ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.
Overview
Our loan portfolio consists primarily of fixed-rate one- to four-family residential mortgage loans that we have originated. To a substantially lesser extent, we also originate construction loans, home equity loans, home equity lines of credit, land loans, and share loans (loans secured by deposit accounts at Fifth District). With regard to commercial lending, the bank is originating loans, purchasing loan participations, and purchasing whole loans through third party originators. We typically retain in our portfolio the loans we originate. We offer a variety of deposit accounts including checking accounts, money market accounts, and certificates of deposit.
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Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for credit losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, income from bank owned life insurance, and fees from third parties for loan referrals. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, FDIC deposit insurance premiums, and other expenses.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Business Strategy
Our principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy include:
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Critical Accounting Policies and Use of Critical Accounting Estimates
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.
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.
We consider the following accounting policies to be our critical accounting policies:
Allowance for Credit Losses. 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.
Deferred Taxes. Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax asset or benefit will be realized. Realization of tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversal of taxable temporary differences and/or tax planning strategies within the reversal period, and that current tax law allows for the realization of recorded tax benefits.
Fair Value Measurements. Certain assets and liabilities are measured at fair value on a recurring basis, including securities and derivative instruments. Assets and liabilities carried at fair value inherently include subjectivity and may require the use of significant assumptions, adjustments and judgment including, among others, discount rates, rates of return on assets, cash flows, default rates, loss rates, terminal values and liquidation values. A significant change in assumptions may result in a significant change in fair value, which in turn, may result in a higher degree of financial statement volatility and could result in significant impact on our results of operations, financial condition or disclosures of fair value information.
The fair value hierarchy requires use of observable inputs first and subsequently unobservable inputs when observable inputs are not available. Fair value measurements involve inputs that are observable (Level 1 or Level 2 in fair value hierarchy), when available. The level of judgment required to determine fair value is dependent on the methods or techniques used in the process. Assets and liabilities that are measured at fair value using quoted prices in active markets (Level 1) do not require significant judgment while the valuation of assets and liabilities when quoted market prices are not available (Levels 2 and 3) may require significant judgment to assess whether observable or unobservable inputs for those assets and liabilities provide reasonable determination of fair value.
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Selected Financial Data
The following selected financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
At December 31,
(In thousands)
Selected Financial Condition Data:
Investment securities available-for-sale 99,077 92,987
Federal Home Loan Bank advances — —
For the Years Ended December 31,
(In thousands)
Selected Operating Data:
Total interest and dividend income $ 22,058 $ 19,277
Provision for (Recovery of) credit losses 10 (1,210)
Total non-interest income 4,430 11
Income (loss) before income taxes 4,185 (1,436)
Provision (benefit) for income taxes 97 (358)
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At or For the Years Ended December 31,
Performance Ratios:
Return on average assets 0.76 % (0.21) %
Return on average equity 3.17 (0.98)
Interest rate spread (1) 2.04 1.68
Net interest margin (2) 2.55 2.13
Noninterest expense as a percentage of average assets 2.44 2.52
Capital Ratios (Bank only):
Average equity as a percentage of average assets 24.04 % 21.75 %
Total capital as a percentage of risk-weighted assets 41.79 43.91
Tier 1 capital as a percentage of risk-weighted assets 41.17 43.24
Tier 1 capital as a percentage of average assets 21.07 20.78
Asset Quality Ratios:
Non-accrual loans as a percentage of total loans 0.14 0.29
Non-performing loans as a percentage of total loans 0.14 0.29
Non-performing loans as a percentage of total assets 0.10 0.20
Total non-performing assets as a percentage of total assets 0.11 0.21
Other Data:
Number of offices 7 7
Number of full-time employees 66 67
Number of part-time employees 1 1
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Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets. Total assets were $534.4 million at December 31, 2025, an increase of $7.1 million, or 1.3%, compared to $527.3 million at December 31, 2024. This increase is primarily due to $6.1 million increase in investment securities available-for-sale, and $9.1 million increase in loans receivable, net offset by a $4.1 million decrease in cash and cash equivalents, and a $3.0 million decrease in bank owned life insurance.
Cash and Cash Equivalents. Cash and cash equivalents decreased by $4.1 million, or 10.7%, to $33.9 million at December 31, 2025 from $37.9 million at December 31, 2024. This decrease is primarily due to the purchase of investments available for sale and the origination of loans, primarily commercial real estate loans.
Investment Securities Available-For-Sale. Investment securities available-for-sale increased $6.1 million, or 6.5%, to $99.1 million at December 31, 2025 from $93.0 million at December 31, 2024. Securities purchased totaled $18.3 million, and calls, maturities, and repayments totaled $15.9 million. Adding to the increase was a fair market value adjustment of $3.8 million
Loans Receivable, Net. Loans receivable, net, increased by $9.1 million, or 2.5%, to $376.4 million at December 31, 2025 from $367.3 million at December 31, 2024. Loan originations were $58.5 million and loan repayments totaled $49.4 million. Commercial loans increased by $10.4 million, primarily from the origination of commercial real estate loans, and commercial and industrial loans, 1-4 single family mortgages decreased by $6.9 million, home equity loans increased by $2.1 million, and construction and land loans increased by $3.0 million.
Deposits. Deposits increased by $1.7 million, or 0.4%, to $393.2 million at December 31, 2025, from $391.5 million at December 31, 2024. Certificates of deposit increased $925,000, or 0.4%, to $239.7 million at December 31, 2025, from $238.8 million at December 31, 2024. The majority of the increase in certificates of deposit was driven by new customer activity and migration from lower yielding money markets and savings accounts. NOW accounts increased $2.4 million, or 4.4%, to $56.3 million at December 31, 2025, from $53.9 million at December 31, 2024. MMDA accounts decreased $2.0 million, or 8.8%, to $20.7 million at December 31, 2025, from $22.7 million at December 31, 2024. Savings Accounts increased $399,000, or 0.5%, to $76.4 million at December 31, 2025, from $76.0 million at December 31, 2024.
Total Stockholders’ Equity. Total stockholders’ equity increased by $4.0 million, or 3.2%, to $129.8 million at December 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 $2.5 million and retained earnings increasing $3.2 million due to the net income for the year offset by the $2.0 million decrease in additional paid-in capital as we deploy excess capital to repurchase shares of our common stock.
Average Balances and Yields
The following table sets forth average balance sheets, average yields and rates, and other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.
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For the Year Ended December 31,
Average Average
Outstanding Average Outstanding Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Noninterest-earning assets 31,001 32,576
Interest-bearing liabilities:
Federal Home Loan Bank advances — — — 87 4 4.60
Noninterest-bearing demand deposits 1,697 1,168
Other noninterest-bearing liabilities 10,699 10,110
Total liabilities and stockholders' equity $ 535,653 504,768
Net interest income $ 12,848 $ 10,056
Net interest rate spread (1) 2.04 % 1.68 %
Net interest-earning assets (2) $ 110,175 $ 88,469
Net interest margin (3) 2.55 % 2.13 %
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Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Increase (Decrease) Due to: Total Increase
Volume Rate (Decrease)
(In thousands)
Interest-earning assets:
Cash and cash equivalents $ (15) $ (302) $ (317)
Investment securities available-for-sale 773 736 1,509
Restricted stock 1 — 1
Interest-bearing liabilities:
Savings accounts (3) (1) (4)
NOW accounts 3 (2) 1
Money market accounts (12) (2) (14)
Certificates of deposit 243 (233) 10
Total deposits 231 (238) (7)
Federal Home Loan Bank advances (4) — (4)
Total interest-bearing liabilities 227 (238) (11)
Change in net interest income $ 944 $ 1,848 $ 2,792
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Comparison of Operating Results for the Years Ended December 31, 2025 and December 31, 2024
General. Net income (loss) for the year ended December 31, 2025, was $4.1 million, an increase of $5.2 million, or 479.2%, compared to ($1.1) million for the year ended December 31, 2024. The increase in net income was primarily from an increase in interest income of $2.8 million, an increase in non-interest income of $4.4 million mainly due to a gain on bank owned life insurance proceeds, partially offset by a decrease in recovery of credit losses on loans of $1.2 million, a $370,000 increase in non-interest expense, and a $455,000 decrease in the (benefit) for income taxes.
Interest Income. Interest and dividend income increased by $2.8 million, or 14.4%, to $22.1 million for the year ended December 31, 2025, compared to $19.3 million for the year ended December 31, 2024. The increase is attributed to a $1.6 million, or 10.4%, increase in interest on loans, a $1.5 million, or 58.6%, increase in interest on investment securities available-for-sale, offset by a $316,000, or 2.2%, decrease in other interest-earning assets.
During the year ended December 31, 2025, average loans receivable, net, increased by $9.9 million, or 2.7%, from year ended December 31, 2024. The average yield on loans increased to 4.47% for the year ended December 31, 2025, from 4.16% for the year ended December 31, 2024, due to the making higher yielding loans such as commercial loans.
The average balance of investment securities available-for-sale increased $22.8 million, or 30.0%, to $98.9 million for the year ended December 31, 2025, from $76.1 million for the year ended December 31, 2024. The average yield on available-for-sale investment securities increased to 4.13% for the year ended December 31, 2025, from 3.38% for the year ended December 31, 2024. The increase in the average yield on available-for-sale investment securities was primarily due to reinvesting in higher yielding securities.
Interest income on cash and cash equivalents, comprised primarily of overnight deposits, decreased by $317,000, or 22.4%, for the year ended December 31, 2025, primarily due to a decrease in the average balance of cash and cash equivalents by $303,000 to $27.9 million for the year ended December 31, 2025, from $28.2 million for the year ended December 31, 2024. The average yield decreased to 3.94% for year ended December 31, 2025, from 5.02% for the year ended December 31, 2024. The decrease in average yield was due to the decrease in market interest rates.
Interest Expense. Total interest expense decreased $11,000 or 0.1%, to $9.2 million for the year ended December 31, 2025, compared to $9.2 million for the year ended December 31, 2024. The decrease was primarily due to the decrease in the average cost of deposits to 2.33% for the year ended December 31, 2025, from 2.40% for the year ended December 31, 2024, reflecting the decreasing market interest rate environment. The average balance of interest-bearing deposits increased by $10.8 million, or 2.8%, to $394.5 million for the year ended December 31, 2025, from $383.6 million for the year ended December 31, 2024.
Net Interest Income. Net interest income increased $2.8 million, or 27.8%, to $12.8 million for the year ended December 31, 2025, compared to $10.1 million for the year ended December 31, 2024. The interest rate spread increased to 2.04% for the year ended December 31, 2025 from 1.68% for the year ended December 31, 2024, while average net interest-earning assets increased $21.7 million period-to-period. The net interest margin increased to 2.55% for the year ended December 31, 2025, from 2.13% for the year ended December 31, 2024. The average yield on interest-earning assets increased from 4.08% for the year ended December 31, 2024, to 4.37% for the year ended December 31, 2025. The average rate paid on interest-bearing liabilities decreased from 2.40% for the year ended December 31, 2024, to 2.33% for the year ended December 31, 2025, primarily due to a decrease in the average rate paid on certificates of deposit from 3.82% in 2024 to 3.72% in 2025. The decrease in the average rate paid on certificates of deposit was attributed to decreasing market interest rates. The average balance of certificates of deposit increased from $235.9 million as of December 31, 2024, to $242.2 million as December 31, 2025, while over the same period the average balance of savings accounts decreased from $80.7 million to $77.2 million, and the average balance of money market accounts decreased from $23.6 million to $21.2 million.
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Provision (Recovery) for Credit Losses. The provision for credit losses on loans was $-0- for the year ended December 31, 2025, compared to ($1.1 million) for the year ended December 31, 2024. The allowance for credit losses on loans represented 0.45% of total loans at December 31, 2025, and 0.46% of total loans at December 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.
The provision of credit losses on unfunded commitments was $10,000 for the year ended December 31, 2025 compared to a ($110,000) on unfunded commitments for the year ended December 31, 2024. The increase in the provision was primarily due to an increase on the unfunded balance of construction loans in process. The recovery of credit losses on unfunded commitments is based on an evaluation of the historical usage rate.
Total non-performing loans were $544,000 at December 31, 2025, and $1.1 million December 31, 2024. Classified loans totaled $1.3 million at December 31, 2025, compared to $1.1 at December 31, 2024, and total past due greater than 30 days were $4.9 million and $5.4 million at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses on loans was 312.3% at December 31, 2025, 158.0% at December 31, 2024.
.Noninterest Income. Non-interest income increased $4.4, or 4017.3% to $4.4 million for the year ended December 31, 2025, compared to $11,000 for the year ended December 31, 2024. A $1.1 million realized loss on the sale of investment securities available-for-sale was recorded for the year ended December 31, 2024, compared to no such realized losses recorded for the year ended December 31, 2025. A $3.5 million gain on bank owned life insurance proceeds was recorded for the year ended December 31, 2025, while no such gain was recorded for the year ended December 31, 2024. A $141,000 gain on sale of premises and equipment was recorded for the year ended December 31, 2024, while no such gain was recorded for the year ended December 31, 2025. A gain on real estate owned of $14,000 was recorded for the year ended December 31, 2025, while no such gain was recorded for the year ended December 31, 2024.
Noninterest Expense.Noninterest expense increased $370,000, or 2.9%, to $13.1 million for the year ended December 31, 2025, compared to $12.7 million for the year ended December 31, 2024. The increase was primarily due to an increase in salaries and employee benefits of $958,000 or 14.3%, an increase in occupancy and equipment expense of $210,000, or 11.5%, an increase in professional and legal fees of $136,000, or 70.1%, an increase in data processing expense of $125,000, or 10.6%, an increase in audit and examination fees of $28,000, or 9.2%, partially offset by a $37,000, or 13.4% decrease in directors fees, a $1.3 million, or 99.7%, decrease in charitable contributions from establishing the Fifth District Community Foundation Inc. in 2024, and a $26,000, or 19.8% decrease in advertising. The increase in salaries and employee benefits is mainly from a death benefit paid to the intended beneficiaries of the late President and Chief Executive Officer from the proceeds of the bank owned life insurance.
Provision (benefit) for Income Taxes. The provision (benefit) for income taxes increased by $455,000, or 127.1%, to $97,000 for the year ended December 31, 2025, compared to ($358,000) for the year ended December 31, 2024. The increase was due to a $5.6 million, or 391.4%, increase in pretax income. The effective tax rate was 21% for both years.
Management of Market Risk
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. All directors participate in discussions during the regular board meetings evaluating the interest rate risk inherent in our assets and liabilities, and the level of risk that is appropriate. These discussions take into consideration our business strategy, operating environment, capital, liquidity and performance objectives consistent with the policy and guidelines approved by them. The board of directors establishes policies and guidelines for managing interest rate risk.
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Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we are using to manage interest rate risk are:
● maintaining a high liquidity level;
● growing our core deposit accounts; and
By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.
We have not engaged in hedging activities, such as investing in futures or options. We do not anticipate entering into similar transactions in the future.
Economic Value of Equity. We compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the board of directors.
EVE as a Percentage of Present Value
of Assets (3)
Estimated Increase (Decrease) in Increase
EVE (Decrease)
(Dollars in thousands)
(1) Assumes an immediate uniform change in interest rates at all maturities.
(4) EVE Ratio represents EVE divided by the present value of assets.
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The table above indicates that at December 31, 2025, we would experience 25.90% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 16.09% increase in EVE in the event of an instantaneous 200 basis point decrease in interest rates.
Change in Net Interest Income. The following table sets forth, at December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the board of directors.
Change in Interest Rates Net Interest Income Year 1
(basis points) (1) Forecast Year 1 Change from Level
(Dollars in thousands)
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that at December 31, 2025, we would have experienced a 16.57% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 5.59% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For instance, the EVE and NII tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. However, the shape of the yield curve changes constantly and the value and pricing of our assets and liabilities, including our deposits, may not closely correlate with changes in market interest rates. Accordingly, although the EVE and NII tables may provide an indication of our interest rate risk exposure at a particular point in time and in the context of a particular yield curve, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and NII and will differ from actual results.
EVE and net interest NII calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.
Liquidity and Capital Resources
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 December 31, 2025, we had $-0- of outstanding advances under
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the Bank Term Funding Program. At December 31, 2025, we had no outstanding advances from the Federal Home Loan Bank of Dallas.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For additional information, see the Consolidated Statements of Cash Flows.
We believe we maintain a strong liquidity position, and are committed to maintaining it. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.
Fifth District Bancorp is a separate legal entity from Fifth District and must provide for its own liquidity to pay its operating expenses and other financial obligations. Fifth District Bancorp’s primary source of income is dividends received from Fifth District. The amount of dividends that Fifth District may declare and pay to Fifth District Bancorp is governed by applicable bank regulations. At December 31, 2025, Fifth District Bancorp (on an unconsolidated basis) had liquid assets of $19.2 million.
At December 31, 2025, 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. For further information, see note 10 to the notes to consolidated financial statements.
Off-Balance Sheet Arrangements. At December 31, 2025, we had $35.9 million of outstanding commitments to originate loans, which primarily consists of HELOC’s totaling $17.4 million, construction loans totaling $14.2 million, and Board approved loans totaling $3.1 million. At December 31, 2025, certificates of deposit that are scheduled to mature on or before December 31, 2026 totaled $224.1 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.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see note 1 of the notes to the consolidated financial statements appearing elsewhere in this annual report.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this annual report have been prepared according to GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk
The information regarding this Item is contained in Item 7 under the heading “Management of Market Risk.”
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 274)
To the Board of Directors
Fifth District Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Fifth District Bancorp, Inc. (the “Company”) as of December 31, 2025, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditor since 2025.
/s/ EISNERAMPER LLP
Metairie, Louisiana
March 24, 2026
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Report of Independent Registered Public Accounting Firm (PCAOB ID 149)
To the Stockholders and Board of Directors
Fifth District Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fifth District Bancorp, Inc. and its subsidiary (the “Company”) as of December 31, 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We served as the Company's auditor from 2023 to 2024.
/s/ Elliott Davis, LLC
Franklin, Tennessee
March 26, 2025
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ITEM 8.Financial Statements and Supplementary Data
FIFTH DISTRICT BANCORP, INC.
Consolidated Balance Sheets
December 31, December 31,
(in thousands, except per share amounts) 2025 2024
Assets
Cash and Due from Banks $ 4,993 $ 5,850
Interest-Bearing Deposits at Other Financial Institutions 28,859 32,066
Total Cash and Cash Equivalents 33,852 37,916
Loans Receivable, Net of Unearned Income 378,090 369,032
Allowance for Credit Losses (1,699) (1,699)
Accrued Interest Receivable 1,999 1,967
Real Estate Owned 42 42
Deferred Tax Asset, Net 1,722 2,447
Liabilities and Stockholders' Equity
Liabilities
Deposits
Advances from Borrowers for Taxes, Insurance, and Repairs 6,178 5,280
Stockholders' Equity
Unearned ESOP Stock (4,005) (4,226)
Accumulated Other Comprehensive Loss (4,428) (6,911)
Total Liabilities and Stockholders' Equity $ 534,394 $ 527,307
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Consolidated Statements of Operations
Years Ended December 31,
Interest and Dividend Income
Other Interest-Earning Assets 1,134 1,450
Total Interest and Dividend Income 22,058 19,277
Interest Expense
Short-Term Federal Home Loan Bank Advances — 4
Recovery of Credit Losses on Loans — (1,100)
Provision for (Recovery of) Credit Losses on Unfunded Commitments 10 (110)
Total Provision for (Recovery of) Credit Losses 10 (1,210)
Non-Interest Income
Deposit Service Charges and Fees 212 217
ATM and Check Card Fees 393 402
Bank Owned Life Insurance 304 353
Loss on Investments Securities — (1,144)
Gain on Sale of Premises and Equipment — 141
Gain on Sale of Real Estate Owned 14 —
Gain on Insurance Proceeds 3,469 —
Total Non-Interest Income 4,430 11
Non-Interest Expense
Salaries and Employee Benefits 7,667 6,709
Federal Deposit Insurance 215 205
Professional and Legal 330 194
Audit and Examination 332 304
Charitable Contributions 4 1,281
Income (Loss) Before Income Taxes 4,185 (1,436)
Income Tax Expense (Benefit) 97 (358)
Income (Loss) per Share - Basic and Diluted $ 0.80 $ (0.21)
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31,
Other Comprehensive Income
Reclassification Adjustment for Net Losses Realized — 1,144
Net Loss on Defined Benefit Pension Plan (649) (101)
Tax Effect (660) (16)
Total Other Comprehensive Income 2,483 62
Comprehensive Income (Loss) $ 6,571 $ (1,016)
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Consolidated Statements of Stockholders’ Equity
Year ended December 31, 2025 and December 31, 2024
Accumulated
Additional Unearned Other Total
Common Paid-In ESOP Retained Comprehensive Stockholders'
Net Loss — — — (1,078) — (1,078)
Other Comprehensive Income — — — — 62 62
ESOP Shares Released for Allocation — 24 222 — — 246
Net Income — — — 4,088 — 4,088
Other Comprehensive Income — — — — 2,483 2,483
ESOP Shares Released for Allocation — 66 221 — — 287
Stock-Based Compensation — 68 — — — 68
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Consolidated Statements of Cash Flows
Year Ended
December 31,
Cash Flows from Operating Activities
Net Income (Loss) $ 4,088 $ (1,078)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities
Provision for (Recovery of) Credit Losses 10 (1,210)
Gain on Insurance Proceeds (3,469) —
Gain on Sale of Premises and Equipment — (141)
Gain on Sale of Real Estate Owned (14) —
Net Accretion of Deferred Loan Costs (55) (11)
Net Amortization on Investment Securities 128 248
Loss on Sale of Investment Securities — 1,144
Federal Home Loan Bank Stock Dividend (25) (29)
Deferred Tax Expense (Benefit) 65 (400)
Increase in Cash Surrender Value on Bank Owned Life Insurance (304) (353)
ESOP Compensation Expense 287 246
Stock-Based Compensation 68 —
Changes in Operating Assets and Liabilities
Accrued Interest Receivable (32) (210)
Other Assets 46 (95)
Other Liabilities (138) 141
Net Cash Provided by (Used in) Operating Activities 1,326 (1,054)
Cash Flows from Investing Activities
Proceeds from Sale or Maturities of Investment Securities
Purchases of Investment Securities Available-for-Sale (18,303) (54,350)
Increase in Loans Receivable, Net (9,133) (1,184)
Bank Owned Life Insurance Proceeds 6,769 —
Proceeds from Sale of Real Estate Owned 144 —
Proceeds from Sale of Premises and Equipment — 509
Purchases of Premises and Equipment (384) (510)
Net Cash Used in Investing Activities (5,030) (27,484)
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Consolidated Statements of Cash Flows (Continued) (Unaudited)
(in thousands)
Year Ended
December 31,
Cash Flows from Financing Activities
Increase in Deposits, Net 1,686 1,473
Federal Home Loan Bank Advances — (4,000)
(Repurchase) Net Proceeds from Issuance of Common Stock (2,944) 48,747
Net Cash Provided by (Used in) Financing Activities (360) 47,148
Net Increase (Decrease) in Cash and Cash Equivalents (4,064) 18,610
Cash and Cash Equivalents, Beginning of Year 37,916 19,306
Cash and Cash Equivalents, End of Year $ 33,852 $ 37,916
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for Interest $ 9,278 8,975
Cash Paid During the Period for Taxes $ — —
Non-Cash Investing and Financing Activities
Real Estate Owned Acquired Through Foreclosure $ 130 $ —
The accompanying notes are an integral part of these consolidated financial statements.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Unaudited)
Description of Business
Fifth District Bancorp, Inc. (“Fifth District Bancorp” or the “Company”), a Maryland corporation, was incorporated on February 15, 2024, to serve as the bank holding company for Fifth District Savings Bank (“Fifth District” or the “Bank”) in connection with the Bank’s conversion from the mutual to stock form of organization (the “Conversion”). The Conversion was completed on July 31, 2024. In connection with the Conversion, Fifth District Bancorp acquired 100% ownership of Fifth District and the Company offered and sold 5,459,473 shares of its common stock at $10.00 per share, for gross offering proceeds of $54,594,730. The cost of the Conversion and issuance of common stock was approximately $2,400,000, which was deducted from the gross offering proceeds. Additionally, the Company contributed 100,000 shares to a newly formed charitable foundation. The Bank’s employee stock ownership plan (“ESOP”) purchased 444,758 shares of the common stock sold by the Company, which was equal to 8% of the 5,559,473 shares of common stock issued by the Company. The ESOP purchased the shares using a loan from the Company. The Company contributed approximately $26,097,000 of the net proceeds from the offering to the Bank, loaned $4,447,580 of the net proceeds to the ESOP and retained approximately $21,400,000 of the net proceeds.
The Bank is a federally-chartered stock savings bank which attracts deposits from the general public and uses such deposits primarily to originate loans secured by first mortgages on owner-occupied, family residences. The Bank’s primary regulator is the Office of the Comptroller of the Currency (OCC). The Bank’s activities are provided to customers of the Bank by branch offices located in the greater New Orleans area; however, loan and deposit customers are found dispersed in a wider geographical area covering southeast Louisiana. The Bank operates as one reporting segment.
Basis of Presentation
The accounting and reporting policies and practices of the Company conform with accounting principles generally accepted in the United States of America (U.S. GAAP) and predominant practices within the banking industry.
Principles of Consolidation
The consolidated financial statements as of and for the period ended December 31, 2025 include the amounts of Fifth District Bancorp and its wholly-owned subsidiary, Fifth District. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Material estimates that are particularly susceptible to significant change in the near-term relate to the valuation of the allowance for credit losses, deferred taxes, and fair value of financial instruments.
The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of estimated losses on loans and unfunded commitments, management obtains independent
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
appraisals for significant collateral. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination processes, periodically review the estimated losses on loans. Based on such reviews the Company may determine to recognize additional losses based on their judgements about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near-term. However, the amount of the change that is reasonably possible cannot be estimated.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, cash items, amounts due from banks, and interest-bearing deposits at other financial institutions with an original maturity of 90 days or less, and federal funds sold. Generally, federal funds are sold for one-day periods.
Cash and due from banks include bank deposit accounts aggregating approximately $25,808,000 and $27,065,000 in excess of the Federal Deposit Insurance Corporation limit of $250,000 per insured account on December 31, 2025 and December 31, 2024, respectively. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.
The Company may be required to maintain cash reserves with the Federal Reserve Bank. The requirement is dependent upon the Company’s cash on hand or noninterest-bearing balances. There was no reserve requirement as of December 31, 2025, and December 31, 2024.
Investment Securities
Debt securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. These securities are carried at cost, adjusted for amortization of premium and accretion of discounts. Purchase premiums and discounts are recognized in interest income using the effective interest method over the terms of the securities, identified as the call date as to premiums and maturity date as to discounts. The Company held no held-to-maturity securities as of December 31, 2025 or December 31, 2024.
Debt securities classified as available-for-sale are those debt securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. These securities are carried at estimated fair value by a third-party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive income (loss), which is reported as a separate component of stockholders’ equity, net of the related deferred tax effect.
Debt securities that are classified as trading are acquired and held principally for the purpose of selling in the near term. These securities are carried at estimated fair value by a third-party pricing service with any unrealized gains or losses included in net income and reported in non-interest income in the consolidated statements of operations. The Company held no trading securities as of December 31, 2025 or December 31, 2024.
Gains and losses realized on sales of debt securities, determined using the adjusted cost basis of the specific securities sold, are included in non-interest income in the consolidated statements of operations. Dividend and interest income, including amortization of premium and accretion of discount arising at acquisition, from all categories of investment securities are included in interest income in the consolidated statements of operations.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Restricted Stock
Restricted stock is stock from the Federal Home Loan Bank (FHLB) and First National Bankers Bank (FNBB), which is restricted as to its marketability. Because no ready market exists for these investments and they have no quoted market value, the Company’s investment in these stocks is carried at cost. A determination as to whether there has been an impairment of a restricted stock investment is performed on an annual basis and includes a review of the current financial condition of the issuer.
Allowance for Credit Losses - Investment Securities Available-for-Sale
For available-for-sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security, the security is written down to fair value, and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments, and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited to the amount that the fair value is less than the amortized cost basis, recognized as a provision for credit loss in the consolidated statements of operations. Any amount of noncredit related unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025 and December 31, 2024, there was no allowance for credit loss related to the available-for-sale portfolio.
Accrued interest receivable on available-for-sale securities totaled approximately $411,000 and $348,000 at December 31, 2025 and December 31, 2024, respectively, and was excluded from the estimate of credit losses.
Loans Receivable
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs.
Accrued interest receivable related to loans totaled approximately $1,588,000 and $1,619,000 at December 31, 2025, and December 31, 2024, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance as earned using the interest method over the life of the loan. Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment to the related loan’s yield using the effective interest method over the contractual life of the loan.
The accrual of interest is generally discontinued when a loan becomes 90 days past due, is not well collateralized and in the process of collection, or when management believes, after considering economic and
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.
All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.
Allowance for Credit Losses - Loans Receivable
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses represents management’s estimate of lifetime credit losses in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
Expected credit losses are measured on a pooled basis when similar risk characteristics exist using the modified open pool method. The modified open pool method applies a loss rate to a given pool of loans over the estimated remaining life of the given pool, which is based on historical data. Loan losses are calculated using the modified open pool method due to the nature and limited complexity of the loan portfolio.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
The Company has identified and calculates the allowance for credit losses for each of the following portfolio segments:
Loan Pool Risk Characteristics
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors, and economic conditions not already captured. The Company estimates reasonable and supportable forecasts of expected credit losses and reverts to historical loss information for periods beyond the forecast period for the remaining life of the loan pool.
Loans that do not share risk characteristics are evaluated on an individual basis. When the borrower is experiencing financial difficulty and repayment is expected to be provided through the operation or sale of the
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
collateral, the expected credit losses are based on the fair value of collateral at the reporting date, adjusted for estimated selling costs, as appropriate.
Allowance for Credit Losses - Unfunded Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the consolidated statements of operations. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the consolidated balance sheets.
Bank Owned Life Insurance
The Bank is the beneficiary of life insurance contracts purchased on the lives of certain officers of the Bank which are reported at their cash surrender value. At December 31, 2025, and December 31, 2024, life insurance contracts totaled approximately $7,689,000 and $10,685,000, respectively. Appreciation in the cash surrender value amounted to approximately $304,000 and $353,000 for the years ended December 31, 2025 and 2024, respectively. Appreciation in value of the insurance policies is included in bank owned life insurance within non-interest income in the consolidated statements of operations.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is computed generally on the straight-line method based upon the estimated useful lives of the assets. Estimated useful lives for building and improvements range from 15 to 40 years, and for furniture and fixtures from 5 to 10 years.
Major expenditures for property acquisitions and those expenditures which substantially increase useful lives are capitalized. Expenditures for maintenance, repairs, and minor replacements that do not significantly improve or extend the lives of the respective assets are charged to expense as incurred.
When assets are retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the respective accounts, and any gain or loss is reflected in other non-interest income or expense.
Real Estate Owned
Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value on the date of acquisition, less estimated costs to sell. Any write-downs at the time of acquisition are charged to the allowance for credit losses. Subsequent to acquisition, a valuation allowance is established, if necessary, to report these assets at the lower of (a) fair value minus estimated costs to sell or (b) cost.
The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate owned. The ability to affect such recovery is subject to market conditions and other factors, many of which are beyond the Company’s control. Operating income of such properties, net of related expenses, and gains and losses on their disposition, are included in the consolidated statements of operations. The Company had $42,000 of real estate owned as of December 31, 2025, and December 31, 2024.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the financial statement carrying amounts and the tax bases of the Company’s assets and liabilities. Deferred income tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of operations.
Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an entity in its tax returns that might be uncertain. The Company believes that it has appropriate support for any tax positions taken, and management has determined that there are no uncertain tax positions that are material to the consolidated financial statements.
The Company recognized no interest and/or penalties in the consolidated statements of operations for the year ended December 31, 2025 and 2024, nor any amount of interest and/or penalties payable that were recognized in the consolidated balance sheets as of December 31, 2025 and December 31, 2024, in relation to its income tax returns.
Any penalties or interest would be recognized in income tax expense.
The Bank is no longer subject to U.S. federal examinations for years prior to 2022.
Comprehensive Income (Loss)
Comprehensive income consists of net income (loss) and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized gains and losses on available-for-sale securities and pension-related changes other than net periodic pension cost. Accumulated other comprehensive (loss) consists of the cumulative unrealized gains and losses on available-for-sale securities and the cumulative unrealized gain or loss for the funded status of the pension plan liability, net of tax.
Stock-Based Compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Compensation cost is recognized over the requisite service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize compensation cost net of estimated forfeitures.
Earnings per Share
Basic earnings (loss) per share (“EPS”) represents income available or loss attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are excluded from the weighted-average common shares outstanding for both basic and diluted earnings per share calculations until they are committed to be released.
The Company had no dilutive or potentially dilutive securities during the year ended December 31, 2025 and 2024.
Revenue Recognition
In the ordinary course of business, the Company recognizes income from various revenue generating activities. Revenue from contracts with customers within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606 is measured based on the consideration the Company expects to be entitled to receive in exchange for those goods or services as the related performance obligation is satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. A performance obligation is deemed to be satisfied when the control over goods or services is transferred to the customer.
The majority of the Company’s revenue is specifically excluded from the scope of ASC 606. Service charges on deposit accounts and ATM and check card fees are the most significant categories of revenue within the scope of ASC 606 and is included in non-interest income on the consolidated statements of operations.
Service charges on deposit accounts include charges related to depository accounts under standard service agreements. Fees are generally recognized at a point in time as services are delivered to or consumed by the customer or as penalties are assessed.
ATM and check card fees includes interchange fees from credit and debit cards processed through card association networks, annual fees, and other transaction and account management fees. Interchange rates are generally set by the credit card associations and based on purchase volumes and other factors. The Company records interchange fees on a per transaction basis at a point in time as services are provided. Transaction and account management fees are recognized at a point in time as services are provided, except for annual fees which are recognized over the applicable period. The costs of related loyalty rewards programs are netted against interchange revenue as a direct cost of the revenue generating activity.
Non-Direct-Response Advertising
The Company expenses all advertising costs, except for direct-response advertising, as incurred. Advertising and promotional expenses totaled approximately $105,000 and $131,000 for the years ended December 31, 2025 and 2024, respectively. If the Company incurs expenses for material direct-response advertising, it will be amortized over the estimated benefit period. Direct-response advertising consists of advertising whose primary purpose is to elicit sales to customers who could be shown to have responded specifically to the advertising and results in probable future benefits. For the years ended December 31, 2025 and 2024, the Company did not incur any amount of direct-response advertising costs.
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FIFTH DISTRICT BANCORP, INC.
Notes to Consolidated Financial Statements
Segment Reporting
The Company adopted Accounting Standards Update 2023-07 “Segment Reporting (Topic 280) – Improvement to Reportable Segment Disclosures” on January 1, 2024. The Company has determined that all of its banking divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured whereby banking divisions and subsidiaries serve a similar base of clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s President and Chief Executive Officer, who has been identified as the chief operating decision maker (“CODM”).
The Company has a single operating segment and thus a single reporting segment. The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income (loss) reported in the Company’s consolidated statements of operations. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of operations.
Recent Accounting Pronouncements – Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, Which amended the Income Taxes topic in the Accounting Standards Codification 740 to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statement that have not yet been issued or made available for issuance.
The Company adopted the standard on January 1, 2025 on a prospective basis. The adoption of this ASU resulted in expanded disclosures for income taxes. The adoption did not have a material effect on the Company’s consolidated financial statements.
Recent Accounting Pronouncements- Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, which requires the disaggregation of certain expenses in the notes to the consolidated financial statements, to provide enhanced transparency into the expense captions presented on the face of the consolidated statements of operations. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 31, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this ASU may be applied either prospectively or retrospectively. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In November 2025, the FASB issued ASU 2025-08, Financial Instruments-Credit Losses (Topic 326) Purchased Loans, which amends the accounting for acquired financial assets under the Current Expected Credit Loss (CECL) methodology. The update introduces the concept of Purchased Seasoned Loans (PSLs) and effectively eliminates the double counting of credit losses for most acquired loans. Under the guidance, the gross-up approach is expanded to include all PSLs and an initial allowance for credit losses will be recorded by increasing the amortized cost basis of the loan at the date of acquisition, rather than recognizing an immediate credit loss expense in the consolidated statement of operations. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Early adoption is permitted. The Company does not expect the amendment to have a material effect on its consolidated financial statements.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current presentation. Reclassifications had no effect on prior year net loss or stockholders’equity.
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