FBLA: Capitalizing on Conversion for Growth Amidst Shifting Sands - FBLA Stock Research Report

## Executive Summary / Key Takeaways * FB Bancorp (FBLA), having recently completed its conversion to a stock company and raised significant capital, is strategically positioned to accelerate loan portfolio diversification and geographic expansion in Louisiana. * The company demonstrated a notable financial turnaround in Q1 2025, moving from a net loss to profitability, primarily driven by robust net interest income growth and disciplined expense management, particularly staffing reductions in mortgage banking. * FBLA is actively investing in digital banking capabilities and a fully digital bank division ("Andi") to enhance customer reach and service, although specific quantifiable benefits or comparative advantages over competitors' technology are not detailed in recent disclosures. * While asset quality metrics show an increase in non-performing and classified loans, management maintains that conservative underwriting standards are in place, and the bank remains well-capitalized, providing a strong buffer against potential credit losses. * The competitive landscape includes larger regional banks and agile fintechs, presenting challenges in market share and technological pace, which FBLA aims to counter through its community-focused approach and targeted growth initiatives, though increased public company costs will pressure near-term profitability metrics. ## A Community Bank's New Chapter: Leveraging Capital for Strategic Evolution FB Bancorp, Inc. (NASDAQ: FBLA), the holding company for the long-standing Louisiana institution Fidelity Bank, is embarking on a new phase following its conversion from a mutual organization to a stock company in October 2024. This structural shift, accompanied by a capital raise of $198.4 million (contributing $88.4 million to the Bank's capital), provides a significant financial impetus for Fidelity Bank to pursue its strategic objectives. Founded in 1908, the bank has historically served its Southern Louisiana communities by focusing on traditional deposit-taking and a diverse lending portfolio, including residential mortgages, commercial real estate, commercial, home equity, consumer, and construction loans, alongside investments in securities. \ The banking industry landscape in the region is characterized by competition from larger regional players like First Horizon Corp (TICKER:FHN) and Home Bancorp (TICKER:HBCP), as well as agile competitors such as Origin Bancorp (TICKER:OBNK) and increasingly, fintech firms. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, FBLA operates as a community-focused player with an estimated aggregate market share of approximately 0.5-1% in its primary markets. This positioning leverages a strong local brand and customer loyalty built over a century of operation. FBLA's strategic response to this dynamic environment centers on prudent growth and diversification. A key pillar involves expanding and diversifying the loan portfolio, specifically targeting increased originations of commercial real estate and commercial loans to enhance overall portfolio yield and reduce concentration risk. Concurrently, the company aims to strengthen its low-cost core deposit base by attracting and retaining customers, with particular focus on expanding its presence and activity in the Baton Rouge and Lafayette markets. Technologically, FBLA is investing in its digital infrastructure to meet evolving customer expectations and broaden its reach. This includes enhancing online banking platforms for both consumer and commercial clients and establishing a dedicated fully digital bank division named "Andi." The stated goal is to provide digital deposit, lending, and financial wellness products to serve existing and prospective customers. While recent disclosures highlight this strategic intent and the nature of the expected benefits (meeting digital expectations, expanding customer base), it does not offer specific quantifiable performance metrics, comparative advantages over competitors' digital tools, or details on specific R&D programs or target metrics for technological improvements. This contrasts with some peers who may demonstrate quantifiable efficiencies or faster processing times through technology integration, suggesting that while FBLA is investing, the measurable impact on competitive positioning from technology is not yet clearly articulated in public disclosures. ## Financial Performance Reflecting Strategic Shifts and Capital Infusion The first quarter of 2025 marked a significant improvement in FBLA's financial performance, with the company reporting net income of $705 thousand, a notable turnaround from a net loss of $807 thousand in the same period of 2024. This positive shift was primarily driven by robust growth in net interest income and a reduction in non-interest expenses.

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\ Net interest income increased by $1.9 million, or 17.7%, rising from $10.9 million in Q1 2024 to $12.8 million in Q1 2025. This growth stemmed from an 11.0% increase in total interest income, reaching $16.9 million, largely due to a $1.3 million increase in interest and fees on loans. The average balance of loans held for investment grew by $79.9 million, or 11.7%, supported by the capital infusion and strategic focus on lending. The average yield on these loans remained relatively stable at 7.08% compared to 7.06% in the prior year period, benefiting from the prevailing interest rate environment and portfolio mix shifts towards higher-yielding commercial and construction loans. Total interest expense decreased by $0.3 million, or 5.7%, to $4.1 million. This reduction was primarily attributable to a significant decrease in interest expense on other borrowed funds, which saw average balances decline by $97.1 million (57.6%) as the company utilized stock conversion proceeds and deposit growth to pay down higher-cost borrowings. This was partially offset by a $900 thousand increase in interest paid on deposits, reflecting both higher average deposit balances and increased rates paid to attract and retain funding. Non-interest expense decreased by $445 thousand, or 2.7%, totaling $15.9 million for the quarter. This decrease was largely driven by a $526 thousand (5.2%) reduction in salaries and employee benefits, primarily resulting from staffing adjustments within the mortgage banking segment aimed at improving its profitability. Advertising and marketing expenses also saw a significant decrease of $327 thousand (60.9%). However, hedging activity related to mortgage loans held for sale resulted in a net expense of $430 thousand in Q1 2025, compared to a net benefit of $93 thousand in Q1 2024, reflecting market interest rate volatility.

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\ Non-interest income decreased by $311 thousand, or 6.6%, to $4.4 million, mainly due to a $230 thousand reduction in mortgage servicing revenue following sales of servicing rights in prior periods. The gain on sale of mortgage loans remained relatively stable at approximately $3.3 million. Segment analysis highlights the Traditional Banking segment's strong profit increase to $1.8 million from $442 thousand, benefiting from asset growth and improved net interest income. The Mortgage Banking segment, while still reporting a loss, saw its loss narrow to $1.1 million from $1.25 million, demonstrating the impact of expense control efforts despite a slight decline in total operating revenue. Balance sheet trends reflect the strategic direction and capital impact. Total assets increased by 1.4% to $1.24 billion, funded by a 2.8% increase in total deposits to $823.4 million and a 16.3% decrease in borrowings to $61.5 million. Core deposits grew by 1.6%, while certificates of deposit increased by 4.7%, including the use of wholesale and brokered CDs to support loan growth. Total equity increased by 1.6% to $331.4 million, bolstered by comprehensive income from unrealized gains on securities and retained earnings.

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\ Asset quality metrics warrant close monitoring. Non-performing loans increased to $15.4 million at March 31, 2025, from $9.0 million a year prior, with a significant portion of this increase in one-to-four family residential loans. Classified loans also rose to $20.4 million from $12.1 million, and loans past due over 30 days increased significantly. The allowance for credit losses increased to $6.2 million from $6.0 million, primarily due to loan growth, but the ratio of allowance to non-performing loans decreased to 40.1% from 67.1%. Management maintains conservative underwriting standards but acknowledges that future provisions may be necessary depending on economic conditions and portfolio performance. ## Strategic Trajectory, Outlook, and Key Considerations FBLA's strategic path forward is clearly defined by its intent to leverage the recently raised capital. The focus on growing commercial real estate and commercial loans is evident in recent portfolio shifts, with these categories now representing 32.8% and 12.7% of total loans, respectively, as of March 31, 2025. The NOLA Lending division is expected to maintain its current pace of residential mortgage originations for sale into the secondary market, subject to market demand. Geographic expansion efforts in Baton Rouge and Lafayette, including the planned opening of a full-service branch in Lafayette in the second half of 2025, are central to the growth strategy. These initiatives, coupled with investments in digital banking and the "Andi" digital bank, aim to broaden the customer base and capture market share. Management has stated no current plans for expansion activities beyond the announced Lafayette branch. The outlook includes an expectation for increased non-interest expense due to the costs associated with operating as a public company. These costs include hiring additional accounting personnel and expenses related to employee stock ownership and potential stock-based benefit plans. This anticipated increase will likely impact profitability metrics in the near term as the company adjusts to its new public structure. Liquidity remains strong, supported by deposit growth and significant unused borrowing capacity with the Federal Home Loan Bank ($369 million) and the Federal Reserve discount window ($153 million). The bank's capital position is robust, exceeding all minimum requirements for a well-capitalized institution, providing a solid foundation for growth and risk absorption. Key risks for investors include interest rate risk, which is the most significant market risk. While the company employs various strategies to manage this, including hedging and portfolio management, sensitivity analysis indicates potential impacts on net interest income and economic value of equity under various rate shock scenarios. Credit risk is also pertinent, particularly given the recent increase in non-performing and classified loans, highlighting the importance of effective underwriting and monitoring in the current economic climate. The ability to retain maturing certificates of deposit is a liquidity consideration, as failure to do so could necessitate higher funding costs. In the competitive arena, FBLA's community focus and local expertise provide a moat against larger, less personalized institutions. However, its smaller scale and potentially slower pace of technological advancement compared to more digitally mature peers could pose challenges in attracting tech-savvy customers and achieving operational efficiencies. The increased operating costs as a public company will also require careful management to maintain competitive profitability ratios against both public and private peers. ## Conclusion FB Bancorp's recent conversion to a stock company and subsequent capital raise mark a pivotal moment, providing the financial strength to actively pursue strategic growth initiatives. The first quarter of 2025 demonstrated a positive inflection point in profitability, driven by effective net interest margin management and expense control. The company's focus on diversifying its loan portfolio towards commercial lending, expanding its geographic footprint, and investing in digital capabilities positions it to enhance long-term value. While the increase in non-performing assets and the inherent risks of interest rate fluctuations and economic conditions warrant attention, FBLA's strong capital position provides a significant buffer. The successful execution of its growth strategy, particularly in attracting core deposits and prudently expanding its commercial lending book, alongside managing the increased costs of being a public entity, will be critical determinants of its future performance and the realization of its investment thesis as a growing, community-focused financial institution.