Magnolia Bancorp Inc.
11/10/2025 | Press release | Distributed by Public on 11/10/2025 11:04
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis is intended to assist in understanding our financial condition and results of operations. The information in this section should be read in conjunction with the unaudited consolidated financial statements of Magnolia Bancorp, Inc. ("Magnolia" or the "Company") and the notes thereto appearing in Part I, Item 1 of this Quarterly report on Form 10-Q as well as the business and financial information included in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2024.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect" and words of similar meaning, include but are not limited to:
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statements of our goals, intentions and expectations; |
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statements regarding our business plans, prospects, growth and operating strategies; |
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statements regarding the quality of our loans and other assets; and |
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estimates of our risks and future costs and benefits. |
These forward-looking statements are based on the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim, any obligation to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of anticipated or unanticipated events.
Overview
Magnolia Bancorp, Inc. completed its common stock offering and the conversion of Mutual Savings and Loan Association in January 2025. Magnolia conducts its operations primarily through its wholly owned subsidiary, Mutual Savings and Loan Association. The Company's loan portfolio consists primarily of fixed-rate one- to four-family residential mortgage loans that we have originated. The Company intends to continue our focus on originating primarily fixed-rate one- to four-family residential mortgage loans, and to a lesser extent residential construction loans and home equity lines of credit. In prior years, the Company has also originated commercial real estate loans and multi-family residential loans which represent approximately 2.5% of our loan portfolio at September 30, 2025. We also originate share loans, which are loans secured by deposit accounts at the Company. We generally do not purchase or sell loans. We offer a variety of deposit accounts including checking accounts, NOW accounts and certificates of deposit. The Company is subject to regulation and examination by the Office of the Comptroller of the Currency ("OCC").
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 are also affected by our provisions for credit losses, non-interest income and non-interest expense. Non-interest income consists primarily of rental income and service charges and other fees on deposit accounts. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, audit and regulatory examination fees, 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.
The Federal Reserve Board began increasing its federal funds rate in March 2022 to combat inflation, with 11 increases aggregating 5.25% occurring between March 2022 and July 2023. These increases resulted in substantial increases in market interest rates, including the rates we pay on our certificates of deposit. As interest rates rose during this period, our cost of funds increased and the demand for our fixed-rate loans decreased, resulting in declines in our net interest income. We elected not to match the highest market rates being paid on longer term certificates of deposit in light of the substantial increases in market interest rates, and we shortened the average maturity of our certificates of deposit. In an effort to offset the declines in net interest income during this period, we took steps to control our total non-interest expenses, which decreased in 2024 from 2023. Our non-interest expenses increased in 2025 as a result of our conversion to a public reporting entity. We incurred a net loss in the first nine months of 2025, as non-interest expense increased more than net interest income increased.
In September 2025, the Federal Reserve Board decreased its federal funds rate by 0.25% to 4.0%, which was followed by a second 0.25% decrease on October 29, 2025. We expect these rate reductions will continue to result in declines in our cost of funds. At September 30, 2025, we had $4.9 million of certificates of deposit scheduled to mature within twelve months, with $4.0 million of such short-term certificates of deposit bearing an interest rate between 3.00% and 4.00%. We also expect the demand for our fixed-rate loans will begin to increase as market interest rates decline. However, we expect our total non-interest expenses to increase due to our need to hire additional lending and accounting personnel, and the increased expenses associated with being a public company.
Business Strategy
Our principal objective is to build long-term value for our shareholders 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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Continue to focus on originating fixed-rate one- to four-family residential mortgage loans and residential construction loans for retention in our portfolio. We are primarily a fixed-rate one- to four-family residential mortgage loan lender for borrowers in our primary market area. Our residential construction loans typically convert to a permanent residential mortgage loan upon completion of the construction. We do not offer adjustable-rate residential mortgage loans, other than home equity loans. At September 30, 2025, $28.5 million or 90.6% of our total loan portfolio consisted of fixed- rate one- to four-family residential mortgage loans. In addition, at September 30, 2025, $850,000 or 2.7% of our total loan portfolio consisted of residential construction loans and $424,000 or 1.3% of our total loan portfolio consisted of adjustable-rate home equity loans. We expect residential mortgage lending to remain our primary lending activity. |
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Modestly increase our commercial real estate loan portfolio. To a limited extent, we have originated commercial real estate loans. At September 30, 2025, $508,000 or 1.6% of our total loan portfolio consisted of commercial real estate loans. Commercial real estate loans are higher-yielding and have shorter terms, which helps to mitigate interest rate risk, than one- to four-family residential mortgage loans. |
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Modestly increase our multi-family residential loan portfolio. To a limited extent, we have originated multi-family residential loans. At September 30, 2025, $278,000 or 0.9% of our total loan portfolio consisted of multi-family residential loans. Multi-family residential loans are higher-yielding and have shorter terms, which helps to mitigate interest rate risk, than one- to four-family residential mortgage loans. |
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Maintain our strong asset quality through conservative loan underwriting. We intend to maintain strong asset quality through what we believe are our conservative underwriting standards and credit monitoring processes. At September 30, 2025, we had only two loans aggregating $137,000 that were 30 days or more delinquent. |
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Continue efforts to grow low-cost "core" deposits. We consider our core deposits to include all deposits other than certificates of deposit. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $9.4 million or 61.6% of total deposits at September 30, 2025. Of this amount, $913,000 or 6.0% of total deposits consisted of non-interest-bearing accounts. |
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Remain a community-oriented institution and rely on high quality service to maintain and build a loyal local customer base. We were established in 1885. By servicing all loans we originate, our loan customers are able to deal directly with us when questions may arise about their loans. Through the goodwill we have developed over years of providing timely, efficient banking services, we believe that we have been able to attract a loyal base of local retail customers on which we expect to continue to build our banking business. |
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Grow organically and through opportunistic branching opportunities. We intend to grow our balance sheet organically on a managed basis, and with the capital we raised in the stock offering which we expect will enable us to increase our lending capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and shareholder returns. These opportunities may include establishing loan production offices, establishing new branch offices, and/or acquiring branch offices. The capital we raised in the stock offering is expected to help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities. |
We expect these strategies to guide our investment of the net proceeds of the stock offering. We intend to continue to pursue these business strategies subject to changes necessitated by future market conditions, regulatory restrictions and other factors.
There are risks associated with our plans to increase our commercial real estate loans and multi-family residential loans. While we intend to mitigate these risks by following our loan underwriting policies with respect to such loans and by hiring additional loan officers who are experienced in this area, there can be no assurance that we can hire additional loan officers with such experience or that such loan officers will be able to generate a sufficient volume of new loans to cover their compensation. In addition, we expect our commercial real estate loan portfolio and our multi-family residential loan portfolio to each account for less than 5% of our total loan portfolio for the foreseeable future.
Anticipated Increase in Noninterest Expense
Following the completion of the conversion, our noninterest expense has increased because of the increased costs associated with operating as a public company and the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan. Our noninterest expense is expected to continue to increase due to our need to hire additional personnel and expected grants under our stock-based benefit plans, which were approved by stockholders in September 2025. As of the date of this filing, we have not yet made any grants under such plans as we have been in a quarter-end blackout period; however, we anticipate that grants will be made in the near future.
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 Generally Accepted Accounting Principles ("GAAP"). The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be our critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The Jumpstart Our Business Startups ("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 accounting policy for the allowance for credit losses to be our critical accounting policy. Under the current expected credit loss model ("CECL"), the allowance for credit losses represents management's estimate of lifetime credit losses on 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.
Internal Control Over Financial Reporting
We identified material weaknesses in our internal control over financial reporting with respect to our allowance for credit losses that existed as of December 31, 2024. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements may not be prevented or detected on a timely basis. We concluded that our procedures were not effective as of December 31, 2024, and we identified the following material weaknesses in our internal control over financial reporting:
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We did not maintain an effective control environment as there was an insufficient complement of personnel to provide for adequate segregation of duties within the finance and accounting function to maintain effective controls over the financial close and reporting process. |
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The insufficient complement of personnel adversely impacted our ability to design and maintain policies, procedures and controls that operate at a sufficient level of precision over our significant accounts, classes of transactions and disclosures, including the allowance for credit losses on loans held for investment, to ensure that policies and procedures designed to mitigate the risks to the achievement of our financial reporting objectives are carried out. |
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We did not have an effective and formally documented risk assessment process that defined clear financial reporting objectives and elevated risks, including fraud risks, and risks resulting from changes in the external environment and business operations at a sufficient level of detail to identify all relevant risks of material misstatement. |
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We did not design and maintain an effective monitoring program for evaluating and monitoring compliance with established accounting policies, procedures and controls. This weakness included the failure to design and operate effective procedures and controls whose purpose is to evaluate and monitor the effectiveness of individual control activities including the loan review function. |
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We did not have an effective information and communication process to ensure that the processes and controls were effectively documented and disseminated to enable financial personnel to effectively carry out their roles and responsibilities. |
The above material weaknesses in our control environment, risk assessment, information and communication, and monitoring controls contributed to the following additional material weaknesses.
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We did not design and maintain effective controls regarding significant accounts, transaction cycles and disclosures to ensure policies and procedures designed to mitigate the risks to the achievement of objectives are carried out; and |
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We did not design and maintain effective information technology general controls which could result in misstatements potentially impacting all financial statement accounts and disclosures. Specifically, user access controls were not appropriately designed and maintained to adequately restrict user and privileged access to financial applications and data to the appropriate personnel, segregation of duties over preparation and review of journal entries, and access to critical spreadsheets and similar end-user data files is not restricted and is accessible by all personnel of Mutual Savings and Loan Association. |
These material weaknesses could result in a misstatement in our financial statements that may result in a material misstatement in the annual or interim financial statements that would not be prevented or detected.
We have assessed our internal controls over financial reporting including procedures around the allowance for credit losses, to ensure they are operating at a reasonable level of assurance. The remedial measures we have taken to address these material weaknesses include using the COSO 2013 framework to document the Company's risk assessment over financial reporting with a focus on how that model should be applied to smaller reporting entities and entities that qualify under the Emerging Growth definition of the SEC. The model recognizes that smaller reporting entities, while still subject to the control principles, will have fewer resources to scale its internal control environment and controls to, such as fewer personnel. We believe the linkage of controls to principal objectives, and identification of processes and controls at the entity wide and process level are appropriately designed to address the inherent risk of smaller reporting entities. However, we are continuing to evaluate our design of internal controls over financial reporting and may make further revisions we believe are necessary and appropriate. The testing of operating effectiveness to date has indicated that those controls tested are operating as designed, however our testing will continue through and to the end of the year. In addition, certain of our controls are designed to function as of a point in time such as at the end of a reporting period. As such those controls will be tested as of the end of our fiscal year. We believe these actions and any other that we may determine need to be implemented, when complete, will remediate the control weaknesses.
Comparison of Financial Condition at September 30, 2025 and December 31, 2024
Total Assets. Total assets were $36.1 million at September 30, 2025, a decrease of $7.8 million, or 17.8%, from $44.0 million at December 31, 2024. This decrease is primarily due to a decrease of $7.0 million in cash and cash equivalents and a decrease of $1.4 million in other assets. The decrease was partially offset by an increase of $0.7 million in net loans receivable.
Cash and Cash Equivalents. Cash and cash equivalents decreased by $7.0 million, or 70.5%, to $2.9 million at September 30, 2025 from $9.9 million at December 31, 2024. As market interest rates continued to remain at relatively high rates and in light of the reduced demand for our fixed-rate mortgage loans, we elected not to match the highest market rates being paid on longer term deposits, and did not renew higher rate certificates of deposits. We used our excess liquidity to fund the decrease in deposits. Our cash and cash equivalents were 8.1% of total assets at September 30, 2025 compared to 22.6% of total assets at December 31, 2024.
Loans Receivable, Net. Loans receivable, net, increased by $.7 million, or 2.1%, to $31.3 million at September 30, 2025 from $30.6 million at December 31, 2024. During the first nine months of 2025, our total loan originations increased by $2.5 million, or 369%, from $.7 million during the first nine months of 2024. Originations of one- to-four family residential loans representing most of the loan portfolio increased by $1.3 million in the first nine months of 2025 compared to the first nine months of 2024, as the demand for our fixed-rate loans increased compared to the first nine months of 2024.
Deposits. Total interest-bearing deposits decreased by $13.5 million, or 48.6%, to $14.3 million at September 30, 2025 from $27.9 million at December 31, 2024. Core deposits (defined as deposits other than certificates of deposit) decreased by $10.6 million, or 53.0%, to $9.4 million at September 30, 2025 from $20.0 million at December 31, 2024. The decline in core deposits was primarily due to the completion of the conversion, which resulted in $7.7 million on deposit at the Association being used to purchase shares of common stock of Magnolia Bancorp (with the remaining shares purchased with a loan to the ESOP), and an additional $1.4 million of deposits being refunded to purchasers in the over-subscribed community offering. To a lesser extent, the decrease was also partially due to our certificates of deposit decreasing by $3.7 million, or 38.9%, from $9.6 million at December 31, 2024. Certificates of deposit decreased primarily due to payoffs of higher rate maturing term deposits.
Management continued its strategy of pursuing growth in demand accounts and lower cost core deposits, but market conditions affected this strategy during the first nine months of 2025. Non-interest-bearing deposits, decreased by $.8 million, or 45.8%, to $.9 million at September 30, 2025 from $1.7 million at December 31, 2024. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer deposits.
Borrowings. We had no FHLB advances at September 30, 2025 or December 31, 2024. We have a line of credit totaling $13.0 million with the FHLB for advances which are secured by a blanket collateral agreement covering substantially all of our loans receivable.
Total Equity. Total equity increased by $6.1 million, or 44.0%, to $20.0 million at September 30, 2025 from $13.9 million at December 31, 2024. The increase resulted from the proceeds of the conversion in January 2025 of $8.3 million less the $1.4 million in stock offering costs and $650,000 in unearned ESOP compensation, which was partially offset by our net loss of $114,000 for the first nine months of 2025.
Average Balances, Net Interest Income, and Yields Earned and Rates Paid
The following tables show for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. As we did not own any tax-exempt securities during the periods presented, no yield adjustments were made. All average balances are based on daily balances.
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Three Months Ended September 30, |
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2025 |
2024 |
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Average Balance |
Interest |
Average Yield/ Rate |
Average Balance |
Interest |
Average Yield/ Rate |
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(dollars in thousands) |
(dollars in thousands) |
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Interest-earning assets: |
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Loans receivable(1) |
$ | 31,195 | $ | 340 | 4.36 | % | $ | 31,338 | $ | 337 | 4.30 | % | ||||||||||||
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FHLB stock |
361 | 4 | 4.43 | 347 | 5 | 5.76 | ||||||||||||||||||
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Other interest-earning assets |
3,261 | 34 | 4.17 | 2,060 | 26 | 5.05 | ||||||||||||||||||
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Total interest-earning assets |
34,817 | 378 | 4.34 | 33,745 | 368 | 4.36 | ||||||||||||||||||
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Non-interest-earning assets |
1,511 | 2,060 | ||||||||||||||||||||||
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Total assets |
$ | 36,328 | $ | 35,805 | ||||||||||||||||||||
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Interest-bearing liabilities: |
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Savings and NOW accounts(2) |
$ | 8,773 | 2 | 0.09 | $ | 10,263 | 2 | 0.09 | ||||||||||||||||
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Certificates of deposit |
5,942 | 45 | 3.03 | 10,362 | 98 | 3.78 | ||||||||||||||||||
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Total deposits |
14,715 | 47 | 1.28 | 20,625 | 100 | 1.94 | ||||||||||||||||||
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FHLB advances |
- | - | - | 496 | 7 | 5.65 | ||||||||||||||||||
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Total interest-bearing liabilities |
14,715 | 47 | 1.28 | 21,121 | 107 | 2.03 | ||||||||||||||||||
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Non-interest-bearing liabilities |
1,561 | 697 | ||||||||||||||||||||||
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Total liabilities |
16,276 | 21,818 | ||||||||||||||||||||||
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Total equity |
20,052 | 13,987 | ||||||||||||||||||||||
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Total liabilities and equity |
$ | 36,328 | $ | 35,805 | ||||||||||||||||||||
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Net interest-earning assets |
$ | 20,102 | $ | 12,624 | ||||||||||||||||||||
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Net interest income; average interest spread |
$ | 331 | 3.07 | % | $ | 261 | 2.33 | % | ||||||||||||||||
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Net interest margin(3) |
3.80 | % | 3.09 | % | ||||||||||||||||||||
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Average interest-earning assets to average interest-bearing liabilities |
236.61 | % | 159.77 | % | ||||||||||||||||||||
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(1) |
Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses. |
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(2) |
Includes interest-bearing demand accounts. |
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(3) |
Equals net interest income divided by average interest-earning assets. |
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Nine Months Ended September 30, |
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2025 |
2024 |
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Average Balance |
Interest |
Average Yield/ Rate |
Average Balance |
Interest |
Average Yield/ Rate |
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(dollars in thousands) |
(dollars in thousands) |
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Interest-earning assets: |
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Loans receivable(4) |
$ | 30,951 | $ | 1,005 | 4.33 | % | $ | 31,823 | $ | 1,010 | 4.23 | % | ||||||||||||
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FHLB stock |
357 | 12 | 4.48 | 341 | 13 | 5.08 | ||||||||||||||||||
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Other interest-earning assets |
4,973 | 167 | 4.48 | 1,816 | 70 | 5.14 | ||||||||||||||||||
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Total interest-earning assets |
36,281 | 1,184 | 4.35 | 33,980 | 1,093 | 4.29 | ||||||||||||||||||
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Non-interest-earning assets |
2,062 | 1,867 | ||||||||||||||||||||||
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Total assets |
$ | 38,343 | $ | 35,847 | ||||||||||||||||||||
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Interest-bearing liabilities: |
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Savings and NOW accounts(5) |
$ | 8,825 | 6 | 0.09 | $ | 10,620 | 7 | 0.09 | ||||||||||||||||
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Certificates of deposit |
7,190 | 184 | 3.41 | 9,840 | 258 | 3.50 | ||||||||||||||||||
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Total deposits |
16,015 | 190 | 1.58 | 20,460 | 265 | 1.73 | ||||||||||||||||||
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FHLB advances |
- | - | - | 622 | 26 | 5.56 | ||||||||||||||||||
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Total interest-bearing liabilities |
16,015 | 190 | 1.58 | 21,082 | 291 | 1.84 | ||||||||||||||||||
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Non-interest-bearing liabilities |
1,864 | 776 | ||||||||||||||||||||||
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Total liabilities |
17,879 | 21,858 | ||||||||||||||||||||||
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Total equity |
20,464 | 13,989 | ||||||||||||||||||||||
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Total liabilities and equity |
$ | 38,343 | $ | 35,847 | ||||||||||||||||||||
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Net interest-earning assets |
$ | 20,266 | $ | 12,898 | ||||||||||||||||||||
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Net interest income; average interest spread |
$ | 994 | 2.77 | % | $ | 802 | 2.45 | % | ||||||||||||||||
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Net interest margin(6) |
3.65 | % | 3.15 | % | ||||||||||||||||||||
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Average interest-earning assets to average interest-bearing liabilities |
226.54 | % | 161.18 | % | ||||||||||||||||||||
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(1) |
Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses. |
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(2) |
Includes interest-bearing demand accounts. |
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(3) |
Equals net interest income divided by average interest-earning assets. |
Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
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Three Months Ended |
Nine Months Ended September 30, 2025 vs 2024 |
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Increase (Decrease) Due to |
Total Increase |
Increase (Decrease) Due to |
Total Increase |
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Rate |
Volume |
(Decrease) |
Rate |
Volume |
(Decrease) |
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(dollars in thousands) |
(dollars in thousands) |
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Interest income: |
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Loans receivable |
$ | 5 | $ | (2 | ) | $ | 3 | $ | 23 | $ | (28 | ) | $ | (5 | ) | |||||||||
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FHLB stock |
(1 | ) | - | (1 | ) | (2 | ) | 1 | (1 | ) | ||||||||||||||
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Other interest-earning assets |
(5 | ) | 13 | 8 | (9 | ) | 106 | 97 | ||||||||||||||||
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Total interest income |
(1 | ) | 11 | 10 | 12 | 79 | 91 | |||||||||||||||||
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Interest expense: |
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Savings and NOW accounts |
- | - | - | - | (1 | ) | (1 | ) | ||||||||||||||||
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Certificates of deposit |
(20 | ) | (33 | ) | (53 | ) | (6 | ) | (68 | ) | (74 | ) | ||||||||||||
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Total deposits |
(20 | ) | (33 | ) | (53 | ) | (6 | ) | (69 | ) | (75 | ) | ||||||||||||
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FHLB advances |
- | (7 | ) | (7 | ) | - | (26 | ) | (26 | ) | ||||||||||||||
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Total interest expense |
(20 | ) | (40 | ) | (60 | ) | (6 | ) | (95 | ) | (101 | ) | ||||||||||||
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Increase (decrease) in net interest income |
$ | 19 | $ | 51 | $ | 70 | $ | 18 | $ | 174 | $ | 192 | ||||||||||||
Comparison of Operating Results for the Three Months Ended September 30, 2025 and 2024
General. We had a net loss of $48,000 for the three months ended September 30, 2025 compared to a net loss of $36,000 for the comparable period of 2024. This $12,000 increase in the net loss was due to an increase of $85,000 in total non-interest expense, which was partially offset by an increase of $70,000 in net interest income and an increase of $2,000 in the income tax benefit. In September 2025, the Federal Reserve Board decreased its federal funds rate by 0.25% to 4.0%, which was followed by a second 0.25% decrease on October 29, 2025. We expect these rate reductions will continue to result in declines in our cost of funds and improvement in our net interest income. We also expect the demand for our fixed-rate loans will begin to increase as market interest rates decline. However, we expect our total non-interest expenses to remain high following the conversion due to our need to hire additional lending and accounting personnel and the increased expenses associated with being a public company.
Interest Income. Interest income increased by $10,000 or 2.7% to $378,000 in the three months ended September 30, 2025 from $368,000 in the comparable period of 2024. The increase in interest income was primarily due to an increase of $8,000 or 30.8% in other interest on deposits with other banks and cash equivalents, as the average balance increased by $1.2 million or 58.3% due to the conversion proceeds. Cash and cash equivalents were $2.9 million at September 30, 2025 as we used a portion of our excess liquidity to fund deposit outflows.
Interest income also increased due to higher interest on loans. Loan income increased $3,000 or .9% as the average yield on loans increased from 4.30% in 2024 to 4.36% in 2025 due to new loan originations having higher rates than on loans that have paid off. Our total loan originations increased in the three months ended September 30, 2025 by $577,000, or 303.7%, from $190,000 for the three months ended September 30, 2024, as the demand for our fixed-rate loans increased. Market interest rates for fixed-rate loans currently exceed the average yield on our loan portfolio.
Interest Expense. Total interest expense decreased by $60,000 or 56.1% to $47,000 for the three months ended September 30, 2025 from $107,000 for the three months ended September 30, 2024. The decrease was primarily due to the decrease of $53,000 in interest expense on certificates of deposit, and a decrease of $7,000 in interest expense on FHLB advances in the three months ended September 30, 2025 compared to September 30, 2024.
Interest expense on our certificates of deposit decreased to $45,000 in the three months ended September 30, 2025 from $98,000 in the comparable three months of 2024. This decrease in interest expense of $53,000 was due to the average rate paid on certificates of deposit decreasing to 3.03% in 2025 from 3.78% in 2024, reflecting the roll-off of higher rate certificates of deposits. The average balance of certificates of deposit declined in 2025 by $4.4 million or 42.7% from the three months ended September 30, 2024, as we elected not to renew higher average rate term deposits that matured during the period.
At September 30, 2025, $4.9 million or 83.0% of our total certificates of deposit were scheduled to mature within the following 12 months. We shortened the average maturity of our certificates of deposit in anticipation of market interest rates beginning to decline. If the Federal Reserve Board continues to reduce its federal funds rate and market interest rates on new certificates of deposit decrease from current levels, we expect these rate reductions will eventually result in declines in our cost of funds.
There was no interest expense on FHLB advances during the three months ended September 30, 2025 compared to $7,000 in the three months ended September 30, 2024, as there were no FHLB advances during the three months ended September 30, 2025 compared to an average balance of $496,000 during the three months ended September 30, 2024. All of our outstanding FHLB advances were repaid upon maturity by September 30, 2024.
Net Interest Income. Net interest income increased by $70,000, or 26.8%, to $331,000 for the three months ended September 30, 2025 compared to $261,000 for the three months ended September 30, 2024. The increase was primarily due to a $7.5 million or 59.2% increase in the average balance of our net interest-earning assets. The average interest rate spread increased to 3.07% for the three months ended September 30, 2025 from 2.33% for the three months ended September 30, 2024, as the cost of funds decreased as higher paying certificate of deposits that matured were not renewed. The ability to shift our funding mix and rates was due to the completion of our stock offering and conversion in January of 2025.
Provision for Credit Losses. We made no provision for credit losses in either the three months ended September 30, 2025 or 2024. We had no loan charge-offs in the three months ended September 30, 2025. In September 2024, we foreclosed on one loan resulting in a $15,000 write-off which reduced our allowance for credit losses from $200,000 at December 31, 2024 to $185,000 at September 30, 2024. Our total non-performing assets as of September 30, 2025 and 2024 were $72,000 and $0, respectively. The allowance for credit losses was $185,000 at September 30, 2025 representing 257% of non-performing assets at September 30, 2025. As of September 30, 2025, we had two loans totaling $137,000 that were 30 days or more delinquent, compared to one loan for $354,000 that was 30 days or more delinquent at December 31, 2024. One past due loan with an outstanding balance of $72,000 was 90 days past due and on nonaccrual at September 30, 2025. No additional provision for credit losses was deemed necessary in the loan portfolio.
Non-interest Income. Non-interest income increased $1,000 to $9,000 for three months ended September 30, 2025. Non-interest income is comprised of customer service charges and rental income.
Non-interest Expense. Non-interest expense increased by $85,000, or 27.0%, to $400,000 for the three months ended September 30, 2025 compared to $315,000 for the three months ended September 30, 2024. The increase in non-interest expense in the three months of 2025 was primarily due to increases of:
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$55,000 or 211.5% in audit and regulatory examination fees, legal and insurance |
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$20,000 or 200% in other expenses |
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$3,000 or 300% in advertising |
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$8,000 or 4.0% in salaries and employee benefits |
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$6,000 or 21.4% in data processing |
The above increases were partially offset by decreases of:
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$7,000 or 18.4% in occupancy and equipment expense |
The increase in audit and regulatory examination expense, legal and insurance resulted primarily from additional professional fees related to preparation and filing of public company filings. The increase in salaries and employee benefits in the three months of 2025 was primarily due to additional costs related to the hiring of an additional accounting employee and contract resources. Advertising expense increased in the three months ended September 30, 2025 as we implemented a social media campaign in select markets. Data processing expenses increased due to rising costs of processing transactions.
Income Tax Provision (Benefit). We had an income tax benefit of $12,000 for the three months ended September 30, 2025 compared to an income tax benefit of $10,000 for the comparable three months of 2024. The tax benefit in the three months of 2025 represented an effective tax rate of 20.0% on our pre-tax loss of $60,000 for such period, and our tax benefit for the three months of 2024 represented an effective tax rate of 21.7% on our pre-tax loss of $46,000 for such period. The change in the effective rate between the periods was due to the amount of certain nondeductible expenses.
Comparison of Operating Results for the Nine Months Ended September 30, 2025 and 2024
General. We had a net loss of $114,000 for the nine-month period ended September 30, 2025 compared to a net loss of $60,000 for the comparable period of 2024. This $54,000 increase in the net loss was due to an increase of $259,000 in total non-interest expense, which was partially offset by an increase of $192,000 in net interest income and an increase of $11,000 in the income tax benefit. In September 2025, the Federal Reserve Board decreased its federal funds rate by 0.25% to 4.0% which was followed by a second 0.25% decrease on October 29, 2025. We expect these rate reductions will continue to result in declines in our cost of funds and improvement in our net interest income. We also expect the demand for our fixed-rate loans will begin to increase as market interest rates decline. However, we expect our total non-interest expenses to remain high following the conversion due to our need to hire additional lending and accounting personnel and the increased expenses associated with being a public company.
Interest Income. Interest income increased by $91,000 or 8.3% to $1,184,000 in the nine months ended September 30, 2025 from $1,093,000 in the comparable period of 2024. The increase in interest income was due to an increase of $97,000 or 138.6% in interest on deposits with other banks and cash equivalents, as the average balance increased by $3.2 million or 173.8% due to the conversion proceeds. This increase was partially offset by a decrease of $5,000 or .5% in interest on loans.
The decreased interest on loans was due to a $.9 million or 2.7% decrease in the average loan balance, as demand for our fixed-rate loans remained weak throughout 2024 and into 2025. The decrease in the average balance was partially offset by an increase in the average yield to 4.33% in 2025 compared to 4.23% in 2024, as the average yield on new loan originations exceeded the average yield on repayments of older loans. Our total loan originations increased in the nine months ended September 30, 2025 by $2.5 million, or 369.0%, from $691,000 for the nine months ended September 30, 2024, as the demand for our fixed-rate loans began to increase. Market interest rates for fixed-rate loans currently exceed the average yield on our loan portfolio.
Interest Expense. Total interest expense decreased by $101,000 or 34.7% to $190,000 for the nine months ended September 30, 2025 from $291,000 for the nine months ended September 30, 2024. The decrease was primarily due to the decrease of $74,000 in interest expense on certificates of deposit and a decrease of $26,000 in interest expense on FHLB advances in the nine months ended September 30, 2025 compared to September 30, 2024. The average balance of certificates of deposit declined in 2025 by $2.7 million from the nine months ended September 30, 2024, as we did not renew $2 million of term deposits that matured with an average rate of 4.1%.
At September 30, 2025, $4.9 million or 83.0% of our total certificates of deposit were scheduled to mature within the following 12 months. We shortened the average maturity of our certificates of deposit in anticipation of market interest rates beginning to decline. If the Federal Reserve Board continues to reduce its federal funds rate and market interest rates on new certificates of deposit decrease from current levels, we expect these rate reductions will eventually result in declines in our cost of funds.
There was no interest expense on FHLB advances during the nine months ended September 30, 2025 as there were no outstanding advances during the period. Interest expense during the nine months ended September 30, 2024 was $26,000, and the advances had an average balance of $622,000 during that period. All outstanding FHLB advances were repaid upon maturity prior to September 30, 2024.
Net Interest Income. Net interest income increased by $192,000, or 23.9%, to $994,000 for the nine months ended September 30, 2025 compared to $802,000 for the nine months ended September 30, 2024. The increase was primarily due to an increase in the average balance of other interest-earning assets as a result of the stock transaction in January 2025 and a decrease in average interest-bearing liabilities as high rate time deposits were not renewed.
Provision for Credit Losses. We made no provision for credit losses in either the nine months ended September 30, 2025 or 2024. We had no loan charge-offs in the nine months ended September 30, 2025. In September 2024, we foreclosed on one loan resulting in a $15,000 write-off which reduced our allowance for credit losses from $200,000 at December 31, 2024 to $185,000 at September 30, 2024. Our total non-performing assets as of September 30, 2025 and 2024 were $72,000 and $0, respectively. The allowance for credit losses was $185,000 at September 30, 2025 representing 257% of non-performing asset at September 30, 2025. As of September 30, 2025, we had two loans totaling $137,000 that were 30 days or more delinquent, compared to one loan for $354,000 that was 30 days or more delinquent at December 31, 2024. One past due loan with an outstanding balance of $72,000 was 90 days past due and on nonaccrual at September 30, 2025. No additional provision for credit losses was deemed necessary in the loan portfolio.
Non-interest Income. Non-interest income increased $2,000 for the nine months ended September 30, 2025 to $26,000 compared to the nine months of 2024. A nominal decrease in customer service charges and fees was offset by a nominal increase in rental income.
Non-interest Expense. Non-interest expense increased by $259,000, or 28.7%, to $1,162,000 for the nine months ended September 30, 2025 compared to $903,000 for the nine months ended September 30, 2024. The increase in non-interest expense in the nine months of 2025 was primarily due to increases of:
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$202,000 or 246.3% in audit and regulatory examination fees, insurance and legal expenses |
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$26,000 or 96.3% in other expenses |
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$20,000 in advertising expenses |
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$12,000 or 15.2% in data processing |
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$11,000 or 1.9% in salaries and employee benefits |
The above increases were partially offset by a decrease of:
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$12,000 or 11.2% in occupancy and equipment expense |
The increase in audit and regulatory examination fees and legal expense resulted primarily from additional professional fees related to preparation and filing of public company filings. Advertising expense increased in the nine months of 2025 as we implemented a social media campaign in certain markets. The increase in data processing is due primarily to rising costs of processing transactions. The increase in salaries and employee benefits in the nine months ended September 30, 2025 was primarily due to hiring an additional accounting employee and contract resources and incurring compensation expense for the Company's new ESOP.
Income Tax Provision (Benefit). We had an income tax benefit of $28,000 for the nine months ended September 30, 2025 compared to an income tax benefit of $17,000 for the comparable nine months of 2024. The tax benefit in the nine months of 2025 represented an effective tax rate of 19.7% on our pre-tax loss of $142,000 for such period, and our tax benefit for the nine months of 2024 represented an effective tax rate of 22.1% on our pre-tax loss of $77,000 for such period. The amount of non-deductible expenses resulted in the change in the effective rate between the periods.
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 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 to a lesser extent borrowings. We have the ability to borrow from the Federal Home Loan Bank of Dallas. All advances outstanding during 2024 matured and were paid prior to September 30, 2024, and we have not utilized any FHLB advances in 2025.
While maturities and scheduled amortization of loans 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 cash equivalents. The levels of these assets depend on our operating, financing and lending 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 the nine months ended September 30, 2025, cash flows from operating, investing and financing activities resulted in a net decrease in cash and cash equivalents of $7.0 million compared to a net decrease of $83,000 for the nine months ended September 30, 2024. The decrease in cash and cash equivalents was due primarily from a use of cash in both financing activities and investing activities of $6.3 million and $647,000, respectively for the nine months ended September 30, 2025 compared to a use of cash in both financing activities and operating activities of $643,000 and $614,000 and a source from investing activities of $1.2 million for the nine months ended September 30, 2024. Operating activities decreased primarily due to fluctuations in operating assets and liabilities and non-cash operating changes in account balances. Investing activities used $.6 million to fund new loans net of loan repayments. Financing activities used $5.4 million of cash to fund deposit outflows, $1.4 million in refunds of stock subscriptions and $145,000 in stock issuances costs paid, which amounts were partially offset by $187,000 of proceeds from stock subscription conversion deposits and a $453,000 increase in advances from borrowers for insurance and taxes. The $7.0 million reduction in cash and cash equivalents during the nine months ended September 30, 2025 to $2.9 million contributed to the reduction in total assets to $36.1 million from $44.0 million at December 31, 2024.
We are committed to maintaining a strong liquidity position. We monitor our liquidity on a daily basis and 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 can be retained. At September 30, 2025, certificates of deposit that are scheduled to mature within the next 12 months totaled $4.9 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.
At September 30, 2025, the Association 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 7 of the notes to the unaudited consolidated financial statements as of and for the nine months ended September 30, 2025.
The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at September 30, 2025. When we disburse funds pursuant to outstanding commitments, those disbursements increase our outstanding loans and are treated as loan originations in the period in which the funds are disbursed.
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Amount of Commitment Expiration - Per Period |
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Total Amounts Committed at September 30, 2025 |
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1-3 |
Over 3 to 5 |
After 5 |
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(dollars in thousands) |
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Unused lines of credit |
$ | 958 | $ | - | $ | - | $ | - | 958 | |||||||||||
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Undisbursed portion of loans in process |
854 | 854 | - | - | - | |||||||||||||||
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Commitments to originate loans |
- | - | - | - | - | |||||||||||||||
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Total commitments |
$ | 1,812 | $ | 854 | $ | - | $ | - | $ | 958 | ||||||||||
The following table summarizes our contractual cash obligations at September 30, 2025.
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Payments Due by Period |
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As of |
To 1 Year |
1-3 Years |
Over 3 to 5 Years |
After 5 Years |
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(dollars in thousands) |
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Certificates of deposit |
$ | 5,850 | $ | 4,867 | $ | 953 | $ | 30 | $ | - | ||||||||||
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FHLB advances |
- | - | - | - | - | |||||||||||||||
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Total long-term debt |
$ | 5,850 | $ | 4,867 | $ | 953 | $ | 30 | $ | - | ||||||||||
Magnolia Bancorp Inc. published this content on November 10, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 10, 2025 at 17:04 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]