What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-06-24 · 145 added, 68 removed, 196 unchanged (52% of the section changed)

53 unchanged sentences

Internal Control Over Financial Reporting

We have identified material weaknesses in our internal control over financial reporting with respect to our allowance for credit losses that existed as of March 31, 2024 and December 31, 2023.

We have identified material weaknesses in our internal control over financial reporting with respect to our allowance for credit losses that existed as of June 30, 2024 and December 31, 2023.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements may not be prevented or detected on a timely basis.

We concluded that our procedures were not effective as of March 31, 2024 and December 31, 2023, and that we had, as of such dates, identified the following material weaknesses in our internal control over financial reporting:

● management did not maintain sufficient evidence of independent review or supporting documentation related to key methodologies, assumptions, and calculations, including support for the qualitative factors, utilized in the allowance for credit losses as of March 31, 2024 and December 31, 2023;

We concluded that our procedures were not effective as of June 30, 2024 and December 31, 2023, and that we had, as of such dates, identified the following material weaknesses in our internal control over financial reporting:

● management did not maintain sufficient evidence of independent review or supporting documentation, including support for the qualitative factors, related to the January 1, 2023 adoption of Accounting Standard Update (ASU) 2016-13 Financial Instruments – Credit Losses.

11 unchanged sentences

Once implemented, we intend to continue periodic testing and reporting of the internal controls to ensure continuity of compliance.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

The decrease in the allowance for credit losses as of June 30, 2024 as compared to December 31, 2023 was driven by various factors, including the evolving economic outlook, values in the local real estate market, low net charge-offs, and refining our peer group selection to better align with peers whose loan portfolios reflect the composition of our own loan portfolio and the current local economic conditions.

Adjusting this component of our estimate has

resulted in a reduced peer group loss rate and corresponding adjustments to our peer comparisons.

In turn our CECL reserve percentage was decreased resulting in a $1 million reversal in our allowance for credit loss.

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

Total Assets.

Total assets were $485.7 million at March 31, 2024, an increase of $4.9 million, or 1.0%, compared to $480.8 million at December 31, 2023.

This increase is primarily due to $17.3 million increase in cash and cash equivalents, offset by a $14.1 million decrease in investment securities available-for-sale.

Total assets were $516.0 million at June 30, 2024, an increase of $35.2 million, or 7.3%, compared to $480.8 million at December 31, 2023.

This increase is primarily due to $26.9 million increase in cash and cash equivalents, $4.2 million increase in investment securities available-for-sale, $2.9 million increase in loans receivable, net, and increase of $1.2 million in other assets.

Cash and Cash Equivalents.

Cash and cash equivalents increased by $17.3 million, or 89.7%, to $36.6 million at March 31, 2024 from $19.3 million at December 31, 2023.

Cash and cash equivalents increased by $26.9 million, or 139.4%, to $46.2 million at June 30, 2024 from $19.3 million at December 31, 2023.

This increase resulted primarily from the cash received for subscriptions to purchase shares of the Company’s common stock in its initial public offering.

The net proceeds of the public offering will be reflected in the Company’s consolidated shareholder’s equity at September 30, 2024.

Investment Securities Available-for-Sale.

Investment securities available-for-sale decreased $14.1 million, or 20.8%, to $53.8 million at March 31, 2024 from $67.9 million at December 31, 2023.

Securities purchased totaled $6.5 million during the quarter ended March 31, 2024, securities sold totaled $18.7 million, and calls, maturities, and repayments totaled $1.9 million.

In March 2024, we sold low yielding bonds and incurred a pre-tax loss of $1.1 million.

The proceeds were invested into higher yielding investments which is expected to have a positive impact on earnings going forward.

The average yield on investment securities available-for-sale decreased to 2.39% at March 31, 2024, from 2.54% at December 31, 2023, due to the amortization of the remaining premiums on the bonds that were sold.

Investment securities available-for-sale increased $4.2 million, or 6.2%, to $72.1 million at June 30, 2024 from $67.9 million at December 31, 2023.

Securities purchased totaled $26.0 million during the six months ended June 30, 2024, securities sold totaled $18.7 million, and calls, maturities, and repayments totaled $3.3 million.

Loans Receivable, Net.

Loans receivable, net, increased by $365,000, or 0.1%, to $365.4 million at March 31, 2024 from $365.0 million at December 31, 2023.

During the quarter ended March 31, 2024, loan originations were $3.3 million and loan repayments totaled $2.9 million, comprised solely of one- to four -family residential mortgage loans.

Deposits increased by $10.4 million, or 2.7%, to $400.4 million at March 31, 2024, from $390.0 million at December 31, 2023.

Certificates of deposit increased $10.5 million, or 4.6%, to $238.6 million at March 31, 2024, from $228.1 million at December 31, 2023.

Loans receivable, net, increased by $2.9 million, or 0.8%, to $367.9 million at June 30, 2024 from $365.0 million at December 31, 2023.

During the six months ended June 30, 2024, loan originations were $18.6 million and loan repayments totaled $16.8 million.

During the six months ended June 24, 2024 commercial and industrial loans increased by $2.7 million, primarily from the purchase of the guaranteed portion of government loans.

Our 1-4 single family mortgages decreased by $2.8 million, Home Equity loan decreased by $347,000, Construction loans increased by $2.1 million, and we reversed $1.1 million from our allowance for credit losses.

Deposits increased by $38.6 million, or 9.9%, to $428.6 million at June 30, 2024, from $390.0 million at December 31, 2023.

Certificates of deposit increased $11.1 million, or 4.8%, to $239.2 million at June 30, 2024, from $228.1 million at December 31, 2023.

The majority of the increase in certificates of deposit was driven by new customer activity and migration from lower yielding money markets accounts.

NOW accounts increased $32.7 million, or 64.2%, to $83.5 million at June 30, 2024, from $50.8 million at December 31, 2023, primarily from the cash received for subscriptions to purchase shares of the Company’s common stock in its initial public offering.

Total Equity Capital.

Total equity capital decreased by $831,000, or 1.1%, to $77.0 million at March 31, 2024, from $77.8 million at December 31, 2023.

The decrease resulted from the accumulated other comprehensive loss (as a result of market value adjustment of investment securities available-for-sale due to the rise in market interest rates during the period) declining $301,000 and retained earnings decreasing $1.1 million due to the net loss for the quarter ended March 31, 2024.

Total equity capital increased by $232,000, or 0.3%, to $78.0 million at June 30, 2024, from $77.8 million at December 31, 2023.

The increase resulted from the accumulated other comprehensive loss (as a result of market value adjustment of investment securities available-for-sale due to the rise in market interest rates during the period) declining $681,000 and retained earnings decreasing $449,000 due to the net loss for the quarter ended June 30, 2024.

Average Balances and Yields .

5 unchanged sentences

Net deferred loan fees/costs are immaterial.

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Yield/Rate (4)

2 unchanged sentences

Cash and cash equivalents

Investment securities available-for-sale

Loans receivable, net

Restricted stock

Total interest-earning assets

Noninterest-earning assets

Interest-bearing liabilities:

Savings accounts

Money market accounts

Certificates of deposit

Total interest-bearing deposits

Noninterest-bearing demand deposits

Other noninterest-bearing liabilities

Total liabilities

Total equity capital

Total liabilities and equity capital

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

For the Six Months Ended June 30,

Yield/Rate (4)

Interest-earning assets:

Cash and cash equivalents

Certificates of deposit at other institutions

25 unchanged sentences

(4) Average yield/rate is an annualized amount.

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

Net income (loss) for the three months ended March 31, 2024, was ($1.1) million, a decrease of $1.5 million, or 400.8%, compared to $376,000 for the three months ended March 31, 2023.

The decrease in net income was

primarily due to an increase in interest expense of $1.2 million and a decrease in non-interest income of $1.1 million, partially offset by a $365,000 increase in interest income and a $401,000 decrease in provision for income taxes.

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

Net income for the three months ended June 30, 2024, was $683,000, an increase of $479,000, or 234.8%, compared to $204,000 for the three months ended June 30, 2023.

The increase in net income was primarily due to an increase in interest income of $553,000, a $1 million recovery of credit losses on loans, an increase in non-interest income of $150,000, partially offset by an increase in interest expense of $897,000, an increase in non-interest expense of $199,000, and a $128,000 increase in provision for income taxes.

Interest Income.

Interest income increased by $365,000, or 9.3%, to $4.3 million for the three months ended March 31, 2024, compared to $3.9 million for the three months ended March 31, 2023.

The increase in interest income is attributed to a $356,000, or 10.6%, increase in interest on loans, a $29,000, or 17.0%, increase in interest on other interest-earning assets and $21,000, or 5.0%, decrease in interest on investment securities available-for-sale.

During the three months ended March 31, 2024, average loans receivable, net, increased by $12.7 million, or 3.6%, from the three months ended March 31, 2023.

The average yield on loans increased to 4.06% for the three months ended March 31, 2024, from 3.80% for the three months ended March 31, 2023.

The average balance of investment securities available-for-sale decreased $9.7 million, or 12.8%, to $66.3 million for the three months ended March 31, 2024, from $76.0 million for the three months ended March 31, 2023.

The average yield on available-for-sale investment securities increased to 2.39% for the three months ended March 31, 2024, from 2.19% for the three months ended March 31, 2023.

Interest income increased by $553,000, or 13.5%, to $4.6 million for the three months ended June 30, 2024, compared to $4.1 million for the three months ended June 30, 2023.

The increase in interest income is attributed to a $322,000, or 9.2%, increase in interest on loans, a $160,000, or 97.6%, increase in interest on other interest-earning assets and $71,000, or 16.3%, increase in interest on investment securities available-for-sale.

During the three months ended June 30, 2024, average loans receivable, net, increased by $9.3 million, or 2.6%, from the three months ended June 30, 2023.

The average yield on loans increased to 4.16% for the three months ended June 30, 2024, from 3.91% for the three months ended June 30, 2023.

The average balance of investment securities available-for-sale decreased $11.3 million, or 15.3%, to $62.5 million for the three months ended June 30, 2024, from $73.7 million for the three months ended June 30, 2023.

The average yield on available-for-sale investment securities increased to 3.26% for the three months ended June 30, 2024, from 2.38% for the three months ended June 30, 2023.

The increase in the average yield on available-for-sale investment securities was primarily due to the rising market interest rate environment.

Interest income on cash and cash equivalents, comprised primarily of certificate of deposit in other financial institutions and overnight deposits, increased by $27,000, or 16.1%, for the three months ended March 31, 2024, due to an increase in the average yield to 3.78% for the three months ended March 31, 2024, from 3.28% for the three months ended March 31, 2023.

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, increased by $159,000, or 100.6%, for the three months ended June 30, 2024, due to an increase in the average yield to 5.12% for the three months ended June 30, 2024, from 4.77% for the three months ended June 30, 2023.

The increase in average yield was due to the rise in market interest rates.

Interest Expense .

Total interest expense increased $1.2 million, or 105.3%, to $2.3 million for the three months ended March 31, 2024, from $1.1 million for the three months ended March 31, 2023.

The increase was primarily due to the increase in the average cost of deposits to 2.28% for the three months ended March 31, 2024, from 1.12% for the three months ended March 31, 2023, reflecting the rising market interest rate environment.

The average balance of interest-bearing deposits increased by $3.2 million, or 0.8%, to $393.5 million for the three months ended March 31, 2024, from $390.3 million for the three months ended March 31, 2023.

Total interest expense increased $897,000 or 61.0%, to $2.4 million for the three months ended June 30, 2024, from $1.5 million for the three months ended June 30, 2023.

The increase was primarily due to the increase in the average cost of deposits to 2.36% for the three months ended June 30, 2024, from 1.51% for the three months ended June 30, 2023, reflecting the rising market interest rate environment.

The average balance of interest-bearing deposits increased by $11.4, or 2.9%, to $401.7 million for the three months ended June 30, 2024, from $390.3 million for the three months ended June 30, 2023.

Net Interest Income .

Net interest income decreased $790,000, or 27.8%, to $2.0 million for the three months ended March 31, 2024, compared to $2.8 million for the three months ended March 31, 2023.

The decrease reflects the decrease in the interest rate spread to 1.51% for the three months ended March 31, 2024, from 2.38% for the months ended March 31, 2023, while average net interest-earning assets decreased $649,000 period-to-period.

The net interest margin decreased to 1.81% for the three months ended March 31, 2024, from 2.52% for the three months ended March 31, 2023.

Net interest income decreased $344,000, or 13.1%, to $2.3 million for the three months ended June 30, 2024, compared to $2.6 million for the three months ended June 30, 2023.

The decrease reflects the decrease in the interest rate spread to 1.73% for the three months ended June 30, 2024, from 2.17% for the three months ended June 30, 2023, while average net interest-earning assets decreased $1.8 million period-to-period.

The net interest margin decreased to 2.0% for the three months ended June 30, 2024, from 2.36% for the three months ended June 30, 2023.

Both the interest rate spread and net interest margin decreased due to the rising interest rate environment.

The average yield on interest-earning assets increased from 3.50% for the three months ended March 31, 2023, to 3.80% for the three months ended March 31, 2024.

The average rate paid on interest-bearing liabilities increased from 1.12% for the three months ended March 31, 2023, to 2.28% for the three months ended March 31, 2024, primarily due to an increase in the average rate paid on certificates of deposit from 2.10% in 2023 to 3.74% in 2024.

The average yield on interest-earning assets increased from 3.68% for the three months ended June 30, 2023, to 4.09% for the three months ended June 30, 2024.

The average rate paid on interest-bearing liabilities increased from 1.51% for the three months ended June 30, 2023, to 2.36% for the three months ended June 30, 2024, primarily due to an increase in the average rate paid on certificates of deposit from 2.77% in 2023 to 3.87% in 2024.

The increase in the average rate paid on certificates of deposit contributed to migration from lower yielding savings accounts and money market accounts, to higher yielding certificates of deposit.

The average balance of certificates of deposit increased from $202.3 million as of June 30, 2023, to $239.8 million as June 30, 2024, while over the same period the average balance of savings accounts decreased from $98.1 million to $82.9 million, and the average balance of money market accounts decreased from $35.4 million to $23.9 million.

Provision (Recovery) for Credit Losses .

The recovery of credit losses on loans increased $1 million to $1 million for the three months ended June 30, 2024, compared to no provision (recovery) for the three months ended June 30, 2023.

The recovery was primarily due to changes in the peer group for the CECL calculation.

The allowance for credit losses on loans represented 0.50% of total loans at June 30, 2024, and 0.99% of total loans at June 30, 2023.

The recovery of credit losses is based on our evaluation of the adequacy of the allowance for credit losses throughout the reporting period.

Total non-performing loans were $1.1 million at June 30, 2024, compared to $213,000 at June 30, 2023.

The increase is due to our loans 90 or more days delinquent increasing from $86,000 at June 30, 2023 to $1.1 million at June 30, 2024.

Classified loans totaled $118,000 at June 30, 2024, compared to $86,000 at June 30, 2023.

As a percentage of

nonperforming loans, the allowance for credit losses on loans was 160.7% at June 30, 2024, compared to 1524.8% at June 30, 2023.

Noninterest Income .

Noninterest income totaled $400,000 for the three months ended June 30, 2024, an increase of $150,000, or 60.0%, from $250,000 for the three months ended June 30, 2023.

The increase was primarily due to the $140,000 gain on sale of real estate owned.

Noninterest Expense .

Noninterest expense increased $199,000, or 7.6%, to $2.8 million for the three months ended June 30, 2024, compared to $2.6 million for the three months ended June 30, 2023.

The increase was primarily due to an increase in salaries and employee benefits of $95,000, or 6.2%, an increase in occupancy and equipment expense of $43,000, or 10.2%, an increase in data processing expense of $45,000, or 16.8%, an increase in audit and examination fees of $28,000, or 80.0%, and an increase in FDIC insurance premiums of $21,000, or 70.0%, offset by a $25,000, or 34.3%, decrease in advertising expense and a $16,000, or 18.0% decrease in directors fees.

Provision for Income Taxes .

The provision for income taxes increased by $128,000, or 237.0%, to $182,000 for the three months ended June 30, 2024, compared to $54,000 for the three months ended June 30, 2023.

The increase was due to a $607,000, or 235.3%, increase in pretax income.

The effective tax rate was 21% for both periods.

Comparison of Operating Results for the Six Months Ended June 30, 2024 and 2023

Net income (loss) for the six months ended June 30, 2024, was ($449,000), a decrease of $1.0 million, or 177.4%, compared to $580,000 for the six months ended June 30, 2023.

The decrease in net income was primarily due to an increase in interest expense of $2.1 million, an increase in non-interest expense of $310,000 and a decrease in non-interest income of $959,000, partially offset by a $918,000 increase in interest income, a $1.1 million recovery of credit losses on loans, and a $273,000 decrease in provision for income taxes.

Interest Income.

Interest income increased by $918,000, or 11.4%, to $8.9 million for the six months ended June 30, 2024, compared to $8.0 million for the six months ended June 30, 2023.

The increase in interest income is attributed to a $679,000, or 9.9%, increase in interest on loans, a $109,000, or 56.4%, increase in interest on other interest-earning assets and $49,000, or 5.7%, increase in interest on investment securities available-for-sale.

During the six months ended June 30, 2024, average loans receivable, net, increased by $11.0 million, or 3.1%, from the six months ended June 30, 2023.

The average yield on loans increased to 4.12% for the six months ended June 30, 2024, from 3.86% for the six months ended June 30, 2023.

The average balance of investment securities available-for-sale decreased $10.4 million, or 13.9%, to $64.5 million for the six months ended June 30, 2024, from $74.9 million for the six months ended June 30, 2023.

The average yield on available-for-sale investment securities increased to 2.81% for the six months ended June 30, 2024, from 2.29% for the six months ended June 30, 2023.

The increase in the average yield on available-for-sale investment securities was primarily due to the rising market interest rate environment.

Interest income on cash and cash equivalents, comprised primarily of certificate of deposit in other financial institutions and overnight deposits, increased by $187,000, or 57.4%, for the six months ended June 30, 2024, due to an increase in the average yield to 5.04% for the six months ended June 30, 2024, from 4.50% for the six months ended June 30, 2023.

The increase in average yield was due to the rise in market interest rates.

Interest Expense .

Total interest expense increased $2.1 million, or 79.9%, to $4.6 million for the six months ended June 30, 2024, from $2.6 million for the six months ended June 30, 2023.

The increase was primarily due to the increase in the average cost of deposits to 2.33% for the six months ended June 30, 2024, from 1.32% for the six months ended June 30, 2023, reflecting the rising market interest rate environment.

The average balance of interest-bearing deposits increased by $7.5 million, or 1.9%, to $397.8 million for the six months ended June 30, 2024, from $390.3 million for the six months ended June 30, 2023.

Net Interest Income .

Net interest income decreased $1.1, or 20.8%, to $4.3 million for the six months ended June 30, 2024, compared to $5.5 million for the six months ended June 30, 2023.

The decrease reflects the decrease in the interest rate spread to 1.64% for the six months ended June 30, 2024, from 2.29% for the six months ended June 30, 2023, while average net interest-earning assets decreased $1.2 million period-to-period.

The net interest margin decreased to 1.92% for the six months ended June 30, 2024, from 2.46% for the six months ended June 30, 2023.

Both the interest rate spread and net interest margin decreased due to the rising interest rate environment.

The average yield on interest-earning assets increased from 3.61% for the six months ended June 30, 2023, to 3.97% for the six months ended June 30, 2024.

The average rate paid on interest-bearing liabilities increased from 1.32% for the six months ended June 30, 2023, to 2.33% for the six months ended June 30, 2024, primarily due to an increase in the average rate paid on certificates of deposit from 2.45% in 2023 to 3.81% in 2024.

The increase in the average rate paid on certificates of deposit contributed to migration from lower yielding savings accounts, NOW accounts and money market accounts, to higher yielding certificates of deposit.

The average balance of certificates of deposit increased from $193.1 million as of March 31, 2023, to $234.3 million as March 31, 2024, while over the same period the average balance of savings accounts decreased from $101.4 million to $83.5 million, the average balance of NOW accounts decreased from $55.9 million to $50.1 million and the average balance of money market accounts decreased from $39.9 million to $25.7 million.

The average balance of certificates of deposit increased from $197.6 million as of June 30, 2023, to $237.0 million as June 30, 2024, while over the same period the average balance of savings accounts decreased from $99.8 million to $83.2 million, the average balance of NOW accounts decreased from $55.2 million to $52.8 million and the average balance of money market accounts decreased from $37.7 million to $24.8 million.

Provision (Recovery) for Credit Losses .

The recovery of credit losses on loans increased $100,000 to $100,000 for the three months ended March 31, 2024, compared to no provision (recovery) for the three months ended March 31, 2023.

The increase in recovery was due to changes in qualitative factors primarily due to the evolving economic outlook, values in the local real estate market, positive trends in the past due and nonperforming loans, and the low level of net charge-offs.

The allowance for credit losses on loans represented 0.73% of total loans at March 31, 2024, and 0.91% of total loans at March 31, 2023.

The recovery of credit losses on loans increased $1.1 million to $1.1 million for the six months ended June 30, 2024, compared to no provision (recovery) for the six months ended June 30, 2023.

The recovery was primarily due to changes in the peer group for the CECL calculation.

The allowance for credit losses on loans represented 0.50% of total loans at June 30, 2024, and 0.99% of total loans at June 30, 2023.

The recovery of credit losses is based on our evaluation of the adequacy of the allowance for credit losses throughout the reporting period.

Total non-performing loans were $753,000 at March 31, 2024, compared to $366,000 at March 31, 2023.

Classified loans totaled $212,000 at March 31, 2024, compared to $366,000 at March 31, 2023.

As a percentage of nonperforming loans, the allowance for credit losses on loans was 358.53% at March 31, 2024, compared to 889.61% at March 31, 2023.

Total non-performing loans were $1.1 million at June 30, 2024, compared to $213,000 at June 30, 2023.

The increase is due to our loans 90 or more days delinquent increasing from $86,000 at June 30, 2023 to $1.1 million at June 30, 2024.Classified loans totaled $118,000 at June 30, 2024, compared to $86,000 at June 30, 2023.

As a percentage of nonperforming loans, the allowance for credit losses on loans was 160.7% at June 30, 2024, compared to 1524.8% at June 30, 2023.

Noninterest Income (Loss) .

Noninterest income (loss) totaled ($897,000) for the three months ended March 31, 2024, a decrease of $1.1 million, or 491.9%, from $229,000 for the three months ended March 31, 2023.

Noninterest income (loss) totaled ($482,000) for the six months ended June 30, 2024, a decrease of $959,000, or 201.1%, from $477,000 for the six months ended June 30, 2023.

The decrease was primarily due to the $1.1 million realized loss on the sale of investment securities available-for-sale discussed earlier and a $10,000, or 4.8%, decrease in ATM and check card fees, offset by a $33,000, or 22.3%, increase in the cash surrender value of the bank owned life insurance, and a $7,000, or 7.1%, increase in deposit service charges and fees.

Noninterest Expense .

Noninterest expense increased $93,000, or 3.6%, to $2.7 million for the three months ended March 31, 2024, compared to $2.6 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in salaries and employee benefits of $44,000, or 2.9%, an increase in occupancy and equipment expense of $38,000, or 9.6%, an increase in data processing expense of $39,000, or 15.5%, an increase in audit and examination fees of $21,000, or 48.7%, and an increase in FDIC insurance premiums of $20,000, or 66.6%, offset by a $41,000, or 59.5%, decrease in advertising expense, a $21,000, or 22.5%, decrease in director fees and a $7,000, or 10.3%, decrease in other expenses.

Noninterest expense increased $310,000, or 6.0%, to $5.5 million for the six months ended June 30, 2024, compared to $5.2 million for the six months ended June 30, 2023.

The increase was primarily due to an increase in salaries and employee benefits of $139,000, or 4.6%, an increase in occupancy and equipment expense of $81,000, or 10.0%, an increase in data processing expense of $85,000, or 16.25%, an increase in audit and examination fees of $49,000, or 63.6%, a increase in other fees of $21,000 or 7.2%, and an increase in FDIC insurance premiums of $41,000, or 68.3%, offset by a $66,000, or 46.5%, decrease in advertising expense, and a $38,000, or 20.8% decrease in directors fees.

Provision (Benefit) for Income Taxes .

The provision (benefit) for income taxes decreased by $401,000, or 400.8%, to ($301,000) for the three months ended March 31, 2024, compared to $100,000 for the three months ended March 31, 2023.

The provision (benefit) for income taxes decreased by $273,000, or 177.3%, to ($119,000) for the six months ended June 30, 2024, compared to $154,000 for the six months ended June 30, 2023.

The decrease was due to a $1.3 million, or 177.4%, decrease in pretax income.

2 unchanged sentences

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.

Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund

current and planned expenditures.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities.

1 unchanged sentence

Under the terms of the Bank Term Funding Program, advances cannot be obtained after March 11, 2024.

At March 31, 2024, we had no outstanding advances from the Federal Home Loan Bank of Dallas.

At March 31, 2024, we had no outstanding balances under the correspondent bank credit facilities and no outstanding balance under the Bank Term Funding Program.

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at March 31, 2024 and December 31, 2023 were $46,099,000 and $42,225,000, respectively.

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $243,574,000 of its qualifying mortgage loans as of March 31,2024, the Bank was eligible to borrow up to an additional $168,207,000 as of March 31, 2024.

At June 30, 2024, we had no outstanding advances from the Federal Home Loan Bank of Dallas.

At June 30, 2024, we had no outstanding balances under the correspondent bank credit facilities and no outstanding balance under the Bank Term Funding Program.

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at June 30, 2024 and December 31, 2023 were $43.4 million and $42.2 million, respectively.

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $234.0 million of its qualifying mortgage loans as of June 30, 2024, the Bank was eligible to borrow up to an additional $169.8 million as of June 30, 2024.

The Bank has an unsecured federal funds line of credit with FNBB that expires on June 30, 2025.

The Bank is eligible to borrow up to $27,200,000.

There was no amount outstanding on this line of credit as of March 31, 2024 and December 31, 2023.

The Bank is eligible to borrow up to $27.2 million.

There was no amount outstanding on this line of credit as of June 30, 2024 and December 31, 2023.

The Bank is eligible to borrow from TIB’s Federal Funds Purchase Line Program, which provides overnight liquidity through pledge of certain qualifying securities.

The Bank is eligible to borrow up to $15,000,000 and repayment is due the next day.

There was no amount outstanding on this line of credit as of March 31, 2024 and December 31, 2023.

The Bank is eligible to borrow up to $15.0 million and repayment is due the next day.

There was no amount outstanding on this line of credit as of June 30, 2024 and December 31, 2023.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.

most liquid assets are cash and short-term investments.

Our most liquid assets are cash and short-term investments.

The levels of these assets depend on our operating, financing, lending, and investing activities during any given period.

6 unchanged sentences

Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At March 31, 2024, Fifth District was categorized as well-capitalized under regulatory capital guidelines.

At June 30, 2024, Fifth District was categorized as well-capitalized under regulatory capital guidelines.

Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements

At March 31, 2024, we had $22.9 million of outstanding commitments to originate loans, which primarily consists of $7.2 million of remaining funds to be disbursed on construction loans in process and $12.7 million of unused balances of home equity lines of credit.

At March 31, 2024, certificates of deposit that are scheduled to mature on or before March 31, 2025 totaled $223.2 million.

At June 30, 2024, we had $22.1 million of outstanding commitments to originate loans, which primarily consists of $8.9 million of remaining funds to be disbursed on construction loans in process and $12.8 million of unused balances of home equity lines of credit.

At June 30, 2024, certificates of deposit that are scheduled to mature on or before June 30, 2025 totaled $225.2 million.

Management expects that a substantial portion of the maturing certificates of deposit will be renewed.

19 unchanged sentences

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, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of March 31, 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.

The following table sets forth, as of 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.

All estimated changes presented in the table are within the policy limits established by the board of directors.

At March 31, 2024

At June 30, 2024

EVE as a Percentage of Present Value

10 unchanged sentences

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

The table above indicates that at March 31, 2024, we would have experienced a 32.25% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 25.76% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that at June 30, 2024, we would have experienced a 33.35% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 24.68% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Change in Net Interest Income.

The following table sets forth, as of March 31, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

The following table sets forth, as of June 30, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

All estimated changes presented in the table are within the policy limits established by the board of directors.

At March 31, 2024

At June 30, 2024

Change in Interest Rates

4 unchanged sentences

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

The table above indicates that as of March 31, 2024, we would have experienced a 19.52% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 3.18% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that as of June 30, 2024, we would have experienced a 17.96% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.99% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement.

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis