FB Bancorp, Inc.: Form 10-Q/A for the period ended Jun 30, 2024
Filed with the SEC on Oct 3, 2024 and accepted by EDGAR at Oct 3, 2024, 15:35 ET.
Management's discussion and analysis
As filed, 60,454 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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.
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 June 30, 2024, commercial real estate loans amounted to $228.5 million, or 31.6% of total loans and commercial loans amounted to $80.8 million, or 11.2%, of total loans.
- Continuing NOLA’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 six months ended June 30, 2024, our NOLA division originated $229.0 million of one-to four-family residential mortgage loans, of which $178.0 million were sold into the secondary market for a gain on sale of approximately $6.8 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 June 30, 2024, our non-performing loans totaled $9.8 million, or 1.35% 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 $477.8 million, or 62.0% of total deposits, at June 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.
- 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. See “Summary – Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion and Stock Offering;” “Risk Factors – Risks Related to the Stock Offering – Our stock-based benefit plans will increase our expenses and reduce our income;” and “Management – Executive Compensation.”
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.
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 were 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 June 30, 2024, and for the three months and six months ended June 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 six months ended June 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.
(In thousands)
| Selected Financial Condition Data: | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Total assets | $1,171,529 | $1,124,932 |
| Total cash and cash equivalents | 59,415 | 87,108 |
| Securities available for sale | 249,196 | 249,898 |
| Loans held for sale, at fair value | 34,891 | 22,576 |
| Loans held for investment, net | 717,094 | 659,481 |
| Total deposits | 770,623 | 769,288 |
| Federal Home Loan Bank advances | 98,500 | 52,200 |
| Federal Reserve Bank Term Funding | 120,000 | 120,000 |
| Total equity | 155,707 | 156,737 |
(In thousands)
| Selected Operating Data: | For the three months ended June 30, 2024 | 2023 | For the six months ended June 30, 2024 | 2023 |
|---|---|---|---|---|
| Total interest and dividend income | $15,886 | $13,154 | $31,132 | $25,090 |
| Total interest expense | 4,948 | 2,041 | 9,314 | 2,785 |
| Net interest income | 10,938 | 11,113 | 21,818 | 22,305 |
| Provision (benefit) for credit losses | 275 | — | 520 | (376) |
| Net interest income after provision for credit losses | 10,663 | 11,113 | 21,298 | 22,681 |
| Total non-interest income | 7,261 | 5,365 | 11,974 | 10,738 |
| Total non-interest expense | 16,832 | 16,993 | 33,217 | 33,714 |
| Net income (loss) before income taxes | 1,092 | (515) | 55 | (295) |
| Income tax expense (benefit) | 243 | (177) | 13 | (186) |
| Net income (loss) | $849 | $(338) | $42 | $(109) |
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(In thousands)
| Performance Ratios: | For the three months ended June 30, 2024 | 2023 | For the six months ended June 30, 2024 | 2023 |
|---|---|---|---|---|
| Return on average assets (1) | 0.08% | (0.03)% | 0.01% | (0.01)% |
| Return on average equity (2) | 0.55% | (0.22)% | 0.03% | (0.07)% |
| Interest rate spread (3) | 3.82% | 4.55% | 3.85% | 4.74% |
| Net interest margin (4) | 4.31% | 4.84% | 4.33% | 4.96% |
| Non-interest income to average assets | 0.64% | 0.52% | 1.07% | 1.06% |
| Efficiency ratio (5) | 92.49% | 103.13% | 98.30% | 102.03% |
| Average interest-earning assets to average interest-bearing liabilities | 124.87% | 133.67% | 125.58% | 134.67% |
| Capital Ratios: | ||||
| Total risk-based capital | 20.75% | 23.31% | 20.75% | 23.31% |
| Tier 1 risk-based capital | 20.05% | 22.50% | 20.05% | 22.50% |
| Common equity Tier 1 risk-based capital | 20.05% | 22.50% | 20.05% | 22.50% |
| Tier 1 leverage capital | 14.52% | 15.67% | 14.52% | 15.67% |
| Average equity to average assets | 13.56% | 15.14% | 13.78% | 15.25% |
| Asset Quality Ratios: | ||||
| Allowance for credit losses to total loans (6) | 0.80% | 0.96% | 0.80% | 0.96% |
| Allowance for credit losses to non-performing loans | 58.99% | 129.71% | 58.99% | 129.71% |
| Net charge-offs to average outstanding loans | 0.08% | 0.08% | 0.14% | 0.17% |
| Non-performing loans to total loans | 1.35% | 0.74% | 1.35% | 0.74% |
| Non-performing loans to total assets | 0.84% | 0.43% | 0.84% | 0.43% |
| Total non-performing assets to total assets (6) | 1.07% | 0.49% | 1.07% | 0.49% |
| Other: | ||||
| Number of offices | 18 | 17 | 18 | 17 |
| Number of full-time equivalent employees | 368 | 392 | 368 | 392 |
(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 June 30, 2024 and December 31, 2023
Total Assets. Total assets were $1.17 billion at June 30, 2024, an increase of $46.6 million, or 4.1%, from $1.12 billion at December 31, 2023. The increase was primarily due to an increase in other borrowings of $46.3 million and an increase in total deposits of $1.3 million. This increase in borrowings and deposits was used primarily to fund increases of $57.2 million in loans held for investment and
$12.3 million in loans held for sale, partially offset by a decrease of $27.7 million in cash and cash equivalents.
Cash and Cash Equivalents. Cash levels decreased by $27.7 million, or 31.8%, to $59.4 million at June 30, 2024 from $87.1 million at December 31, 2023. The decrease was primarily the result of increases in loans held for sale and loans held for investment.
Available-for-Sale Investment Securities. Investment securities decreased $0.7 million, or 0.3%, to $249.2 million at June 30, 2024, from $249.9 million at December 31, 2023. Aggregate securities purchased totaled $12.4 million and aggregate securities sold totaled $6.3 million during the six months ended June 30, 2024, which were offset by calls, maturities, repayments and unrealized losses totaling $6.1 million in the aggregate.
Loans Held for Investment, Net. Loans held for investment, net, increased by $57.6 million, or 8.7%, to $717.1 million at June 30, 2024 from $659.5 million at December 31, 2023. During the six months ended June 30, 2024, loan originations (excluding loans held for sale) totaled $86.6 million, primarily due to the following: one- to four-family residential mortgage loans increased $11.6 million, or 4.5%, residential construction loans increased $10.5 million, or 66.8%, commercial real estate loans increased $16.9 million, or 9.3%, and home equity loans and lines of credit increased $3.0 million, or 3.0%.
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 $1.3 million, or 0.2%, to $770.6 million at June 30, 2024 from $769.3 million at December 31, 2023. Core deposits (defined as all deposits other than certificates of deposit) decreased $26.6 million, or 5.3%, to $477.8 million at June 30, 2024 from $504.4 million at December 31, 2023. Certificates of deposit increased $27.9 million, or 10.5%, to $292.8 million at June 30, 2024 from $264.9 million at December 31, 2023. Our certificates of deposit included $99.0 million in wholesale and brokered certificates of deposit at June 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 $46.3 million, or 26.9%, from $172.2 million at December 31, 2023 to $218.5 million at June 30, 2024. Borrowings were used to primarily fund the origination of loans (both held for investment and held for sale).
Total Equity. Total equity decreased $1.0 million, or 0.7%, to $155.7 million at June 30, 2024 from $156.7 million at December 31, 2023. The decrease resulted primarily from a $1.1 million increase 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. 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.
(Dollars in thousands)
| Interest-earning assets: | For the six months ended June 30, 2024 Average Outstanding Balance | Interest | Average Yield/Rate | 2023 Average Outstanding Balance | Interest | Average Yield/Rate |
|---|---|---|---|---|---|---|
| Cash and cash equivalents | $38,531 | $941 | 4.91% | $32,988 | $631 | 3.86% |
| Securities | 248,724 | 4,648 | 3.76% | 263,729 | 4,607 | 3.52% |
| Loans | 698,867 | 24,668 | 7.10% | 584,553 | 19,180 | 6.62% |
| Loans held for sale | 28,257 | 875 | 6.23% | 26,322 | 672 | 5.15% |
| Total earning assets | 1,014,379 | 31,132 | 6.17% | 907,592 | 25,090 | 5.57% |
| Non-interest-earning assets: | ||||||
| Cash and cash equivalents | 6,902 | 6,806 | ||||
| Fixed Assets | 51,411 | 49,005 | ||||
| Allowance for credit losses | (6,151) | (6,597) | ||||
| Other | 54,977 | 54,607 | ||||
| Total non-interest-earning assets | 107,139 | 103,821 | ||||
| Total Assets | $1,121,518 | $1,011,413 | ||||
| Interest-bearing liabilities: | ||||||
| Interest-bearing demand deposits | $117,248 | $107 | 0.18% | $137,142 | $62 | 0.09% |
| Interest-bearing savings and money market deposits | 230,785 | 816 | 0.71% | 276,516 | 389 | 0.28% |
| Certificates of deposit | 277,721 | 4,356 | 3.15% | 203,450 | 1,521 | 1.51% |
| Total interest-bearing deposits | 625,754 | 5,279 | 1.70% | 617,108 | 1,972 | 0.64% |
| Interest-bearing borrowings | 182,033 | 4,035 | 4.46% | 56,818 | 813 | 2.88% |
| Total interest-bearing liabilities | 807,787 | 9,314 | 2.32% | 673,926 | 2,785 | 0.83% |
| Non-interest: | ||||||
| Demand deposits | 145,865 | 174,568 | ||||
| Other liabilities | 13,298 | 8,702 | ||||
| Total non-interest liabilities | 159,163 | 183,270 | ||||
| Total Equity | 154,568 | 154,217 | ||||
| Total liabilities and equity | $1,121,518 | $1,011,413 | ||||
| Net interest income | $21,818 | $22,305 | ||||
| Net interest-earning assets (1) | $206,592 | $233,666 | ||||
| Net interest rate spread (2) | 3.85% | 4.74% | ||||
| Net yield on interest-earning assets (3) | 4.33% | 4.96% | ||||
| Average of interest-earning assets to interest-bearing liabilities | 125.58% | 134.67% | ||||
| Average equity to assets | 13.78% | 15.25% |
(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.
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(Dollars in thousands)
| Interest-earning assets: | For the three months ended June 30, 2024 Average Outstanding Balance | Interest | Average Yield/Rate | 2023 Average Outstanding Balance | Interest | Average Yield/Rate |
|---|---|---|---|---|---|---|
| Cash and cash equivalents | $30,873 | $336 | 4.36% | $31,507 | $317 | 4.03% |
| Securities | 249,719 | 2,348 | 3.77% | 263,773 | 2,294 | 3.49% |
| Loans | 708,431 | 12,706 | 7.19% | 597,160 | 10,143 | 6.81% |
| Loans held for sale | 29,985 | 496 | 6.64% | 27,640 | 400 | 5.81% |
| Total earning assets | 1,019,008 | 15,886 | 6.25% | 920,080 | 13,154 | 5.73% |
| Non-interest-earning assets: | ||||||
| Cash and cash equivalents | 7,251 | 6,683 | ||||
| Fixed Assets | 52,111 | 50,109 | ||||
| Allowance for credit losses | (6,152) | (6,323) | ||||
| Other | 56,248 | 55,674 | ||||
| Total non-interest-earning assets | 109,458 | 106,143 | ||||
| Total Assets | $1,128,466 | $1,026,223 | ||||
| Interest-bearing liabilities: | ||||||
| Interest-bearing demand deposits | $116,644 | $63 | 0.22% | $136,394 | $34 | 0.10% |
| Interest-bearing savings and money market deposits | 228,145 | 446 | 0.78% | 268,552 | 270 | 0.40% |
| Certificates of deposit | 282,434 | 2,276 | 3.23% | 218,493 | 1,114 | 2.05% |
| Total interest-bearing deposits | 627,223 | 2,785 | 1.78% | 623,439 | 1,418 | 0.91% |
| Interest-bearing borrowings | 188,810 | 2,163 | 4.59% | 64,872 | 623 | 3.85% |
| Total interest-bearing liabilities | 816,033 | 4,948 | 2.43% | 688,311 | 2,041 | 1.19% |
| Non-interest: | ||||||
| Demand deposits | 144,591 | 172,845 | ||||
| Other liabilities | 14,822 | 9,656 | ||||
| Total non-interest liabilities | 159,413 | 182,501 | ||||
| Total Equity | 153,020 | 155,411 | ||||
| Total liabilities and equity | $1,128,466 | $1,026,223 | ||||
| Net interest income | $10,938 | $11,113 | ||||
| Net interest-earning assets (1) | $202,975 | $231,769 | ||||
| Net interest rate spread (2) | 3.82% | 4.55% | ||||
| Net yield on interest-earning assets (3) | 4.31% | 4.84% | ||||
| Average of interest-earning assets to interest-bearing liabilities | 124.87% | 133.67% | ||||
| Average equity to assets | 13.56% | 15.14% |
(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.
(In thousands)
| Interest-earning assets: | Six months ended June 30, 2024 vs. six months ended June 30, 2023 Increase (Decrease) Due to Volume | Rate | Total Increase (Decrease) |
|---|---|---|---|
| Cash and cash equivalents | $106 | $204 | $310 |
| Securities | (262) | 303 | 41 |
| Loans | 3,751 | 1,738 | 5,489 |
| Loans held for sale | 49 | 153 | 202 |
| Total interest-earning assets | 3,644 | 2,398 | 6,042 |
| Interest-bearing liabilities: | |||
| Interest-bearing demand deposits | (9) | 54 | 45 |
| Interest-bearing savings and money market deposits | (64) | 491 | 427 |
| Certificates of deposit | 555 | 2,280 | 2,835 |
| Total interest-bearing deposits | 482 | 2,825 | 3,307 |
| Interest-bearing borrowings | 1,791 | 1,431 | 3,222 |
| Total interest-bearing liabilities | 2,273 | 4,256 | 6,529 |
| Net interest income | $1,371 | $(1,858) | $(487) |
(In thousands)
| Interest-earning assets: | Three months ended June 30, 2024 vs. three months ended June 30, 2023 Increase (Decrease) Due to Volume | Rate | Total Increase (Decrease) |
|---|---|---|---|
| Cash and cash equivalents | $(6) | $25 | $19 |
| Securities | (122) | 176 | 54 |
| Loans | 1,890 | 673 | 2,563 |
| Loans held for sale | 34 | 62 | 96 |
| Total interest-earning assets | 1,796 | 936 | 2,732 |
| Interest-bearing liabilities: | |||
| Interest-bearing demand deposits | (5) | 35 | 30 |
| Interest-bearing savings and money market deposits | (41) | 217 | 176 |
| Certificates of deposit | 326 | 836 | 1,162 |
| Total interest-bearing deposits | 280 | 1,088 | 1,368 |
| Interest-bearing borrowings | 1,191 | 348 | 1,539 |
| Total interest-bearing liabilities | 1,471 | 1,436 | 2,907 |
| Net interest income | $325 | $(500) | $(175) |
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Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023
General. Net income of $849,000 was recorded for the three months ended June 30, 2024, compared to a net loss of $338,000 for the three months ended June 30, 2023. The increase in net income was primarily due to an increase in total non-interest income of $1.9 million and a decrease of total non-interest expenses of $161,000, which were partially offset by a decrease in net interest income after provision for credit losses of $450,000. An increase in provision for credit losses of $275,000 was recorded due to loan growth and increases in nonperforming loans as discussed below.
Interest Income. Interest income increased $2.7 million, or 20.8%, to $15.9 million for the three months ended June 30, 2024, compared to $13.2 million for the three months ended June 30, 2023. This increase was primarily attributable to a $2.7 million, or 25.2%, 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 June 30, 2024 increased by $111.2 million, or 18.6%, while the average yield on these loans increased to 7.19% for the three months ended June 30, 2024 from 6.81% for the three months ended June 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 June 30, 2024 increased by $2.4 million, or 8.7%, while the average yield on these loans increased to 6.64% for the three months ended June 30, 2024 from 5.81% for the three months ended June 30, 2023.
The average balance of investment securities decreased by $14.1 million, or 5.3%, to $249.7 million for the three months ended June 30, 2024 from $263.8 million for the three months ended June 30, 2023, while the average yield on investment securities increased to 3.77% for the three months ended June 30, 2024 from 3.49% for the three months ended June 30, 2023. The increase in the average yield on securities was due primarily to increasing bond yields throughout 2023.
Interest Expense. Total interest expense increased $2.9 million, or 142.4%, to $4.9 million for the three months ended June 30, 2024, from $2.0 million for the three months ended June 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 deposits increased $3.8 million, or 0.6%, to $627.2 million for the three months ended June 30, 2024 compared to $623.4 million for the three months ended June 30, 2023. The average cost of interest-bearing deposits was 1.78% for the three months ended June 30, 2024 compared to 0.91% for the three months ended June 30, 2023. Average borrowings increased $123.9 million, or 190.9%, to $188.8 million for the three months ended June 30, 2024 compared to $64.9 million for the three months ended June 30, 2023. The average cost of borrowings was 4.59% for the three months ended June 30, 2024 compared to 3.85% for the three months ended June 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 decreased $175,000, or 1.6%, to $10.9 million for the three months ended June 30, 2024, compared to $11.1 million for the three months ended June 30, 2023. The decrease reflected a 73 basis point decrease in the average interest rate spread to 3.82% for the three months ended June 30, 2024, from 4.55% for the three months ended June 30, 2023. The net interest margin decreased by 53 basis points to 4.31% for the three months ended June 30, 2024 from 4.84% for the three months ended June 30, 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 Operations — Critical Accounting Policies and Use of Critical Accounting Estimates — Allowance for Credit Losses,” there was a $275,000 provision for credit losses at June 30, 2024 compared to no provision at June 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.
Total non-performing loans were $9.8 million at June 30, 2024, compared to $4.6 million at June 30, 2023. Classified loans totaled $14.2 million at June 30, 2024, compared to $14.9 million at June 30, 2023, and total loans past due greater than 30 days were $14.1 million and $11.1 million at those respective dates. Special mention loans were $5.3 million at June 30, 2024 compared to $1.6 million at June 30, 2023. As a percentage of non-performing loans, the allowance for credit losses was 59.0% at June 30, 2024 compared to 129.7% at June 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 June 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 $7.3 million for the three months ended June 30, 2024, an increase of $1.9 million, or 35.3%, from $5.4 million for the three months ended June 30, 2023. The increase was primarily due to the May 2024 sale of approximately $370 million of secondary market mortgage loans serviced for others and a corresponding gain on sale of $2.3 million. Mortgage servicing revenue declined by $512,000 to $336,000 for the three months ended June 30, 2024 from $848,000 for the three months ended June 30, 2023 due to a large sale of secondary market mortgage loans serviced for others in September 2023 along with the 2024 sale previously mentioned. Gain on sale of available for sale securities increased by $219,000 for the three months ended June 30, 2024 compared to no gains in the same period for 2023.
Non-interest Expense. Non-interest expense decreased $161,000, or 0.9%, to $16.8 million for the three months ended June 30, 2024, compared to $17.0 million for the three months ended June 30, 2023. Amortization expense related to the book value of mortgage servicing rights decreased by $388,000, or 72.8%, for the three months ended June 30, 2024 compared to the same period in 2023 due to a large sale of secondary market mortgage loans serviced for others in September of 2023 and May of 2024. Salaries and employee benefits expense decreased by $480,000, or 4.4%, for the three months ended June 30, 2024 compared to the same period in 2023 due to a reduction of approximately 24 employees, a 6.1% reduction in total employment. The reductions mostly came from the mortgage banking division of Fidelity Bank. The improvements in amortization of mortgage servicing rights, and salaries were partially offset by an increase in data processing expenses of $202,000, or 17.9%, and an increase in advertising and marketing expense of $210,000, or 43.7%, for the three months ended June 30, 2024, compared to the same period in 2023. These expense increases were due to expansions in digital banking services.
Provision (Benefit) for Income Taxes. The provision for income taxes increased by $420,000 to an expense of $243,000 for the three months ended June 30, 2024, compared to a benefit of $177,000 for the three months ended June 30, 2023. The increase in the income tax provision was primarily due to the increase in pre-tax income for the three months ended June 30, 2024.
Comparison of Operating Results for the Six Months Ended June 30, 2024 and 2023
General. Net income of $42,000 was recorded for the six months ended June 30, 2024, compared to a net loss of $109,000 for the six months ended June 30, 2023. The increase in net income was primarily due to an increase in total non-interest income of $1.2 million, combined with a decrease in total non-interest expenses of $0.5 million, which were partially offset by a decrease in net interest income after provision for credit losses of $1.4 million. An increase in provision for credit losses of $0.9 million was recorded due to loan growth and increases in nonperforming loans.
Interest Income. Interest income increased $6.0 million, or 24.1%, to $31.1 million for the six months ended June 30, 2024, compared to $25.1 million for the six months ended June 30, 2023. This increase was primarily attributable to a $5.7 million, or 28.7%, 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 six months ended June 30, 2024 increased by $114.3 million, or 19.6%, while the average yield on these loans increased to 7.10% for the six months ended June 30, 2024 from 6.62% for the six months ended June 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 six months ended June 30, 2024 increased by $2.0 million, or 7.6%, while the average yield on these loans increased to 6.23% for the six months ended June 30, 2024 from 5.15% for the six months ended June 30, 2023.
The average balance of investment securities decreased by $15.0 million, or 5.7%, to $248.7 million for the six months ended June 30, 2024 from $263.7 million for the six months ended June 30, 2023, while the average yield on investment securities increased to 3.76% for the six months ended June 30, 2024 from 3.52% for the six months ended June 30, 2023. The increase in the average yield on securities was due primarily to increasing bond yields throughout 2023.
Interest Expense. Total interest expense increased $6.5 million, or 234.4%, to $9.3 million for the six months ended June 30, 2024, from $2.8 million for the six months ended June 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 $8.7 million, or 1.4%, to $625.8 million for the six months ended June 30, 2024 compared to $617.1 million for the six months ended June 30, 2023. The average cost of interest-bearing deposits was 1.70% for the six months ended June 30, 2024 compared to 0.64% for the six months ended June 30, 2023. Average borrowings increased $125.2 million, or 220.4%, to $182.0 million for the six months ended June 30, 2024 compared to $56.8 million for the six months ended June 30, 2023. The average cost of borrowings was 4.46% for the six months ended June 30, 2024 compared to 2.88% for the six months ended June 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 decreased $0.5 million, or 2.2%, to $21.8 million for the six months ended June 30, 2024, compared to $22.3 million for the six months ended June 30, 2023. The decrease reflected a 89 basis point decrease in the average interest rate spread to 3.85% for the six months ended June 30, 2024, from 4.74% for the six months ended June 30, 2023. The net interest margin decreased 63 basis points to 4.33% for the six months ended June 30, 2024 from 4.96% for the six months ended June 30, 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 $520,000 provision for credit losses for the six months ended June 30, 2024 compared to a benefit for credit losses of $376,000 for the six months ended June 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 benefit for credit losses in 2023 was due, in part, to improved macroeconomic factors in calendar year 2023 compared to 2022. The allowance for credit losses was $5.8 million and $5.9 million at June 30, 2024 and June 30, 2023, respectively, and represented 0.80% of total loans at June 30, 2024 and 0.96% of total loans at June 30, 2023.
Total non-performing loans were $9.8 million at June 30, 2024, compared to $4.6 million at June 30, 2023. Classified loans totaled $14.2 million at June 30, 2024, compared to $14.9 million at June 30, 2023, and total loans past due greater than 30 days were $15.3 million and $11.1 million at those respective dates. Special mention loans were $5.3 million at June 30, 2024 compared to $1.6 million at June 30, 2023. As a percentage of non-performing loans, the allowance for credit losses was 59.0% at June 30, 2024 compared to 129.7% at June 30, 2023.
Non-interest Income. Non-interest income totaled $12.0 million for the six months ended June 30, 2024, an increase of $1.2 million, or 11.5%, from $10.7 million for the six months ended June 30, 2023. The increase was primarily due to the May 2024 sale of approximately $370 million of secondary market mortgage loans serviced for others and a corresponding gain on sale of $2.3 million. Mortgage servicing revenue declined by $1.0 million from $1.7 million for the six months ended June 30, 2023 to $0.7 million for the six months ended June 30, 2024 due to a large sale of secondary market mortgage loans serviced for others in September 2023 along with the 2024 sale noted above. Gain on sale of available for sale securities increased by $105,000 for the six months ended June 30, 2024 compared to the same period in 2023. The net gain on security sales was $308,000 for the six months ended June 30, 2024 compared to a $203,000 gain for the same period in 2023.
Non-interest Expense. Non-interest expense decreased $0.5 million, or 1.5%, to $33.2 million for the six months ended June 30, 2024, compared to $33.7 million for the six months ended June 30, 2023. Hedging utilized to offset risk in interest rate fluctuations in the origination of secondary market mortgage loans improved by $126,000 for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to reduced rate volatility in the mortgage market in 2024 compared to the same period in 2023. Hedging activity experienced a net gain of $131,000 for the six months ended June 30, 2024 compared to a net gain of $5,000 for the same period ended in 2023. Amortization expense related to the book value of mortgage servicing rights decreased by $755,000, or 71.3%, for the six months ended June 30, 2024 compared to the same period in 2023 due to the sales of secondary market mortgage loans serviced for others in September of 2023 and May of 2024. Salaries and employee benefits expense decreased by $540,000, or 2.6%, for the six months ended June 30, 2024 compared to the same period in 2023 due to a reduction of approximately 24 employees, a 6.1% reduction in total employment. The reductions mostly came from the mortgage banking division of Fidelity Bank. The improvements in hedging, amortization of mortgage servicing rights, and salaries were partially offset by an increase in data processing expenses of $472,000, or 21.2%, and an increase in advertising and marketing expense of $374,000, or 43.8%, for the six months ended June 30, 2024 compared to the same period in 2023. These expense increases were due to expansions in digital banking services.
Provision (Benefit) for Income Taxes. The provision for income taxes increased by $199,000 to an expense of $13,000 for the six months ended June 30, 2024, compared to a benefit of $186,000 for the six months ended June 30, 2023. The increase in the income tax provision was primarily due to the increase in pre-tax income for the six months ended June 30, 2024.
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 June 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.
June 30, 2024
(Dollars in thousands)
| Change in Interest Rates (basis points) (1) | Estimated EVE (2) | Estimated Increase (Decrease) in EVE Amount | Percent | EVE as a Percentage of Present Value Assets (3) EVE Ratio (4) | Increase (Decrease) (basis points) |
|---|---|---|---|---|---|
| 400 | $154,449 | $(70,245) | (32.26)% | 12.90% | (587) |
| 300 | 175,371 | (49,323) | (21.95)% | 14.65% | (412) |
| 200 | 193,810 | (30,884) | (13.74)% | 16.19% | (258) |
| 100 | 211,405 | (13,289) | (5.91)% | 17.66% | (111) |
| - | 224,694 | - | —% | 18.77% | - |
| (100) | 235,925 | 11,231 | 5.00% | 19.71% | 94 |
| (200) | 243,122 | 18,428 | 8.20% | 20.31% | 154 |
(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 June 30, 2024, we would have experienced a 13.74% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 8.2% 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, with the exception of the estimated effect of a 400 basis point increase in interest rate, for which the Board of Directors granted an exception in anticipation of decreasing market interest rates beginning in late 2024.
Change in Net Interest Income. The following table sets forth, at June 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.
June 30, 2024
(Dollars in thousands)
| Change in Interest Rates (basis points) (1) | NII Year 1 Forecast | Year 1 Change from Level |
|---|---|---|
| +400 | $36,915 | (18.29)% |
| +300 | 39,508 | (11.97)% |
| +200 | 41,650 | (6.75)% |
| +100 | 43,306 | (2.79)% |
| Level | 44,421 | —% |
| (100) | 44,784 | 0.88% |
| (200) | 44,745 | 0.79% |
45
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that at June 30, 2024, we would have experienced a 6.75% decrease in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.88% increase 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, with the exception of the estimated effect of a 400 basis point increase in interest rate, for which the Board of Directors granted an exception in anticipation of decreasing market interest rates beginning in late 2024.
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 June 30, 2024, we had $120.0 million in borrowings with the Federal Reserve Bank under the Bank Term Funding Program and $98.5 million of outstanding borrowings from the Federal Home Loan Bank of Dallas. At June 30, 2024, we had the capacity to borrow an additional $298.7 million from the Federal Home Loan Bank of Dallas and an additional $47.1 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 June 30, 2024, Fidelity Bank’s Tier 1 leverage capital was $166.4 million, or 14.5% of adjusted assets. Accordingly, it was categorized as well-capitalized at June 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.
Off-Balance Sheet Arrangements. At June 30, 2024, we had $209.0 million of outstanding commitments to originate loans, which included $169.4 million in revolving lines of credit, $22.9 million in residential construction loans and $16.7 million in commercial construction loans and lines of credit. At June 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 June 30, 2024 totaled $226.3 million at June 30, 2024. 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.
Market risk
As filed, 192 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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.
Controls and procedures
As filed, 896 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 June 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 June 30, 2024, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-06-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 6 months2024-01-01 to 2024-06-30 | $33.8m | us-gaap:Revenues |
| Selling, general and administrative | 3 months2024-04-01 to 2024-06-30 | $2.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months2024-01-01 to 2024-06-30 | $4.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months2024-04-01 to 2024-06-30 | $243.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months2024-01-01 to 2024-06-30 | $13.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-04-01 to 2024-06-30 | $849.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months2024-01-01 to 2024-06-30 | $42.0k | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months2024-01-01 to 2024-06-30 | −$15.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months2024-01-01 to 2024-06-30 | $2.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-06-30 | $59.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | At period end2024-06-30 | $1.17bn | us-gaap:Assets |
| Total liabilities | At period end2024-06-30 | $1.02bn | us-gaap:Liabilities |
| Shareholders' equity | At period end2024-06-30 | $155.7m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000950170-24-112280. Last ingested by Listed: Oct 24, 2026, 15:06 ET. Listed shows no prices and gives no investment advice.