ECB Bancorp, Inc. /MD/ - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________ to ______________________

Commission File Number: 001-41456

ECB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)


Maryland	88-1502079
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
419 Broadway Everett, Massachusetts	02149
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 387-1110

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Ticker Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	ECBK	The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [ X ] No [ ]

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [X]	Smaller reporting company [X]
	Emerging growth company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As of November 10, 2022, 9,175,247 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

ECB Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	3

	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	38

Part II. Other Information

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

	Signature Page	41

EXPLANATORY NOTE

ECB Bancorp, Inc., a Maryland corporation (the “Company” or the “Registrant”), was formed on March 7, 2022 to serve as the bank holding company for Everett Co-operative Bank (the “Bank”) as part of the Bank’s mutual-to-stock conversion, which was consummated on July 27, 2022. Financial and other information prior to and including July 27, 2022 included in this Quarterly Report is for the Bank.

Part I. – Financial Information

Item 1. Financial Statements

ECB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2022 (Unaudited) and December 31, 2021

(in thousands)


	September 30, 2022			December 31, 2021

ASSETS
Cash and due from banks	$	6,644		$	7,326
Short-term investments		27,570			45,649
Total cash and cash equivalents		34,214			52,975
Interest-bearing time deposits		300			—
Investments in available-for-sale securities (at fair value)		4,985			5,010
Investments in held-to-maturity securities, at cost (fair values of $61,357 at September 30, 2022 and $65,556 at December 31, 2021)		69,974			65,571
Federal Home Loan Bank stock, at cost		2,352			1,087
Loans held-for-sale		—			1,301
Loans, net of allowance for loan losses of $6,037 as of September 30, 2022 (unaudited) and $4,236 as of December 31, 2021		735,318			517,131
Premises and equipment, net		3,738			3,784
Accrued interest receivable		2,037			1,481
Deferred tax asset, net		4,022			2,971
Bank-owned life insurance		13,970			14,135
Other assets		2,667			1,043
Total assets	$	873,577		$	666,489

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	91,692		$	83,311
Interest-bearing		561,057			488,443
Total deposits		652,749			571,754
Federal Home Loan Bank advances		50,475			9,000
Other liabilities		9,291			8,462
Total liabilities		712,515			589,216

Shareholders' Equity:
Preferred Stock, par value $0.01; Authorized: 1,000,000 shares; Issued and outstanding: 0 shares; and 0 shares, respectively		—			—
Common Stock, par value $0.01; Authorized: 30,000,000 shares; Issued and outstanding: 9,175,247 shares; and 0 shares, respectively		92			—
Additional paid-in capital		89,158			—
Retained earnings		79,100			77,356
Accumulated other comprehensive loss		(100	)		(83	)
Unallocated common shares held by the Employee Stock Ownership Plan		(7,188	)		—
Total shareholders' equity		161,062			77,273
Total liabilities and shareholders' equity	$	873,577		$	666,489

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (unaudited)

Three and Nine Months Ended September 30, 2022 and 2021

(in thousands except share data)


	Three months ended					Nine months ended
	September 30,					September 30,
	2022			2021		2022		2021
Interest and dividend income:
Interest and fees on loans	$	7,147		$	5,221	$	18,088	$	15,703
Interest and dividends on securities		360			243		1,022		739
Other interest income		251			14		355		32
Total interest and dividend income		7,758			5,478		19,465		16,474
Interest expense:
Interest on deposits		1,025			840		2,332		2,799
Interest on Federal Home Loan Bank advances		197			30		310		105
Total interest expense		1,222			870		2,642		2,904
Net interest and dividend income		6,536			4,608		16,823		13,570
Provision for loan losses		925			90		1,800		270
Net interest and dividend income after provision for loan losses		5,611			4,518		15,023		13,300
Noninterest income:
Customer service fees		114			100		326		292
Income from bank-owned life insurance		90			113		731		252
Net gain on sales of loans		16			138		84		346
Other income		8			7		28		22
Total noninterest income		228			358		1,169		912
Noninterest expense:
Salaries and employee benefits		2,682			2,017		6,967		5,469
Director compensation		106			99		321		284
Occupancy and equipment expense		193			162		571		559
Data processing		196			184		546		527
Computer software and licensing fees		80			83		181		233
Advertising and promotions		236			139		511		473
Professional fees		176			110		535		299
Federal Deposit Insurance Corporation assessment		54			39		163		117
Charitable contributions		3,214			7		3,249		40
Other expense		363			224		1,010		705
Total noninterest expense		7,300			3,064		14,054		8,706
(Loss) income before income tax (benefit) expense		(1,461	)		1,812		2,138		5,506
Income tax (benefit) expense		(426	)		472		394		1,459
Net (loss) income	$	(1,035	)	$	1,340	$	1,744	$	4,047
Share data:
Weighted average shares outstanding, basic		8,445,615			-		8,445,615		-
Weighted average shares outstanding, diluted		8,445,615			-		8,445,615		-
Basic (loss) earnings per share	$	(0.12	)	$	-	$	0.21	$	-
Diluted (loss) earnings per share	$	(0.12	)	$	-	$	0.21	$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (unaudited)

Three and Nine Months Ended September 30, 2022 and 2021

(in thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021

Net (loss) income	$	(1,035	)	$	1,340		$	1,744		$	4,047
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on securities available-for-sale		2			(3	)		(17	)		(3	)

Other comprehensive income (loss), net of tax		2			(3	)		(17	)		(3	)

Comprehensive (loss) income	$	(1,033	)	$	1,337		$	1,727		$	4,044

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Statements of Changes in Shareholders' Equity (unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(in thousands except share data)


	Three months ended
	Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Unallocated Common Stock Held by ESOP			Total
Balance at June 30, 2021		-	$	-	$	-	$	76,021		$	(280	)	$	-		$	75,741
Net Income		-		-		-		1,340			-			-			1,340
Other comprehensive loss, net of tax		-		-		-		-			(3	)		-			(3	)
Balance at September 30, 2021		-	$	-	$	-	$	77,361		$	(283	)	$	-		$	77,078

Balance at June 30, 2022		-	$	-	$	-	$	80,135		$	(102	)	$	-		$	80,033
Net loss		-		-		-		(1,035	)		-			-			(1,035	)
Other comprehensive income, net of tax		-		-		-		-			2			-			2
Proceeds of stock offering and issuance of common shares (net of costs of $2.6 million )		8,181,227		82		79,165		-			-			-			79,247
Issuance of common shares donated to the Everett Co-operative Bank Charitable Foundation		260,000		3		2,597		-			-			-			2,600
Purchase of common shares by the ESOP (734,020 shares)		734,020		7		7,333		-			-			(7,340	)		-
ESOP shares committed to be released (15,195 shares)		-		-		63		-			-			152			215
Balance at September 30, 2022		9,175,247	$	92	$	89,158	$	79,100		$	(100	)	$	(7,188	)	$	161,062

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Statements of Changes in Shareholders' Equity (unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021 (continued)

(in thousands except share data)


	Nine months ended
	Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Unallocated Common Stock Held by ESOP			Total
Balance at December 31, 2020		-	$	-	$	-	$	73,314	$	(280	)	$	-		$	73,034
Net income		-		-		-		4,047		-			-			4,047
Other comprehensive loss, net of tax		-		-		-		-		(3	)		-			(3	)
Balance at September 30, 2021		-	$	-	$	-	$	77,361	$	(283	)	$	-		$	77,078

Balance at December 31, 2021		-	$	-	$	-	$	77,356	$	(83	)	$	-		$	77,273
Net income		-		-		-		1,744		-			-			1,744
Other comprehensive loss, net of tax		-		-		-		-		(17	)		-			(17	)
Proceeds of stock offering and issuance of common shares (net of costs of $2.6 million )		8,181,227		82		79,165		-		-			-			79,247
Issuance of common shares donated to the Everett Co-operative Bank Charitable Foundation		260,000		3		2,597		-		-			-			2,600
Purchase of common shares by the ESOP (734,020 shares)		734,020		7		7,333		-		-			(7,340	)		-
ESOP shares committed to be released (15,195 shares)				-		63		-		-			152			215
Balance at September 30, 2022		9,175,247	$	92	$	89,158	$	79,100	$	(100	)	$	(7,188	)	$	161,062

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2022 and 2021

(in thousands)


	Nine Months Ended
	September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	1,744		$	4,047
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net		153			261
Provision for loan losses		1,800			270
Change in deferred loan costs/fees		(169	)		259
Gain on sales of loans, net		(84	)		(346	)
Proceeds from sales of loans		5,824			18,522
Loans originated for sale, net		(4,439	)		(18,511	)
Depreciation and amortization expense		223			226
(Increase) decrease in accrued interest receivable		(556	)		341
Increase in bank-owned life insurance		(301	)		(251	)
Gain from life insurance policy death benefit		(430	)		—
Deferred income tax benefit		(1,045	)		—
Issuance of common shares donated to the Everett Co-operative Bank Charitable Foundation		2,600			—
ESOP expense		215			—
Increase in other assets		(1,624	)		(52	)
Increase in accrued interest payable		247			2
Increase in other liabilities		582			138
Net cash provided by operating activities		4,740			4,906

Cash flows from investing activities:
Purchases of held-to-maturity securities		(11,704	)		(20,111	)
Proceeds from paydowns and maturities of held-to-maturity securities		7,150			10,789
Premiums paid on bank-owned life insurance		—			(5,000	)
Proceeds from life insurance policy death benefit		896			—
Purchase of interest-bearing time deposits		(300	)		—
Purchase of Federal Home Loan Bank Stock		(3,084	)		—
Redemption of Federal Home Loan Bank Stock		1,819			331
Loan originations and principal collections, net		(212,760	)		(25,370	)
Purchase of loans		(7,059	)		—
Recoveries of loans previously charged off		1			—
Capital expenditures		(177	)		(104	)
Net cash used in investing activities		(225,218	)		(39,465	)

Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts		13,468			58,356
Net increase in time deposits		67,527			2,852
Proceeds from long-term Federal Home Loan Bank advances		20,000			4,000
Repayments of long-term Federal Home Loan Bank advances		—			(13,000	)
Net change in short-term Federal Home Loan Bank Advances		21,475			—
Net proceeds from issuance of common stock		79,247			—
Net cash provided by financing activities		201,717			52,208

Net (decrease) increase in cash and cash equivalents		(18,761	)		17,649
Cash and cash equivalents at beginning of year		52,975			43,411
Cash and cash equivalents at end of period	$	34,214		$	61,060


Supplemental disclosures:
Interest paid	$	2,395		$	2,901
Income taxes paid		1,595			1,947

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ECB Bancorp, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 - CONVERSION

On March 9, 2022, the Board of Directors of Everett Co-operative Bank ("the Bank") adopted a Plan of Conversion under which the Bank would convert from a Massachusetts mutual co-operative bank into a Massachusetts stock co-operative bank and become the wholly owned subsidiary of a newly chartered stock holding company, ECB Bancorp, Inc. (the “Holding Company”). The Plan of Conversion received all of the approvals of various regulatory agencies and the Plan of Conversion was approved by the required vote of more than two-thirds of the Bank’s depositors present and voting at a special meeting of depositors held on May 5, 2022. The Bank’s mutual to stock conversion and the Company’s stock offering were consummated on July 27, 2022. In the offering, the Company sold 8,915,247 shares of common stock at a per share price of $10.00 for gross offering proceeds of $89.2 million. Additionally, the Company contributed 260,000 shares to the Everett Co-operative Bank Charitable Foundation (the “Foundation”).

The offering costs of issuing the capital stock were deferred and deducted from the proceeds of the offering. At September 30, 2022 (unaudited) and December 31, 2021, the Bank had incurred approximately $2,567,000 and $76,000, respectively, in offering costs.

The Bank has established a Liquidation Account in an amount equal to the net worth of the Bank as of the date of the latest consolidated statement of financial condition contained in the final prospectus distributed in connection with the conversion. The function of the Liquidation Account is to establish a priority on liquidation of the Bank. The Liquidation Account will be maintained by the Bank for the benefit of the eligible account holders who continue to maintain deposit accounts with the Bank following the conversion. Each eligible account holder shall, with respect to each deposit account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to each deposit account balance at the eligibility record date, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance shall not be increased, and shall be subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any eligible account holder in accordance with the regulations of the Division of Banks of the Commonwealth of Massachusetts.

In the unlikely event of a complete liquidation of the Bank (and only in such event), following all liquidation payments to creditors (including those to depositors to the extent of their deposit accounts) each eligible account holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then-adjusted subaccount balances for his or her deposit accounts then held, before any liquidating distribution may be made to any holder of the Bank’s capital stock.

The Bank may not declare or pay a cash dividend on its outstanding capital stock if the effect thereof would cause its regulatory capital to be reduced below the amount required to maintain the Liquidation Account and under FDIC rules and regulations.

NOTE 2 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of ECB Bancorp, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements of ECB Bancorp, Inc. (referred to herein as "the Company," “we,” “us,” or “our”) include the balances and results of operations of ECB Bancorp, Inc. and Everett Co-operative Bank ("the Bank") its wholly-owned subsidiary as well as First Everett Securities Corporation, a wholly-owned subsidiary of the Bank. Intercompany transactions and balances are eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 2022 and December 31, 2021 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 and accompanying notes thereto included in the Company’s Prospectus filed with the Securities and Exchange Commission on May 20, 2022 under Securities Act 424(b)(3), and as supplemented on June 21, 2022.

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

New Significant Accounting Policies

Earnings Per Share

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation. ESOP shares that have not been legally released, but that relate to employee services rendered during an accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released. Diluted earnings per share is determined using the treasury stock method and reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

Employee Stock Ownership Plan ("ESOP")

ESOP shares are shown as a reduction of equity and are presented in the consolidated statements of changes in shareholders’ equity as unallocated common stock held by ESOP. Compensation expense for the Company’s ESOP is recorded at an amount equal to the shares committed to be allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the period based upon the Company’s estimate of the number of shares committed to be allocated by the ESOP. When the shares are released, unallocated common stock held by ESOP is reduced by the cost of the ESOP shares released and the difference between the average fair market value and the cost of the shares committed to be allocated by the ESOP is recorded as an adjustment to additional paid-in capital. The loan receivable from the ESOP is not reported as an asset nor is the Company’s guarantee to fund the ESOP reported as a liability on the Company’s consolidated balance sheet.

NOTE 3 – RECENT ACCOUNTING STANDARDS UPDATES

The Company qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 and has elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates. As such, the Company will adopt standards on the nonpublic company effective dates until such time that we no longer qualify as an EGC.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of a reporting entity’s portfolio. Additionally, this ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company intends to adopt this ASU effective January 1, 2023. An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). To date, the Company has been assessing the key differences and gaps between its current allowance methodology with those it is considering to use upon adoption. This has included assessing the adequacy of existing data and selecting a vendor for a loss model. The Company is in process of finalizing its model and executing parallel runs.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits-Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that no longer are considered beneficial, clarify the specific requirements of disclosures, and add disclosures identified as relevant.

Although narrow in scope, the amendments are considered an important part of FASB’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the Concepts Statement. The amendment became effective on December 31, 2021 for the Company. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. Update No. 2022-02 applies to public entities that have adopted ASU Topic 326. The amendments in this update eliminate the existing accounting guidance for troubled debt restructures ("TDRs") by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors and instead requires that an entity evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loans refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 also requires additional disclosure of current period gross write-offs by year of origination for financing receivables to be included in the entity's vintage disclosure, as currently required under Topic 326. All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on the Company's consolidated financial statements.

NOTE 4 – INVESTMENTS IN SECURITIES

Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost basis of securities and their approximate fair values are as follows at the dates indicated:


	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized			Fair
Held-to-maturity:	Basis		Gains		Losses			Value
			(In Thousands)
September 30, 2022
Debt securities issued by U.S. government-sponsored enterprises	$	10,472	$	—	$	(621	)	$	9,851
Mortgage-backed securities		44,978		2		(6,748	)	$	38,232
Corporate bonds		11,621		—		(1,156	)	$	10,465
U.S. Treasury securities		2,903		—		(94	)	$	2,809
Total held-to-maturity securities	$	69,974	$	2	$	(8,619	)	$	61,357

December 31, 2021
Debt securities issued by U.S. government-sponsored enterprises	$	10,107	$	75	$	(142	)	$	10,040
Mortgage-backed securities		44,818		311		(492	)		44,637
Corporate bonds		10,646		233		—			10,879
Total held-to-maturity securities	$	65,571	$	619	$	(634	)	$	65,556


	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized			Fair
Available-for-sale	Basis		Gains		Losses			Value
			(In Thousands)
September 30, 2022
Debt securities
Corporate bonds	$	4,989	$	2	$	(6	)	$	4,985
Total available-for-sale securities	$	4,989	$	2	$	(6	)	$	4,985

December 31, 2021
Debt securities
Corporate bonds	$	4,990	$	20	$	—		$	5,010
Total available-for-sale securities	$	4,990	$	20	$	—		$	5,010

The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of September 30, 2022 is presented below:


	Available-
	for-sale		Held-to-maturity
	Fair		Amortized		Fair
	Value		Cost Basis		Value
	(In Thousands)
Within 1 year	$	—	$	3,051	$	3,028
After 1 year through 5 years		4,985		20,002		18,435
After 5 years through 10 years		—		5,109		4,613
After 10 years		—		41,812		35,281
Total	$	4,985	$	69,974	$	61,357

There were no sales of securities during the three and nine months ended September 30, 2022 and 2021.

The carrying value of securities pledged to secure advances from the Federal Home Loan Bank of Boston (“FHLBB”) were $22.8 million and $0 as of September 30, 2022 and December 31, 2021, respectively.

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and are not other-than-temporarily impaired, are as follows as of September 30, 2022 and December 31, 2021 :


	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
						(In Thousands)
September 30, 2022
Held to Maturity:
Debt securities issued by U.S. government-sponsored enterprises	$	4,851	$	(38	)	$	5,000	$	(583	)	$	9,851	$	(621	)
Mortgage-backed securities		19,682		(2,781	)		18,362		(3,967	)		38,044		(6,748	)
Corporate bonds		10,465		(1,156	)		-		-			10,465		(1,156	)
U.S. Treasury securities		2,809		(94	)		-		-			2,809		(94	)
Total temporarily impaired securities	$	37,807	$	(4,069	)	$	23,362	$	(4,550	)	$	61,169	$	(8,619	)

Available-for-sale:
Corporate bonds	$	2,495	$	(6	)	$	-	$	-		$	2,495	$	(6	)
Total temporarily impaired securities	$	2,495	$	(6	)	$	-	$	-		$	2,495	$	(6	)

December 31, 2021
Held to Maturity:
Debt securities issued by U.S. government-sponsored enterprises	$	2,919	$	(73	)	$	2,520	$	(69	)	$	5,439	$	(142	)
Mortgage-backed securities		28,643		(376	)		4,259		(116	)		32,902		(492	)
Total temporarily impaired securities	$	31,562	$	(449	)	$	6,779	$	(185	)	$	38,341	$	(634	)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

At September 30, 2022, five debt securities issued by a U.S. government-sponsored enterprise, fifty mortgage backed securities, eight corporate bonds and one U.S. treasury security had unrealized losses with aggregate depreciation of 5.9%, 15.1%, 8.2% and 3.2%, respectively, from the Company’s amortized cost basis. These unrealized losses relate to changes in market interest rates since acquiring the securities. As management has the intent and ability to hold debt securities until maturity or cost recovery, no declines are deemed to be other-than-temporary.

NOTE 5 – LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

Loans consisted of the following as of the dates indicated:


	At September 30,						At December 31,
	2022						2021
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	324,621			43.8	%	$	259,673			49.8	%
Multi-family		157,415			21.2	%		59,517			11.4	%
Commercial		136,319			18.4	%		99,953			19.2	%
Home equity lines of credit and loans		29,126			3.9	%		26,050			5.0	%
Construction		89,607			12.1	%		70,668			13.5	%
Other loans
Commercial loans		4,283			0.6	%		5,439			1.0	%
Consumer		248			0.0	%		500			0.1	%
		741,619						521,800
Less:
Net deferred loan fees		(264	)					(433	)
Allowance for loan losses		(6,037	)					(4,236	)
Total loans, net	$	735,318					$	517,131

Certain directors and executive officers of the Company and companies in which they have a significant ownership interest are also customers of the Bank. Total outstanding loan balances to such persons and their companies amounted to $973,000 and

$1,257,000 as of September 30, 2022 and December 31, 2021, respectively. The following table sets forth the activity for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)

Beginning Balance	$	1,223		$	904		$	1,257		$	1,268
New Loans		—			—			—			450
Advances		75			9			375			17
Paydowns		(325	)		(39	)		(659	)		(861	)
Ending Balance	$	973		$	874		$	973		$	874

The carrying value of loans pledged to secure advances from the FHLBB were $220.1 million and $176.2 million as of September 30, 2022 and December 31, 2021, respectively.

The following tables set forth information regarding the allowance for loan losses as of and for the three and nine months ended September 30, 2022 and 2021:


	For the three months ended September 30, 2022										As of September 30, 2022
	(in thousands)										(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance		Allowance for loans individually evaluated for impairment		Allowance for loans collectively evaluated for impairment		Total allowance for loan losses		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total loans
Real estate loans:
One- to four-family residential	$	1,469	$	-	$	-	$	183	$	1,652	$	-	$	1,652	$	1,652	$	699	$	323,922	$	324,621
Multi-family		779		-		-		386		1,165		-		1,165		1,165		-		157,415		157,415
Commercial		1,353		-		-		201		1,554		-		1,554		1,554		-		136,319		136,319
Home equity lines of credit and loans		193		-		1		10		204		-		204		204		-		29,126		29,126
Construction		950		-		-		131		1,081		-		1,081		1,081		-		89,607		89,607
Other loans:														-
Commercial loans		46		-		-		14		60		-		60		60		-		4,283		4,283
Consumer		1		-		-		-		1		-		1		1		-		248		248
Unallocated		320		-		-		-		320		-		320		320		-		-		-
Total	$	5,111	$	-	$	1	$	925	$	6,037	$	-	$	6,037	$	6,037	$	699	$	740,920	$	741,619


	For the three months ended September 30, 2021											As of September 30, 2021
	(in thousands)											(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance		Allowance for loans individually evaluated for impairment		Allowance for loans collectively evaluated for impairment		Total allowance for loan losses		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total loans
Real estate loans:
One- to four-family residential	$	1,182	$	-	$	-	$	37		$	1,219	$	-	$	1,219	$	1,219	$	1,551	$	248,108	$	249,659
Multi-family		370		-		-		20			390		-		390		390		-		56,461		56,461
Commercial		981		-		-		(6	)		975		-		975		975		-		88,605		88,605
Home equity lines of credit and loans		177		-		-		10			187		-		187		187		99		26,285		26,384
Construction		780		-		-		385			1,165		-		1,165		1,165		-		68,661		68,661
Other loans:
Commercial loans		87		-		-		(20	)		67		-		67		67		-		6,447		6,447
Consumer		1		-		-		-			1		-		1		1		-		416		416
Unallocated		478		-		-		(336	)		142		-		142		142		-		-		-
Total	$	4,056	$	-	$	-	$	90		$	4,146	$	-	$	4,146	$	4,146	$	1,650	$	494,983	$	496,633


	For the nine months ended September 30, 2022											As of September 30, 2022
	(in thousands)											(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance		Allowance for loans individually evaluated for impairment		Allowance for loans collectively evaluated for impairment		Total allowance for loan losses		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total loans
Real estate loans:
One- to four-family residential	$	1,271	$	-	$	-	$	381		$	1,652	$	-	$	1,652	$	1,652	$	699	$	323,922	$	324,621
Multi-family		417		-		-		748			1,165		-		1,165		1,165		-		157,415		157,415
Commercial		1,099		-		-		455			1,554		-		1,554		1,554		-		136,319		136,319
Home equity lines of credit and loans		185		-		1		18			204		-		204		204		-		29,126		29,126
Construction		855		-		-		226			1,081		-		1,081		1,081		-		89,607		89,607
Other loans:											-
Commercial loans		60		-		-		-			60		-		60		60		-		4,283		4,283
Consumer		2		-		-		(1	)		1		-		1		1		-		248		248
Unallocated		347		-		-		(27	)		320		-		320		320		-		-		-
Total	$	4,236	$	-	$	1	$	1,800		$	6,037	$	-	$	6,037	$	6,037	$	699	$	740,920	$	741,619


	For the nine months ended September 30, 2021											As of September 30, 2021
	(in thousands)											(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance		Allowance for loans individually evaluated for impairment		Allowance for loans collectively evaluated for impairment		Total allowance for loan losses		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total loans
Real estate loans:
One- to four-family residential	$	1,167	$	-	$	-	$	52		$	1,219	$	-	$	1,219	$	1,219	$	1,551	$	248,108	$	249,659
Multi-family		266		-		-		124			390		-		390		390		-		56,461		56,461
Commercial		1,175		-		-		(200	)		975		-		975		975		-		88,605		88,605
Home equity lines of credit and loans		208		-		-		(21	)		187		-		187		187		99		26,285		26,384
Construction		802		-		-		363			1,165		-		1,165		1,165		-		68,661		68,661
Other loans:											-
Commercial loans		103		-		-		(36	)		67		-		67		67		-		6,447		6,447
Consumer		4		-		-		(3	)		1		-		1		1		-		416		416
Unallocated		151		-		-		(9	)		142		-		142		142		-		-		-
Total	$	3,876	$	-	$	-	$	270		$	4,146	$	-	$	4,146	$	4,146	$	1,650	$	494,983	$	496,633

The following tables set forth information regarding nonaccrual loans and past-due loans as of the dates indicated:


	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more and accruing		Loans on Non-accrual
	(in Thousands)
As of September 30, 2022
Real estate loans:
Residential	$	—	$	539	$	115	$	654	$	323,967	$	324,621	$	—	$	699
Multi-family		—		—		—		—		157,415		157,415		—		—
Commercial		—		—		—		—		136,319		136,319		—		—
Home equity lines of credit and loans		—		—		—		—		29,126		29,126		—		—
Construction		—		—		—		—		89,607		89,607		—		—

Other loans:
Commercial		3		—		—		3		4,280		4,283		—		—
Consumer		—		1		—		1		247		248		—		—
	$	3	$	540	$	115	$	658	$	740,961	$	741,619	$	—	$	699


	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more and accruing		Loans on Non-accrual
	(in Thousands)
As of December 31, 2021
Real estate loans:
Residential	$	—	$	88	$	817	$	905	$	258,768	$	259,673	$	—	$	883
Multi-family		—		—		—		—		59,517		59,517		—		—
Commercial		—		—		—		—		99,953		99,953		—		—
Home equity lines of credit and loans		99		—		—		99		25,951		26,050		—		99
Construction		—		—		—		—		70,668		70,668		—		—

Other loans:
Commercial		—		—		—		—		5,439		5,439		—		—
Consumer		1		—		—		1		499		500		—		—
	$	100	$	88	$	817	$	1,005	$	520,795	$	521,800	$	—	$	982

Information about loans that meet the definition of an impaired loan in Accounting Standards Codification (ASC) 310-10-35 is as follows as of and for the three and nine months ended September 30, 2022 and 2021:


	As of September 30, 2022						Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in Thousands)

September 30, 2022
With no related allowance recorded:
Real estate loans:
Residential	$	699	$	699	$	—	$	701	$	29	$	694	$	41
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Home equity lines of credit and loans		—		—		—		—		—		33		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired with no related allowance		699		699		—		701		29		727		42
With an allowance recorded:
Real estate loans:
Residential		—		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—		—
Home equity lines of credit and loans		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired with a related allowance		—		—		—		—		—		—		—
Total
Real estate loans:
Residential		699		699		—		701		29		694		41
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Home equity lines of credit and loans		—		—		—		—		—		33		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired loans	$	699	$	699	$	—	$	701	$	29	$	727	$	42


	As of September 30, 2021						Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in Thousands)

September 30, 2021
With no related allowance recorded:
Real estate loans:
Residential	$	1,551	$	1,551	$	—	$	1,499	$	12	$	1,346	$	40
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		509		10		684		24
Home equity lines of credit and loans		99		99		—		99		1		99		2
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		2		—
Total impaired with no related allowance		1,650		1,650		—		2,107		23		2,131		66
With an allowance recorded:
Real estate loans:
Residential		—		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—		—
Home equity lines of credit and loans
Commercial		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired with a related allowance		—		—		—		—		—		—		—
Total
Real estate loans:
Residential		1,551		1,551		—		1,499		12		1,346		40
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		509		10		684		24
Home equity lines of credit and loans		99		99		—		99		1		99		2
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		2		—
Total impaired loans	$	1,650	$	1,650	$	—	$	2,107	$	23	$	2,131	$	66

The Bank classifies loan modifications as TDRs when a borrower is experiencing financial difficulties and it has granted a concession to the borrower. All TDRs, regardless of size, are evaluated for impairment individually to determine the probable loss content and are assigned a specific loan allowance, if deemed appropriate, in the determination of the allowance for loan losses. The financial effects of TDRs are reflected in the components that comprise the allowance for loan losses in either the amount of charge-offs or loan loss provision and ultimate allowance level.

During the three and nine months ended September 30, 2022 and 2021, there were no loans that were modified in a troubled debt restructuring.

During the three and nine months ended September 30, 2022 and 2021, there were no loans modified as TDR loans that subsequently defaulted within one year of the modification.

As of September 30, 2022 and December 31, 2021, there were no commitments to lend additional funds to borrowers whose loans were modified as troubled debt restructurings.

The following tables present the Bank’s loans by risk rating as of the dates indicated:


	Real Estate
							Home Equity
	Residential		Multi-family		Commercial		Lines of Credit and Loans		Construction		Commercial		Consumer		Total
	(In Thousands)
As of September 30, 2022
Grade
Pass	$	59,471	$	157,415	$	136,319	$	5,248	$	86,673	$	4,183	$	—	$	449,309
Special mention		913		—		—		—		—		100		—		1,013
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Loans not formally rated		264,237		—		—		23,878		2,934		—		248		291,297
	$	324,621	$	157,415	$	136,319	$	29,126	$	89,607	$	4,283	$	248	$	741,619


	Real Estate
							Home Equity
	Residential		Multi-family		Commercial		Lines of Credit and Loans		Construction		Commercial		Consumer		Total
	(In Thousands)
As of December 31, 2021
Grade
Pass	$	34,613	$	59,517	$	99,953	$	624	$	64,623	$	5,339	$	—	$	264,669
Special mention		970		—		—		99		394		100		—		1,563
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Loans not formally rated		224,090		—		—		25,327		5,651		—		500		255,568
	$	259,673	$	59,517	$	99,953	$	26,050	$	70,668	$	5,439	$	500	$	521,800

Credit Quality Information

The Company utilizes a seven grade internal loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit as follows:

Loans rated 1 – 3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $500,000 or more, and all other commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $750,000 or more. For all other loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

There were no consumer mortgage loans secured by residential real estate in the process of foreclosure as of September 30, 2022. There was one consumer mortgage loan in the amount of $243,000 that was secured by residential real estate in the process of foreclosure as of December 31, 2021.

NOTE 6 – EMPLOYEE BENEFITS

Pension Plans

Defined Benefit Plan

The Company provided pension benefits for its employees through membership in the Defined Benefit Plan of the Co-operative Banks Employees Retirement Association (CBERA) (the Plan). The Plan is a multi-employer plan whereby the contributions by each bank are not restricted to provide benefits to the employees of the contributing bank. Each employee reaching the age of 21 and having completed at least one year of service automatically became eligible to participate in the Plan. Participants became vested after completion of six years of eligible service.

At the December 15, 2021 Board of Directors meeting, the Directors voted to freeze benefit accruals and withdraw from the CBERA Plan as of April 30, 2022. The Company recorded a liability as of December 31, 2021 and a related expense, each in the amount of $2,001,000, related to this withdrawal.

For the three and nine months ended September 30, 2022 a benefit of $0 and $582,000, respectively, was recorded to reflect a reduction in the liability related to the pending withdrawal from the defined benefit plan. The reduction was primarily driven by increases in interest rates since December 31, 2021, which caused defined benefit plan discount rates to rise. In May of 2022, the final withdrawal liability was determined to be $1,419,000. The Company paid the final amount and has withdrawn from the plan. The liability as of September 30, 2022 was $0.

401(k) Plan

In addition to the defined benefit plan, the Company has adopted a savings plan which qualifies under Section 401(k) of the Internal Revenue Code and provides for voluntary contributions by participating employees ranging from 1% to 75% of their compensation, subject to certain limitations based on federal tax laws. The Company makes matching contributions equal to 100% of each employee’s voluntary contributions, up to 7% of the employee’s compensation, as defined.

Total expense related to the 401(k) plan for the three and nine months ended September 30, 2022 amounted to $100,000 and $280,000, respectively. Total expense related to the 401(k) plan for the three and nine months ended September 30, 2021 amounted to $72,000 and $199,000, respectively.

Employee Incentive Plan

The Company provides an employee incentive plan which is approved annually by the Board of Directors, based on various factors. The employee incentive plan expense for the three and nine months ended September 30, 2022 amounted to $355,000 and $918,000, respectively. The employee incentive plan expense for the three and nine months ended September 30, 2021 amounted to $171,000 and $446,000, respectively.

Supplemental Executive Retirement Plan (SERP)

The Company formed a SERP for certain executive officers. This plan provides nonfunded retirement benefits designed to supplement benefits available through the Bank’s retirement plan for employees.

The expense for the three and nine months ended September 30, 2022 amounted to $25,000 and $76,000, respectively. The expense for the three and nine months ended September 30, 2021 amounted to $33,000 and $97,000, respectively.

Director Fee Continuation Plan (DFCP)

Effective January 1, 2017, the Company established a Director Fee Continuation Plan which provides supplemental retirement benefits for directors. Under the DFCP, individuals who are directors as of the effective date of the DFCP are 100% vested in their benefits. Individuals who become directors after the effective date shall be fully vested in their accounts after having served on the Board of Directors for twelve years. The expense for the three and nine months ended September 30, 2022 amounted to $32,000 and $96,000, respectively. The expense for the three and nine months ended September 30, 2021 amounted to $36,000 and $92,000, respectively.

Supplemental Executive Retirement Agreement

On January 1, 2018, the Company entered into a supplemental executive retirement agreement with a named executive officer whereby the Company is obligated to provide post-retirement salary continuation benefits equal to 60% of the executive officer’s final average compensation, as defined. Benefits are 100% vested, commence upon retirement, and are payable based on a ten-year certain and life annuity. The liability for the Plan amounted to $2,894,000 and $2,332,000 as of September 30, 2022 and December 31, 2021, respectively. The expense recognized for the Plan for the three and nine months ended September 30, 2022 amounted to $187,000 and $561,000, respectively. The expense recognized for the Plan for the three and nine months ended September 30, 2021 amounted to $222,000 and $648,000, respectively.

Survivor Benefit Plan

On September 18, 2017, the Company entered into a Survivor Benefit Plan Participation Agreement with an employee whereby the Company is obligated to provide two years of recognized compensation, as defined, to the beneficiary if the participant dies while employed by the Company. During the three months ended June 30, 2022 the participant died. The expense recognized for the three and nine months ended September 30, 2022 was $0 and $166,000, respectively. There was no expense recognized during 2021.

Employee Stock Ownership Plan

As part of the Initial Public Offering ("IPO") completed on July 27, 2022, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $7.3 million from the Company to purchase 734,020 common shares during the IPO. The loan is payable in annual installments over 20 years at an interest rate of 4.75%. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan.

The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation. Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to shareholders' equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated balance sheets.

Total compensation expense recognized in connection with the ESOP was $215,000 for both the three and nine months ended September 30, 2022. There was no expense recognized in 2021 related to the ESOP. The following table presents share information held by the ESOP:


	As of September 30, 2022
	(Dollars in thousands)

Allocated shares		-
Shares committed to be released		15,195
Unallocated shares		718,825
Total shares		734,020
Fair value of unallocated shares	$	10,344

NOTE 7 - FAIR VALUE MEASUREMENTS

ASC 820-10, Fair Value Measurement – Overall, provides a framework for measuring fair value under U.S. GAAP. This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for September 30, 2022 and December 31, 2021.

The Company’s investment in debt instruments available for sale is generally classified within Level 2 of the fair value hierarchy. For those securities, the Bank obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that considers standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using appraisals obtained from a third party, and are adjusted for selling costs. These appraised values may be discounted based on management’s historical knowledge, expertise, or changes in the market conditions from time of valuation. For Level 3 inputs, fair values are based upon management’s estimates of the value of the underlying collateral or the present value of the expected cash flows.

As of September 30, 2022 and December 31, 2021, the following summarizes assets measured at fair value on a recurring basis:


	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices		Significant		Significant
			in Active		Other		Unobservable
			Markets for		Observable		Inputs
			Identical Assets		Inputs		Level 3
			Level 1		Level 2

			(In Thousands)
September 30, 2022
Corporate bonds	$	4,985	$	—	$	4,985	$	—
							$	—
Total available for-sale-securities	$	4,985	$	—	$	4,985	$	—

December 31, 2021
Corporate bonds	$	5,010	$	—	$	5,010	$	—

Total available for-sale-securities	$	5,010	$	—	$	5,010	$	—

Under certain circumstances, the Company makes adjustments to its assets and liabilities although they are not measured at fair value on an ongoing basis.

As of September 30, 2022 and December 31, 2021, the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded.

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. For September 30, 2022 and December 31, 2021, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.


	September 30, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(In Thousands)
Financial assets:
Cash and cash equivalents	$	34,214	$	34,214	$	34,214	$	-	$	-
Interest bearing time deposits		300		300		-		300		-
Held-to-maturity securities		69,974		61,357		-		61,357		-
Federal Home Loan Bank stock		2,352		2,352		-		2,352		-
Loans, net		735,318		706,930		-		-		706,930
Accrued interest receivable		2,037		2,037		2,037		-		-
Bank-owned life insurance		13,970		13,970		-		13,970		-

Financial liabilities:
Deposits, other than certificates of deposit	$	358,402	$	358,402	$	-	$	358,402	$	-
Certificates of deposit		294,347		284,886		-		284,886		-
Federal Home Loan Bank advances		50,475		49,734		-		49,734		-
Accrued interest payable		296		296		296		-		-


	December 31, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(In Thousands)
Financial assets:
Cash and cash equivalents	$	52,975	$	52,975	$	52,975	$	-	$	-
Held-to-maturity securities		65,571		65,556		-		65,556		-
Federal Home Loan Bank stock		1,087		1,087		-		1,087		-
Loans, net		517,131		517,167		-		-		517,167
Loans held for sale		1,301		1,322		-		1,322		-
Accrued interest receivable		1,481		1,481		1,481		-		-
Bank-owned life insurance		14,135		14,135		-		14,135		-

Financial liabilities:
Deposits, other than certificates of deposit	$	344,934	$	344,934	$	-	$	344,934	$	-
Certificates of deposit		226,820		227,265		-		227,265		-
Federal Home Loan Bank advances		9,000		8,969		-		8,969		-
Accrued interest payable		49		49		49		-		-

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but usually includes income producing commercial properties or residential real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of September 30, 2022 and December 31, 2021, the maximum potential amount of the Company’s obligation was $13,000 and $13,000, respectively, for standby letters of credit. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Amounts of financial instrument liabilities whose contract amounts represent off-balance sheet credit risk are as follows as of September 30, 2022:


	September 30, 2022		December 31, 2021
	(In Thousands)
Commitments to originate loans	$	48,962	$	24,658
Commitments to purchase loans		1,913		-
Unadvanced funds on lines of credit		60,149		45,548
Unadvanced funds on construction loans		66,871		37,352
Letters of credit		13		13
	$	177,908	$	107,571

The Bank accrues for credit losses related to off-balance sheet financial instruments. Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for loan losses. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $355,000 and $235,000 as of September 30, 2022 and December 31, 2021, respectively.

NOTE 9 – OTHER COMPREHENSIVE (LOSS) INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income (loss) and related tax effects are as follows for the three and nine months ended September 30 2022 and 2021:


	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
	(In thousands)						(In thousands)

Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) on available-for-sale securities	$	3		$	(4	)	$	(24	)	$	(4	)
Reclassification adjustment for realized gains in net income		—			—			—			—
		3			(4	)		(24	)		(4	)
Income tax (expense) benefit		(1	)		1			7			1
Net-of-tax amount		2			(3	)		(17	)		(3	)
Other comprehensive income (loss), net of tax	$	2		$	(3	)	$	(17	)	$	(3	)

Accumulated other comprehensive loss as of September 30, 2022 and December 31, 2021 consists of unrecognized benefit costs, net of taxes, and unrealized holding (losses) gains on securities available for sale, net of tax, as follows:


	As of September 30, 2022			As of December 31, 2021
	(In thousands)
Net unrealized holding (losses) gains on securities available-for-sale, net of tax	$	(3	)	$	14
Unrecognized SERP costs, net of tax		(53	)		(53	)
Unrecognized director fee continuation plan costs, net of tax		(44	)		(44	)

Accumulated other comprehensive loss	$	(100	)	$	(83	)

NOTE 10 – REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Management believes, as of September 30, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2022, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company's and Bank’s actual capital amounts and ratios are presented in the table as of the dates indicated:


				Minimum For Capital			Minimum To Be Well
				Adequacy Purposes			Capitalized Under
				Plus Capital			Prompt Corrective
	Actual			Conservation Buffer			Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio

As of September 30, 2022
ECB Bancorp, Inc.
Total Capital (to Risk Weighted Assets)	$	167,462	24.05%	$	73,119	10.50%	N/A		N/A
Tier 1 Capital (to Risk Weighted Assets)		161,070	23.13%		59,192	8.50%	N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		161,070	23.13%		48,746	7.00%	N/A		N/A
Tier 1 Capital (to Average Assets)		161,070	19.50%		33,038	4.00%	N/A		N/A
Everett Co-operative Bank
Total Capital (to Risk Weighted Assets)	$	135,598	19.42%	$	73,299	10.50%	$	69,809	10.00%
Tier 1 Capital (to Risk Weighted Assets)		129,206	18.51%		59,338	8.50%		55,847	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		129,206	18.51%		48,866	7.00%		45,376	6.50%
Tier 1 Capital (to Average Assets)		129,206	15.62%		33,083	4.00%		41,353	5.00%

As of December 31, 2021
Total Capital (to Risk Weighted Assets)	$	81,827	17.77%	$	48,355	10.50%	$	46,052	10.00%
Tier 1 Capital (to Risk Weighted Assets)		77,356	16.80%		39,144	8.50%		36,842	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		77,356	16.80%		32,236	7.00%		29,934	6.50%
Tier 1 Capital (to Average Assets)		77,356	11.83%		26,164	4.00%		32,705	5.00%

NOTE 11 - EARNINGS PER SHARE ("EPS")

Basic EPS represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the year, plus the effect of potential dilutive common share equivalents computed using the treasury stock method. There were no securities that had a dilutive effect during the three or nine months ended September 30, 2022, and therefore the weighted-average common shares outstanding used to calculate both basic and diluted EPS are the same. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. Earnings per share data is not applicable for the three and nine months ended September 30, 2021 as the Company had no shares outstanding.


	Three months ended			Nine months ended
	September 30, 2022			September 30, 2022
	(In Thousands, except per share data)
Net (loss) income applicable to common shares	$	(1,035	)	$	1,744

Average number of common shares outstanding		9,175,247			9,175,247
Less: Average unallocated ESOP shares		(729,632	)		(729,632	)
Average number of common shares outstanding used to calculate basic earnings per common share		8,445,615			8,445,615
Common stock equivalents		-			-
Average number of common shares outstanding used to calculate diluted earnings per common share		8,445,615			8,445,615
(Loss) earnings per common share
Basic	$	(0.12	)	$	0.21
Diluted	$	(0.12	)	$	0.21

NOTE 12 - SUBSEQUENT EVENTS

Management has reviewed events occurring through November 10, 2022, the date the unaudited consolidated financial statements were available to be issued and determined that no subsequent events occurred requiring adjustment to or disclosure in these unaudited consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2022 and 2021 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan portfolio; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations 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.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

conditions relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

•

changes in the quality or composition of our loan or investment portfolios;

•

technological changes that may be more difficult or expensive than expected;

•

the inability of third-party providers to perform as expected;

•

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

•

our ability to manage market risk, credit risk and operational risk;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

•

the risk of adverse changes in business conditions due to geo-political tensions;

•

our ability to attract and retain key employees; and

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in ECB Bancorp, Inc.’s Prospectus dated May 13, 2022, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on May 20, 2022, and as supplemented on June 21, 2022.

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 used in the United States of America. 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.

Our critical accounting policy involves the calculation of the allowance for loan losses. A detailed description of this critical accounting policy can be found in our Form S-1 filed with the Securities and Exchange Commission on May 20, 2022, and as supplemented on June 21, 2022.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total Assets. Total assets increased $207.1 million, or 31.1%, to $873.6 million at September 30, 2022 from $666.5 million at December 31, 2021. The increase was primarily the result of increases in loans and held-to-maturity securities, partially offset by a decrease in cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents decreased $18.8 million, or 35.4%, to $34.2 million at September 30, 2022 from $53.0 million at December 31, 2021. Cash levels have decreased primarily due to loan originations.

Securities Held to Maturity. Securities held to maturity increased $4.4 million, or 6.7%, to $70.0 million at September 30, 2022 from $65.6 million at December 31, 2021, primarily due to purchases of securities of $11.7 million partially offset by principal repayments of $7.2 million.

Loans. Net loans increased $218.2 million, or 42.2%, to $735.3 million at September 30, 2022 from $517.1 million at December 31, 2021. The largest increases in our loan portfolio were in multi-family, one- to four-family residential, commercial real estate and construction loans. Multi-family real estate loans increased $97.9 million, or 164.5%, from December 31, 2021 to September 30, 2022. One- to four-family residential real estate loans increased $65.0 million, or 25.0%, from December 31, 2021 to September 30, 2022. Commercial real estate loans increased $36.4 million, or 36.4%, from December 31, 2021 to September 30,

2022. Construction loans increased $18.9 million, or 26.8%, from December 31, 2021 to September 30, 2022. In addition, to help manage interest rate risk and generate non-interest income, we sell certain one- to four-family residential mortgage loans into the secondary market on a servicing-released basis. During the nine months ended September 30, 2022, we sold $5.7 million in loans and recognized gains of $84,000.

Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance decreased $165,000, or 1.2%, to $14.0 million at September 30, 2022 from $14.1 million at December 31, 2021. The decrease was due to a reduction of our cash surrender value of $466,000 related to policy claims due to the death of an insured individual. Partially offsetting the decrease to cash surrender value, we recognized $301,000 from the increase in cash surrender value of our bank-owned life insurance portfolio during the nine months ended September 30, 2022.

Deposits. Deposits increased $81.0 million, or 14.2%, to $652.7 million at September 30, 2022 from $571.7 million at December 31, 2021. This increase was primarily the result of an increase in certificates of deposit of $67.5 million, or 29.8%, an increase in savings accounts of $29.4 million, or 58.7% and an increase in interest bearing demand deposits of $8.4 million or 10.1%. Partially offsetting these increases was a decrease in money market accounts of $23.0 million, or 12.6%. Core deposits (defined as all deposits other than certificates of deposit), increased $13.5 million, or 3.9%, to $358.4 million at September 30, 2022 from $344.9 million at December 31, 2021. At September 30, 2022 and December 31, 2021, we had $84.9 million and $19.9 million of brokered deposits, respectively.

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank increased $41.5 million, or 460.8%, to $50.5 million at September 30, 2022 from $9.0 million at December 31, 2021. The increase in advances were utilized to support loan growth.

Shareholders' Equity. Total shareholders' equity increased $83.8 million, or 108.4%, to $161.1 million at September 30, 2022 from $77.3 million at December 31, 2021. The increase was primarily due to net offering proceeds received in connection with the Initial Public Offering of $79.2 million, $2.6 million in equity that was contributed to the Everett Co-operative Bank Charitable Foundation, and net income of $1.7 million for the nine months ended September 30, 2022.

Comparison of Operating Results for the Three Months Ended September 30, 2022 and September 30, 2021

Net Income. We recorded a net loss of $1.0 million for the three months ended September 30, 2022, compared to net income of $1.3 million for the three months ended September 30, 2021. The net loss during the three months ended September 30, 2022 was driven by a $4.2 million increase in other noninterest expense, partially offset by an increase of $1.1 million in net interest and dividend income after the provision for loan losses.

Interest and Dividend Income. Interest and dividend income increased $2.3 million, or 41.6%, to $7.8 million for the three months ended September 30, 2022 from $5.5 million for the three months ended September 30, 2021. The increase was due to a $1.9 million increase in interest and fees on loans, a $117,000 increase in interest and dividends on securities and a $237,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $183.1 million in the average balance of the loan portfolio to $677.6 million for the three months ended September 30, 2022 from $494.5 million for the three months ended September 30, 2021. The increase in interest and dividends on securities was due to both an increase of $8.3 million in the average balance of the investment security portfolio to $74.3 million for the three months ended September 30, 2022 from $65.9 million for the three months ended September 30, 2021 as well as an increase in the yield on securities to 1.85% for the three months ended September 30, 2022 from 1.43% for the three months ended September 30, 2021. The increase in other interest income was due to an increase in the yield on short term investments to 2.18% for the three months ended September 30, 2022 from 0.11% for the three months ended September 30, 2021. This increase was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Average interest-earning assets increased $189.0 million, to $797.8 million for the three months ended September 30, 2022 from $608.8 million for the three months ended September 30, 2021. The yield on interest earning-assets increased 28 basis points to 3.85% for the three months ended September 30, 2022 from 3.57% for the three months ended September 30, 2021.

Interest Expense. Total interest expense increased $352,000, or 40.5%, to $1.2 million for the three months ended September 30, 2022 from $870,000 for the three months ended September 30, 2021. Interest expense on deposit accounts increased $185,000, or 22.0%, to $1.0 million for the three months ended September 30, 2022 from $840,000 for the three months ended September 30, 2021, primarily due to an increase in the average balance of interest-bearing deposits of $83.6 million, or 18.1%, to $546.2 million for the three months ended September 30, 2022 from $462.6 million for the three months ended September 30, 2021.

Interest expense on FHLB advances increased $167,000, or 556.7%, to $197,000 for the three months ended September 30, 2022 from $30,000 for the three months ended September 30, 2021, primarily due to an increase in the average balance of FHLB advances of $35.2 million, or 390.8%, to $44.2 million for the three months ended September 30, 2022 from $9.0 million for the three months ended September 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income increased $1.9 million, or 41.8%, to $6.5 million for the three months ended September 30, 2022 from $4.6 million for the three months ended September 30, 2021, primarily due to a $70.2 million increase in the average balance of net interest-earning assets during the three months ended September 30, 2022, together with an increase in the interest rate spread to 3.03% for the three months ended September 30, 2022 from 2.84% for the three months ended September 30, 2021. The increase in the interest rate spread was primarily due to an increase in the weighted average yield earned on interest-earning assets to 3.85% for the three months ended September 30, 2022 from 3.57% for the three months ended September 30, 2021. The net interest margin increased to 3.24% for the three months ended September 30, 2022 from 3.00% for the three months ended September 30, 2021.

Provision for Loan Losses. Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $925,000 was recorded for the three months ended September 30, 2022, compared to a provision of $90,000 for the three months ended September 30, 2021. The $835,000, or 927.8%, increase in the provision was primarily due to loan portfolio growth.

Noninterest Income. Noninterest income decreased $130,000, or 36.3%, to $228,000 for the three months ended September 30, 2022 from $358,000 for the three months ended September 30, 2021. The decrease was driven by a decrease in net gains on sales of loans of $122,000. The table below sets forth our noninterest income for three months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	114	$	100	$	14			14.0		%
Income from bank-owned life insurance		90		113		(23	)		(20.4	)
Net gain on sales of loans		16		138		(122	)		(88.4	)
Other		8		7		1			14.3
Total noninterest income	$	228	$	358	$	(130	)		(36.3	)	%

Noninterest Expense. Noninterest expense increased $4.2 million, or 138.3%, to $7.3 million for the three months ended September 30, 2022 from $3.1 million for the three months ended September 30, 2021, mainly driven by increases in charitable contributions and salaries and employee benefits. Charitable contributions increased to $3.2 million for the three months ended September 30, 2022 from $7,000 three months ended September 30, 2021 resulting from a $3.2 million contribution to the Everett Co-operative Bank Charitable Foundation, representing 260,000 shares of our common stock and $600,000 in cash contributed as part of our initial public offering. Salaries and employee benefit expenses increased $665,000, or 33.0%, resulting primarily from additional employees and normal salary increases. The recent hires of several executive officers and other seasoned bankers should allow us to implement our growth strategy. Included within salaries and employee benefits for the three months ended September 30, 2022 is $215,000 of expenses related to the Employee Stock Ownership Plan. There were no expenses related to this plan in 2021.

The table below sets forth our noninterest expense for the three months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	2,682	$	2,017	$	665			33.0		%
Director Compensation		106		99		7			7.2
Occupancy and equipment		193		162		31			19.1
Data processing		196		184		12			6.5
Computer software and licensing fees		80		83		(3	)		(3.6	)
Advertising and promotions		236		139		97			69.8
Professional fees		176		110		66			60.0
FDIC Assessment		54		39		15			38.5
Charitable contributions		3,214		7		3,207			45,814.3
Other expense		363		224		139			62.1
Total noninterest expense	$	7,300	$	3,064	$	4,236			138.3		%

Income Tax Expense. Income tax expense decreased $898,000, or 190.3%, to a benefit of $426,000 for the three months ended September 30, 2022 from an expense of $472,000 for the three months ended September 30, 2021. The effective tax rate was (29.2%) and 26.0% for the three months ended September 30, 2022 and 2021, respectively. The change in the effective tax rate was due to a net loss for the three months ended September 30, 2022 compared to net income for three months ended September 30, 2021

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Average balances are daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.


	For the Three Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	677,634	$	7,147		4.18	%	$	494,504	$	5,221		4.19	%
Securities (1)		74,273		346		1.85			65,924		238		1.43
Short term investments		45,638		250		2.18			48,419		14		0.11
Interest bearing time deposits		300		1		0.71			—		—		—
Total interest-earning assets		797,845		7,744		3.85	%		608,847		5,473		3.57	%
Non-interest-earning assets		28,102							24,030
Total assets	$	825,947						$	632,877

Interest-bearing liabilities:
Regular savings accounts		57,106		13		0.09	%		48,526		6		0.05	%
Checking accounts		48,135		5		0.04			26,626		15		0.22
Money market accounts		178,833		215		0.48			167,709		130		0.31
Certificates of deposit		262,082		792		1.20			219,712		689		1.24
Total interest-bearing deposits		546,156		1,025		0.74			462,573		840		0.72
Federal Home Loan Bank advances		44,171		197		1.77			9,000		30		1.32
Total interest-bearing liabilities		590,327		1,222		0.82	%		471,573		870		0.73	%
Non-interest-bearing demand deposits		89,299							79,509
Non-interest-bearing liabilities		7,996							5,406
Total liabilities		687,622							556,488
Shareholders' Equity		138,325							76,389
Total liabilities and shareholders' equity	$	825,947						$	632,877

Net interest income			$	6,522						$	4,603
Net interest rate spread (2)						3.03	%						2.84	%
Net interest-earning assets (3)	$	207,518						$	137,274
Net interest margin (4)						3.24	%						3.00	%

Average interest-earning assets to interest- bearing liabilities						135.15	%						129.11	%

(1) Excludes interest and dividends on cost method investments of $14,000 and $5,000 for the three months ended September 30, 2022 and 2021, respectively.

(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

(5) Annualized

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 period 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.


	Three Months Ended September 30, 2022 vs. 2021
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,931		$	(5	)	$	1,926
Securities		33			75			108
Short term investments		(1	)		237			236
Interest bearing time deposits		1			-			1
Total interest-earning assets	$	1,964		$	307		$	2,271

Interest-bearing liabilities:
Interest-bearing demand deposits	$	7		$	(17	)	$	(10	)
Regular savings and other deposits		1			6			7
Money market deposits		9			76			85
Certificates of deposit		129			(26	)		103
Total deposits		146			39			185
Advances from the Federal Home Loan Bank		154			13			167
Total interest-bearing liabilities	$	300		$	52		$	352

Change in net interest income	$	1,664		$	255		$	1,919

Comparison of Operating Results for the Nine Months Ended September 30, 2022 and September 30, 2021

Net Income. Net income was $1.7 million for the nine months ended September 30, 2022, compared to net income of $4.0 million for the nine months ended September 30, 2021, a decrease of $2.3 million, or 56.9%. The decrease was primarily due to an increase in noninterest expense of $5.3 million, partially offset by an increase in net interest and dividend income after the provision for loan losses of $1.7 million.

Interest and Dividend Income. Interest and dividend income increased $3.0 million, or 18.2%, to $19.5 million for the nine months ended September 30, 2022 from $16.5 million for the nine months ended September 30, 2021, primarily due to a $2.4 million increase in interest and fees on loans, a $283,000 increase in interest and dividends on securities and a $323,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $103.6 million in the average balance of the loan portfolio to $592.6 million for the nine months ended September 30, 2022 from $489.0 million for the nine months ended September 30, 2021. The weighted average yield for the loan portfolio decreased 21 basis points to 4.08% for the nine months ended September 30, 2022 from 4.29% for the nine months ended September 30, 2021, primarily due to lower prepayment fees and PPP loan fees. The increase in interest and dividends on securities was driven by an increase of $9.3 million in the average balance of the investment security portfolio to $73.9 million for the nine months ended September 30, 2022 from $64.5 million for the nine months ended September 30, 2021 as well as a 23 basis point increase in the yield on investment securities from 1.50% for the nine months ended September 30, 2021 to 1.73% nine months ended September 30, 2022 as well as an increase of $51,000 in income recognized on cost method investments. The increase in other interest income was due to an increase in the yield on short term investments to 1.10% for the nine months ended September 30, 2022 from 0.09% for the nine months ended September 30, 2021. This increase was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Average interest-earning assets increased $110.1 million, to $709.9 million for the nine months ended September 30, 2022 from $599.8 million for the nine months ended September 30, 2021. The yield on interest-earning assets decreased two basis points to 3.65% for the nine months ended September 30, 2022 from 3.67% for the nine months ended September 30, 2021.

Interest Expense. Total interest expense decreased $262,000, or 9.0%, to $2.6 million for the nine months ended September 30, 2022 from $2.9 million for the nine months ended September 30, 2021. Interest expense on deposit accounts decreased $467,000, or 16.7%, to $2.3 million for the nine months ended September 30, 2022 from $2.8 million for the nine months ended September 30, 2021, due to a decrease in the weighted average rate on interest-bearing deposits to 0.60% for the nine months ended September 30,

2022 from 0.82% for the nine months ended September 30, 2021, which more than offset an increase in the average balance of interest-bearing deposits of $64.1 million, or 14.1%, to $518.1 million for the nine months ended September 30, 2022 from $454.0 million for the nine months ended September 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income increased $3.3 million, or 24.0%, to $16.8 million for the nine months ended September 30, 2022 from $13.6 million for the nine months ended September 30, 2021, primarily due to a $32.3 million increase in the average balance of net interest-earning assets during the nine months ended September 30, 2022, together with an increase in the interest rate spread to 3.00% for the nine months ended September 30, 2022 from 2.84% for the nine months ended September 30, 2021. The increase in the interest rate spread was due to a decrease in the weighted average rate paid on interest-bearing liabilities to 0.65% for the nine months ended September 30, 2022 from 0.83% for the nine months ended September 30, 2021. The net interest margin increased to 3.16% for the nine months ended September 30, 2022 from 3.02% for the nine months ended September 30, 2021.

Provision for Loan Losses. Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $1.8 million was recorded for the nine months ended September 30, 2022, compared to a provision of $270,000 for the nine months ended September 30, 2021. The $1.5 million, or 566.7%, increase in the provision was primarily due to loan portfolio growth.

Noninterest Income. Noninterest income increased $257,000, or 28.2%, to $1.2 million for the nine months ended September 30, 2022 from $912,000 for the nine months ended September 30, 2021. The increase was driven by $429,000 of gains recognized into income from life insurance policy death benefits. Partially offsetting this increase was a decrease of $262,000 in net gains on sales of loans due to the current interest rate environment and lower originations of saleable loans. The table below sets forth our noninterest income for nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	326	$	292	$	34			11.6		%
Income from bank-owned life insurance		731		252		479			190.1
Net gain on sales of loans		84		346		(262	)		(75.7	)
Other		28		22		6			27.3
Total noninterest income	$	1,169	$	912	$	257			28.2		%

Noninterest Expense. Noninterest expense increased $5.3 million, or 61.4%, to $14.1 million for the nine months ended September 30, 2022 from $8.7 million for the nine months ended September 30, 2021, driven by increases in charitable contributions and in salaries and employee benefits. Charitable contributions increased to $3.2 million for the nine months ended September 30, 2022 from $40,000 for the nine months ended September 30, 2021 driven by a $3.2 million contribution to the Everett Co-operative Bank Charitable Foundation. Salaries and employee benefit expenses increased $1.5 million, or 27.4%, resulting primarily from additional employees and normal salary increases. The recent hires of several executive officers and other seasoned bankers should allow us to implement our growth strategy and will continue to increase our compensation and benefits expense in 2022 and thereafter, which will increase our noninterest expense. In addition, during the nine months ended September 30, 2022, we recorded expense of $166,000 related to our Survivor Benefit Plan and $215,000 related to the Employee Stock Ownership Plan. There were no expenses related to either of these plans in 2021. Also, included within salaries and employee benefits for the nine months ended September 30, 2022 is a benefit of $582,000 recorded to reflect a reduction in the liability related to our withdrawal from our defined benefit plan. The reduction was primarily driven by increases in interest rates since December 31, 2021, which caused defined benefit plan discount rates to rise.

The table below sets forth our noninterest expense for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	6,967	$	5,469	$	1,498			27.4		%
Director Compensation		321		284		37			12.9
Occupancy and equipment		571		559		12			2.1
Data processing		546		527		19			3.6
Computer software and licensing fees		181		233		(52	)		(22.3	)
Advertising and promotions		511		473		38			8.0
Professional fees		535		299		236			78.9
FDIC Assessment		163		117		46			39.3
Charitable contributions		3,249		40		3,209			8,022.5
Other expense		1,010		705		305			43.3
Total noninterest expense	$	14,054	$	8,706	$	5,348			61.4		%

Income Tax Expense. Income tax expense decreased $1.1 million, or 73.0%, to $394,000 for the nine months ended September 30, 2022 from $1.5 million for the nine months ended September 30, 2021. The effective tax rate was 18.4% and 26.5% for the nine months ended September 30, 2022 and 2021, respectively. The reduction in the effective tax rate was driven by the non taxable bank owned life insurance death benefits recognized during the nine months ended September 30, 2022.


	For the Nine Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	592,641	$	18,088		4.08	%	$	489,031	$	15,703		4.29	%
Securities (1)		73,865		954		1.73			64,540		722		1.50
Short term investments		43,139		354		1.10			46,229		32		0.09
Interest bearing time deposits		218		1		0.71			—		—		—
Total interest-earning assets		709,863		19,397		3.65	%		599,800		16,457		3.67	%
Non-interest-earning assets		27,442							21,876
Total assets	$	737,305						$	621,676

Interest-bearing liabilities:
Regular savings accounts		53,691		27		0.07	%		46,123		24		0.07	%
Checking accounts		38,898		23		0.08			25,085		44		0.23
Money market accounts		188,300		515		0.37			160,273		430		0.36
Certificates of deposit		237,245		1,767		1.00			222,542		2,301		1.38
Total interest-bearing deposits		518,134		2,332		0.60			454,023		2,799		0.82
Federal Home Loan Bank advances		27,139		310		1.53			13,491		105		1.04
Total interest-bearing liabilities		545,273		2,642		0.65	%		467,514		2,904		0.83	%
Non-interest-bearing demand deposits		85,270							74,078
Non-interest-bearing liabilities		7,923							5,083
Total liabilities		638,466							546,675
Shareholders' Equity		98,839							75,001
Total liabilities and shareholders' equity	$	737,305						$	621,676

Net interest income			$	16,755						$	13,553
Net interest rate spread (2)						3.00	%						2.84	%
Net interest-earning assets (3)	$	164,590						$	132,286
Net interest margin (4)						3.16	%						3.02	%

Average interest-earning assets to interest- bearing liabilities						130.18	%						128.30	%

(1) Excludes interest and dividends on cost method investments of $68,000 and $16,000 for the nine months ended September 30, 2022 and 2021, respectively.

(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

(5) Annualized

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 year 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.


	Nine Months Ended September 30, 2022 vs. 2021
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	3,193		$	(808	)	$	2,385
Securities		112			120			232
Short term investments		(2	)		324			322
Interest bearing time deposits		1			-			1
Total interest-earning assets	$	3,304		$	(364	)	$	2,940

Interest-bearing liabilities:
Interest-bearing demand deposits	$	17		$	(38	)	$	(21	)
Regular savings and other deposits		4			(1	)		3
Money market deposits		77			8			85
Certificates of deposit		144			(678	)		(534	)
Total deposits		242			(709	)		(467	)
Advances from the Federal Home Loan Bank		140			65			205
Total interest-bearing liabilities	$	382		$	(644	)	$	(262	)

Change in net interest income	$	2,922		$	280		$	3,202

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, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston and the Atlantic Community Bankers Bank. At September 30, 2022, we had outstanding advances of $50.5 million from the Federal Home Loan Bank. At September 30, 2022, we had unused borrowing capacity of $108.1 million with the Federal Home Loan Bank and $10.0 million with the Atlantic Community Bankers Bank.

While maturities and scheduled amortization of loans and securities 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 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, investing activities, and financing activities.

At September 30, 2022, we had $50.9 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $60.1 million in unused lines of credit to borrowers and $66.9 million in unadvanced construction loans.

Certificates of deposit due within one year of September 30, 2022 totaled $178.1 million, or 27.3%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2023, or on our savings and money market accounts.

We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2022.

Our primary investing activity is originating loans. During the nine months ended September 30, 2022 and the year ended December 31, 2021, we originated $364.7 million and $254.6 million of loans, respectively. In addition, during the nine months ended September 30, 2022, we purchased $7.1 million of 1-4 family residential real estate loans. There were no purchases of 1-4 family residential real estate loans during 2021.

Financing activities consist primarily of activity in deposit accounts, and to a lesser extent, both FHLB advances and brokered deposits. We experienced net increases in deposits of $81.0 million and $80.3 million for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, the level of brokered time deposits was $84.9 million and $19.9 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors.

For additional information, see the consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.

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 maturing time deposits will be retained.

At September 30, 2022, Everett Co-operative Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 10 of the notes to consolidated financial statements.

The net proceeds from the offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the offering are used for general corporate purposes, including funding loans. Our financial condition and results of operations were enhanced by the net proceeds from the offering, and will increase our net interest-earning assets and net interest income.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Form 10-Q have been prepared in accordance with U.S. GAAP, which requires 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Bank is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

There were no sales of unregistered securities during the period covered by this Report.

(b)

Not applicable.

(c)

There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ECB BANCORP, INC.


Date: November 10, 2022		/s/Richard J. O'Neil, Jr.
		Richard J. O’Neil, Jr.
		President and Chief Executive Officer


Date: November 10, 2022		/s/John A. Citrano
		John A. Citrano
		Executive Vice President and Chief Financial Officer