Fifth District Bancorp, Inc.

Previous wording

Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying consolidated financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this report and in the Company’s definitive prospectus dated May 10, 2024, as filed with the Securities and Exchange Commission on May 20, 2024.

Current wording

Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying consolidated financial statements. You should read the financial information in this section in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 26, 2025.

Previous wording

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this prospectus.

Current wording

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

Previous wording

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be our critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Current wording

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Previous wording

The Jumpstart Our Business Startups Act of 2012 (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.

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 consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

Previous wording

We consider the accounting policy for the allowance for credit losses to be our critical accounting policy. Effective January 1, 2023, we adopted the Current Expected Credit Loss (CECL) methodology. Under the CECL methodology, the allowance for credit losses represents management’s estimate of lifetime credit losses in loans as of the balance sheet date using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. For reporting periods before January 1, 2023 and the adoption of CECL, we used the incurred loss impairment method to estimate the allowance for loan losses on loans receivable. Under the incurred loss impairment methodology, the allowance for loan losses was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, and other factors, and consisted of allocated and unallocated components.

Current wording

We consider the accounting policy for the allowance for credit losses to be our critical accounting policy. Effective January 1, 2023, we adopted CECL. Under the CECL methodology, the allowance for credit losses represents management’s estimate of lifetime credit losses in loans as of the balance sheet date using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Previous 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.

Current wording

Total Assets. Total assets were $531.1 million at March 31, 2025, an increase of $3.8 million, or 0.7%, compared to $527.3 million at December 31, 2024. This increase is primarily due to $3.2 million increase in investment securities available-for-sale, an $8.9 million increase in loans receivable, net, offset by a $7.8 million decrease in cash and cash equivalents.

Previous 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.

Current wording

Investment Securities Available-for-Sale. Investment securities available-for-sale increased $3.2 million, or 3.4%, to $96.2 million at March 31, 2025 from $93.0 million at December 31, 2024. Securities purchased totaled $5.0 million during the three months ended March 31, 2025, and calls, maturities, and repayments totaled $3.4 million.

Previous 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.

Current wording

Loans Receivable, Net. Loans receivable, net, increased by $9.0 million, or 2.5%, to $376.3 million at March 31, 2025 from $367.3 million at December 31, 2024. During the three months ended March 31, 2025, loan originations were $17.8 million and loan repayments totaled $8.9 million. During the three months ended March 31, 2025, commercial loans increased by $1.8 million, primarily from the origination of commercial real estate loans, and the purchase of Bankers Healthcare loans, 1-4 single family mortgages increased by $3.7 million, home equity loans increased by $524,000, consumer loans increased by $1.1 million, and construction loans increased by $2.0 million.

Previous 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.

Current wording

Total Stockholders’ Equity. Total stockholders’ equity increased by $1.5 million, or 1.2%, to $127.3 million at March 31, 2025, from $125.8 million at December 31, 2024. The increase resulted primarily 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 $1.3 million and retained earnings increasing $78,000 due to the net income for the period ended March 31, 2025.

Previous wording

General*.* Net income (loss) for the three months ended September 30, 2024, was ($788,000), a decrease of $827,000, or 2,120.5%, compared to $39,000 for the three months ended September 30, 2023. The net loss was primarily from an increase in non-interest expense of $1.6 million resulting from a $1.3 million charitable contribution to establish the Fifth District Community Foundation, a $508,000 increase in interest expense, partially offset by a $1.0 million increase in interest income, and a $220,000 decrease in provision for income taxes.

Current wording

General*.* Net income (loss) for the three months ended March 31, 2025, was $78,000, an increase of $1.2 million, or 106.9%, compared to ($1.1) million for the three months ended March 31, 2024. The net income was primarily from an increase in interest income of $909,000, an increase in non-interest income of $1.2 million, partially offset by a $416,000 increase in non-interest expense, and a $322,000 increase in provision for income taxes.

Previous 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.

Current wording

Interest and Dividend Income. Interest and dividend income increased by $909,000, or 21.0%, to $5.2 million for the three months ended March 31, 2025, compared to $4.3 million for the three months ended March 31, 2024. The increase is attributed to a $313,000, or 8.5%, increase in interest on loans, a $91,000, or 45.1%, increase in interest on other interest-earning assets and $505,000, or 127.5%, increase in interest on investment securities available-for-sale.

Previous 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.

Current wording

During the three months ended March 31, 2025, average loans receivable, net, increased by $5.3 million, or 1.5%, from the three months ended March 31, 2024. The average yield on loans increased to 4.40% for the three months ended March 31, 2025, from 4.06% for the three months ended March 31, 2024, due to the rising market rate environment.

Previous 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.

Current wording

The average balance of investment securities available-for-sale increased $28.3 million, or 42.7%, to $94.6 million for the three months ended March 31, 2025, from $66.3 million for the three months ended March 31, 2024. The average yield on available-for-sale investment securities increased to 3.86% for the three months ended March 31, 2025, from 2.39% for the three months ended March 31, 2024. The increase in the average yield on available-for-sale investment securities was primarily due to the rising market interest rate environment as well as reinvesting in higher yielding bonds

Previous 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.

Current wording

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, increased by $91,000, or 46.7%, for the three months ended March 31, 2025, primarily due to an increase in the average yield to 4.03% for the three months ended March 31, 2025, from 3.78% for the three months ended March 31, 2024. The increase in average yield was due to the rise in market interest rates. The average balance of cash and cash equivalents increased by $8.2 million to $28.8 million from the three months ended March 31, 2025, from $20.6 million for the three months ended March 31, 2024.

Previous 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.

Current wording

Interest Expense*.* Total interest expense increased $20,000 or 0.9%, to $2.3 million for the three months ended March 31, 2025, from $2.3 million for the three months ended March 31, 2024. The increase was primarily due to the increase in the average cost of deposits to 2.36% for the three months ended March 31, 2025, from 2.29% for the three months ended March 31, 2024, reflecting the rising market interest rate environment. The average balance of interest-bearing deposits decreased by $3.9 million, or 1.0%, to $389.7 million for the three months ended March 31, 2025, from $393.5 million for the three months ended March 31, 2024.

Previous 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.

Current wording

Net Interest Income*.* Net interest income increased $889,000, or 43.4%, to $2.9 million for the three months ended March 31, 2025, compared to $2.0 million for the three months ended March 31, 2024. The increase reflects the increase in the interest rate spread to 1.91% for the three months ended March 31, 2025, from 1.51% for the three months ended March 31, 2024, while average net interest-earning assets increased $46.1 million period-to-period. The net interest margin increased to 2.41% for the three months ended March 31, 2025, from 1.81% for the three months ended March 31, 2024. The average yield on interest-earning assets increased from 3.80% for the three months ended March 31, 2024, to 4.27% for the three months ended March 31, 2025. The average rate paid on interest-bearing liabilities increased from 2.28% for the three months ended March 31, 2024, to 2.36% for the three months ended March 31, 2025, primarily due to an increase in the average rate paid on certificates of deposit from 3.74% in 2024 to 3.79% in 2025. 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 $234.3 million as of March 31, 2024, to $238.2 million as March 31, 2025, while over the same period the average balance of savings accounts decreased from $83.5 million to $77.0 million, and the average balance of money market accounts decreased from $25.7 million to $21.7 million.

Previous 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.

Current wording

Provision (Recovery) for Credit Losses*.*The recovery of credit losses on loans decreased $100,000 to $0 for the three months ended March 31, 2025, compared to $100,000 for the three months ended March 31, 2024. The allowance for credit losses on loans represented 0.45% of total loans at March 31, 2025 and 0.46% of total loans at March 31, 2024. 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 $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.

Current wording

Total non-performing loans were $758,000 at March 31, 2025, compared to $753,000 at March 31, 2024. We had $145,000 of loans over 90 days delinquent at March 31, 2025, compared to $753,000 at March 31, 2024. Classified loans totaled $758,000 at March 31, 2025, compared to $212,000 at March 31, 2024. As a percentage of nonperforming loans, the allowance for credit losses on loans was 224.1% at March 31, 2025, and 225.6% at March 31, 2024.

Previous 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.

Current wording

Noninterest Expense*.*Noninterest expense increased $416,000, or 15.5%, to $3.1 million for the three months ended March 31, 2025, compared to $2.7 million for the three months ended March 31, 2024. The increase was primarily due to an increase in salaries and employee benefits of $258,000, or 16.5%, an increase in occupancy and equipment expense of $50,000, or 11.7%, an increase in professional and legal fees of $22,000, or 57.9%, an increase in data processing expense of $24,000, or 8.2%, an increase in audit and examination fees of $22,000, or 34.9%, and an increase in other expenses of $45,000, or 30.8%, partially offset by a $9,000, or 32.1%, decrease advertising.

Previous 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.

Current wording

Provision (Benefit) for Income Taxes*.*The provision (benefit) for income taxes increased by $322,000, or 107.0%, to $21,000 for the three months ended March 31, 2025, compared to ($301,000) for the three months ended March 31, 2024. The increase was due to a $1.5 million, or 106.9%, increase in pretax income. The effective tax rate was 21% for both periods.

Previous 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.

Current wording

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at March 31, 2025 and December 31, 2024 were $45.3 million and $48.3 million, respectively.

Previous 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.

Current wording

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $234.2 million of its qualifying mortgage loans as of March 31, 2025, the Bank was eligible to borrow up to an additional $184.5 million as of March 31, 2025.

Previous 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.

Current 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 March 31, 2025 and December 31, 2024.

Previous 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.

Current 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 March 31, 2025 and December 31, 2024.

Previous wording

Fifth District Bancorp, Inc. is a separate legal entity from Fifth District Savings Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At September 30, 2024, the Company (on an unconsolidated basis) had liquid assets of $21.4 million.

Current wording

Fifth District Bancorp, Inc. is a separate legal entity from Fifth District Savings Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At March 31, 2025, the Company (on an unconsolidated basis) had liquid assets of $21.8 million.

Previous 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.

Current wording

At March 31, 2025, we had $24.6 million of outstanding commitments to originate loans, which primarily consists of $9.9 million of remaining funds to be disbursed on construction loans in process and $14.2 million of unused balances of home equity lines of credit. At March 31, 2025, certificates of deposit that are scheduled to mature on or before March 31, 2026 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 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.

Current wording

The table above indicates that at March 31, 2025, we would have experienced a 27.48% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 19.34% 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 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.

Current wording

The table above indicates that as of March 31 2025, we would have experienced a 15.70% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 4.50% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.