FBLA

FB Bancorp, Inc. (Fidelity Bank) 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024. FB Bancorp, Inc. was incorporated in February 2024 to serve as the bank holding company for Fidelity Bank following its conversion from a mutual to a stock form of organization. As of the reporting date, the conversion had not yet been consummated; consequently, the holding company had no assets or liabilities. The financial statements presented relate primarily to Fidelity Bank, a community-oriented financial institution operating in Louisiana.

Key Financial Metrics

Note: All dollar amounts in thousands unless otherwise noted.

Material Changes vs. Prior Period

• Profitability: The Bank returned to profitability in Q2 2024 with net income of $849,000, compared to a net loss of $338,000 in Q2 2023. Year-to-date net income was $42,000 versus a loss of $109,000 in the prior year.
• Interest Income & Expense: Total interest income increased 20.8% year-over-year (Q2) due to higher loan yields (7.19% vs 6.81%) and volume. However, interest expense surged 142.4% (Q2) as the cost of interest-bearing deposits rose to 1.78% and borrowings increased significantly.
• Net Interest Margin (NIM): NIM compressed to 4.31% in Q2 2024 from 4.84% in Q2 2023, reflecting the faster rise in funding costs compared to asset yields.
• Asset Growth: Total assets increased 4.1% to $1.17 billion from year-end 2023, driven by a $57.6 million increase in loans held for investment and a $12.3 million increase in loans held for sale.
• Non-Interest Income: Increased 35.3% in Q2 2024, primarily driven by a $2.3 million gain on the sale of mortgage servicing rights.

Outlook, Risks, and Unusual Items

• Asset Quality Deterioration: Non-performing loans (NPLs) increased to $9.8 million (1.35% of total loans) from $4.6 million in the prior year. Consequently, the allowance for credit losses to NPLs coverage ratio dropped to 59.0% from 129.7%.
• Workforce Reduction: Due to continued stress in the secondary mortgage industry and losses in the mortgage banking division, management implemented a workforce reduction. Approximately $1.4 million in annual payroll expenses were eliminated, with $260,000 in one-time severance charges expected in Q3 2024.
• Liquidity & Borrowings: The Bank increased reliance on wholesale funding, with other borrowings rising to $218.5 million. This includes $120 million in the Federal Reserve's Bank Term Funding Program (BTFP) and $98.5 million in FHLB advances.
• Capital Position: The Bank remains "well-capitalized" under regulatory guidelines, with a Tier 1 leverage ratio of 14.52% and a Common Equity Tier 1 risk-based capital ratio of 20.05%.
• Market Risk: Economic Value of Equity (EVE) modeling indicates a 13.74% decrease in EVE if interest rates rise 200 basis points, though this is within Board guidelines.

Investor Verification Checklist

• Conversion Status: Verify the timeline for the consummation of the mutual-to-stock conversion and the associated stock offering.
• NPL Coverage: Assess the adequacy of the allowance for credit losses given the sharp decline in the coverage ratio (59.0%) and the rise in non-performing assets.
• Funding Mix: Monitor the reliance on wholesale funding (BTFP and FHLB) versus core deposits, noting that core deposits decreased 5.3% year-over-year.
• Mortgage Banking Segment: Review the impact of the mortgage banking division's losses and the subsequent workforce reduction on future non-interest income and expenses.
• Interest Rate Sensitivity: Evaluate the impact of sustained higher interest rates on the Net Interest Margin, which has compressed significantly over the last year.