Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis discusses information contained in our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the business and financial information regarding FB Bancorp, Inc. provided in this document, including the financial statements, which appear elsewhere in this document.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements 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 (the "Exchange Act") and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions.

Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, inflation and unemployment, competitive products and pricing, real estate values, fiscal and monetary policies of the U.S. Government, tariffs, the potential effects of the recent federal government shutdowns, changes in accounting policies and practices that may be adopted by the regulatory agencies and the accounting standards setters, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, potential goodwill impairment, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets, the availability of and costs associated with sources of liquidity.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date they are made. The Company advises readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

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 the statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

FB Bancorp, Inc. conducts its operations primarily through Fidelity Bank. Fidelity Bank's business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, commercial real estate loans, commercial loans, home equity loans and lines of credit, consumer loans and construction loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises. We offer a variety of deposit accounts including negotiable orders of withdrawal, which we refer to as "NOW" accounts throughout this document, savings accounts, money market accounts and certificate of deposit accounts. Fidelity Bank is subject to comprehensive regulation and examination by the Louisiana Office of Financial Institutions and the FDIC. FB Bancorp Inc. is subject to comprehensive regulation and examination by the Federal Reserve Board.

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, gain on the resale of mortgage loans and mortgage servicing rights and other service charges and fees. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, advertising and marketing, amortization of mortgage servicing rights, 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:

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 after the conversion and stock offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

Increase in Non-interest Expense

Following the completion of the conversion and stock offering, our non-interest expense increased because of the increased costs associated with operating as a public company, including the hiring of additional accounting personnel, and the increased compensation expenses associated with the implementation of our employee stock ownership plan and the implementation of a stock-based benefit plan.

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 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. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

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 financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our critical accounting policies:

Provision for Credit Losses. On January 1, 2023, Fidelity Bank adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaced the incurred loss methodology with an expected loss methodology that is referred to as CECL throughout this document. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit

losses to be presented as an allowance rather than as a write down on available-for-sale debt securities that management does not intend to sell or believe that it is not, more than likely, required to sell.

Upon adoption of this new credit loss measurement standard, Fidelity Bank did not recognize a material change to its financial position or results of operations. No retroactive cumulative effect of accounting changes was recognized in this adoption.

Deferred Tax Assets. Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50%. Deferred tax assets are reduced by a valuation allowance, if based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Fair Value Measurements. Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on- and off-balance sheet financial instruments do not include the value of anticipated future business or the value of assets and liabilities not considered financial instruments.

The following tables set forth selected historical financial and other data of Fidelity Bank for the periods and at the dates indicated. The information at March 31, 2026, and for the three months ended March 31, 2026 and 2025, is not audited but, in the opinion of management, includes all adjustments necessary for a fair presentation. These adjustments are standard and recurring. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results of operations that may be expected or realized for the entire year. The information at December 31, 2025 is derived in part from, and should be read together with, the audited financial statements and related notes beginning at page F-1 of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 26, 2026.

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total Assets. Total assets were $1.27 billion at March 31, 2026, compared to $1.26 billion at December 31, 2025. The largest fluctuation between these periods came from an increase in securities available for sale of $20.6 million, or 6.31%. This increase was due to favorable investment yields in the current period, predominantly in previously issued government backed mortgage securities. During the three months ended March 31, 2026, the Company purchased approximately $34.8 million in securities with

an expected average yield of 5.02%. The Company also sold $5.9 million in securities for a gain of $85 thousand.

Cash and Cash Equivalents. Cash levels decreased by $14.1 million, or 23.33%, to $46.2 million at March 31, 2026 from $60.3 million at December 31, 2025, as such assets were used in part to fund loans, purchase investment securities, and repurchase Company stock.

Available-for-Sale Investment Securities. Investment securities increased $20.6 million, or 6.31%, to $346.9 million at March 31, 2026, from $326.3 million at December 31, 2025. Aggregate securities purchased totaled $34.8 million and aggregate securities maturing, called, or sold totaled $11.4 million during the three months ended March 31, 2026. This increase was due to favorable investment yields in the current period. The average expected yield in security purchases for the three month period ending March 31, 2026, was 5.02%

Loans Held for Investment, Net. Loans held for investment, net, increased by $15.7 million, or 2.13%, to $753.4 million at March 31, 2026 from $737.7 million at December 31, 2025. During the three months ended March 31, 2026, net loan originations (net of payoffs) totaled $16.4 million. The increase in net loans held for investment came primarily from an increase in commercial real estate loans of $26.6 million, or 10.67%, partially offset by total residential mortgage loans decreasing $10.3 million, or 3.84%.

Increases in loan balances reflect our strategy to grow the commercial and commercial real estate loan portfolios. We have expanded our lending activities into the Baton Rouge and Lafayette, Louisiana markets, including adding lending teams in these markets.

Deposits. Deposits increased by $11.1 million, or 1.32%, to $852.5 million at March 31, 2026 from $841.4 million at December 31, 2025. Core deposits (defined as all deposits other than certificates of deposit) decreased $754 thousand, or 0.16%, to $482.1 million at March 31, 2026 from $482.9 million at December 31, 2025. Certificates of deposit increased $11.9 million, or 3.31%, to $370.4 million at March 31, 2026 from $358.5 million at December 31, 2025. Our certificates of deposit included $100.8 million in wholesale and brokered certificates of deposit at March 31, 2026 and $89.6 million at December 31, 2025. Such deposits generally tend to be at higher yields than other types of deposits and generally do not represent direct customer relationships, but were utilized, in part, to fund loan and investment growth.

Borrowings. Borrowings increased $17.3 million, or 22.13%, from $78.3 million at December 31, 2025 to $95.6 million at March 31, 2026. Borrowings have increased over the last two quarters primarily to fund investment security purchases due to attractive net-interest spreads within this asset class. Company borrowings consist of advances on a line of credit with the Federal Home Loan Bank. At March 31, 2026, approximately $317 million was available on this borrowing line.

Total Equity. Total equity decreased $16.7 million, or 5.32%, to $297.7 million at March 31, 2026 from $314.5 million at December 31, 2025. This decrease was due to $14.3 million in common stock repurchases and a $3.0 million increase in accumulated other comprehensive loss, partially offset by net income.

Average Balances Sheets. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average yields include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average balances are calculated using daily average balances.

Rate/Volume Analysis

The following tables present 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.

Comparison of Operating Results From Continuing Operations for the Three Months Ended March 31, 2026 and 2025

General. Net income from continuing operations of $494 thousand was recorded for the three months ended March 31, 2026, compared to net income of $1.4 million for the three months ended March 31, 2025. The decrease in net income was primarily the result of a $1.1 million, or 9.75%, increase in total non-interest expenses.

Interest Income. Interest income increased $439 thousand, or 2.75%, to $16.4 million for the three months ended March 31, 2026, compared to $16.0 million for the three months ended March 31, 2025. This increase was primarily attributable to a $1.0 million, or 43.77%, increase in interest and dividends on investment securities, partially offset by a decrease of $515 thousand, or 51.65%, from interest on deposits in other banks.

Interest and fees on loans decreased $51 thousand, or 0.40%, for the three months ended March 31, 2026 compared to the same period in 2025. The average balance of loans held for investment during the three months ended March 31, 2026 decreased by $24.5 million, or 3.22%, while the average yield on these loans increased to 7.19% for the three months ended March 31, 2026 from 7.08% for the three months ended March 31, 2025. The increase in average yield on loans was due to the increasing interest rate environment, particularly within the commercial and residential construction portfolios.

The average balance of investment securities increased by $80.7 million, or 32.39%, to $330.0 million for the three months ended March 31, 2026 from $249.3 million for the three months ended March 31, 2025, while the average yield on investment securities increased to 4.06% for the three months ended March 31, 2026 compared to 3.74% for the three months ended March 31, 2025.

Interest Expense. Total interest expense increased $443 thousand, or 10.76%, to $4.6 million for the three months ended March 31, 2026, from $4.1 million for the three months ended March 31, 2025. The increase was primarily due to a increase of $399 thousand, or 11.76%, in interest on deposits. The increase in interest on deposits was primarily due to an increase in interest-bearing deposit average

balances of $25.3 million, or 3.74%, and an increase average rates paid to 2.19% from 2.04% for the three months ended March 31, 2026 compared to the same period in 2025. The growth in deposits is due in part to the Lafayette branch that opened in August 2025.

Net Interest Income. Net interest income decreased $4 thousand, or 0.03%, to $11.84 million for the three months ended March 31, 2026, compared to $11.85 million for the three months ended March 31, 2025. Over these periods, interest and dividends on investments increased $1.0 million, or 43.77%, partially offset by a decrease in interest income on deposits in other banks of $515 thousand, and an increase in total interest expense of $443 thousand, or 10.76%. Net interest margin was 4.47% for the three months ended March 31, 2026, compared to 4.60% for the three months ended March 31, 2025. Company net interest margins continue to include net interest income from discontinued operations.

Provision for Credit Losses. Based on an analysis of the factors described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Critical Accounting Estimates - Allowance for Credit Losses," there was a $490,000 provision for credit losses for the three months ended March 31, 2026 compared to a $385,000 provision for the same period ended March 31, 2025. The increase in the provision for credit losses was due primarily to growth in loans held for investment for the three months ended March 31, 2026.

Total non-performing loans were $15.1 million at March 31, 2026, compared to $16.9 million at December 31, 2025, and $15.4 million at March 31, 2025. The majority of non-performing loans, $11.1 million, relate to first lien residential mortgage loans. These non-performing residential loans have a weighted average loan to value below 80%. Residential real estate loans remain under elevated credit pressures in our gulf coast lending markets due to rising insurance costs. Classified loans totaled $20.2 million at March 31, 2026, compared to $20.5 million at March 31, 2025, and total loans past due greater than 30 days were $35.4 million and $35.9 million at those respective dates. Special mention loans were $1.2 million at March 31, 2026 compared to $1.0 million at March 31, 2025. As a percentage of non-performing loans, the allowance for credit losses was 42.2% at March 31, 2026 compared to 40.1% at March 31, 2025.

The allowance for credit losses reflects the estimate management believes to be appropriate to cover probable expected losses that were inherent in the loan portfolio at March 31, 2026. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Any increase in future provisions that may be required may adversely impact the Company's financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for credit losses and may recommend an increase in the provision for possible credit losses or the recognition of loan charge-offs, based on judgments different than those of management.

Non-interest Income. Non-interest income totaled $1.11 million for the three months ended March 31, 2026, an increase of $56 thousand, or 5.31%, from $1.06 million for the three months ended March 31, 2025. The increase was primarily due to an increase of $91 thousand, or 13.91%, on deposit and account service charges.

Non-interest Expense. Non-interest expense increased $1.1 million, or 9.75%, to $11.9 million for the three months ended March 31, 2026, compared to $10.8 million for the three months ended March 31, 2025. Increases in non-interest expenses were primarily due to a $601 thousand, or 9.76%, increase in salaries and employee benefits due to added staff for the Lafayette branch opened by the Bank in August 2025, normal pay and benefit increases, a $226 thousand, or 13.84%, increase in occupancy and equipment related to the new Lafayette branch and new ATM servicing contracts, and a $77 thousand, or 45.83%, increase in advertising and marketing. Increases in advertising are due to timing of initiatives and are not expected to remain elevated throughout 2026.

Provision (Benefit) for Income Tax Expense. The provision for income taxes was $119,000 for the three months ended March 31, 2026, compared to a provision of $349,000 for the three months ended March 31, 2025. The change is a direct reflection of net income before income taxes for each period and there was no material change in the Bank's effective tax rates.

Comparison of Results From Discontinuing Operations for the Three Months Ended March 31, 2026 and 2025

The net loss from discontinued operations was $375 thousand for the three months ended March 31, 2026 compared to a net loss of $665 thousand for the three months ended March 31, 2025. The reduction in loss is the result of unwinding the NOLA Lending Group. The Company expects revenues and expenses to decline over the next two quarters as the discontinued business unit is completely shut down. For more information on discontinued operations, see footnote 2 of the unaudited financial statements contained within this filing.

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. The Bank has Asset Liability Committees at both the management and the board levels, with one board member having observational status at the management-level committee to ensure continuity. The management-level committee is comprised of senior level officers. The Board's Asset Liability Committee receives reports from management at each of its meetings and reviews the minutes of the management-level committee. The Board's Asset Liability Committee establishes the policies and guidelines for managing the Bank's interest rate risk. 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.

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:

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

Economic Value of Equity. We also 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 or 200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, at March 31, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

The table above indicates that at March 31, 2026 we would have experienced a 7.70% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 4.60% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates. Each of the estimated increase (decreases) in the percentage of change in EVE in the table above are within the Board of Director's guidelines.

Change in Net Interest Income. The following table sets forth, at March 31, 2026, the calculation of the estimated changes in our net interest income, referred to as "NII" throughout this document, that would result from the designated immediate changes in the United States Treasury yield curve.

The table above indicates that at March 31, 2026, we would have a 1.20% increase in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 5.50% decrease in NII in the event of an instantaneous 200 basis point decrease in market interest rates. Each of the estimated decreases in the percentage of change in the net interest income in the table above are within the Board of Director's guidelines.

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. In this regard, 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. Accordingly, although the EVE and NII tables provide an indication of our interest rate risk exposure at a particular point in time, 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, proceeds from maturities of securities and sales of mortgage loans. We have the ability to borrow from the Federal Home Loan Bank of Dallas, and at March 31, 2026, we had $95.6 million of outstanding borrowings from the Federal Home Loan Bank of Dallas. At March 31, 2026, we had the capacity to borrow an additional $317.4 million from the Federal Home Loan Bank of Dallas and an additional $137.0 million from the Federal Reserve Board discount window.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments and sales 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 are dependent 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 further information, see the statements of cash flows contained in the financial statements appearing elsewhere in this document.

We are committed to maintaining a strong liquidity position. 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 our maturing time deposits will be retained.

At March 31, 2026, Fidelity Bank's Tier 1 leverage capital was $255.6 million, or 20.23% of adjusted assets. Accordingly, it was categorized as well-capitalized at March 31, 2026. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see Note 9 of the financial statements included elsewhere in this document.

Off-Balance Sheet Arrangements. At March 31, 2026, we had $268.3 million of outstanding commitments to originate loans, which included $229.9 million in revolving lines of credit, $20.4 million in residential construction loans and $18.0 million in commercial construction loans and lines of credit. At March 31, 2026, none of our revolving lines of credit related to commercial real estate loans. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2026 totaled $256.9 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 utilize Federal Home Loan Bank of Dallas advances or raise interest rates on deposits to attract new accounts, 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 our financial statements included elsewhere in this document.

Impact of Inflation and Changing Prices

The financial statements and related data presented in this document 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.