FB Bancorp Inc MD

Previous wording

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.”

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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%.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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).

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from maturities of securities and sales of mortgage loans. We also have the ability to borrow from the Federal Home Loan Bank of Dallas and the Federal Reserve Board’s Bank Term Funding Program. At September 30, 2024, we had $120.0 million in borrowings with the Federal Reserve Bank under the Bank Term Funding Program and $94.0 million of outstanding borrowings from the Federal Home Loan Bank of Dallas. At September 30, 2024, we had the capacity to borrow an additional $321.4 million from the Federal Home Loan Bank of Dallas and an additional $46.1 million from the Federal Reserve Board discount window.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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