Fifth District Bancorp Inc

Previous wording

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 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:

Current wording

We have identified material weaknesses in our internal control over financial reporting with respect to our allowance for credit losses that existed as of September 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 December 31, 2023 and un-remediated as of September 30, 2024. Specifically, we identified, the following material weaknesses in our internal control over our financial reporting:

Previous wording

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.

Current wording

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 $1.1 million reversal in our allowance for credit loss.

Previous wording

Total Assets. 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.

Current wording

Total Assets. Total assets were $523.8 million at September 30, 2024, an increase of $43.0 million, or 9.0%, compared to $480.8 million at December 31, 2023. This increase is primarily due to $14.8 million increase in cash and cash equivalents, $25.9 million increase in investment securities available-for-sale, and $2.7 million increase in loans receivable, net.

Previous wording

Cash and Cash Equivalents. 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.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased by $14.8 million, or 76.6%, to $34.1 million at September 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 are reflected in Stockholders’ equity at September 30, 2024.

Previous wording

Investment Securities Available-for-Sale. 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.

Current wording

Investment Securities Available-for-Sale. Investment securities available-for-sale increased $25.9 million, or 38.1%, to $93.8 million at September 30, 2024 from $67.9 million at December 31, 2023. Securities purchased totaled $48.2 million during the nine months ended September 30, 2024, securities sold totaled $18.7 million, and calls, maturities, and repayments totaled $5.3 million.

Previous wording

Loans Receivable, Net. 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.

Current wording

Loans Receivable, Net. Loans receivable, net, increased by $2.7 million, or 0.7%, to $367.7 million at September 30, 2024 from $365.0 million at December 31, 2023. During the nine months ended September 30, 2024, loan originations were $26.9 million and loan repayments totaled $24.2 million. During the nine months ended September 30, 2024, commercial and industrial loans increased by $3.7 million, primarily from the purchase of the guaranteed portion of government loans, and Bankers Healthcare loans. 1-4 single family mortgages decreased by $2.8 million, home equity loans decreased by $629,000, construction loans increased by $1.5 million, and we reversed $1.1 million from our allowance for credit losses.

Previous wording

Deposits. 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.

Current wording

Deposits. Deposits decreased by $5.9 million, or 1.5%, to $384.1 million at September 30, 2024, from $390.0 million at December 31, 2023. Certificates of deposit increased $3.6 million, or 1.59%, to $231.8 million at September 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 $2.0 million, or 3.9%, to $52.8 million at September 30, 2024, from $50.8 million at December 31, 2023. MMDA accounts decreased $4.4 million, or 16.8%, to $22.0 million at September 30, 2024, from $26.4 million at December 31, 2023. Savings Accounts decrease $7.1 million, or 8.37%, to $77.5 million at September 30, 2024, from $84.6 million at December 31, 2023.

Previous wording

Total Equity Capital. 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.

Current wording

Total Stockholders’ Equity. Total stockholders’ equity increased by $50.1 million, or 64.4%, to $127.9 million at September 30, 2024, from $77.8 million at December 31, 2023. The increase resulted from the sale of stock in the initial public offering that totaled $53.2 million, offset by the unearned ESOP of $4.3 million, 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 $2.5 million and retained earnings decreasing $1.2 million due to the net loss for the period ended September 30, 2024.

Previous wording

Interest Income. 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.

Current wording

Interest and Dividend Income. Interest and dividend income increased by $1.0 million, or 25.0%, to $5.2 million for the three months ended September 30, 2024, compared to $4.2 million for the three months ended September 30, 2023. The increase is attributed to a $252,000, or 7.0%, increase in interest on loans, a $433,000, or 346.4%, increase in interest on other interest-earning assets and $353,000, or 84.3%, increase in interest on investment securities available-for-sale.

Previous wording

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.

Current wording

During the three months ended September 30, 2024, average loans receivable, net, increased by $6.9 million, or 1.9%, from the three months ended September 30, 2023. The average yield on loans increased to 4.16% for the three months ended September 30, 2024, from 3.96% for the three months ended September 30, 2023, due to the rising market rate environment.

Previous wording

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.

Current wording

The average balance of investment securities available-for-sale increased $13.4 million, or 19.4%, to $82.6 million for the three months ended September 30, 2024, from $69.2 million for the three months ended September 30, 2023. The average yield on available-for-sale investment securities increased to 3.71% for the three months ended September 30, 2024, from 2.40% for the three months ended September 30, 2023. The increase in the average yield on available-for-sale investment securities was primarily due to the rising market interest rate environment.

Previous wording

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.

Current wording

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, increased by $433,000, or 376.5%, for the three months ended September 30, 2024, due to an increase in the average yield to 5.37% for the three months ended September 30, 2024, from 4.80% for the three months ended September 30, 2023. The increase in interest income was mainly due to the increase in the balance of cash and cash equivalents arising from the cash received for the purchase of stock in the IPO. The increase in average yield was due to the rise in market interest rates.

Previous wording

Interest Expense*.* 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.

Current wording

Interest Expense*.* Total interest expense increased $508,000 or 28.2%, to $2.3 million for the three months ended September 30, 2024, from $1.8 million for the three months ended September 30, 2023. The increase was primarily due to the increase in the average cost of deposits to 2.27% for the three months ended September 30, 2024, from 1.81% for the three months ended September 30, 2023, reflecting the rising market interest rate environment. The average balance of interest-bearing deposits increased by $18.7 million, or 4.9%, to $403.5 million for the three months ended September 30, 2024, from $384.8 million for the three months ended September 30, 2023.

Previous wording

Net Interest Income*.* 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 3.68% 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.

Current wording

Net Interest Income*.* Net interest income increased $530,000, or 22.5%, to $2.9 million for the three months ended September 30, 2024, compared to $2.4 million for the three months ended September 30, 2023. The increase reflects the increase in the interest rate spread to 1.91% for the three months ended September 30, 2024, from 1.89% for the three months ended September 30, 2023, while average net interest-earning assets increased $36.0 million period-to-period. The net interest margin increased to 2.32% for the three months ended September 30, 2024, from 2.11% for the three months ended September 30, 2023. The average yield on interest-earning assets increased from 3.73% for the three months ended September 30, 2023, to 4.18% for the three months ended September 30, 2024. The average rate paid on interest-bearing liabilities increased from 1.84% for the three months ended September 30, 2023, to 2.27% for the three months ended September 30, 2024, primarily due to an increase in the average rate paid on certificates of deposit from 3.22% 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 and money market accounts, to higher yielding certificates of deposit. The average balance of certificates of deposit increased from $208.6 million as of September 30, 2023, to $235.2 million as September 30, 2024, while over the same period the average balance of savings accounts decreased from $93.1 million to $79.8 million, and the average balance of money market accounts decreased from $31.7 million to $22.2 million.

Previous wording

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.

Current wording

Provision (Recovery) for Credit Losses*.*The recovery of credit losses on loans decreased $100,000 to $0 for the three months ended September 30, 2024, compared to $100,000 for the three months ended September 30, 2023. The allowance for credit losses on loans represented 0.46% of total loans at September 30, 2024, and 0.76% of total loans at September 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.

Previous wording

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.

Current wording

Total non-performing loans were $647,000 at September 30, 2024, compared to $0 at September 30, 2023. We did not have any loans over 90 days delinquent at September 30, 2023 compared to $647,000 at September 30, 2024. Classified loans totaled $647,000 at September 30, 2024, compared to $106,000 at September 30, 2023. As a percentage of nonperforming loans, the allowance for credit losses on loans was 262.6% at September 30, 2024, and there were no non-performing loans at September 30, 2023.

Previous wording

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.

Current wording

Noninterest Income*.* Noninterest income totaled $252,000 for the three months ended September 30, 2024, an increase of $3,000, or 1.2%, from $249,000 for the three months ended September 30, 2023.

Previous wording

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.

Current wording

Noninterest Expense*.*Noninterest expense increased $1.6 million, or 59.9%, to $4.2 million for the three months ended September 30, 2024, compared to $2.7 million for the three months ended September 30, 2023. The increase was primarily due to an increase in salaries and employee benefits of $243,000, or 15.9%, an increase in occupancy and equipment expense of $28,000, or 6.5%, an increase in professional and legal fees of $16,000, or 41.0%, an increase in data processing expense of $9,000, or 3.3%, an increase in audit and examination fees of $68,000, or 194.3%, and an increase in charitable contributions of $1.3 million, or 9,615.4% from establishing the Fifth District Community Foundation, partially offset by a $5,000, or 8.8%, decrease in FDIC insurance expense, an $18,000, or 19.8% decrease in directors fees, and a $25,000, or 45.5% decrease in advertising.

Previous wording

Provision (Benefit) for Income Taxes*.*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. The effective tax rate was 21% for both periods.

Current wording

Provision (Benefit) for Income Taxes*.*The provision (benefit) for income taxes decreased by $220,000, or 2,200.0%, to ($210,000) for the three months ended September 30, 2024, compared to $10,000 for the three months ended September 30, 2023. The decrease was due to a $1.0 million, or 2,136.7%, decrease in pretax income. The effective tax rate was 21% for both periods.

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

General*.* 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.

Current wording

General*.* Net income (loss) for the nine months ended September 30, 2024, was ($1.2) million, a decrease of $1.9 million, or 299.8%, compared to $619,000 for the nine months ended September 30, 2023. The net loss was primarily from an increase in non-interest expense of $1.9 million resulting from a $1.3 million charitable contribution to establish the Fifth District Community Foundation, an increase in interest expense of $2.6 million, a decrease in non-interest income of $956,000, partially offset by an increase in interest income of $2.0 million, and a $493,000 decrease in provision for income taxes.

Previous wording

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.

Current wording

Interest and Dividend Income. Interest and dividend income increased by $2.0 million, or 16.1%, to $14.1 million for the nine months ended September 30, 2024, compared to $12.2 million for the nine months ended September 30, 2023. The increase in interest income is attributed to a $931,000, or 8.9%, increase in interest on loans, a $624,000, or 135.4%, increase in interest on other interest-earning assets and $402,000, or 31.6%, increase in interest on investment securities available-for-sale.

Previous wording

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.

Current wording

During the nine months ended September 30, 2024, average loans receivable, net, increased by $9.6 million, or 2.7%, from the nine months ended September 30, 2023. The average yield on loans increased to 4.13% for the nine months ended September 30, 2024, from 3.89% for the nine months ended September 30, 2023, due to the rising market interest rate environment.

Previous wording

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.

Current wording

The average balance of investment securities available-for-sale decreased $1.8 million, or 2.4%, to $71.2 million for the nine months ended September 30, 2024, from $73.0 million for the nine months ended September 30, 2023. The average yield on available-for-sale investment securities increased to 3.13% for the nine months ended September 30, 2024, from 2.32% for the nine months ended September 30, 2023. The increase in the average yield on

Previous wording

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.

Current wording

Interest income on cash and cash equivalents, comprised primarily of certificate of deposit in other financial institutions and overnight deposits, increased by $620,000, or 140.8%, for the nine months ended September 30, 2024, due to an increase in the average yield to 5.20% for the nine months ended September 30, 2024, from 4.55% for the nine months ended September 30, 2023. The increase in average yield was due to the rise in market interest rates.

Previous wording

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.

Current wording

Interest Expense*.* Total interest expense increased $2.6 million, or 58.6%, to $6.9 million for the nine months ended September 30, 2024, from $4.4 million for the nine months ended September 30, 2023. The increase was primarily due to the increase in the average cost of deposits to 2.36% for the nine months ended September 30, 2024, from 1.48% for the nine months ended September 30, 2023, reflecting the rising market interest rate environment. The average balance of interest-bearing deposits increased by $1.6 million, or 0.4%, to $390.0 million for the nine months ended September 30, 2024, from $388.4 million for the nine months ended September 30, 2023.

Previous wording

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 $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.

Current wording

Net Interest Income*.* Net interest income decreased $602,000, or 7.7%, to $7.2 million for the nine months ended September 30, 2024, compared to $7.8 million for the nine months ended September 30, 2023. The decrease reflects the decrease in the interest rate spread to 1.67% for the nine months ended September 30, 2024, from 2.16% for the nine months ended September 30, 2023, while average net interest-earning assets increased $21.6 million period-to-period. The net interest margin decreased to 2.06% for the nine months ended September 30, 2024, from 2.34% for the nine months ended September 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 3.65% for the nine months ended September 30, 2023, to 4.04% for the nine months ended September 30, 2024. The average rate paid on interest-bearing liabilities increased from 1.49% for the nine months ended September 30, 2023, to 2.37% for the nine months ended September 30, 2024, primarily due to an increase in the average rate paid on certificates of deposit from 2.71% 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 $201.3 million as of September 30, 2023, to $236.3 million as of September 30, 2024, while over the same period the average balance of savings accounts decreased from $97.5 million to $81.9 million, the average balance of NOW accounts decreased from $53.9 million to $48.0 million and the average balance of money market accounts decreased from $35.6 million to $23.9 million.

Previous wording

Provision (Recovery) for Credit Losses*.*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.

Current wording

Provision (Recovery) for Credit Losses*.*The recovery of credit losses on loans increased $1.0 million to $1.1 million for the nine months ended September 30, 2024, compared to $100,000 for the nine months ended September 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 0.46% of total loans at September 30, 2024, and 0.86% of total loans at September 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.

Previous wording

Noninterest Income (Loss). 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.

Current wording

Noninterest Income (Loss). Noninterest income (loss) totaled ($231,000) for the nine months ended September 30, 2024, a decrease of $956,000, or 131.9%, from $725,000 for the nine months ended September 30, 2023. The decrease was primarily due to the $1.1 million realized loss on the sale of investment securities available-for-sale and a $10,000, or 3.3%, decrease in ATM and check card fees, offset by a $34,000, or 14.4%, increase in the cash surrender value of the

Previous wording

Noninterest Expense*.*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.

Current wording

Noninterest Expense*.*Noninterest expense increased $1.9 million, or 24.2%, to $9.8 million for the nine months ended September 30, 2024, compared to $7.9 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in salaries and employee benefits of $382,000, or 8.4%, an increase in occupancy and equipment expense of $109,000, or 8.8%, an increase in FDIC insurance of $36,000, or 30.8%, an increase in data processing expense of $93,000, or 11.7%, an increase in audit and examination fees of $118,000, or 105.4%, an increase in other fees of $45,000 or 11.6%, and an increase in charitable contributions of $1.3 million, or 3,289.5% from establishing the Fifth District Community Foundation, offset by a $90,000, or 45.7%, decrease in advertising expense, and a $56,000, or 20.4% decrease in directors fees.

Previous wording

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.

Current wording

Provision (Benefit) for Income Taxes*.*The provision (benefit) for income taxes decreased by $493,000, or 300.6%, to ($329,000) for the nine months ended September 30, 2024, compared to $164,000 for the nine months ended September 30, 2023. The decrease was due to a $2.3 million, or 300.0%, decrease in pretax income. The effective tax rate was 21% for both periods.

Previous wording

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. We also have the ability to borrow from the Federal Home Loan Bank of Dallas and from two correspondent banks and, until March 11, 2024, had the ability to obtain advances under the Federal Reserve Board’s Bank Term Funding Program. Under the terms of the Bank Term Funding Program, advances cannot be obtained after March 11, 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.

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, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Dallas and from two correspondent banks and, until March 11, 2024, had the ability to obtain advances under the Federal Reserve Board’s Bank Term Funding Program. Under the terms of the Bank Term Funding Program, advances cannot be obtained after March 11, 2024. At September 30, 2024, we had no outstanding advances from the Federal Home Loan Bank of Dallas. At September 30, 2024, we had no outstanding balances under the correspondent bank credit facilities and no outstanding balance under the Bank Term Funding Program.

Previous wording

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.

Current wording

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at September 30, 2024 and December 31, 2023 were $45.2 million and $42.2 million, respectively.

Previous wording

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.

Current wording

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $237.0 million of its qualifying mortgage loans as of September 30, 2024, the Company was eligible to borrow up to an additional $180.5 million as of September 30, 2024.

Previous wording

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 $27.2 million. There was no amount outstanding on this line of credit as of June 30, 2024 and December 31, 2023.

Current wording

The Company has an unsecured federal funds line of credit with FNBB that expires on September 30, 2025. The Company is eligible to borrow up to $27.2 million. There was no amount outstanding on this line of credit as of September 30, 2024 and December 31, 2023.

Previous wording

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 $15.0 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.

Current wording

The Company 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 $15.0 million and repayment is due the next day. There was no amount outstanding on this line of credit as of September 30, 2024 and December 31, 2023.

Previous wording

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.

Current wording

At September 30, 2024, the Bank was categorized as well-capitalized under applicable bank regulatory capital guidelines. Management is not aware of any conditions or events since the most recent notification that would change its category.

Previous wording

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. However, if a substantial portion of these deposits is not retained, we may raise interest rates on deposits to attract new accounts or utilize Federal Home Loan Bank of Dallas advances, which may result in higher levels of interest expense.

Current wording

At September 30, 2024, we had $23.6 million of outstanding commitments to originate loans, which primarily consists of $8.4 million of remaining funds to be disbursed on construction loans in process and $13.4 million of unused balances of home equity lines of credit. At September 30, 2024, certificates of deposit that are scheduled to mature on or before September 30, 2025 totaled $215.2 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 raise interest rates on deposits to attract new accounts or utilize Federal Home Loan Bank of Dallas advances, which may result in higher levels of interest expense.

Previous wording

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.

Current wording

The table above indicates that at September 30, 2024, we would have experienced a 28.48% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 20.27% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Previous wording

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.

Current wording

The table above indicates that as of September 30, 2024, we would have experienced a 16.31% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.52% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.