Executive Summary / Key Takeaways

• Strong Financial Turnaround: Fifth District Bancorp (FDSB) demonstrated a significant return to profitability in the nine months ended September 30, 2025, with net income surging to $3.50 million, a substantial increase from the prior year's performance. This was driven by robust net interest income growth and a one-time gain from bank-owned life insurance proceeds.
• Asset and Loan Portfolio Expansion: The company achieved solid balance sheet growth, with total assets increasing to $539.50 million and net loans receivable expanding by 3.3% to $379.30 million, fueled by higher-yielding loan originations across various segments.
• Prudent Capital Management: FDSB maintains a "well-capitalized" status and has initiated a stock repurchase program, signaling a commitment to shareholder value and efficient capital deployment.
• Regional Niche, Competitive Pressures: As a community-focused regional bank in the New Orleans area, FDSB leverages local relationships but faces competitive challenges from larger, technologically advanced national banks and broader regional players.
• Interest Rate Sensitivity: The bank's financial performance remains sensitive to interest rate fluctuations, with models indicating potential impacts on both Economic Value of Equity (EVE) and Net Interest Income (NII) from significant rate changes.

A Local Legacy's New Chapter in a Dynamic Market

Fifth District Bancorp, Inc. (NASDAQ:FDSB) stands as a testament to enduring community banking, rooted in its subsidiary, Fifth District Savings Bank, which was founded in New Orleans in 1926. For decades, the institution served its local community as a mutual savings bank, primarily focused on attracting deposits and originating first mortgages for owner-occupied residences. This deep-seated local presence and commitment to relationship-based banking form the bedrock of FDSB's strategic positioning in the competitive financial services landscape of southeast Louisiana.

A pivotal transformation occurred on February 15, 2024, when Fifth District Bancorp, Inc. was incorporated, culminating in its conversion from a mutual to a stock form of organization on July 31, 2024. This strategic shift enabled the company to raise capital through an initial public offering, selling 5.46 million shares at $10 each, generating gross proceeds of $54.59 million. A significant portion of these funds, $26.10 million, was injected into the Bank, while $4.45 million supported the newly established Employee Stock Ownership Plan (ESOP), and approximately $21.40 million was retained. This conversion marked a new chapter, providing FDSB with enhanced financial flexibility to pursue growth initiatives and adapt to evolving market dynamics.

In the broader banking industry, regional institutions like FDSB operate within a complex competitive environment. While larger national players such as JPMorgan Chase and Bank of America offer extensive digital capabilities and vast resources, regional banks often differentiate themselves through localized expertise, personalized customer service, and strong community ties. FDSB's core business revolves around traditional banking services, including a range of deposit accounts like checking, money market, and certificates of deposit, alongside a diverse loan portfolio. The company's electronic banking services, encompassing mobile banking, online banking, telephone banking, bill pay, and electronic funds transfer via SmartPay, represent its foundational technological offerings designed to meet customer needs in a digitally evolving world. While these services are essential for modern banking, FDSB's technological infrastructure, as a smaller regional player, generally emphasizes accessibility and core functionality rather than pioneering advanced, quantifiable technological differentiators or extensive R&D initiatives seen in larger institutions.

A Resurgent Financial Performance

Fifth District Bancorp has demonstrated a compelling financial turnaround, particularly in the nine months ended September 30, 2025. The company reported net income of $3.50 million for this period, a substantial increase of $4.80 million or 386.7% compared to $1.20 million in the prior year. This impressive performance was significantly bolstered by a $2.20 million, or 15.9%, increase in interest and dividend income, reaching $16.40 million.

The growth in interest income was primarily driven by a 10.1% increase in interest on loans, which rose to $12.52 million, and an even more pronounced 80.6% increase in interest on investment securities available-for-sale, totaling $3.03 million. This expansion in asset-based income reflects the company's strategy of originating higher-yielding loans and reinvesting in higher-yielding securities, with the average yield on loans increasing to 4.45% and on available-for-sale investment securities to 4.12% for the nine months ended September 30, 2025. While total interest expense saw a modest increase of 0.3% to $7.00 million, the robust growth in interest income led to a significant 30.8% rise in net interest income, reaching $9.40 million, and an expansion of the net interest margin to 2.51% from 2.06% in the prior year.

Non-interest income also played a critical role in the recent profitability surge, totaling $4.209 million for the nine months ended September 30, 2025, a dramatic increase of 1922.1% from the previous year. This was largely attributable to a $3.50 million gain from bank-owned life insurance proceeds, a one-time event that significantly impacted the period's results. Non-interest expense increased by 3.3% to $10.07 million, primarily due to a $1.20 million rise in salaries and employee benefits, which included a death benefit paid from the bank-owned life insurance proceeds to the beneficiaries of the late President and Chief Executive Officer.

Building the Balance Sheet and Capital Strength

FDSB has demonstrated consistent balance sheet expansion, with total assets growing by $12.20 million, or 2.3%, to $539.50 million as of September 30, 2025, compared to December 31, 2024. This growth was primarily fueled by a $7.70 million increase in investment securities available-for-sale and a $12 million, or 3.3%, increase in loans receivable, net, which reached $379.30 million. The loan portfolio saw broad-based growth, with commercial loans, one-to-four single-family mortgages, home equity loans, consumer loans, and construction and land loans all contributing to the expansion.

On the funding side, deposits increased by $4.70 million, or 1.2%, to $396.20 million. This growth was largely driven by new customer activity and a migration from lower-yielding money market accounts into certificates of deposit, reflecting the company's ability to attract and retain funding in a dynamic interest rate environment. The company's liquidity position remains strong, with management expressing confidence in its ability to meet funding commitments and anticipating the retention of a significant portion of maturing time deposits.

FDSB also maintains a robust capital position, categorized as "well-capitalized" under applicable bank regulatory guidelines as of September 30, 2025. Total stockholders' equity increased by $5.50 million, or 4.4%, to $131.30 million, primarily due to the net income generated and a decline in accumulated other comprehensive loss resulting from market value adjustments of investment securities. In a move to enhance shareholder value and manage capital effectively, the company authorized a stock repurchase program on August 25, 2025, for up to 555,947 shares, representing approximately 10% of its then-outstanding common stock. This initiative underscores management's confidence in the company's valuation and its commitment to returning capital to shareholders.

Navigating the Competitive Currents

Fifth District Bancorp operates in a highly competitive banking sector within the New Orleans-Metairie Metropolitan Statistical Area and broader southeast Louisiana. The competitive landscape includes large national banks like JPMorgan Chase (JPM) and Bank of America (BAC), as well as regional players such as Regions Financial (RF) and Hancock Whitney (HWC). FDSB's primary competitive advantage stems from its long history and deep local brand recognition, fostering strong customer loyalty and personalized service that can differentiate it from larger, more impersonal institutions. This local expertise allows FDSB to effectively compete in niche segments, particularly in real estate-secured lending.

However, FDSB's smaller scale and regional focus present certain competitive disadvantages. Larger national banks possess significantly greater resources for technological innovation, offering more advanced digital banking features and broader service portfolios. While FDSB provides essential electronic banking services, its offerings are foundational and may lag in the speed and sophistication of those provided by its larger rivals. This technological gap could impact customer acquisition and retention, particularly among tech-savvy demographics. FDSB's operational efficiency and growth rates may also trail those of larger, more diversified competitors who benefit from economies of scale and broader market reach.

The company's strategy to manage interest rate risk is central to its competitive resilience. FDSB actively manages its asset/liability profile by maintaining high capital levels, strong liquidity, growing core deposit accounts, and strategically managing its investment securities portfolio to reduce average maturity. These measures are designed to position the bank to react effectively to changes in market interest rates, a critical factor given that the majority of its assets and liabilities are interest-sensitive.

Risks and the Road Ahead

Despite its recent financial improvements, Fifth District Bancorp faces inherent risks common to the banking industry. Interest rate risk remains the most significant market risk, with the company's Economic Value of Equity (EVE) and Net Interest Income (NII) sensitive to fluctuations. For instance, an instantaneous parallel 200 basis point increase in market interest rates is estimated to result in a 27.91% decrease in EVE and a 17.63% decrease in NII for Year 1. Conversely, a 200 basis point decrease could lead to a 17.43% increase in EVE and a 4.94% increase in NII. Management acknowledges the limitations of these models, as actual market responses and yield curve changes may differ from assumptions.

Credit risk, particularly concerning the allowance for credit losses, is another material estimate susceptible to changes in economic and market conditions. While non-performing loans were low at $198,000 as of September 30, 2025, and the allowance for credit losses on loans as a percentage of non-performing loans was robust at 858.10%, ongoing vigilance is required. The company also holds investment securities with unrealized losses, primarily due to market interest rate increases, though management does not intend to sell these prior to maturity and attributes the declines to market conditions rather than credit losses.

Looking ahead, management anticipates retaining a significant portion of maturing time deposits. However, should a substantial portion not be retained, the company may need to raise interest rates on deposits or utilize Federal Home Loan Bank advances, potentially leading to higher interest expenses. The absence of explicit quantitative forward guidance from management necessitates a focus on the company's historical performance trends and its stated strategies for managing risk and capital.

Conclusion

Fifth District Bancorp (NASDAQ:FDSB) presents a compelling investment narrative of a community-focused regional bank demonstrating a strong financial resurgence. The company's strategic conversion to a stock form has provided a solid capital base, which, combined with disciplined asset and liability management, has driven significant net interest income growth and a return to robust profitability in 2025. The commitment to shareholder value is evident through its well-capitalized status and the initiation of a stock repurchase program.

While FDSB leverages its deep local roots and personalized service to compete effectively in its New Orleans market, it operates within a dynamic financial landscape characterized by intense competition from larger, technologically advanced institutions. The company's ability to continuously enhance its electronic banking services and maintain its competitive edge through strong customer relationships will be crucial. Investors should monitor FDSB's ongoing efforts to manage interest rate risk and credit quality, as these factors will continue to shape its financial trajectory. The story of FDSB is one of a resilient regional player, strategically positioned for stability and growth within its defined market, offering a unique blend of community banking values and prudent financial management.