FCAP 10-K & 10-Q changes, risk factors and insider trading

Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, control, and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, information and cyber security risk, compensation risk, and legal and compliance risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results. If our risk management framework proves ineffective, we could suffer unexpected losses which could adversely affect our business, results of operations, and financial condition.

Regulatory, Compliance, Legal, and ReputationalOther Risk

Total interest income increased $6.9 million for 2024 as compared to 2023. The increase was primarily due to an increase in the tax-equivalent yield on interest-earning assets increased from 3.96% in 2023 to 4.49% in 2024. The increase in the yield was primarily due to an increase in the tax-equivalent yield on loans from 5.66% in 2023 to 6.05% in 2024. Interest on loans increased $4.9 million when comparing the two periods due to an increase in the average balance of loans from $590.6 million in 2023 to $634.0 million in 2024. In addition, the Company’s lower yielding securities continue to mature with proceeds being reinvested in higher yielding loans or federal funds sold. Interest and dividends on investment securities (including FHLB stock) increased $567,000 for 2024 compared to 2023 due to an increase in the tax-equivalent yield on investment securities from 1.95% in 2023 to 2.25% in 2024, partially offset by a decrease in the average balance of investment securities from $506.5 million for 2023 to $455.1 million for 2024. Other interest income increased $1.4 million for 2024 as compared to 2023 primarily due to an increase in the average balance of federal funds sold from $19.5 million in 2023 to $45.6 million in 2024 in addition to,to the tax equivalenttax-equivalent yield of federal funds sold increasing from 5.07% to 5.17% when comparing the two periods.

Total interest expense increased $5.7 million, from $9.0 million for 2023 to $14.7 million for 2024, due to increases in the average cost of interest-bearing liabilities from 1.11% for 2023 to 1.73% for 2024 and in the average balance of interest-bearing liabilities from $809.2 million for 2023 to $850.0 million for 2024. The Company’s average balance of interest-bearing deposits increased from $794.4 million for 2023 to $820.4 million for 2024 in addition to the average cost of interest-bearing deposits increasing from 1.04% for 2023 to 1.61% for 2024. The Company’s average balance of outstanding advancesborrowings from the FHLB decreased from $6.1 million for 2023 to $1.7 million for 2024, partially offset by an increase in the average rate on outstanding advances from the FHLB from 5.59% for 2023 to 5.70% for 2024. The Company’s average outstanding borrowings under the Federal Reserve Bank’s BTFP increased from $8.6 million for 2023 to $27.9 million for 2024, partially offset by a decrease in the average rate on outstanding borrowings under the Federal Reserve Bank’s BTFP from 5.05% for 2023 to 4.85% for 2024. For further information, see “Average Balances and Yields” below. The changes in interest income and interest expense resulting from changes in volume and changes in rates for 2024 and 2023 are shown in the schedule captioned “Rate/Volume Analysis” included herein.

Provision for CreditLoan Losses. Based on management’s analysis of the ACL on loans and unfunded loan commitments, the provision for credit losses increased from $1.1 million for 2023 to $1.4 million for 2024 primarily due to loan growth, an increase in nonperforming assets during the year, as well as management’s consideration of the macroeconomic uncertainty. The Bank recognized net charge-offs of $173,000 for 2024 compared to $469,000 for 2023. In addition, nonperforming loans increased from $1.8 million at December 31, 2023 to $4.4 million at December 31, 2024. The increase was primarily due to the nonaccrual classification of two commercial loan relationships totaling $2.6 million. Loans in these relationships are secured by a variety of real estate and business assets.

Noninterest Expense. Noninterest expenses increased $1.8 million for 2024 as compared to 2023. This was primarily due to increases in professional fees, compensation and benefits, and other expenses of $663,000, $536,000 and $260,000, respectively, when comparing the two periods. The increase in professional fees is primarily due to increased costs associated with the Company’s annual audit and fees being accrued for the Company’s ongoing core contract negotiations. The increase in compensation and benefits is due to standard increases in salary and wages as well as increases in the cost of Company-provided health insurance benefits. The increase in other expenses included a $90,000 increase in the Company’s support of local communities through sponsorshipspartnerships and donations, a $64,000 increase in check and debit card fraud losses, $30,000 in increased dues and subscriptions, and $25,000 in increased expenses related to employee training and education.

Total assets increased from $1.16 billion at December 31, 2023 to $1.19 billion at December 31, 2024 to $1.27 billion at December 31, 2025 primarily due to increases in total cash and cash equivalentsequivalents, securities available for sale and net loans receivable partially offset by a decrease in securities available for sale.receivable.

Net loans receivable (excluding loans held for sale) increased $16.8$22.9 million from $614.4 million at December 31, 2023 to $631.2 million at December 31, 2024.2024 to $654.1 million at December 31, 2025. Increases in multifamily residential, commercial real estate, 1-4 family residential mortgage, and home equity and second mortgage loans of $16.1$32.7 million, $5.5$22.3 million, and $4.5$4.9 million were partially offset by decreases in commercialother businessconstruction, loansdevelopment and multifamily residentialland loans of $5.5$34.6 million and $3.1 million, respectively.million. The Bank continued to sell the majority of newly originated fixed-rate residential mortgage loans in the secondary market. The Bank originated $32.8$41.8 million in residential mortgages for sale in the secondary market during 20242025 compared to $31.6$32.8 million in 2023.2024. Of the total originations in 2024,2025, $6.7$13.4 million paid off existing loans in the Bank’s portfolio. Originating mortgage loans for sale in the secondary market allows the Bank to better manage its interest rate risk, while offering a full line of mortgage products to prospective customers.

Securities available for sale, at fair value, consisting primarily of U.S. agency mortgage-backed securities and collateralized mortgage obligations, U.S. agency notes and bonds, Treasury notes and bonds and municipal obligations, decreasedincreased from $437.3 million at December 31, 2023 to $389.2 million at December 31, 2024.2024 Principalto $417.2 million at December 31, 2025. Purchases of $137.9 million were partially offset by principal repayments of $28.1$38.8 million, maturities of $63.0$67.1 million and sales of $19.2$17.9 million during 2024 were only partially offset by purchases of $61.7 million of securities.2025. There was also an unrealized gain of $1.6$14.6 million on the securities available for sale portfolio during 20242025 due primarily to stabilizingdecreasing market rates during the year. The Bank invests excess cash in securities that provide liquidity, yield and low credit risk. Accordingly, we purchase mortgage-backed securities to provide cash flow for loan demand and deposit changes, we purchase U.S Treasury and federal agency notes for short-term yield and low risk, and municipals are purchased to improve our tax equivalent yield focusing on longer term profitability.

Cash and cash equivalents increased from $38.7 million at December 31, 2023 to $105.9 million at December 31, 2024,2024 to $137.3 million at December 31, 2025, primarily due to inflows from available for sale security proceeds and deposit account increases.

Total deposits increased $41.2$56.6 million to $1.07$1.12 billion at December 31, 2024.2025. During 2024,2025, time deposits and non-interest bearing deposits increased $74.3$37.5 million.million Thisand increase$22.1 wasmillion, respectively. These increases were partially offset by decreases in noninterest-bearing demand deposits, savings accounts and interest-bearing demand deposit accounts (including money market accounts) of $7.5$2.9 million, $14.9 million and $10.6 million, respectively. Included in time deposits at December 31, 2024 were $20.2 million in brokered deposits. The Company had no outstanding brokered deposits at December 31, 2023.million.

At December 31, 2025 and 2024, the Company had no outstanding borrowed funds compared to $21.5 million in borrowings outstanding from the FRB under the BTFP at December 31, 2023.funds. During the year ended December 31, 2024, the Company utilized a series of short-term fixed-rate bullet and variable rate advances from the FHLB and the BTFP in order to meet daily liquidity requirements and to fund growth in earning assets.

Total stockholders’ equity attributable to the Company increased $9.4$23.2 million from $105.2 million at December 31, 2023 to $114.6 million at December 31, 2024.2024 to $137.8 million at December 31, 2025. This increase is primarily the result of the $8.2$12.3 million increase in retained net income and aan $1.0$11.3 million decrease in the net unrealized loss on available for sale securities. The decrease in the net unrealized loss on available for sale securities during 20242025 is primarily due to decreases in market interest rates. As of December 31, 2024,2025, the Company had repurchased 126,746140,478 shares of the 240,467 shares authorized by the Board of Directors under the current stock repurchase program which was announced in August 2008 and 455,280469,012 shares since the original repurchase program began in 2001.

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. At December 31, 2024,2025, the Bank had total commitments to extend credit of $154.9$180.3 million. See Note 16 in the accompanying Notes to Consolidated Financial Statements. At December 31, 2024,2025, the Bank had certificates of deposit scheduled to mature within one year of $188.2$222.0 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

At December 31, 20242025 and 2023,2024, the Company’s simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00%, 2.00% or 3.00% would increase the Company’s net interest income over a one year horizon compared to a flat interest rate scenario. At December 31, 2025 and 2024, an immediate and sustained decrease in rates of 1.00%, 2.00% or 3.00% would decrease the Company’s net interest income over a one year horizon compared to a flat interest rate scenario. At December 31, 2023, an immediate and sustained decrease in rates of 2.00% and 3.00% would decrease the Company’s net interest income over a one year horizon compared to a flat interest rate scenario. At December 31, 2023, an immediate and sustained decrease in rates of 1.00% would increase the Company’s net interest income over a one year horizon compared to a flat rates scenario. During the year ended December 31, 2024,2025, management evaluated and adjusted deposit rate betas and key interest rate index ties in its scenarios to better reflect the current interest rate environment and increased competitive pressure for deposits.

The previous tables indicate that at December 31, 2024 the Company would expect an increase in its EVE in the event of a sudden and sustained 100, 200 and 300 basis point increase in prevailing interest rates and a decrease in its EVE in the event of a sudden and sustained 100, 200 and 300 basis point decrease in prevailing interest rates. At December 31, 2023,2025 the Company would expect decreases in its EVE in the event of sudden and sustained 200 and 300 basis pointspoint increases in prevailing interest rates as well as a sudden and sustained decreasedecreases of 100, 200 and 300 basis points in prevailing interest rates, while it would expect an increase in its EVE in the event of a sudden and sustained 100 basis point increase in prevailing interest rates. AsAt previouslyDecember mentioned31, 2024, the Company would expect an increase in thisits report,EVE duringin the event of sudden and sustained 100, 200 and 300 basis points increases in prevailing interest rates and a decrease in its EVE in the event of sudden and sustained 100, 200 and 300 basis point decreases in prevailing interest rates. During the year ended December 31, 2023,2025, the Companymanagement evaluated and adjusted deposit rate betas and key interest rate index ties in its scenarios to better reflect the current interest rate environment and increased competitive pressure for deposits.