Examiner-in-Charge School Feb 2024

EARNINGS -

EARNINGS

Period Ended 09/30/2023

Peer

Period Ended 12/31/2022

Period Ended 12/31/2021

09/30/2023

Net Income (After Tax)/Average Assets Net Interest Income (TE)/Average Earning Assets Total Noninterest Expense/Average Assets

1.00 3.03

1.18 3.66

0.41 3.57

0.02 3.58

3.41

2.61

3.41

3.76

 The institution remains structurally unprofitable.  Normalized, the ROAA fall to negative 0.19% when adjusting for realized security losses ($40,000), reverse ACL provisions ($943,000), and loss contingency related to the Leon Smith lawsuit ($150,000). o Overhead expenses remain elevated and rank in the 90 th percentile of the peer group. o Personnel expenses continue to exceed bank profitability.  Reported net interest margin has declined 63 basis points (bp) from 9/30/2022 as cost of funds increase faster than assets have repriced. o NIM normalized to exclude interest recoveries of $539,000, falls to 3.11%. Projections  Management’s profit plan focuses on loan growth and targets $8 million in 2023.  $5 million has been raised as of 9/30/2023, and management anticipates meeting the target by year-end.  Budgeting practices have improved since the prior exam and project approximately $40,000 of profit in 2024 with $12 million (15%) in loan growth.  Future expense considerations not included in the 2024 budget: $700,000 potential ORE Loss 205,000 minimum salary expense to fill vacant positions 72,000 possible additional loss relative to the Smith lawsuit Recommendations:  Record the Fausch loss contingency in accordance with GAAP.  Ensure non-interest expense budget totals give appropriate consideration to probable expenditures.

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