage-backed securities and small business administration

 

 

10,241

 

 

 

98

 

 

 

64,263

 

 

 

7,062

 

 

 

7,160

 

Corporate bonds

 

 

2,507

 

 

 

88

 

 

 

33,004

 

 

 

1,699

 

 

 

1,787

 

Total available for sale

 

$

18,239

 

 

$

195

 

 

$

223,799

 

 

$

19,512

 

 

$

19,707

 

 

The amortized cost and estimated fair value by maturity or next repricing date of investment securities at September 30, 2024 are shown in the following table. Fixed rate securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities.

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Within one year or less

 

$

26,722

 

 

$

26,140

 

One through five years

 

 

107,828

 

 

 

103,799

 

After five through ten years

 

 

88,248

 

 

 

84,457

 

Over ten years

 

 

33,646

 

 

 

29,635

 

Total

 

$

256,444

 

 

$

244,031

 

 

At September 30, 2024 and December 31, 2023, approximately $155 million and $170 million of investments were pledged to secure various deposits or borrowings, respectively.

Additional information related to fair value of investment securities is provided in note 9.

 

 

10


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

3.
Loans Held for Investment

The components of loans were as follows at September 30, 2024 and December 31, 2023:

 

 

 

September 30,
2024

 

 

December 31,
2023

 

 

 

(dollars in thousands)

 

Residential mortgage loans (1-4 family):

 

 

 

 

 

 

Fixed

 

$

97,307

 

 

$

94,267

 

Variable

 

 

158,672

 

 

 

154,630

 

Construction

 

 

29,005

 

 

 

15,764

 

Total residential mortgage loans

 

 

284,984

 

 

 

264,661

 

Commercial loans

 

 

 

 

 

 

Real estate

 

 

230,219

 

 

 

206,267

 

SBA Paycheck Protection Program

 

 

395

 

 

 

566

 

Other

 

 

82,154

 

 

 

69,053

 

Total commerical loans

 

 

312,768

 

 

 

275,886

 

Consumer loans:

 

 

 

 

 

 

Home equity

 

 

105,771

 

 

 

98,331

 

Other consumer

 

 

27,835

 

 

 

27,740

 

Total consumer loans

 

 

133,606

 

 

 

126,071

 

Total loans held for investment

 

 

731,358

 

 

 

666,618

 

Less:

 

 

 

 

 

 

Undisbursed portion of mortgage loans

 

 

(168

)

 

 

(118

)

Net deferred loan costs (fees)

 

 

(895

)

 

 

(816

)

Allowance for credit losses

 

 

(5,824

)

 

 

(6,203

)

Total loans held for investment, net

 

$

724,471

 

 

$

659,481

 

 

 

Accrued interest receivable on loans held for investment totaled $3.9 million and $3.8 million as of September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the balance sheets.

 

The Bank has an established methodology to help calculate the Allowance for Credit Losses (“ACL”) that assesses the risks and losses inherent in the Bank’s loan portfolio. For purposes of determining the ACL, the Bank segments certain loans in its portfolio by product type. The Bank’s loans are segmented into the following pools: residential mortgage loans, commercial real estate loans, other commercial loans, home equity, and consumer loans. The Bank also sub-segments these segments into classes based on the associated risks within those segments. Residential mortgage loans are divided into the following classes: fixed, variable and construction. Each class of loans requires significant judgment to determine the estimation method that fits the credit risk characteristics of its portfolio segment. The Bank uses an internally developed model in this process. Management uses judgment in establishing additional input metrics for the modeling processes.

The model and assumptions the Bank uses to determine the allowance are independently validated and reviewed to ensure that their theoretical foundation, assumptions, data integrity, computational processes, reporting practices and end-user controls are appropriate and properly documented. The following are the factors the Bank uses to determine the ACL for each segment or class of loan.

 

 

11


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Residential Mortgage Loans

All of our residential mortgage loans are centrally underwritten. When assessing credit risk, we analyze certain credit factors, such as, payment history, credit utilization and length of credit history. All of our residential mortgage loans are secured by real estate; therefore, we evaluate and estimate the current market value of the collateral property. Common risk factors that are not specific to individual loan transactions include economic conditions within our markets, including unemployment rates and potential changes in real estate collateral values due to market conditions. Personal events, disability, death or change in marital status of the borrower also increase risk in residential mortgage lending.

Residential Mortgage Loans (Fixed and Variable)

Characteristically, residential mortgage loans are secured by 1 – 4 family residential properties and residential lots. Declines in market value can result in residential mortgages with outstanding balances in excess of the collateral value of the property securing the loan.

Residential Construction Loans

Residential construction loans can experience delays in construction and cost overruns that can exceed the borrower’s financial ability to complete the construction project, which could result in unmarketable collateral.

Commercial Loans

All of our commercial loans are centrally underwritten. When assessing credit risk, we analyze the borrower’s ability to generate adequate cash flow to service the debt in accordance with the terms and conditions of the loan agreement. Usually, our commercial loans are secured by collateral and we assess the current value of the collateral. Additionally, the Bank evaluates and assesses the financial strength and liquidity of the borrower’s principals because the Bank generally requires the personal guarantees of the borrower’s principals. Common risk factors that are not specific to individual loan transactions include economic conditions within our markets, including unemployment rates and potential changes in collateral values due to market conditions.

Commercial Real Estate

Commercial mortgage, commercial construction and land development loans are dependent upon the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and lots. A decrease in demand could result in decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our borrowers. Loans secured by non-residential properties and multifamily housing are dependent upon the ability of the property to produce cash flow sufficient to cover debt service and other operating expenses. These property types are susceptible to weak economic conditions which can result in high vacancy rates.

SBA Paycheck Protection Program

During the year ended December 31, 2020, the Bank added a new loan category for Paycheck Protection Program (“PPP”) loans originated. These loans are 100% backed by the Small Business Administration (“SBA”) to help businesses keep their workforces employed during the Coronavirus pandemic.

 

 

12


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Other Commercial Loans

The repayment of commercial loans not secured by real estate is primarily dependent upon the ability of our borrowers to produce cash flows consistent with our original projections analyzed during the credit underwriting process. While our loans our generally secured by collateral with limitations on maximum loan to value ratios, there is a risk that liquidation of the collateral will not fully satisfy the loan balance.

Consumer Loans

All of the Bank’s consumer loans are centrally underwritten. When assessing credit risk, we analyze certain credit factors, such as, payment history, credit utilization and length of credit history. Since a large percentage of consumer loans are secured, management evaluates the likely market value of the collateral. Common risk factors that are not specific to individual loan transactions include economic conditions within our markets. Personal events, disability, death or change in marital status of the borrower also increase risk in consumer lending.

Home Equity Loans

Home equity and home equity lines of credit loans are secured by first or junior liens on residential real estate making such loans susceptible to deterioration in residential real estate values. Additional risks include lien perfection deficiencies and the inherent risk that the borrower may draw on the lines in excess of their collateral value, particularly in a deteriorating real estate market.

Other Consumer Loans

Consumer loans include loans secured by personal property, such as automobiles, mobile homes and other title vehicles, such as boats and motorcycles. Consumer loans also include unsecured loans. The value of the underlying collateral for this loan category is especially volatile due to the potential rapid decline in values.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of our borrowers to service their debt obligations. The relevant information includes current financial information, historical payment history, credit documentation, public information and current economic trends, among other factors. The Bank uses a risk grading matrix to assign risk grades to each of our commercial loans and a portion of our other loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the ten grades is as follows:

 

Grade 1

Substantially Risk Free. Fully secured by own-Bank deposits.

 

 

Grade 2

Minimal. Minimal degree of risk in both short term and long term. No noted credit, collateral or technical deficiencies. Exemplary and established history with the Bank and elsewhere. Exceptional financial strength and generally in the upper quartile of peer comparisons. Loans secured by properly margined and monitored marketable securities may also be in this category.

 

 

 

13


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Grade 3

Moderate. Only moderate risk apparent in both short term and long term. Financial characteristics of borrower are strong. Demonstrated ability to generate sufficient cash flow to meet debt service requirements including 3-5 years of generating increasing or consistently strong levels of cashflow, the capital structure is strong with only moderate leverage, trends are favorable, and comparison to peer is positive. Credit reflects strong collateral values with proper margins, and/or is supported by strong guarantees.

 

Grade 4

Acceptable. Acceptable level of risk in both short term and long term. Borrower generates sufficient cash flow to meet debt service requirements with a comfortable margin and debt is adequately secured with appropriate collateral margins and supported by guarantees. Leverage, liquidity, margins, etc. are comparable to peer, but may not be as strong as borrowers risk rated 3.

 

 

Grade 5

Acceptable with Care. Risk is still considered acceptable, cash flow coverage of debt service requirements is adequate, but there are certain negative factors that could increase long term risk. Some common characteristics of these credits include: structure at variance with policy, LTV’s in excess of prescribed levels, trends negative but not materially adverse, leverage in excess of peer, etc.

 

Grade 6

Watch. Only marginally acceptable financial profiles, and financial trends are less favorable than prior periods. Short term risk may be acceptable, but negative factors could develop to make long term risk unacceptable. Weaknesses may include: outdated financials, inconsistent financial performance, strained liquidity, and adverse financial trends.

 

 

Grade 7

Special Mention. Increased level of risk (and, therefore, additional scrutiny) due to some weakening trend, poor performance, a particular circumstance or some other noted deficiency. Generally, repayment according to plan is still anticipated.

 

 

Grade 8

Substandard. Identified crucial weakness with associated loss potential. Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. An assessment under ASC 310 must be performed on credits identified for individual evaluation graded Substandard.

 

Grade 9

Doubtful. Full repayment or liquidation is highly questionable or improbable. Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently know facts, conditions and values, highly questionable and improbable. An assessment under ASC 310 must be performed on credits identified for individual evaluation graded Doubtful.

 

 

 

 

14


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Grade 10

Loss. All outstanding principal and accrued interest is deemed uncollectible and is to be charged off promptly. Loans classified Loss are considered uncollectible and of such little value that their continuance as Bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Loans classified Loss requires a 100% specific reserve.

 

Loans with a risk rating of 1 through 6 are classified as “Pass” rated credits in the following tables. Nonrated loans are also classified as “Pass.” The following table presents the Bank's recorded investment in loans by credit quality indicators by year of origin as of September 30, 2024 and gross charge-offs for the nine months ended September 30, 2024.

 

 

15


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

 

 

 

Term Loans

 

 

 

 

 

 

 

1-4 Family Residential

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Lines

 

 

Total

 

Pass

 

$

12,999

 

 

$

62,744

 

 

$

68,516

 

 

$

31,650

 

 

$

21,852

 

 

$

49,706

 

 

$

 

 

$

247,467

 

Special Mention

 

 

 

 

 

 

 

 

259

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

293

 

Substandard

 

 

 

 

 

2,507

 

 

 

2,433

 

 

 

1,134

 

 

 

140

 

 

 

2,005

 

 

 

 

 

 

8,219

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,999

 

 

$

65,251

 

 

$

71,208

 

 

$

32,784

 

 

$

21,992

 

 

$

51,745

 

 

$

 

 

$

255,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Construction

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

15,082

 

 

$

13,923

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

29,005

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

15,082

 

 

$

13,923

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

29,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

35,710

 

 

$

46,151

 

 

$

38,709

 

 

$

11,404

 

 

$

17,372

 

 

$

67,608

 

 

$

13,117

 

 

$

230,071

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148

 

 

 

 

 

 

148

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

35,710

 

 

$

46,151

 

 

$

38,709

 

 

$

11,404

 

 

$

17,372

 

 

$

67,756

 

 

$

13,117

 

 

$

230,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

28,677

 

 

$

4,483

 

 

$

6,444

 

 

$

8,280

 

 

$

5,179

 

 

$

4,142

 

 

$

20,327

 

 

$

77,532

 

Special Mention

 

 

 

 

 

 

 

 

1,424

 

 

 

 

 

 

 

 

 

1,433

 

 

 

141

 

 

 

2,998

 

Substandard

 

 

 

 

 

394

 

 

 

302

 

 

 

 

 

 

716

 

 

 

 

 

 

454

 

 

 

1,866

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153

 

 

 

153

 

Total

 

$

28,677

 

 

$

4,877

 

 

$

8,170

 

 

$

8,280

 

 

$

5,895

 

 

$

5,575

 

 

$

21,075

 

 

$

82,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

4,012

 

 

$

7,797

 

 

$

1,694

 

 

$

77

 

 

$

64

 

 

$

1,088

 

 

$

88,876

 

 

$

103,608

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

12

 

 

 

2,103

 

 

 

2,163

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

4,012

 

 

$

7,797

 

 

$

1,742

 

 

$

77

 

 

$

64

 

 

$

1,100

 

 

$

90,979

 

 

$

105,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Consumer

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

9,318

 

 

$

10,943

 

 

$

3,930

 

 

$

1,483

 

 

$

596

 

 

$

14

 

 

$

1,194

 

 

$

27,478

 

Special Mention

 

 

190

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

215

 

Substandard

 

 

 

 

 

41

 

 

 

11

 

 

 

15

 

 

 

 

 

 

1

 

 

 

 

 

 

68

 

Doubtful

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

Total

 

$

9,582

 

 

$

11,009

 

 

$

3,941

 

 

$

1,498

 

 

$

596

 

 

$

15

 

 

$

1,194

 

 

$

27,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Loans

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

105,798

 

 

$

146,041

 

 

$

119,293

 

 

$

52,894

 

 

$

45,063

 

 

$

122,558

 

 

$

123,514

 

 

$

715,161

 

Special Mention

 

 

190

 

 

 

25

 

 

 

1,683

 

 

 

 

 

 

 

 

 

1,467

 

 

 

141

 

 

 

3,506

 

Substandard

 

 

 

 

 

2,942

 

 

 

2,794

 

 

 

1,149

 

 

 

856

 

 

 

2,166

 

 

 

2,557

 

 

 

12,464

 

Doubtful

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153

 

 

 

227

 

     Total Loans

 

$

106,062

 

 

$

149,008

 

 

$

123,770

 

 

$

54,043

 

 

$

45,919

 

 

$

126,191

 

 

$

126,365

 

 

$

731,358

 

Gross charge-offs

 

$

 

 

$

36

 

 

$

313

 

 

$

45

 

 

$

231

 

 

$

178

 

 

$

562

 

 

$

1,365

 

 

Loans with a risk rating of 1 through 6 are classified as “Pass” rated credits in the following tables. Nonrated loans are also classified as “Pass.” The following table presents the Bank's recorded investment in loans by credit quality indicators by year of origin as of December 31, 2023 and gross charge-offs for the year ended December 31, 2024.

 

 

 

16


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

 

 

Term Loans

 

 

 

 

 

 

 

1-4 Family Residential

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Lines

 

 

Total

 

Pass

 

$

58,213

 

 

$

71,746

 

 

$

35,005

 

 

$

22,795

 

 

$

6,493

 

 

$

47,727

 

 

$

291

 

 

$

242,270

 

Special Mention

 

 

 

 

 

261

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

 

 

 

356

 

Substandard

 

 

808

 

 

 

1,767

 

 

 

653

 

 

 

328

 

 

 

124

 

 

 

2,591

 

 

 

 

 

 

6,271

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

59,021

 

 

$

73,774

 

 

$

35,658

 

 

$

23,123

 

 

$

6,617

 

 

$

50,413

 

 

$

291

 

 

$

248,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Construction

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

14,585

 

 

$

1,179

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

15,764

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

14,585

 

 

$

1,179

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

15,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

42,867

 

 

$

43,365

 

 

$

11,703

 

 

$

17,491

 

 

$

14,490

 

 

$

52,597

 

 

$

12,537

 

 

$

195,050

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,394

 

 

 

 

 

 

9,394

 

Substandard

 

 

 

 

 

 

 

 

 

 

 

1,823

 

 

 

 

 

 

 

 

 

 

 

 

1,823

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

42,867

 

 

$

43,365

 

 

$

11,703

 

 

$

19,314

 

 

$

14,490

 

 

$

61,991

 

 

$

12,537

 

 

$

206,267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

9,265

 

 

$

2,120

 

 

$

5,936

 

 

$

4,457

 

 

$

769

 

 

$

1,292

 

 

$

41,555

 

 

$

65,394

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

286

 

 

 

208

 

 

 

 

 

 

1,281

 

 

 

1,775

 

Substandard

 

 

69

 

 

 

326

 

 

 

 

 

 

129

 

 

 

80

 

 

 

 

 

 

1,405

 

 

 

2,009

 

Doubtful

 

 

 

 

 

97

 

 

 

25

 

 

 

 

 

 

 

 

 

146

 

 

 

173

 

 

 

441

 

Total

 

$

9,334

 

 

$

2,543

 

 

$

5,961

 

 

$

4,872

 

 

$

1,057

 

 

$

1,438

 

 

$

44,414

 

 

$

69,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

10,399

 

 

$

6,726

 

 

$

6,218

 

 

$

4,119

 

 

$

1,861

 

 

$

5,118

 

 

$

62,361

 

 

$

96,802

 

Special Mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

66

 

Substandard

 

 

 

 

 

680

 

 

 

 

 

 

 

 

 

175

 

 

 

130

 

 

 

441

 

 

 

1,426

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

37

 

Total

 

$

10,399

 

 

$

7,406

 

 

$

6,218

 

 

$

4,119

 

 

$

2,036

 

 

$

5,248

 

 

$

62,905

 

 

$

98,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Consumer

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

8,334

 

 

$

1,557

 

 

$

1,144

 

 

$

227

 

 

$

166

 

 

$

56

 

 

$

16,209

 

 

$

27,693

 

Special Mention

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

Substandard

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

20

 

Doubtful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

8,374

 

 

$

1,557

 

 

$

1,144

 

 

$

227

 

 

$

166

 

 

$

56

 

 

$

16,216

 

 

$

27,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Loans

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Pass

 

$

143,663

 

 

$

126,693

 

 

$

60,006

 

 

$

49,089

 

 

$

23,779

 

 

$

106,790

 

 

$

132,953

 

 

$

642,973

 

Special Mention

 

 

27

 

 

 

261

 

 

 

 

 

 

286

 

 

 

208

 

 

 

9,489

 

 

 

1,347

 

 

 

11,618

 

Substandard

 

 

890

 

 

 

2,773

 

 

 

653

 

 

 

2,280

 

 

 

379

 

 

 

2,721

 

 

 

1,853

 

 

 

11,549

 

Doubtful

 

 

 

 

 

97

 

 

 

25

 

 

 

 

 

 

 

 

 

146

 

 

 

210

 

 

 

478

 

     Total Loans

 

$

144,580

 

 

$

129,824

 

 

$

60,684

 

 

$

51,655

 

 

$

24,366

 

 

$

119,146

 

 

$

136,363

 

 

$

666,618

 

Gross charge-offs

 

$

27

 

 

$

116

 

 

$

38

 

 

$

34

 

 

$

64

 

 

$

83

 

 

$

1,445

 

 

$

1,807

 

 

Allowance for Credit Losses and Recorded Investment in Loans Receivable

The following table outlines the changes in the allowance for credit losses by category, the allowance for loans individually and collectively evaluated, and the balances of loans individually and collectively evaluated, for the nine months ended September 30, 2024:

 

 

17


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

 

 

 

1-4 Family

 

 

 

 

 

Commercial

 

 

Other

 

 

Home

 

 

Other

 

 

 

 

 

 

Residential

 

 

Construction

 

 

Real Estate

 

 

Commercial

 

 

Equity

 

 

Consumer

 

 

Total

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1, 2024

 

$

1,210

 

 

$

1

 

 

$

2,218

 

 

$

1,586

 

 

$

536

 

 

$

652

 

 

$

6,203

 

Charge-offs

 

 

(139

)

 

 

 

 

 

 

 

 

(1,040

)

 

 

 

 

 

(186

)

 

 

(1,365

)

Recoveries

 

 

6

 

 

 

2

 

 

 

 

 

 

128

 

 

 

 

 

 

30

 

 

 

166

 

Provision for Credit Loss

 

 

205

 

 

 

41

 

 

 

98

 

 

 

213

 

 

 

156

 

 

 

107

 

 

 

820

 

Reallocations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

1,282

 

 

$

44

 

 

$

2,316

 

 

$

887

 

 

$

692

 

 

$

603

 

 

$

5,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance for loans individually evaluated

 

$

507

 

 

$

 

 

$

 

 

$

207

 

 

$

139

 

 

$

46

 

 

$

899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance for loans collectively evaluated

 

$

775

 

 

$

44

 

 

$

2,316

 

 

$

680

 

 

$

553

 

 

$

557

 

 

$

4,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total period-end balance

 

$

255,979

 

 

$

29,005

 

 

$

230,219

 

 

$

82,549

 

 

$

105,771

 

 

$

27,835

 

 

$

731,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance of loans individually evaluated

 

$

9,250

 

 

$

 

 

$

148

 

 

$

730

 

 

$

1,427

 

 

$

153

 

 

$

11,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance of loans collectively evaluated

 

$

246,729

 

 

$

29,005

 

 

$

230,071

 

 

$

81,819

 

 

$

104,344

 

 

$

27,682

 

 

$

719,650

 

 

The following table outlines the changes in the allowance for credit losses by category, the allowance for loans individually and collectively evaluated, and the balances of loans individually and collectively evaluated, for the twelve months ended December 31, 2023:

 

 

 

1-4 Family

 

 

 

 

 

Commercial

 

 

Other

 

 

Home

 

 

Other

 

 

 

 

 

 

Residential

 

 

Construction

 

 

Real Estate

 

 

Commercial

 

 

Equity

 

 

Consumer

 

 

Total

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1, 2023

 

$

839

 

 

$

3

 

 

$

880

 

 

$

4,303

 

 

$

385

 

 

$

888

 

 

$

7,298

 

Charge-offs

 

 

(5

)

 

 

 

 

 

 

 

 

(1,277

)

 

 

(47

)

 

 

(478

)

 

 

(1,807

)

Recoveries

 

 

 

 

 

 

 

 

3

 

 

 

30

 

 

 

 

 

 

30

 

 

 

63

 

Provision for Credit Loss

 

 

 

 

 

 

 

 

 

 

 

649

 

 

 

 

 

 

 

 

 

649

 

Reallocations

 

 

376

 

 

 

(2

)

 

 

1,335

 

 

 

(2,119

)

 

 

198

 

 

 

212

 

 

 

 

Balance at end of year

 

$

1,210

 

 

$

1

 

 

$

2,218

 

 

$

1,586

 

 

$

536

 

 

$

652

 

 

$

6,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance for loans individually evaluated

 

$

361

 

 

$

 

 

$

 

 

$

492

 

 

$

 

 

$

58

 

 

$

911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance for loans collectively evaluated

 

$

849

 

 

$

1

 

 

$

2,218

 

 

$

1,094

 

 

$

536

 

 

$

594

 

 

$

5,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total period-end balance

 

$

248,897

 

 

$

15,764

 

 

$

206,267

 

 

$

69,619

 

 

$

98,331

 

 

$

27,740

 

 

$

666,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance of loans individually evaluated

 

$

6,173

 

 

$

 

 

$

 

 

$

1,795

 

 

$

723

 

 

$

109

 

 

$

8,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance of loans collectively evaluated

 

$

242,724

 

 

$

15,764

 

 

$

206,267

 

 

$

67,824

 

 

$

97,608

 

 

$

27,631

 

 

$

657,818

 

 

The Bank had $11.0 million and $7.7 million of non-accruing loans as of September 30, 2024 and December 31, 2023, respectively. Management determined that a specific reserve of approximately $0.9 million was necessary as of September 30, 2024 and December 31, 2023. The amount of interest income that would have been recorded in 2024 and 2023 is not significant.

The following tables present a summary by loan class of past due and non-accrual loans as of September 30, 2024 and December 31, 2023 (dollars in thousands):

 

 

 

18


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

 

 

 

 

 

 

 

 

Greater Than

 

 

 

 

 

 

 

 

 

 

 

Past Due>

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days

 

 

Total

 

 

 

 

 

Total

 

 

90 Days and

 

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Current

 

 

Loans

 

 

Accruing

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

$

 

 

$

4,582

 

 

$

6,567

 

 

$

11,149

 

 

$

244,830

 

 

$

255,979

 

 

$

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,005

 

 

 

29,005

 

 

 

 

Commercial real estate

 

 

489

 

 

 

 

 

 

148

 

 

 

637

 

 

 

229,582

 

 

 

230,219

 

 

 

 

SBA Paycheck Protection Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

395

 

 

 

395

 

 

 

 

Other commercial

 

 

321

 

 

 

119

 

 

 

46

 

 

 

486

 

 

 

81,668

 

 

 

82,154

 

 

 

 

Home equity

 

 

1,159

 

 

 

995

 

 

 

656

 

 

 

2,810

 

 

 

102,961

 

 

 

105,771

 

 

 

 

Other consumer

 

 

219

 

 

 

40

 

 

 

54

 

 

 

313

 

 

 

27,522

 

 

 

27,835

 

 

 

 

Total

 

$

2,188

 

 

$

5,736

 

 

$

7,471

 

 

$

15,395

 

 

$

715,963

 

 

$

731,358

 

 

$

 

 

 

 

September 30, 2024

 

 

 

Nonaccrual Loans with

 

 

Nonaccrual Loans

 

 

Total Nonaccrual

 

 

No Allowance

 

 

with an Allowance

 

 

Loans

 

1-4 family residential

 

$

5,351

 

 

$

3,899

 

 

$

9,250

 

Construction

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

148

 

 

 

 

 

 

148

 

SBA Paycheck Protection Program

 

 

 

 

 

 

 

 

 

Other commercial

 

 

 

 

 

46

 

 

 

46

 

Home equity

 

 

1,321

 

 

 

166

 

 

 

1,487

 

Other consumer

 

 

10

 

 

 

50

 

 

 

60

 

Total

 

$

6,830

 

 

$

4,161

 

 

$

10,991

 

 

 

 

 

 

 

 

 

 

Greater Than

 

 

 

 

 

 

 

 

 

 

 

Past Due>

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days

 

 

Total

 

 

 

 

 

Total

 

 

90 Days and

 

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Past Due

 

 

Current

 

 

Loans

 

 

Accruing

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential

 

$

1,820

 

 

$

1,126

 

 

$

2,858

 

 

$

5,804

 

 

$

243,093

 

 

$

248,897

 

 

$

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,764

 

 

 

15,764

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

206,267

 

 

 

206,267

 

 

 

 

SBA Paycheck Protection Program

 

 

41

 

 

 

 

 

 

 

 

 

41

 

 

 

525

 

 

 

566

 

 

 

 

Other commercial

 

 

648

 

 

 

79

 

 

 

1,007

 

 

 

1,734

 

 

 

67,319

 

 

 

69,053

 

 

 

 

Home equity

 

 

1,135

 

 

 

593

 

 

 

396

 

 

 

2,124

 

 

 

96,207

 

 

 

98,331

 

 

 

 

Other consumer

 

 

273

 

 

 

171

 

 

 

5

 

 

 

449

 

 

 

27,291

 

 

 

27,740

 

 

 

 

Total

 

$

3,917

 

 

$

1,969

 

 

$

4,266

 

 

$

10,152

 

 

$

656,466

 

 

$

666,618

 

 

$

 

 

 

 

December 31, 2023

 

 

 

Nonaccrual Loans with

 

 

Nonaccrual Loans

 

 

Total Nonaccrual

 

 

No Allowance

 

 

with an Allowance

 

 

Loans

 

1-4 family residential

 

$

2,226

 

 

$

3,108

 

 

$

5,334

 

Construction

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

426

 

 

 

 

 

 

426

 

SBA Paycheck Protection Program

 

 

 

 

 

 

 

 

 

Other commercial

 

 

422

 

 

 

892

 

 

 

1,314

 

Home equity

 

 

561

 

 

 

 

 

 

561

 

Other consumer

 

 

9

 

 

 

21

 

 

 

30

 

Total

 

$

3,644

 

 

$

4,021

 

 

$

7,665

 

 

There were two commercial loan modifications made to borrowers experiencing financial difficulty in the nine months ending September 30, 2024 totaling $387 thousand and none in the nine months ended September 30, 2023. At September 30, 2024, there were 11 loans totaling $1.2 million with active short-term payment deferrals of principal, interest or both. At December 31, 2023, there were 10 loans totaling $858 thousand with active short-term payment deferrals of principal, interest or both.

4.
Mortgage Servicing Rights

Information related to mortgage servicing rights as of September 30, 2024 and December 31, 2023 are summarized as follows:

 

 

 

19


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

 

 

Nine months ended

 

 

Year Ended

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Book value of mortgage servicing rights beginning of period

 

$

2,231

 

 

$

8,900

 

Additions from sale of loans

 

 

386

 

 

 

527

 

Book value removed from sale of servicing rights

 

 

(1,158

)

 

 

(5,433

)

Amortized to expense

 

 

(397

)

 

 

(1,763

)

Book value of mortgage servicing rights end of period

 

$

1,062

 

 

$

2,231

 

 

 

 

 

 

 

Fair value of mortgage servicing rights

 

$

1,812

 

 

$

6,934

 

Principal balance of mortgage loans serviced for others not reported as assets

 

$

210,881

 

 

$

986,192

 

Custodial escrows of serviced loans

 

$

3,573

 

 

$

8,794

 

 

 

 

20


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

5.
Deposits

Depositor account balances as of September 30, 2024 and December 31, 2023 are summarized as follows:

 

 

 

September 30,
2024

 

 

December 31,
2023

 

Negotiable order of withdrawal (NOW)

 

$

492,103

 

 

$

268,379

 

Savings accounts

 

 

118,980

 

 

 

127,213

 

Money market

 

 

103,477

 

 

 

108,778

 

 

 

 

714,560

 

 

 

504,370

 

Certificates of deposit

 

 

197,450

 

 

 

174,362

 

Wholesale and brokered certificates of deposit

 

 

94,026

 

 

 

90,556

 

 

 

$

1,006,036

 

 

$

769,288

 

 

The weighted average interest rate on depositor accounts as of September 30, 2024 and December 31, 2023 was 1.16% and 1.23%, respectively. Included in NOW account balances as of September 30, 2024 was approximately $254 million in tentative proceeds from the Bank's upcoming stock conversion.

Included in deposits are certificates of deposit in amounts greater than $250,000 totaling $43 million of account balance and approximately $1.8 million in annual interest expenses for September 30, 2024 and $23 million of account balance and approximately $891 thousand in annual interest expense for December 31, 2023. The scheduled maturities of all certificates of deposit at September 30, 2024 were as follows:

 

2024

 

$

78,420

 

2025

 

 

164,896

 

2026

 

 

24,584

 

2027

 

 

16,524

 

2028

 

 

2,274

 

2029

 

 

4,778

 

Total

 

$

291,476

 

 

 

 

21


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

6.
Other Borrowings

The Bank has a line of credit with the FHLB through which advances are drawn. Pursuant to collateral agreements with the FHLB, advances are secured by a blanket-floating lien on first mortgage loans and cash and investments held at FHLB. The unused portion of the line of credit as of September 30, 2024 and December 31, 2023 was approximately $321 million and $314 million, respectively. As of September 30, 2024, the advances had annual maturities and weighted average interest rates as listed below.

 

 

 

 

 

 

Weighted Average

 

 

 

Amount

 

 

Interest Rate

 

2024

 

$

29,000

 

 

 

5.55

%

2025

 

 

57,000

 

 

 

4.29

%

2026

 

 

8,000

 

 

 

2.17

%

Total

 

$

94,000

 

 

 

4.50

%

As of December 31, 2023, the advances had annual maturities and weighted average interest rates as listed below.

 

 

 

 

 

 

Weighted Average

 

 

 

Amount

 

 

Interest Rate

 

2024

 

$

24,200

 

 

 

5.06

%

2025

 

 

23,000

 

 

 

2.82

%

2026

 

 

5,000

 

 

 

0.98

%

Total

 

$

52,200

 

 

 

3.68

%

 

As of September 30, 2024 and December 31, 2023, the Bank had $120 million borrowed on the Federal Reserve’s special Bank Term Funding Program. The borrowing carries a fixed rate of 4.76%, matures January 16, 2025, and is prepayable at any time. Collateral for borrowings is the par value of investment securities.

7.
Capital Requirements and Other Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total, Tier 1, and common equity capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of September 30, 2024 and December 31, 2023, that the Bank meets all capital adequacy requirements to which it is subject.

 

 

22


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

As of the most recent notification from the Federal Deposit Insurance Corporation ("FDIC") categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category.

In 2014, the FDIC adopted final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%; raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%; require a minimum ratio of Total capital to risk-weighted assets of 8.0%; and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the minimum regulatory capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

The phase-in period for the final rules began for the Bank on January 1, 2015, with full compliance with all of the final rule's requirements phased in over a multi-year schedule and fully phased-in as of January 1, 2019. The Bank's capital levels remain characterized as "well-capitalized" under the new rules.

The Bank’s actual capital amounts and ratios as of September 30, 2024 and December 31, 2023 are presented in the table below:

 

 

 

Actual

 

 

Minimum

 

 

Well Capitalized

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital:

 

$

165,487

 

 

 

13.77

%

 

$

48,072

 

 

 

4.00

%

 

$

60,090

 

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 risk-based capital:

 

$

165,487

 

 

 

20.03

%

 

$

37,187

 

 

 

4.50

%

 

$

53,715

 

 

 

6.50

%

Tier 1 risk-based capital:

 

$

165,487

 

 

 

20.03

%

 

$

49,583

 

 

 

6.00

%

 

$

66,111

 

 

 

8.00

%

Total risk-based capital:

 

$

171,311

 

 

 

20.73

%

 

$

66,111

 

 

 

8.00

%

 

$

82,638

 

 

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital:

 

$

166,340

 

 

 

14.80

%

 

$

45,180

 

 

 

4.00

%

 

$

56,476

 

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 risk-based capital:

 

$

166,340

 

 

 

22.67

%

 

$

33,013

 

 

 

4.50

%

 

$

47,685

 

 

 

6.50

%

Tier 1 risk-based capital:

 

$

166,340

 

 

 

22.67

%

 

$

44,017

 

 

 

6.00

%

 

$

58,690

 

 

 

8.00

%

Total risk-based capital:

 

$

172,543

 

 

 

23.52

%

 

$

58,690

 

 

 

8.00

%

 

$

73,362

 

 

 

10.00

%

 

 

 

23


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

8.
Commitments and Contingencies

The Bank is involved in various claims and legal proceedings. These cases are, in the opinion of management, ordinary, routine matters incidental to the normal business conducted by the Bank. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the financial position of the Bank.

The Bank’s financial statements do not reflect various outstanding commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. Commitments to extend credit, consisting primarily of commercial lines-of-credit, revolving credit lines and overdraft protection agreements, include exposure to credit loss in the event of nonperformance of the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded in the balance sheets. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank. The Bank was not required to perform on any financial guarantees nor did it incur any losses on its commitments for the periods ended September 30, 2024 and December 31, 2023.

Commitments outstanding were as follows:

 

 

 

September 30, 2024

 

 

December 31, 2023

 

Residential construction

 

$

23,286

 

 

$

14,368

 

Commercial construction

 

 

21,636

 

 

 

9,972

 

Revolving lines of credit and other

 

 

161,381

 

 

 

158,861

 

 

 

$

206,303

 

 

$

183,201

 

The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank. A reserve for unfunded commitments is recorded within other liabilities on the balance sheets, and the related provision is recorded in other general expenses on the statements of operations. The reserve for unfunded commitments was $120 thousand and $80 thousand at September 30, 2024 and December 31, 2023, respectively.

 

9.
Fair Value

The Bank determines the appropriate level in the fair value hierarchy for each fair value measurement. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The levels are as follows:

Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities, exchange-based derivatives, mutual funds and money market funds.

Level 2—inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchanged-based derivatives, commingled investment funds not subject to purchase and sale restrictions and fair-value hedges.

 

 

24


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Level 3—unobservable inputs, such as internally-developed pricing models for the asset or liability due to little or no market activity for the asset or liability. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based instruments with unique characteristics.

Fair Value of Assets Measured on a Recurring Basis

The following describes the valuation methodology used for the Bank’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities: Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data from market research publications. If quoted prices were available in an active market, investment securities were classified as Level 1 measurements. If quoted prices were not available in an active market, fair values were estimated primarily by the use of pricing models. Level 2 investment securities were primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

Mortgage Loans Held for Sale: The Bank originates mortgage loans that it intends to sell to the secondary market. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Bank classifies these valuations as Level 2 in the fair value disclosures.

Derivative Financial Instruments: The Bank enters into derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the balance sheets. Forward MBS trades are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Bank utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, the Bank enters into interest rate locks with prospective borrowers. These commitments are carried at fair value based on the fair value of underling mortgage loans which are based on observable market data. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs.

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. The Bank records loans considered collateral dependent at their fair value. A loan is considered collateral dependent if it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans. Collateral dependent loans are classified as Level 2 unless appraised value is either not available, management has determined fair value of the collateral is further impaired below appraised value when the Bank is a seller of collateral, or there is no observable market price.

 

 

25


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

Other real estate owned are initially recorded at fair value less estimated costs to sell. The fair value of other real estate owned is based on property appraisals and an analysis of similar properties available. The Bank classifies repossessed assets as Level 2 assets. The Bank’s impaired loans are included in note 3.

The carrying amounts and estimated fair values of financial instrument as of September 30, 2024 and December 31, 2023, were as follows:

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,654

 

 

$

7,654

 

 

$

7,654

 

 

$

 

 

$

 

Interest-bearing cash equivalents

 

$

285,890

 

 

$

285,890

 

 

$

285,890

 

 

$

 

 

$

 

Securities available for sale

 

$

244,031

 

 

$

244,031

 

 

$

 

 

$

244,031

 

 

$

 

Loans held for sale

 

$

36,551

 

 

$

36,551

 

 

$

 

 

$

36,551

 

 

$

 

Loans held for investment, net

 

$

724,471

 

 

$

710,924

 

 

$

 

 

$

 

 

$

710,924

 

Derivative assets

 

$

328

 

 

$

328

 

 

$

 

 

$

328

 

 

$

 

Mortgage servicing rights

 

$

1,062

 

 

$

1,812

 

 

$

 

 

$

1,812

 

 

$

 

Accrued interest receivable

 

$

5,515

 

 

$

5,515

 

 

$

 

 

$

 

 

$

5,515

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,006,036

 

 

$

935,128

 

 

$

 

 

$

935,128

 

 

$

 

Escrows

 

$

7,229

 

 

$

7,229

 

 

$

7,229

 

 

$

 

 

$

 

Other borrowings

 

$

214,000

 

 

$

214,059

 

 

$

 

 

$

214,059

 

 

$

 

Accrued interest payable

 

$

4,701

 

 

$

4,701

 

 

$

 

 

$

 

 

$

4,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

5,795

 

 

$

5,795

 

 

$

5,795

 

 

$

 

 

$

 

Interest-bearing cash equivalents

 

$

81,313

 

 

$

81,313

 

 

$

81,313

 

 

$

 

 

$

 

Securities available for sale

 

$

249,898

 

 

$

249,898

 

 

$

 

 

$

249,898

 

 

$

 

Loans held for sale

 

$

22,576

 

 

$

22,576

 

 

$

 

 

$

22,576

 

 

$

 

Loans held for investment, net

 

$

659,481

 

 

$

661,600

 

 

$

 

 

$

 

 

$

661,600

 

Derivative assets

 

$

184

 

 

$

184

 

 

$

 

 

$

184

 

 

$

 

Mortgage servicing rights

 

$

2,231

 

 

$

6,934

 

 

$

 

 

$

6,934

 

 

$

 

Accrued interest receivable

 

$

5,506

 

 

$

5,506

 

 

$

 

 

$

 

 

$

5,506

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

769,288

 

 

$

706,000

 

 

$

 

 

$

706,000

 

 

$

 

Escrows

 

$

11,774

 

 

$

11,774

 

 

$

11,774

 

 

$

 

 

$

 

Other borrowings

 

$

172,200

 

 

$

171,160

 

 

$

 

 

$

171,160

 

 

$

 

Accrued interest payable

 

$

524

 

 

$

524

 

 

$

 

 

$

 

 

$

524

 

 

 

 

26


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

10.
Mortgage Banking Derivatives

Commitments to fund certain mortgage loans (interest rate locks, or “IRLs”) to be sold into the secondary market and forward commitments (“Forwards”) for the future delivery of residential mortgage bonds are considered derivatives. The Bank enters into Forwards for the future delivery of residential mortgage bonds when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge accounting relationships. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. The net change in fair market value of IRLs are recorded in other non-interest income. The net change in fair market value and the cost to close Forwards are recorded as hedging activity in non-interest expenses.

The net gains (losses) relating to these free-standing derivative instruments used for risk management are summarized below:

 

 

 

 

 

For the nine months ended September 30,

 

 

 

Revenue Classification

 

2024

 

 

2023

 

IRLs

 

Gain (Loss) on sale of mortgage loans

 

$

(39

)

 

$

167

 

Forwards

 

Hedging activity, net

 

 

(581

)

 

 

369

 

Total

 

 

 

$

(620

)

 

$

536

 

 

The following table reflects the amount and market value of mortgage banking derivatives included in the Balance Sheets:

 

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

Notional

 

 

Fair

 

 

Notional

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

IRLs

 

$

17,102

 

 

$

442

 

 

$

28,013

 

 

$

481

 

Forwards

 

$

30,500

 

 

$

(114

)

 

$

23,500

 

 

$

(297

)

Total

 

$

47,602

 

 

$

328

 

 

$

51,513

 

 

$

184

 

 

 

 

27


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

11.
Segment Information

The Bank has two reportable segments: traditional banking and mortgage banking. Revenues from traditional banking operations consist primarily of interest and fees earned on loans held for investment and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market, and mortgage loan origination fee income. Segment performance is primarily evaluated using operating revenue. Income taxes are allocated, and material indirect expenses are allocated by volume. Mortgage banking is an internal division of Fidelity Bank and not a separate legal entity. Information reported internally for performance assessment follows for the nine months ended September 30, 2024 and September 30, 2023:

 

 

 

 

 

 

Mortgage

 

 

Total

 

 

 

Banking

 

 

Banking

 

 

Segments

 

September 30, 2024

 

 

 

 

 

 

 

 

 

Net Interest income

 

$

30,841

 

 

$

2,400

 

 

$

33,241

 

Gain on sale of mortgage loans

 

 

 

 

 

10,706

 

 

 

10,706

 

Other revenue

 

 

3,284

 

 

 

3,357

 

 

 

6,641

 

Total operating revenue

 

$

34,125

 

 

$

16,463

 

 

$

50,588

 

Salaries and employee benefits

 

$

17,952

 

 

$

13,263

 

 

$

31,215

 

Mortgage servicing rights amortization

 

 

 

 

 

397

 

 

 

397

 

Hedging activity, net

 

 

 

 

 

581

 

 

 

581

 

Provision for credit losses and other expenses

 

 

14,579

 

 

 

4,903

 

 

 

19,482

 

Income tax expense (benefit)

 

 

299

 

 

 

(533

)

 

 

(234

)

Total expenses

 

$

32,830

 

 

$

18,611

 

 

$

51,441

 

Segment profit (loss)

 

$

1,295

 

 

$

(2,148

)

 

$

(853

)

Segment assets

 

$

1,354,288

 

 

$

53,392

 

 

$

1,407,680

 

 

 

 

 

 

 

 

 

 

 

September 30, 2023

 

 

 

 

 

 

 

 

 

Net Interest income

 

$

30,258

 

 

$

2,886

 

 

$

33,144

 

Gain on sale of mortgage loans

 

 

 

 

 

9,932

 

 

 

9,932

 

Other revenue

 

 

3,208

 

 

 

7,368

 

 

 

10,576

 

Total operating revenue

 

$

33,466

 

 

$

20,186

 

 

$

53,652

 

Salaries and employee benefits

 

$

16,079

 

 

$

15,540

 

 

$

31,619

 

Mortgage servicing rights amortization

 

 

 

 

 

1,574

 

 

 

1,574

 

Hedging activity, net

 

 

 

 

 

(369

)

 

 

(369

)

Provision for credit losses and other expenses

 

 

13,022

 

 

 

5,147

 

 

 

18,169

 

Income tax expense (benefit)

 

 

727

 

 

 

(368

)

 

 

359

 

Total expenses

 

$

29,828

 

 

$

21,524

 

 

$

51,352

 

Segment profit (loss)

 

$

3,638

 

 

$

(1,338

)

 

$

2,300

 

Segment assets

 

$

1,052,234

 

 

$

41,859

 

 

$

1,094,093

 

 

 

 

28


 

FIDELITY BANK

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

(dollar amounts in thousands unless otherwise noted)

12.
Subsequent Events

Management has evaluated subsequent events through the date that these unaudited financial statements were available to be issued, November 14, 2024 and determined that the following matter required additional disclosure. No other subsequent events occurring after this date have been evaluated for inclusion in these financial statements.

FB Bancorp, Inc. (the "Company"), the new holding company for Fidelity Bank, has completed its initial public offering in connection with the Bank’s conversion from the mutual form of organization to the stock form of organization, effective October 22, 2024. The Company sold 19,837,500 shares of common stock, which includes 586,655 shares sold to the Bank’s Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $198.4 million based on the offering price of $10.00 per share. The Company was oversubscribed in Priority 2. Consequently, all valid stock orders submitted by Priority 1 eligible purchasers in the Subscription Offering were filled in full, Fidelity Bank’s Employee Stock Ownership Plan (as Priority 2 in the offering) purchased 586,655 shares, and all Priority 3 and Priority 4 subscribers had their orders refunded. The Company has 19,837,500 shares of common stock issued and outstanding. As of September 30, 2024, Fidelity Bank held approximately $254 million in tentative proceeds from all Priority levels of the stock conversion.

As of November 8, 2024, the Bank paid $85 million of the $120 million borrowed on the Federal Reserve’s special Bank Term Funding Program.

 

 

29


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis discusses information contained in our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the business and financial information regarding Fidelity Bank provided in this document, including the financial statements, which appear elsewhere in this document.

 

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

Overview

After the completion of the conversion and stock offering, FB Bancorp will conduct its operations primarily through Fidelity Bank. Fidelity Bank’s business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, commercial real estate loans, commercial loans, home equity loans and lines of credit, consumer loans and construction loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises. We offer a variety of deposit accounts including negotiable orders of withdrawal, which we refer to as “NOW” throughout this document, savings accounts, money market accounts and certificate of deposit accounts. Fidelity Bank is subject to comprehensive regulation and examination by the Louisiana Office of Financial Institutions and the FDIC.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for credit losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, gain on the resale of mortgage loans and mortgage servicing rights and other service charges and fees. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, advertising and marketing, amortization of mortgage servicing rights, and other expenses.

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

 

 

30


 

Business Strategy

Our principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy include:

Continuing to seek to grow and diversify our loan portfolio prudently by increasing originations of commercial real estate and commercial loans in an effort to increase the overall loan portfolio yield. We intend to continue to prudently increase our originations of commercial real estate and commercial loans in order to diversify our loan portfolio and increase yield. At September 30, 2024, commercial real estate loans amounted to $230.2 million, or 31.5% of total loans and commercial loans amounted to $82.5 million, or 11.3%, of total loans.

Continuing the NOLA Lending ("NOLA") division’s focus on originating residential mortgage loans at its current pace primarily for sale into the secondary market. NOLA originates all of our one-to four-family residential mortgage loans with the intent to sell such loans into the secondary market. During the year ended December 31, 2023, our NOLA division originated $464.0 million of one- to four-family residential mortgage loans, of which $366.9 million were sold into the secondary market for a gain on sale of approximately $12.5 million. During the nine months ended September 30, 2024, our NOLA division originated $337.4 million of one-to four-family residential mortgage loans, of which $283.9 million were sold into the secondary market for a gain on sale of approximately $10.7 million. We intend to generally maintain NOLA’s current level of loan originations going forward, subject to customer demand and market interest rates.

Maintaining our strong asset quality through conservative loan underwriting. We intend to maintain strong asset quality through what we believe are our conservative underwriting standards and credit monitoring processes. At September 30, 2024, our non-performing loans totaled $11.0 million, or 1.51% of total loans.

Continuing to attract and retain customers in our current market areas and growing our low-cost “core” deposit base while expanding our offices and banking activity in the Baton Rouge and Lafayette, Louisiana markets. We consider our core deposits to include NOW accounts, statement savings accounts, money market accounts, and other savings deposit accounts. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $714.6 million, or 71.0% of total deposits, at September 30, 2024. We have expanded our deposit and lending activities into the Baton Rouge and Lafayette, Louisiana markets over the last several years, including the hiring of Market Area Presidents and lending teams and we anticipate that these efforts will continue.

Continuing to implement and invest in both our online banking infrastructure and our fully digital bank (“Andi”) in order to meet current customer needs as well as expand our customer base in existing and new markets. We are expanding our online banking infrastructure for consumer and commercial customers to meet existing and prospective customer expectations with digital deposit products, lending products and financial wellness products. We have also established a fully digital-only bank as a division of Fidelity Bank.

 

 

31


 

Remaining a community-oriented institution relying on high quality service to maintain and build a loyal local customer base. We have been operating continuously in southern Louisiana since 1908. Through the goodwill we have developed over years of providing timely, efficient banking services, we believe that we have been able to attract a loyal base of local retail customers on which we hope to continue to build our banking business.

Continuing to grow through organic growth while also considering opportunistic acquisitions or branching. We intend to grow our assets organically on a managed basis, and the capital we are raising in the stock offering will enable us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market areas or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include acquiring other financial institutions and/or establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices. The capital we are raising in the stock offering would help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities.

We expect these strategies to guide our investment of the net proceeds of the stock offering. We intend to continue to pursue these business strategies after the conversion and stock offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

Anticipated Increase in Non-interest Expense

Following the completion of the conversion and stock offering, our non-interest expense is expected to increase because of the increased costs associated with operating as a public company, including the expected hiring of additional accounting personnel, and the increased compensation expenses associated with the implementation of our employee stock ownership plan and the possible implementation of a stock-based benefit plan, if approved by our stockholders, no earlier than six months after the completion of the conversion and stock offering.

Critical Accounting Policies and Use of Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience 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. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

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.

 

 

32


 

The following represent our critical accounting policies:

Provision for Credit Losses. On January 1, 2023, Fidelity Bank adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as CECL throughout this document. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write down on available-for-sale debt securities that management does not intend to sell or believe that it is not, more than likely, required to sell.

Upon adoption of this new credit loss measurement standard, Fidelity Bank did not recognize a material change to its financial position or results of operations. No retroactive cumulative effect of accounting changes was recognized in this adoption.

Deferred Tax Assets. Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50%. Deferred tax assets are reduced by a valuation allowance, if based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Fair Value Measurements. Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on- and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.

The following tables set forth selected historical financial and other data of Fidelity Bank for the periods and at the dates indicated. The information at September 30, 2024, and for the three months and nine months ended September 30, 2024 and 2023, is not audited but, in the opinion of management, includes all adjustments necessary for a fair presentation. These adjustments are standard and recurring. The results of operations for the three months and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that may be expected or realized for the entire year. The information at December 31, 2023 is derived in part from, and should be read together with, the audited financial statements and related notes beginning at page F-1 of the definitive prospectus dated August 12, 2024 as filed with the Securities and Exchange Commission on August 22, 2024.

 

 

 

33


 

 

 

September 30,
2024

 

 

December 31,
2023

 

 

 

(In thousands)

 

Selected Financial Condition Data:

 

 

 

 

 

 

Total assets

 

$

1,407,680

 

 

$

1,124,932

 

Total cash and cash equivalents

 

 

293,544

 

 

 

87,108

 

Securities available for sale

 

 

244,031

 

 

 

249,898

 

Loans held for sale, at fair value

 

 

36,551

 

 

 

22,576

 

Loans held for investment, net

 

 

724,471

 

 

 

659,481

 

Total deposits

 

 

1,006,036

 

 

 

769,288

 

Federal Home Loan Bank advances

 

 

94,000

 

 

 

52,200

 

Federal Reserve Bank Term Funding

 

 

120,000

 

 

 

120,000

 

Total equity

 

 

161,467

 

 

 

156,737

 

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(In thousands)

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

Total interest and dividend income

 

$

16,909

 

 

$

14,220

 

 

$

48,041

 

 

$

39,310

 

Total interest expense

 

 

5,486

 

 

 

3,381

 

 

 

14,800

 

 

 

6,166

 

Net interest income

 

 

11,423

 

 

 

10,839

 

 

 

33,241

 

 

 

33,144

 

Provision (benefit) for credit losses

 

 

300

 

 

 

725

 

 

 

820

 

 

 

349

 

Net interest income after provision (benefit) for credit losses

 

 

11,123

 

 

 

10,114

 

 

 

32,421

 

 

 

32,795

 

Total non-interest income

 

 

5,372

 

 

 

9,769

 

 

 

17,347

 

 

 

20,508

 

Total non-interest expense

 

 

17,637

 

 

 

16,929

 

 

 

50,855

 

 

 

50,644

 

Net income (loss) before income taxes

 

 

(1,142

)

 

 

2,954

 

 

 

(1,087

)

 

 

2,659

 

Income tax expense (benefit)

 

 

(247

)

 

 

545

 

 

 

(234

)

 

 

359

 

Net income (loss)

 

$

(895

)

 

$

2,409

 

 

$

(853

)

 

$

2,300

 

 

 

 

34


 

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Performance Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (1)

 

 

(0.08

)%

 

 

0.23

%

 

 

(0.07

)%

 

 

0.20

%

Return on average equity (2)

 

 

(0.57

)%

 

 

1.59

%

 

 

(0.55

)%

 

 

1.50

%

Interest rate spread (3)

 

 

3.63

%

 

 

4.07

%

 

 

3.79

%

 

 

4.52

%

Net interest margin (4)

 

 

4.21

%

 

 

4.48

%

 

 

4.30

%

 

 

4.82

%

Non-interest income to average assets

 

 

0.45

%

 

 

0.92

%

 

 

1.52

%

 

 

2.00

%

Efficiency ratio (5)

 

 

105.01

%

 

 

82.15

%

 

 

100.53

%

 

 

94.39

%

Average interest-earning assets to average interest-bearing liabilities

 

 

128.63

%

 

 

129.11

%

 

 

126.77

%

 

 

133.25

%

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

20.73

%

 

 

23.61

%

 

 

20.73

%

 

 

23.61

%

Tier 1 risk-based capital

 

 

20.03

%

 

 

22.79

%

 

 

20.03

%

 

 

22.79

%

Common equity Tier 1 risk-based capital

 

 

20.03

%

 

 

22.79

%

 

 

20.03

%

 

 

22.79

%

Tier 1 leverage capital

 

 

13.77

%

 

 

15.23

%

 

 

13.77

%

 

 

15.23

%

Average equity to average assets

 

 

13.31

%

 

 

14.19

%

 

 

13.64

%

 

 

14.98

%

Asset Quality Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses to total loans (6)

 

 

0.80

%

 

 

0.94

%

 

 

0.80

%

 

 

0.94

%

Allowance for credit losses to non-performing loans

 

 

52.99

%

 

 

71.33

%

 

 

52.99

%

 

 

71.33

%

Net charge-offs to average outstanding loans

 

 

0.03

%

 

 

0.09

%

 

 

0.17

%

 

 

0.26

%

Non-performing loans to total loans

 

 

1.51

%

 

 

1.32

%

 

 

1.51

%

 

 

1.32

%

Non-performing loans to total assets

 

 

0.78

%

 

 

0.78

%

 

 

0.78

%

 

 

0.78

%

Total non-performing assets to total assets (6)

 

 

0.95

%

 

 

0.85

%

 

 

0.95

%

 

 

0.85

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Number of offices

 

 

18

 

 

 

18

 

 

 

18

 

 

 

18

 

Number of full-time equivalent employees

 

 

352

 

 

 

374

 

 

 

352

 

 

 

374

 

 

(1)

Represents net income divided by average total assets.

(2)

Represents net income divided by average equity.

(3)

Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities. Includes loans held for sale.

(4)

Represents net interest income divided by average interest-earning assets. Includes loans held for sale.

(5)

Represents non-interest expense divided by the sum of net interest income and non-interest income.

(6)

Non-performing assets includes other real estate owned. Total loans only includes loans held for investment.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total Assets. Total assets were $1.41 billion at September 30, 2024, an increase of $282.7 million, or 25.1%, from $1.12 billion at December 31, 2023. The increase was primarily due to an increase in total cash and cash equivalents as a result of increases in non-interest deposits from the holding of tentative stock conversion proceeds of $254.0 million.

 

 

35


 

Cash and Cash Equivalents. Cash levels increased by $206.4 million, or 237%, to $293.5 million at September 30, 2024 from $87.1 million at December 31, 2023. The increase was primarily the result of increases in non-interest bearing deposits from the holding of tentative stock conversion proceeds of $254 million.

Available-for-Sale Investment Securities. Investment securities decreased $5.9 million, or 2.3%, to $244.0 million at September 30, 2024, from $249.9 million at December 31, 2023. Aggregate securities purchased totaled $17.0 million and aggregate securities sold totaled $12.6 million during the nine months ended September 30, 2024. Additionally, calls, maturities, and repayments contributed a decrease of $18.2 million in the aggregate. Partially offsetting these decreases was an increase in fair market value adjustments of $7.1 million.

Loans Held for Investment, Net. Loans held for investment, net, increased by $65.0 million, or 9.9%, to $724.5 million at September 30, 2024 from $659.5 million at December 31, 2023. During the nine months ended September 30, 2024, loan originations (excluding loans held for sale) totaled $113.9 million. Increases to this category came primarily from the following: one- to four-family residential mortgage loans increased $7.1 million, or 2.8%, residential construction loans increased $13.2 million, or 84.0%, commercial real estate loans increased $24.0 million, or 11.6%, and home equity loans and lines of credit increased $7.4 million, or 7.6%. Other commercial loans which consists of business lines of credit, equipment loans and various non-real estate commercial loans increased $13.1 million, or 19.0%.

Increases in loan balances reflect our strategy to grow the commercial real estate loan portfolio while continuing to focus on owner-occupied one- to four-family residential mortgage loans. We have expanded our lending activities into the Baton Rouge and Lafayette, Louisiana markets, including adding lending teams in these markets.

Deposits. Deposits increased by $236.7 million, or 30.8%, to $1.01 billion at September 30, 2024 from $769.3 million at December 31, 2023. Core deposits (defined as all deposits other than certificates of deposit) increased $210.2 million, or 41.7%, to $714.6 million at September 30, 2024 from $504.4 million at December 31, 2023. The primary reason core deposits increased is due to approximately $254 million in tentative proceeds from the Bank's stock conversion held in a Bank deposit account. Certificates of deposit increased $26.6 million, or 10.0%, to $291.5 million at September 30, 2024 from $264.9 million at December 31, 2023. Our certificates of deposit included $94.0 million in wholesale and brokered certificates of deposit at September 30, 2024 and $90.6 million at December 31, 2023. Such deposits generally tend to be at higher yields than other types of deposits and generally do not represent direct customer relationships, but were utilized, in part, to fund loan growth.

Borrowings. Borrowings increased $41.8 million, or 24.3%, from $172.2 million at December 31, 2023 to $214.0 million at September 30, 2024. Borrowings were used primarily to fund the origination of loans (both held for investment and held for sale).

Total Equity. Total equity increased $4.7 million, or 3.0%, to $161.5 million at September 30, 2024 from $156.7 million at December 31, 2023. The increase resulted primarily from a $5.6 million decrease in accumulated other comprehensive loss. Comprehensive loss is solely related to unrealized losses on securities available for sale.

 

Average Balances Sheets. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial.

 

 

36


 

Average yields include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average balances are calculated using daily average balances.

 

 

 

For the nine months ended September 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average Yield/Rate

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average Yield/Rate

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,779

 

 

$

1,676

 

 

 

4.59

%

 

$

32,976

 

 

$

1,036

 

 

 

4.20

%

Securities

 

 

248,103

 

 

 

6,912

 

 

 

3.72

%

 

 

261,724

 

 

 

6,897

 

 

 

3.52

%

Loans

 

 

706,707

 

 

 

38,064

 

 

 

7.19

%

 

 

595,673

 

 

 

30,058

 

 

 

6.75

%

Loans held for sale

 

 

28,782

 

 

 

1,389

 

 

 

6.45

%

 

 

28,775

 

 

 

1,319

 

 

 

6.13

%

Total earning assets

 

 

1,032,371

 

 

 

48,041

 

 

 

6.22

%

 

 

919,148

 

 

 

39,310

 

 

 

5.72

%

Non-interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

6,865

 

 

 

 

 

 

 

 

 

6,826

 

 

 

 

 

 

 

Fixed Assets

 

 

52,125

 

 

 

 

 

 

 

 

 

49,443

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(6,118

)

 

 

 

 

 

 

 

 

(6,444

)

 

 

 

 

 

 

Other

 

 

55,052

 

 

 

 

 

 

 

 

 

55,435

 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

107,924

 

 

 

 

 

 

 

 

 

105,260

 

 

 

 

 

 

 

Total Assets

 

$

1,140,295

 

 

 

 

 

 

 

 

$

1,024,408

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

115,668

 

 

$

168

 

 

 

0.19

%

 

$

134,418

 

 

$

95

 

 

 

0.09

%

Interest-bearing savings and money market deposits

 

 

228,638

 

 

 

1,309

 

 

 

0.77

%

 

 

270,740

 

 

 

741

 

 

 

0.37

%

Certificates of deposit

 

 

281,090

 

 

 

6,834

 

 

 

3.25

%

 

 

218,865

 

 

 

3,423

 

 

 

2.09

%

Total interest-bearing deposits

 

 

625,396

 

 

 

8,311

 

 

 

1.78

%

 

 

624,023

 

 

 

4,259

 

 

 

0.91

%

Interest-bearing borrowings

 

 

188,965

 

 

 

6,489

 

 

 

4.59

%

 

 

65,784

 

 

 

1,907

 

 

 

3.88

%

Total interest-bearing liabilities

 

 

814,361

 

 

 

14,800

 

 

 

2.43

%

 

 

689,807

 

 

 

6,166

 

 

 

1.20

%

Non-interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

156,185

 

 

 

 

 

 

 

 

 

172,234

 

 

 

 

 

 

 

Other liabilities

 

 

14,259

 

 

 

 

 

 

 

 

 

8,953

 

 

 

 

 

 

 

Total non-interest liabilities

 

 

170,444

 

 

 

 

 

 

 

 

 

181,187

 

 

 

 

 

 

 

Total Equity

 

 

155,490

 

 

 

 

 

 

 

 

 

153,414

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,140,295

 

 

 

 

 

 

 

 

$

1,024,408

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

33,241

 

 

 

 

 

 

 

 

$

33,144

 

 

 

 

Net interest-earning assets (1)

 

$

218,010

 

 

 

 

 

 

 

 

$

229,341

 

 

 

 

 

 

 

Net interest rate spread (2)

 

 

 

 

 

 

 

 

3.79

%

 

 

 

 

 

 

 

 

4.52

%

Net yield on interest-earning assets (3)

 

 

 

 

 

 

 

 

4.30

%

 

 

 

 

 

 

 

 

4.82

%

Average of interest-earning assets to interest-bearing liabilities

 

 

126.77

%

 

 

 

 

 

 

 

 

133.25

%

 

 

 

 

 

 

Average equity to assets

 

 

13.64

%

 

 

 

 

 

 

 

 

14.98

%

 

 

 

 

 

 

 

(1)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(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)

Represents net interest income divided by average interest-earning assets.

 

 

37


 

 

 

For the three months ended September 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average Yield/Rate

 

 

Average
Outstanding
Balance

 

 

Interest

 

 

Average Yield/Rate

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,675

 

 

$

734

 

 

 

4.43

%

 

$

34,805

 

 

$

404

 

 

 

4.61

%

Securities

 

 

247,018

 

 

 

2,265

 

 

 

3.64

%

 

 

256,299

 

 

 

2,291

 

 

 

3.55

%

Loans

 

 

730,531

 

 

 

13,396

 

 

 

7.28

%

 

 

629,162

 

 

 

10,879

 

 

 

6.86

%

Loans held for sale

 

 

33,274

 

 

 

514

 

 

 

6.13

%

 

 

39,118

 

 

 

646

 

 

 

6.56

%

Total earning assets

 

 

1,076,498

 

 

 

16,909

 

 

 

6.23

%

 

 

959,384

 

 

 

14,220

 

 

 

5.88

%

Non-interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

6,996

 

 

 

 

 

 

 

 

 

6,764

 

 

 

 

 

 

 

Fixed Assets

 

 

52,607

 

 

 

 

 

 

 

 

 

50,758

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(5,929

)

 

 

 

 

 

 

 

 

(5,918

)

 

 

 

 

 

 

Other

 

 

55,030

 

 

 

 

 

 

 

 

 

54,543

 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

108,704

 

 

 

 

 

 

 

 

 

106,147

 

 

 

 

 

 

 

Total Assets

 

$

1,185,202

 

 

 

 

 

 

 

 

$

1,065,531

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

111,297

 

 

$

60

 

 

 

0.21

%

 

$

125,619

 

 

$

33

 

 

 

0.10

%

Interest-bearing savings and money market deposits

 

 

223,354

 

 

 

493

 

 

 

0.88

%

 

 

254,537

 

 

 

351

 

 

 

0.55

%

Certificates of deposit

 

 

292,748

 

 

 

2,478

 

 

 

3.36

%

 

 

266,391

 

 

 

1,902

 

 

 

2.83

%

Total interest-bearing deposits

 

 

627,399

 

 

 

3,031

 

 

 

1.92

%

 

 

646,547

 

 

 

2,286

 

 

 

1.40

%

Interest-bearing borrowings

 

 

209,527

 

 

 

2,455

 

 

 

4.65

%

 

 

96,509

 

 

 

1,095

 

 

 

4.50

%

Total interest-bearing liabilities

 

 

836,926

 

 

 

5,486

 

 

 

2.60

%

 

 

743,056

 

 

 

3,381

 

 

 

1.81

%

Non-interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

175,102

 

 

 

 

 

 

 

 

 

164,018

 

 

 

 

 

 

 

Other liabilities

 

 

15,473

 

 

 

 

 

 

 

 

 

7,288

 

 

 

 

 

 

 

Total non-interest liabilities

 

 

190,575

 

 

 

 

 

 

 

 

 

171,306

 

 

 

 

 

 

 

Total Equity

 

 

157,701

 

 

 

 

 

 

 

 

 

151,169

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,185,202

 

 

 

 

 

 

 

 

$

1,065,531

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

11,423

 

 

 

 

 

 

 

 

$

10,839

 

 

 

 

Net interest-earning assets (1)

 

$

239,572

 

 

 

 

 

 

 

 

$

216,328

 

 

 

 

 

 

 

Net interest rate spread (2)

 

 

 

 

 

 

 

 

3.63

%

 

 

 

 

 

 

 

 

4.07

%

Net yield on interest-earning assets (3)

 

 

 

 

 

 

 

 

4.21

%

 

 

 

 

 

 

 

 

4.48

%

Average of interest-earning assets to interest-bearing liabilities

 

 

128.63

%

 

 

 

 

 

 

 

 

129.11

%

 

 

 

 

 

 

Average equity to assets

 

 

13.31

%

 

 

 

 

 

 

 

 

14.19

%

 

 

 

 

 

 

 

(1)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(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)

Represents net interest income divided by average interest-earning assets.

Rate/Volume Analysis

 

The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

 

 

38


 

 

 

Nine months ended September 30, 2024 vs.
nine months ended September 30, 2023

 

 

 

Increase (Decrease) Due to

 

 

Total
Increase
(Decrease)

 

 

 

Volume

 

 

Rate

 

 

 

 

 

 

(In thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

496

 

 

$

144

 

 

$

640

 

Securities

 

 

(359

)

 

 

374

 

 

 

15

 

Loans

 

 

5,603

 

 

 

2,403

 

 

 

8,006

 

Loans held for sale

 

 

 

 

 

70

 

 

 

70

 

Total interest-earning assets

 

 

5,740

 

 

 

2,991

 

 

 

8,731

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

 

(13

)

 

 

86

 

 

 

73

 

Interest-bearing savings and money market deposits

 

 

(116

)

 

 

684

 

 

 

568

 

Certificates of deposit

 

 

974

 

 

 

2,437

 

 

 

3,411

 

Total interest-bearing deposits

 

 

845

 

 

 

3,207

 

 

 

4,052

 

Interest-bearing borrowings

 

 

3,571

 

 

 

1,011

 

 

 

4,582

 

Total interest-bearing liabilities

 

 

4,416

 

 

 

4,218

 

 

 

8,634

 

Net interest income

 

$

1,324

 

 

$

(1,227

)

 

$

97

 

 

 

 

Three months ended September 30, 2024 vs.
three months ended September 30, 2023

 

 

 

Increase (Decrease) Due to

 

 

Total
Increase
(Decrease)

 

 

 

Volume

 

 

Rate

 

 

 

 

 

 

(In thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

359

 

 

$

(29

)

 

$

330

 

Securities

 

 

(83

)

 

 

57

 

 

 

(26

)

Loans

 

 

1,751

 

 

 

766

 

 

 

2,517

 

Loans held for sale

 

 

(96

)

 

 

(36

)

 

 

(132

)

Total interest-earning assets

 

 

1,931

 

 

 

758

 

 

 

2,689

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

 

(4

)

 

 

31

 

 

 

27

 

Interest-bearing savings and money market deposits

 

 

(43

)

 

 

185

 

 

 

142

 

Certificates of deposit

 

 

189

 

 

 

387

 

 

 

576

 

Total interest-bearing deposits

 

 

142

 

 

 

603

 

 

 

745

 

Interest-bearing borrowings

 

 

1,281

 

 

 

79

 

 

 

1,360

 

Total interest-bearing liabilities

 

 

1,423

 

 

 

682

 

 

 

2,105

 

Net interest income

 

$

508

 

 

$

76

 

 

$

584

 

 

 

 

39


 

Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

General. Net loss of $895,000 was recorded for the three months ended September 30, 2024, compared to net income of $2.4 million for the three months ended September 30, 2023. The decrease in net income was primarily due to a decrease in gains from the sale of mortgage servicing rights of $4.4 million. Mortgage servicing rights are generally sold when market prices exceed internal expected returns and are not a regular source of income. Also contributing to the income fluctuations over this three month ending from 2024 compared to 2023 is a $584,000, or 5.4%, increase in net interest income, and a $708,000, or 4.2%, increase in non-interest expenses.

Interest Income. Interest income increased $2.7 million, or 18.9%, to $16.9 million for the three months ended September 30, 2024, compared to $14.2 million for the three months ended September 30, 2023. This increase was primarily attributable to a $2.4 million, or 20.7%, increase in interest and fees on loans, both held for investment and held for sale.

The average balance of loans held for investment during the three months ended September 30, 2024 increased by $101.4 million, or 16.1%, while the average yield on these loans increased to 7.28% for the three months ended September 30, 2024 from 6.86% for the three months ended September 30, 2023. The increase in average yield on loans was due to both the increasing interest rate environment as well as growth in our loan portfolio, particularly the commercial and residential construction portfolios.

The average balance of loans held for sale during the three months ended September 30, 2024 decreased by $5.8 million, or 14.9%, while the average yield on these loans decreased to 6.13% for the three months ended September 30, 2024 from 6.56% for the three months ended September 30, 2023.

The average balance of investment securities decreased by $9.3 million, or 3.6%, to $247.0 million for the three months ended September 30, 2024 from $256.3 million for the three months ended September 30, 2023, while the average yield on investment securities increased to 3.64% for the three months ended September 30, 2024 from 3.55% for the three months ended September 30, 2023. The increase in the average yield on securities was due primarily to increasing bond yields over this period.

Interest Expense. Total interest expense increased $2.1 million, or 62.3%, to $5.5 million for the three months ended September 30, 2024, from $3.4 million for the three months ended September 30, 2023. The increase was due to both an increase in balances and in the average costs of interest-bearing deposits and other borrowings. Average interest-bearing liabilities increased $93.9 million, or 12.6%, to $836.9 million for the three months ended September 30, 2024 compared to $743.1 million for the three months ended September 30, 2023. The average cost of interest-bearing liabilities was 2.60% for the three months ended September 30, 2024 compared to 1.81% for the three months ended September 30, 2023. The increase in interest costs for both deposits and borrowings over the last year were due to significant increases in market interest rates in 2023.

Net Interest Income. Net interest income increased $584,000, or 5.4%, to $11.4 million for the three months ended September 30, 2024, compared to $10.8 million for the three months ended September 30, 2023. The increase is a result of interest-earning asset growth of $117.1 million and an increase in yield to 6.23% for the three months ending September 30, 2024 compared to 5.88% in the same period in 2023. The impact of earning asset growth was partially offset by a $93.9 million growth in total interest-bearing liabilities and an increase in cost of interest-bearing liabilities to 2.60% for the three months ending September 30, 2024 from 1.81% in the same period in 2023.

 

 

40


 

Provision for Credit Losses. Based on an analysis of the factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Critical Accounting Estimates — Allowance for Credit Losses,” there was a $300,000 provision for credit losses for the three months ended September 30, 2024 compared to a $725,000 provision for the same period ended September 30, 2023. The decrease in the provision for credit losses was due primarily to management's timing of accounting estimates and does not reflect annual trends. For the nine months ended September 30, 2024, provision expense has increased 135.0% compared to the same period in 2023.

Total non-performing loans were $11.0 million at September 30, 2024, compared to $8.5 million at September 30, 2023. Classified loans totaled $12.7 million at September 30, 2024, compared to $14.9 million at September 30, 2023, and total loans past due greater than 30 days were $15.4 million and $12.7 million at those respective dates. Special mention loans were $3.5 million at September 30, 2024 compared to $10.7 million at September 30, 2023. As a percentage of non-performing loans, the allowance for credit losses was 53.0% at September 30, 2024 compared to 80.9% at September 30, 2023.

The allowance for credit losses reflects the estimate management believes to be appropriate to cover probable expected losses that were inherent in the loan portfolio at September 30, 2024. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Any increase in future provisions that may be required may adversely impact Fidelity Bank’s financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for credit losses and may recommend an increase in the provision for possible credit losses or the recognition of loan charge-offs, based on judgments different than those of management.

Non-interest Income. Non-interest income totaled $5.4 million for the three months ended September 30, 2024, an decrease of $4.4 million, or 45.0%, from $9.8 million for the three months ended September 30, 2023. The decrease was primarily due to the third quarter 2023 sale of secondary market mortgage loans serviced for others and a corresponding gain on sale of $4.7 million compared to another servicing sale in 2024 resulting in $334,000 of gain. Both these gains reflect the sale of loans serviced with origination years of 2020 and 2021 when mortgage rates were at a historic low. Mortgage servicing revenue declined by $693,000 to $118,000 for the three months ended September 30, 2024 from $811,000 for the three months ended September 30, 2023 due to the sales of secondary market mortgage loans serviced for others in 2023 and 2024.

Non-interest Expense. Non-interest expense increased $708,000, or 4.2%, to $17.6 million for the three months ended September 30, 2024, compared to $16.9 million for the three months ended September 30, 2023. The increase was primarily due to a $1.1 million, or 296%, increase in hedging activity, net. This was caused by lower mortgage rates in the third quarter of 2024, partially offset by the increased gains from the sale of mortgage loans of $733,000 over the same period included in non-interest income. Amortization expense related to the book value of mortgage servicing rights decreased by $421,000, or 81.7%, for the three months ended September 30, 2024 compared to the same period in 2023 due to the large sales of secondary market mortgage loans serviced for others in 2023 and 2024. Salaries and employee benefits expense increased by $135,000, or 1.3%, for the three months ended September 30, 2024 compared to the same period in 2023 due to approximately $260,000 in one-time severance charges. The reductions mostly came from the mortgage banking division of Fidelity Bank. The reductions in payroll approximate $1.4 million in annual payroll starting in the fourth quarter of 2024.

 

 

41


 

Provision (Benefit) for Income Taxes. The benefit for income taxes was $247,000 for the three months ended September 30, 2024, compared to a provision of $545,000 for the three months ended September 30, 2023. The changes are a direct reflection of net income (loss) before income taxes for each period and not a material change in the Bank's effective tax rates.

Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023

General. A net loss of $853,000 was recorded for the nine months ended September 30, 2024, compared to net income of $2.3 million for the nine months ended September 30, 2023. The decrease in net income was primarily due to a decrease in gain on sale of mortgage servicing rights of $2.2 million, a decrease in mortgage servicing revenue of $1.8 million, both partially offset in a decrease of $1.2 million in mortgage servicing rights amortization expenses. All of these items relate to the large sales of secondary market mortgage loans serviced for others in 2023 and 2024.

Interest Income. Interest income increased $8.7 million, or 22.2%, to $48.0 million for the nine months ended September 30, 2024, compared to $39.3 million for the nine months ended September 30, 2023. This increase was primarily attributable to a $8.1 million, or 25.7%, increase in interest and fees on loans, both held for investment and held for sale.

The average balance of loans held for investment during the nine months ended September 30, 2024 increased by $111.0 million, or 18.6%, while the average yield on these loans increased to 7.19% for the nine months ended September 30, 2024 from 6.75% for the nine months ended September 30, 2023. The increase in average yield on loans was due to both the increasing interest rate environment as well as growth in our loan portfolio, particularly the commercial and residential construction portfolios.

The average balance of loans held for sale during the nine months ended September 30, 2024 and 2023 remained approximately unchanged at $28.8 million for both periods. The average yield on these loans increased to 6.45% for the nine months ended September 30, 2024 from 6.13% for the nine months ended September 30, 2023.

The average balance of investment securities decreased by $13.6 million, or 5.2%, to $248.1 million for the nine months ended September 30, 2024 from $261.7 million for the nine months ended September 30, 2023, while the average yield on investment securities increased to 3.72% for the nine months ended September 30, 2024 from 3.52% for the nine months ended September 30, 2023. The increase in the average yield on securities was due primarily to increasing bond yields throughout 2023 and 2024.

Interest Expense. Total interest expense increased $8.6 million, or 140.0%, to $14.8 million for the nine months ended September 30, 2024, from $6.2 million for the nine months ended September 30, 2023. The increase was primarily due to increases in both balances and average costs of interest-bearing deposits and other borrowings. Average interest-bearing deposits increased $1.4 million, or 0.2%, to $625.4 million for the nine months ended September 30, 2024 compared to $624.0 million for the nine months ended September 30, 2023. The average cost of interest-bearing deposits was 1.78% for the nine months ended September 30, 2024 compared to 0.91% for the nine months ended September 30, 2023. Average borrowings increased $123.2 million, or 187.3%, to $189.0 million for the nine months ended September 30, 2024 compared to $65.8 million for the nine months ended September 30, 2023. The average cost of borrowings was 4.59% for the nine months ended September 30, 2024 compared to 3.88% for the nine months ended September 30, 2023. The increase in interest costs for both deposits and borrowings over the last year were due to major increases in market interest rates in 2023.

Net Interest Income. Net interest income increased $97,000, or 0.3%, to $33.2 million for the nine months ended September 30, 2024, compared to $33.1 million for the nine months ended September 30, 2023.

 

 

42


 

The increase reflected $8.7 million, or 22.2%, increase in interest income mostly offset by a $8.6 million, or 140.0%, increase in interest expense for the nine months ended September 30, 2024 compared to the same period in 2023.

Provision for Credit Losses. Based on an analysis of the factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies and Use of Critical Accounting Estimates — Allowance for Credit Losses,” there was a $820,000 provision for credit losses for the nine months ended September 30, 2024 compared to a provision for credit losses of $349,000 for the nine months ended September 30, 2023. The increase in the provision for credit losses was due primarily to loan growth during 2023 and 2024 and increases in nonperforming loans. The allowance for credit losses was $5.8 million and $6.2 million at September 30, 2024 and September 30, 2023, respectively, and represented 0.80% of total loans at September 30, 2024 and 0.93% of total loans at September 30, 2023.

Total non-performing loans were $11.0 million at September 30, 2024, compared to $8.5 million at September 30, 2023. Classified loans totaled $12.7 million at September 30, 2024, compared to $14.9 million at September 30, 2023, and total loans past due greater than 30 days were $15.4 million and $12.7 million at those respective dates. Special mention loans were $3.5 million at September 30, 2024 compared to $10.7 million at September 30, 2023. As a percentage of non-performing loans, the allowance for credit losses was 53.0% at September 30, 2024 compared to 80.9% at September 30, 2023.

Non-interest Income. Non-interest income totaled $17.3 million for the nine months ended September 30, 2024, a decrease of $3.2 million, or 15.4%, from $20.5 million for the nine months ended September 30, 2023. The decrease in net income was primarily due to a decrease in gain on sale of mortgage servicing rights of $2.2 million and a decrease in mortgage servicing revenue of $1.8 million. Both of these relate to the large sales of secondary market mortgage loans serviced for others in 2023 and 2024.

Non-interest Expense. Non-interest expense increased $211,000, or 0.4%, to $50.9 million for the nine months ended September 30, 2024, compared to $50.6 million for the nine months ended September 30, 2023. Hedging utilized to offset risk in interest rate fluctuations in the origination of secondary market mortgage loans increased by $950,000 for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to reduced mortgage rates in the mortgage market beginning in the second half of 2024. Data processing expenses increased $443,000, or 12.8%, and advertising and marketing expenses increased $345,000, or 26.8%, for the nine months ended September 30, 2024 compared to the same period in 2023. These expense increases were due to expansions in digital banking services. Amortization expense related to the book value of mortgage servicing rights decreased by $1.2 million, or 74.8%, for the nine months ended September 30, 2024 compared to the same period in 2023 due to the sales of secondary market mortgage loans serviced for others in 2023 and 2024. Salaries and employee benefits expense decreased by $404,000, or 1.3%, for the nine months ended September 30, 2024 compared to the same period in 2023 due to a reduction of approximately 22 employees, a 5.9% reduction in total employment. The reductions mostly came from the mortgage banking division of Fidelity Bank. Salaries and employee benefits include just over $260,000 of one-time severance charges.

Provision (Benefit) for Income Taxes. The benefit for income taxes was $234,000 for the nine months ended September 30, 2024, compared to a provision of $359,000 for the nine months ended September 30, 2023. The changes are a direct reflection of net income (loss) before income taxes for each period and not a material change in the Bank's effective tax rates.

 

 

43


 

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. The Bank has Asset Liability Committees at both the management and the board levels, with one board member having observational status at the management-level committee to ensure continuity. The management-level committee is comprised of senior level officers. The Board’s Asset Liability Committee receives reports from management at each of its meetings and reviews the minutes of the management-level committee. The Board’s Asset Liability Committee establishes the policies and guidelines for managing the Bank’s interest rate risk. 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;

hedging our interest rate risk on residential mortgage loans held for sale through the use of forward commitments;

maintaining a high level of liquidity;

growing our volume of core deposit accounts;

managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio; and

continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments.

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

Economic Value of Equity. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) 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 instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100 or 200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, at September 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

 

 

44


 

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

EVE as a Percentage of Present Value Assets (3)

 

 

 

 

 

 

Estimated Increase (Decrease) in EVE

 

 

 

 

 

Increase
(Decrease)
(basis
points)

 

Change in Interest Rates (basis points) (1)

 

Estimated EVE (2)

 

 

Amount

 

 

Percent

 

 

EVE Ratio (4)

 

 

 

 

(Dollars in thousands)

 

 400

 

$

238,218

 

 

$

(31,314

)

 

 

(11.62

)%

 

 

16.70

%

 

 

(219

)

 300

 

 

251,580

 

 

 

(17,952

)

 

 

(6.66

)%

 

 

17.64

%

 

 

(125

)

 200

 

 

261,452

 

 

 

(8,080

)

 

 

(3.00

)%

 

 

18.33

%

 

 

(56

)

 100

 

 

267,774

 

 

 

(1,758

)

 

 

(0.65

)%

 

 

18.77

%

 

 

(12

)

 -

 

 

269,532

 

 

 

 

 

 

%

 

 

18.89

%

 

 

 

 (100)

 

 

271,394

 

 

 

1,862

 

 

 

0.69

%

 

 

19.02

%

 

 

13

 

 (200)

 

 

275,596

 

 

 

6,064

 

 

 

2.25

%

 

 

19.31

%

 

 

42

 

(1)

Assumes an immediate uniform change in interest rates at all maturities.

(2)

EVE 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)

EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at September 30, 2024, we would have experienced a 3.00% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.25% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates. Each of the estimated increases (decreases) in the percentage of change in EVE in the table above are within the Board of Directors’ guidelines.

Change in Net Interest Income. The following table sets forth, at September 30, 2024, the calculation of the estimated changes in our net interest income, referred to as “NII” throughout this document, that would result from the designated immediate changes in the United States Treasury yield curve.

 

September 30, 2024

 

Change in Interest Rates (basis points) (1)

 

NII Year 1 Forecast

 

 

Year 1 Change from Level

 

(Dollars in thousands)

 

 +400

 

$

46,868

 

 

 

4.80

%

 +300

 

 

46,957

 

 

 

5.00

%

 +200

 

 

46,644

 

 

 

4.30

%

 +100

 

 

45,839

 

 

 

2.50

%

 Level

 

 

44,721

 

 

 

%

 (100)

 

 

42,887

 

 

 

(4.10

)%

 (200)

 

 

40,607

 

 

 

(9.20

)%

 

(1)

Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at September 30, 2024, we would have experienced a 4.30% increase in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 9.20% decrease in NII in the event of an instantaneous 200 basis point decrease in market interest rates. Each of the estimated decreases in the percentage of change in the net interest income in the table above are within the Board of Directors’ guidelines.

 

 

45


 

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in EVE and NII 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. In this regard, the EVE and NII 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. Accordingly, although the EVE and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and NII and will differ from actual results.

EVE and net interest NII 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 describes our ability to meet the 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, proceeds from maturities of securities and sales of mortgage loans. We also have the ability to borrow from the Federal Home Loan Bank of Dallas and the Federal Reserve Board’s Bank Term Funding Program. At September 30, 2024, we had $120.0 million in borrowings with the Federal Reserve Bank under the Bank Term Funding Program and $94.0 million of outstanding borrowings from the Federal Home Loan Bank of Dallas. At September 30, 2024, we had the capacity to borrow an additional $321.4 million from the Federal Home Loan Bank of Dallas and an additional $46.1 million from the Federal Reserve Board discount window.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments and sales are greatly influenced by general 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 given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For further information, see the statements of cash flows contained in the financial statements appearing elsewhere in this document.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of our maturing time deposits will be retained.

At September 30, 2024, Fidelity Bank’s Tier 1 leverage capital was $165.5 million, or 13.8% of adjusted assets. Accordingly, it was categorized as well-capitalized at September 30, 2024. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see Note 7 to the notes to financial statements included elsewhere in this document.

 

 

46


 

Off-Balance Sheet Arrangements. At September 30, 2024, we had $206.3 million of outstanding commitments to originate loans, which included $161.4 million in revolving lines of credit, $23.3 million in residential construction loans and $21.6 million in commercial construction loans and lines of credit. At September 30, 2024, none of our revolving lines of credit related to commercial real estate loans. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2024 totaled $228.3 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank of Dallas advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our financial statements elsewhere in this document.

Impact of Inflation and Changing Prices

The financial statements and related data presented in this document 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.

 

 

 

47


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information in Item 2 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk” is incorporated in this Item 3 by reference.

 

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II – Other Information

The Company is not subject to any pending legal proceedings. The Bank is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

 

Item 1A. Risk Factors

Not applicable, as the Company is a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Not applicable.

 

Item 3. Defaults Upon Senior Securities

Not applicable.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

During the nine months ended September 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408 of SEC Regulation S-K).

 

 

48


 

 

Item 6. Exhibits

 

 

3.1

Articles of Incorporation of FB Bancorp, Inc. (1)

3.2

Bylaws of FB Bancorp, Inc. (2)

4.1

Form of Common Stock Certificate of FB Bancorp, Inc. (3)

 

 

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

 

 

104

Cover page formatted as Inline XBRL and contained in Exhibit 101

 

 

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-277630), initially filed on March 4, 2024.

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-277630), initially filed on March 4, 2024.

(3)

Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-277630), initially filed on March 4, 2024.

 

 

49


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FB BANCORP, INC.

Date: November 14, 2024

/s/ Christopher Ferris

Christopher Ferris

President and Chief Executive Officer (Duly Authorized Representative and Principal Executive Officer)

Date: November 14, 2024

/s/ Todd Wanner

Todd Wanner

Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer

 

 

50


EX-31.1 2 ck0002013639-ex31_1.htm EX-31.1 EX-31.1

 

Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Christopher Ferris, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of FB Bancorp, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Date: November 14, 2024

/s/ Christopher Ferris

Christopher Ferris

President and Chief Executive Officer


EX-31.2 3 ck0002013639-ex31_2.htm EX-31.2 EX-31.2

 

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Todd Wanner, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of FB Bancorp, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2024

/s/ Todd Wanner

Todd Wanner

Chief Financial Officer and Treasurer

 


EX-32.1 4 ck0002013639-ex32_1.htm EX-32.1 EX-32.1

 

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Christopher Ferris, President and Chief Executive Officer of FB Bancorp, Inc. (the “Company”), certify in my capacity as an officer of the Company that he has reviewed the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Report”) and that to the best of my knowledge:

1.

the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2024

/s/ Christopher Ferris

Christopher Ferris

President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


EX-32.2 5 ck0002013639-ex32_2.htm EX-32.2 EX-32.2

 

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Todd Wanner, Chief Financial Officer and Treasurer of FB Bancorp, Inc. (the “Company”), certify in my capacity as an officer of the Company that he has reviewed the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Report”) and that to the best of my knowledge:

1.

the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2024

/s/ Todd Wanner

Todd Wanner

Chief Financial Officer and Treasurer