ECB Bancorp, Inc. /MD/ - Quarter Report: 2022 June (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 June 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: None

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 August 12, 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 June 30, 2022 (unaudited) and December 31, 2021	1

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

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

	Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	4

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

Part II. Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

	Signature Page	35

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. As of June 30, 2022, the conversion had not been completed, and, as of that date, the Registrant had no assets or liabilities, and had not conducted any business other than that of an organizational nature. Accordingly, financial and other information of the Bank is included in this Quarterly Report.

Part I. – Financial Information

Item 1. Financial Statements

Everett Co-operative Bank and Subsidiary

Consolidated Balance Sheets

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

(in thousands)


	June 30, 2022			December 31, 2021

ASSETS
Cash and due from banks	$	5,716		$	7,326
Short-term investments		33,452			23,749
Federal funds sold		15,831			21,900
Total cash and cash equivalents		54,999			52,975
Interest-bearing time deposits		300			—
Investments in available-for-sale securities (at fair value)		4,982			5,010
Investments in held-to-maturity securities, at cost (fair values of $63,963 at June 30, 2022 and $65,556 at December 31, 2021)		69,676			65,571
Federal Home Loan Bank stock, at cost		1,599			1,087
Loans held-for-sale		-			1,301
Loans, net of allowance for loan losses of $5,111 as of June 30, 2022 (unaudited) and $4,236 as of December 31, 2021		623,971			517,131
Premises and equipment, net		3,758			3,784
Accrued interest receivable		1,725			1,481
Deferred tax asset, net		2,860			2,971
Bank-owned life insurance		13,870			14,135
Other assets		4,211			1,043
Total assets	$	781,951		$	666,489

LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing	$	87,300		$	83,288
Interest-bearing		576,124			488,443
Total deposits		663,424			571,731
Federal Home Loan Bank advances		30,475			9,000
Other liabilities		8,019			8,485
Total liabilities		701,918			589,216
Equity:

Surplus		80,135			77,356
Accumulated other comprehensive loss		(102	)		(83	)
Total equity		80,033			77,273
Total liabilities and equity	$	781,951		$	666,489

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

Everett Co-operative Bank and Subsidiary

Consolidated Statements of Income (unaudited)

Three and Six Months Ended June 30, 2022 and 2021

(in thousands)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Interest and dividend income:
Interest and fees on loans	$	5,678	$	5,318	$	10,941	$	10,482
Interest and dividends on securities		330		250		662		496
Other interest income		88		10		104		19
Total interest and dividend income		6,096		5,578		11,707		10,997
Interest expense:
Interest on deposits		647		928		1,307		1,959
Interest on Federal Home Loan Bank advances		83		33		113		75
Total interest expense		730		961		1,420		2,034
Net interest and dividend income		5,366		4,617		10,287		8,963

Provision for loan losses		754		90		875		180
Net interest and dividend income after provision for loan losses		4,612		4,527		9,412		8,783
Noninterest income:
Customer service fees		112		91		212		192
Income from bank-owned life insurance		539		75		640		139
Net gain on sales of loans		23		87		68		207
Other income		16		10		21		16
Total noninterest income		690		263		941		554
Noninterest expense:
Salaries and employee benefits		2,291		1,768		4,280		3,445
Director compensation		107		92		214		183
Occupancy and equipment expense		201		216		384		404
Data processing		180		174		350		343
Computer software and licensing fees		55		58		101		150
Advertising and promotions		138		153		275		335
Professional fees		194		79		359		189
Federal Deposit Insurance Corporation assessment		64		39		109		78
Other expense		351		277		682		516

Total noninterest expense		3,581		2,856		6,754		5,643
Income before income tax expense		1,721		1,934		3,599		3,694
Income tax expense		325		516		820		987
Net income	$	1,396	$	1,418	$	2,779	$	2,707

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

Everett Co-operative Bank and Subsidiary

Consolidated Statement of Comprehensive Income (unaudited)

Three and Six Months Ended June 30, 2022 and 2021

(in thousands)


	Three months ended					Six months ended
	June 30,					June 30,
	2022			2021		2022			2021

Net income	$	1,396		$	1,418	$	2,779		$	2,707
Other comprehensive (loss) income, net of tax:
Net unrealized holding (loss) gain on securities available-for-sale		(34	)		10		(19	)		—

Other comprehensive (loss) income, net of tax		(34	)		10		(19	)		—

Comprehensive income	$	1,362		$	1,428	$	2,760		$	2,707

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

Everett Co-operative Bank and Subsidiary

Statement of Changes in Equity (unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

(in thousands)


				Accumulated
				Other
				Comprehensive
For the three months ended June 30, 2021	Surplus			Loss				Total
Balance, March 31, 2021		$	74,603		$	(290	)		$	74,313
Net income			1,418			-				1,418
Other comprehensive income, net of tax effect			-			10				10
Balance, June 30, 2021		$	76,021		$	(280	)		$	75,741

For the three months ended June 30, 2022
Balance, March 31, 2022		$	78,739		$	(68	)		$	78,671
Net income			1,396			-				1,396
Other comprehensive loss, net of tax effect			-			(34	)			(34	)
Balance, June 30, 2022		$	80,135		$	(102	)		$	80,033

				Accumulated
				Other
				Comprehensive
For the six months ended June 30, 2021	Surplus			Loss				Total
Balance, December 31, 2020		$	73,314		$	(280	)		$	73,034
Net income			2,707			-				2,707
Balance, June 30, 2021		$	76,021		$	(280	)		$	75,741

For the six months ended June 30, 2022
Balance, December 31, 2021		$	77,356		$	(83	)		$	77,273
Net income			2,779			-				2,779
Other comprehensive loss, net of tax effect			-			(19	)			(19	)
Balance, June 30, 2022		$	80,135		$	(102	)		$	80,033

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

Everett Co-operative Bank and Subsidiary

Consolidated Statements of Cash Flows (unaudited)

Six Months Ended June 30, 2022 and 2021

(in thousands)


	Six Months Ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net income	$	2,779		$	2,707
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net		109			179
Provision for loan losses		875			180
Change in deferred loan costs/fees		(86	)		316
Gain on sales of loans		(68	)		(207	)
Proceeds from sales of loans held-for-sale		3,643			11,853
Origination of loans held-for-sale		(2,274	)		(11,205	)
Depreciation and amortization		145			152
(Increase) decrease in accrued interest receivable		(244	)		189
Income from bank-owned life insurance		(200	)		(139	)
Gain from life insurance policy death benefit		(440	)		—
Deferred tax expense		120			—
Increase in other assets		(1,323	)		(324	)
Increase (decrease) in accrued interest payable		24			(17	)
(Decrease) increase in other liabilities		(1,430	)		349
Net cash provided by operating activities		1,630			4,033

Cash flows from investing activities:
Purchases of held-to-maturity securities		(9,804	)		(14,806	)
Proceeds from paydowns and maturities of held-to-maturity securities		5,590			7,582
Premiums paid on bank-owned life insurance		—			(5,000	)
Purchase of interest-bearing time deposits		(300	)		—
Purchase of Federal Home Loan Bank Stock		(1,577	)		—
Redemption of Federal Home Loan Bank Stock		1,065			331
Loan originations and principal collections, net		(107,629	)		(27,297	)
Capital expenditures		(119	)		(96	)
Net cash used in investing activities		(112,774	)		(39,286	)

Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts		93,517			42,788
Net (decrease) increase in time deposits		(1,824	)		5,139
Proceeds from long-term Federal Home Loan Bank advances		—			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 cash provided by financing activities		113,168			38,927

Net increase in cash and cash equivalents		2,024			3,674
Cash and cash equivalents at beginning of year		52,975			43,411
Cash and cash equivalents at end of period	$	54,999		$	47,085


Supplemental disclosures:
Interest paid	$	1,396		$	2,051
Income taxes paid		1,003			1,321
Transfer of bank-owned life insurance to other assets		905			—
Accrued deferred offering costs		940			—

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

Everett Co-operative Bank and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 - PLAN OF CONVERSION

On March 9, 2022, the Board of Directors of 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 have been deferred and deducted from the proceeds of the offering. At June 30, 2022 (unaudited) and December 31, 2021, the Bank had incurred approximately $1,965,000 and $76,000, respectively, in offering costs, which are included in other assets on the respective consolidated balance sheets.

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 Everett Co-operative Bank 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 Everett Co-operative Bank include the balances and results of operations of Everett Co-operative Bank and its wholly-owned subsidiary, First Everett Securities Corporation (referred to herein as “the Bank,” “we,” “us,” or “our”). 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 Bank’s financial position as of June 30, 2022 and December 31, 2021 and the results of operations and cash flows for the interim periods ended June 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 on Form S-1.

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

NOTE 3 – RECENT ACCOUNTING STANDARDS UPDATES

ECB Bancorp, Inc. (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 Bank 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 Bank 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 Bank expects to validate its model and execute a parallel run beginning in the second half of 2022.

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 Bank. The adoption of this ASU did not have a material effect on the Bank’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 Bank is currently assessing the impact of the adoption of this standard on the Bank'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)
June 30, 2022
Debt securities issued by U.S. government-sponsored enterprises	$	8,598	$	1	$	(449	)	$	8,150
Mortgage-backed securities		46,545		15		(4,485	)		42,075
Corporate bonds		11,630		—		(757	)		10,873
U.S. Treasury Securities		2,903		—		(38	)		2,865
Total held-to-maturity securities	$	69,676	$	16	$	(5,729	)	$	63,963

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)
June 30, 2022
Debt securities
Corporate bonds	$	4,989	$	—	$	(7	)	$	4,982
Total available-for-sale securities	$	4,989	$	—	$	(7	)	$	4,982

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 June 30, 2022 is presented below:


	Available-
	for-sale		Held-to-maturity
	Fair		Amortized		Fair
	Value		Cost Basis		Value
	(In Thousands)
Within 1 year	$	—	$	2,006	$	2,007
After 1 year through 5 years		4,982		19,257		18,144
After 5 years through 10 years		—		5,358		5,126
After 10 years		—		43,055		38,686
Total	$	4,982	$	69,676	$	63,963

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

The carrying value of securities pledged to secure advances from the Federal Home Loan Bank of Boston (“FHLBB”) were $23.3 million and $0 as of June 30, 2022 and December 31, 2021, respectively.

There were no securities of issuers whose aggregate carrying amount exceeded 10% of equity as of June 30, 2022 and December 31, 2021.

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 June 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)
Balance, June 30, 2022
Held to Maturity:
Debt securities issued by U.S. government-sponsored enterprises	$	1,005	$	(6	)	$	5,139	$	(443	)	$	6,144	$	(449	)
Mortgage-backed securities		27,119		(2,524	)		13,947		(1,961	)		41,066		(4,485	)
Corporate Bonds		10,873		(757	)		-		-			10,873		(757	)
U.S. Treasury Securities		2,865		(38	)		-		-			2,865		(38	)
Total temporarily impaired securities	$	41,862	$	(3,325	)	$	19,086	$	(2,404	)	$	60,948	$	(5,729	)

Available-for-sale:
Corporate Bonds	$	4,982	$	(7	)	$	-	$	-		$	4,982	$	(7	)
Total temporarily impaired securities	$	4,982	$	(7	)	$	-	$	-		$	4,982	$	(7	)

Balance, 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 June 30, 2022, three debt securities issued by a U.S. government-sponsored enterprise, forty-eight mortgage backed securities, nine corporate bonds and one U.S. treasury security had unrealized losses with aggregate depreciation of 5.2%, 9.6%, 4.6% and 1.3%, respectively, from the Bank’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, 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 June 30,						At December 31,
	2022						2021
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	294,591			46.8	%	$	259,673			49.8	%
Multi-family		106,658			16.9	%		59,517			11.4	%
Commercial		117,652			18.7	%		99,953			19.2	%
Home equity lines of credit and loans		27,988			4.4	%		26,050			5.0	%
Construction		78,578			12.5	%		70,668			13.5	%
Other loans
Commercial loans		3,585			0.6	%		5,439			1.0	%
Consumer		377			0.1	%		500			0.1	%
		629,429						521,800
Less:
Net deferred loan fees		(347	)					(433	)
Allowance for losses		(5,111	)					(4,236	)
Total loans, net	$	623,971					$	517,131

Certain directors and executive officers of the Bank 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 $1,223,000 and $1,257,000 as of June 30, 2022 and December 31, 2021, respectively. The following table sets forth the activity for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)

Beginning Balance	$	1,320		$	924		$	1,257		$	1,268
New Loans		—			—			—			450
Advances		200			8			300			8
Paydowns		(297	)		(28	)		(334	)		(822	)
Ending Balance	$	1,223		$	904		$	1,223		$	904

The carrying value of loans pledged to secure advances from the FHLBB were $185.5 million and $176.2 million as of June 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 six months ended June 30, 2022 and 2021:


	Real Estate
							Home Equity
	Residential		Multi-family		Commercial		Lines of Credit and Loans		Construction		Commercial			Consumer		Unallocated		Total
							(In Thousands)
For the three months ended June 30, 2022
Allowance for loan losses
Beginning balance	$	1,311	$	463	$	1,150	$	191	$	871	$	50		$	1	$	320	$	4,357
Charge-offs		—		—		—		—		—		—			—		—		—
Recoveries		—		—		—		—		—		—			—		—		—
Provision (benefit)		158		316		203		2		79		(4	)		—		—	$	754
Ending balance	$	1,469	$	779	$	1,353	$	193	$	950	$	46		$	1	$	320	$	5,111

Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—
Collectively evaluated for impairment		1,469		779		1,353		193		950		46			1		320		5,111
Total allowance for loan losses ending balance	$	1,469	$	779	$	1,353	$	193	$	950	$	46		$	1	$	320	$	5,111

Loans
Ending balance:
Individually evaluated for impairment	$	723	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	723
Collectively evaluated for impairment		293,868		106,658		117,652		27,988		78,578		3,585			377		—		628,706
Total Loans	$	294,591	$	106,658	$	117,652	$	27,988	$	78,578	$	3,585		$	377	$	—	$	629,429


	Real Estate
								Home Equity
	Residential		Multi-family		Commercial			Lines of Credit and Loans			Construction		Commercial			Consumer		Unallocated		Total
								(In Thousands)
For the three months ended June 30, 2021
Allowance for loan losses
Beginning balance	$	1,164	$	322	$	1,080		$	180		$	699	$	116		$	1	$	404	$	3,966
Charge-offs		—		—		—			—			—		—			—		—		—
Recoveries		—		—		—			—			—		—			—		—		—
Provision (benefit)		18		48		(99	)		(3	)		81		(29	)		—		74		90
Ending balance	$	1,182	$	370	$	981		$	177		$	780	$	87		$	1	$	478	$	4,056

Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—
Collectively evaluated for impairment		1,182		370		981			177			780		87			1		478		4,056
Total allowance for loan losses ending balance	$	1,182	$	370	$	981		$	177		$	780	$	87		$	1	$	478	$	4,056

Loans
Ending balance:
Individually evaluated for impairment	$	1,397	$	—	$	766		$	99		$	—	$	1		$	—	$	—	$	2,263
Collectively evaluated for impairment		250,978		54,443		87,615			25,627			68,576		8,710			379		—		496,328
Total Loans	$	252,375	$	54,443	$	88,381		$	25,726		$	68,576	$	8,711		$	379	$	—	$	498,591


	Real Estate
							Home Equity
	Residential		Multi-family		Commercial		Lines of Credit and Loans		Construction		Commercial			Consumer			Unallocated			Total
							(In Thousands)
For the six months ended June 30, 2022
Allowance for loan losses
Beginning balance	$	1,271	$	417	$	1,099	$	185	$	855	$	60		$	2		$	347		$	4,236
Charge-offs		—		—		—		—		—		—			—			—			—
Recoveries		—		—		—		—		—		—			—			—			—
Provision (benefit)		198		362		254		8		95		(14	)		(1	)		(27	)	$	875
Ending balance	$	1,469	$	779	$	1,353	$	193	$	950	$	46		$	1		$	320		$	5,111

Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	—
Collectively evaluated for impairment		1,469		779		1,353		193		950		46			1			320			5,111
Total allowance for loan losses ending balance	$	1,469	$	779	$	1,353	$	193	$	950	$	46		$	1		$	320		$	5,111

Loans
Ending balance:
Individually evaluated for impairment	$	723	$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	723
Collectively evaluated for impairment		293,868		106,658		117,652		27,988		78,578		3,585			377			—			628,706
Total Loans	$	294,591	$	106,658	$	117,652	$	27,988	$	78,578	$	3,585		$	377		$	—		$	629,429


	Real Estate
								Home Equity
	Residential		Multi-family		Commercial			Lines of Credit and Loans			Construction			Commercial			Consumer			Unallocated		Total
								(In Thousands)
For the six months ended June 30, 2021
Allowance for loan losses
Beginning balance	$	1,167	$	266	$	1,175		$	208		$	802		$	103		$	4		$	151	$	3,876
Charge-offs		—		—		—			—			—			—			—			—		—
Recoveries		—		—		—			—			—			—			—			—		—
Provision (benefit)		15		104		(194	)		(31	)		(22	)		(16	)		(3	)		327		180
Ending balance	$	1,182	$	370	$	981		$	177		$	780		$	87		$	1		$	478	$	4,056

Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—	$	—
Collectively evaluated for impairment		1,182		370		981			177			780			87			1			478		4,056
Total allowance for loan losses ending balance	$	1,182	$	370	$	981		$	177		$	780		$	87		$	1		$	478	$	4,056

Loans
Ending balance:
Individually evaluated for impairment	$	1,397	$	—	$	766		$	99		$	—		$	1		$	—		$	—	$	2,263
Collectively evaluated for impairment		250,978		54,443		87,615			25,627			68,576			8,710			379			—		496,328
Total Loans	$	252,375	$	54,443	$	88,381		$	25,726		$	68,576		$	8,711		$	379		$	—	$	498,591

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 June 30, 2022
Real estate loans:
Residential	$	174	$	566	$	443	$	1,183	$	293,408	$	294,591	$	—	$	723
Multi-family		—		—		—		—		106,658		106,658		—		—
Commercial		—		—		—		—		117,652		117,652		—		—
Home equity lines of credit and loans		—		—		—		—		27,988		27,988		—		—
Construction		—		—		—		—		78,578		78,578		—		—

Other loans:
Commercial		—		—		—		—		3,585		3,585		—		—
Consumer		—		—		—		—		377		377		—		—
	$	174	$	566	$	443	$	1,183	$	628,246	$	629,429	$	—	$	723


	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 six months ended June 30, 2022 and 2021:


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

June 30, 2022
With no related allowance recorded:
Real estate loans:
Residential	$	723	$	723	$	—	$	696	$	5	$	691	$	12
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Home equity lines of credit and loans		—		—		—		—		—		49		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired with no related allowance		723		723		—		696		5		740		13
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		723		723		—		696		5		691		12
Multi-family		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—
Home equity lines of credit and loans		—		—		—		—		—		49		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—		—		—
Total impaired loans	$	723	$	723	$	—	$	696	$	5	$	740	$	13


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

June 30, 2021
With no related allowance recorded:
Real estate loans:
Residential	$	1,397	$	1,397	$	—	$	1,400	$	22	$	1,153	$	28
Multi-family		—		—		—		—		—		—		—
Commercial		766		766		—		768		—		771		14
Home equity lines of credit and loans		99		99		—		99		—		99		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		1		1		—		3		—		3		—
Total impaired with no related allowance		2,263		2,263		—		2,270		22		2,026		43
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		1,397		1,397		—		1,400		22		1,153		28
Multi-family		—		—		—		—		—		—		—
Commercial		766		766		—		768		—		771		14
Home equity lines of credit and loans		99		99		—		99		—		99		1
Construction		—		—		—		—		—		—		—
Other loans:
Commercial		1		1		—		3		—		3		—
Total impaired loans	$	2,263	$	2,263	$	—	$	2,270	$	22	$	2,026	$	43

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 six months ended June 30, 2022 and 2021, there were no loans that were modified in a troubled debt restructuring.

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

As of June 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 June 30, 2022
Grade
Pass	$	49,206	$	106,658	$	117,652	$	4,755	$	73,369	$	3,485	$	—	$	355,125
Special mention		723		—		—		—		—		100		—		823
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Loans not formally rated		244,662		—		—		23,233		5,209		—		377		273,481
	$	294,591	$	106,658	$	117,652	$	27,988	$	78,578	$	3,585	$	377	$	629,429


	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 Bank 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 Bank formally reviews the ratings on all commercial and industrial loans with aggregate potential outstanding balances of $500,000 or more, and all other commercial 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 Bank 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 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 June 30, 2022 and December 31, 2021.

NOTE 6 – EMPLOYEE BENEFITS

Pension Plans

Defined Benefit Plan

The Bank 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 Bank Board of Directors meeting, the Directors voted to freeze benefit accruals and withdraw from the CBERA Plan as of April 30, 2022. The Bank 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 six months ended June 30, 2022 a benefit of $241,000 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, which resulted in a benefit of $241,000 for the three months ended June 30, 2022. The Bank paid the final amount and has withdrawn from the plan. The liability as of June 30, 2022 was $0.

401(k) Plan

In addition to the defined benefit plan, the Bank 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 one percent to fifty percent of their compensation, subject to certain limitations based on federal tax laws. The Bank makes matching contributions equal to 100% of each employee’s voluntary contributions, up to seven percent of the employee’s compensation.

Total expense related to the 401(k) plan for the three and six months ended June 30, 2022 amounted to $96,000 and $180,000, respectively. Total pension expense related to the 401(k) plan for the three and six months ended June 30, 2021 amounted to $67,000 and $127,000, respectively.

Employee Incentive Plan

The Bank 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 six months ended June 30, 2022 amounted to $296,000 and $562,000, respectively. The employee incentive plan expense for the three and six months ended June 30, 2021 amounted to $138,000 and $275,000, respectively.

Supplemental Executive Retirement Plan (SERP)

The Bank 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 six months ended June 30, 2022 amounted to $25,000 and $50,000, respectively. The expense for the three and six months ended June 30, 2021 amounted to $33,000 and $63,000, respectively.

Director Fee Continuation Plan (DFCP)

Effective January 1, 2017, the Bank 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 six months ended June 30, 2022 amounted to $32,000 and $64,000, respectively. The expense for the three and six months ended June 30, 2021 amounted to $29,000 and $56,000, respectively.

Supplemental Executive Retirement Agreement

On January 1, 2018, the Bank entered into a supplemental executive retirement agreement with an executive officer whereby the Bank 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 $2,706,000 and $2,332,000 as of June 30, 2022 and December 31, 2021, respectively. The expense recognized for the Plan for the three and six months ended June 30, 2022 amounted to $187,000 and $374,000, respectively. The expense recognized for the Plan for the three and six months ended June 30, 2021 amounted to $222,000 and $426,000, respectively.

Survivor Benefit Plan

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

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 Bank 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 Bank’s financial assets and financial liabilities carried at fair value for June 30, 2022 and December 31, 2021.

The Bank’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 Bank’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 of similar properties 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 June 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)
June 30, 2022
Corporate bonds	$	4,982	$	—	$	4,982	$	—
							$	—
Total available for-sale-securities	$	4,982	$	—	$	4,982	$	—

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

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

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

As of June 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 June 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.


	June 30, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(In Thousands)
Financial assets:
Cash and cash equivalents	$	54,999	$	54,999	$	54,999	$	-	$	-
Interest bearing time deposits		300		300		-		300		-
Held-to-maturity securities		69,676		63,963		-		63,963		-
Federal Home Loan Bank stock		1,599		1,599		-		1,599		-
Loans, net		623,971		609,803		-		-		609,803
Accrued interest receivable		1,725		1,725		1,725		-		-
Bank-owned life insurance		13,870		13,870		-		13,870		-

Financial liabilities:
Deposits, other than certificates of deposit	$	438,428	$	438,428	$	-	$	438,428	$	-
Certificates of deposit		224,996		218,783		-		218,783		-
Federal Home Loan Bank advances		30,475		29,947		-		29,947		-
Accrued interest payable		73		73		73		-		-


	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	$	344,911	$	344,911	$	-	$	344,911	$	-
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 Bank 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 Bank has in particular classes of financial instruments.

The Bank’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 Bank 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 Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank 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 Bank 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 June 30, 2022 and December 31, 2021, the maximum potential amount of the Bank’s obligation was $13,000 and $13,000, respectively, for standby letters of credit. The Bank’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Bank may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Bank 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 June 30, 2022:


	June 30, 2022		December 31, 2021
	(In Thousands)
Commitments to originate loans	$	54,505	$	24,658
Unadvanced funds on lines of credit		52,812		45,548
Unadvanced funds on construction loans		53,851		37,352
Letters of credit		13		13
	$	161,181	$	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 loan losses is recorded within other liabilities on the consolidated balance sheets and amounted to $295,000 and $235,000 as of June 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 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 months ended March 31 2022 and 2021:


	Three months ended						Six months ended
	June 30,						June 30,
	2022			2021			2022			2021
	(In thousands)						(In thousands)

Unrealized (losses) gains on securities:
Net unrealized holding gains (losses) on available-for-sale securities	$	(47	)	$	13		$	(28	)	$	—
Reclassification adjustment for realized gains in net income		—			—			—			—
		(47	)		13			(28	)		—
Income tax benefit (expense)		13			(3	)		9			—
Net-of-tax amount		(34	)		10			(19	)		—
Other comprehensive (loss) income, net of tax	$	(34	)	$	10		$	(19	)	$	—

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


	As of June 30, 2022			As of December 31, 2021
	(In thousands)
Net unrealized holding (losses) gains on securities available-for-sale, net of tax	$	(5	)	$	14
Unrecognized SERP costs, net of tax		(53	)		(53	)
Unrecognized director fee continuation plan costs, net of tax		(44	)		(44	)

Accumulated other comprehensive loss	$	(102	)	$	(83	)

NOTE 10 – REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. 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 Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Management believes, as of June 30, 2022, that the Bank meets all capital adequacy requirements to which it is subject.

As of June 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 Bank’s actual capital amounts and ratios are also 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 June 30, 2022
Total Capital (to Risk Weighted Assets)	$	85,541	14.41%	$	62,337	10.5%	$	59,368	10.0%
Tier 1 Capital (to Risk Weighted Assets)		80,135	13.50%		50,463	8.5%		47,494	8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		80,135	13.50%		41,558	7.0%		38,589	6.5%
Tier 1 Capital (to Average Assets)		80,135	11.20%		28,629	4.0%		35,787	5.0%

As of December 31, 2021
Total Capital (to Risk Weighted Assets)	$	81,827	17.77%	$	48,355	10.5%	$	46,052	10.0%
Tier 1 Capital (to Risk Weighted Assets)		77,356	16.80%		39,144	8.5%		36,842	8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		77,356	16.80%		32,236	7.0%		29,934	6.5%
Tier 1 Capital (to Average Assets)		77,356	11.83%		26,164	4.0%		32,705	5.0%

NOTE 11 - SUBSEQUENT EVENTS

As discussed in Note 1, the Bank's mutual to stock conversion and the Company's related stock offering were consummated on July 27, 2022.

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 six months ended June 30, 2022 and 2021 is intended to assist in understanding the financial condition and results of operations of the Bank. 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 accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.

Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when it is believed the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in the Company’s judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio. The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available.

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

Total Assets. Total assets increased $115.5 million, or 17.3%, to $782.0 million at June 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.

Cash and Cash Equivalents. Cash and cash equivalents increased $2.0 million, or 3.8%, to $55.0 million at June 30, 2022 from $53.0 million at December 31, 2021.

Securities Held to Maturity. Securities held to maturity increased $4.1 million, or 6.3%, to $69.7 million at June 30, 2022 from $65.6 million at December 31, 2021, primarily due to purchases of securities of $9.8 million partially offset by principal repayments of $5.6 million.

Loans. Net loans increased $106.8 million, or 20.7%, to $624.0 million at June 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 $47.1 million, or 79.2%, from December 31, 2021 to June 30, 2022. One- to four-family residential real estate loans increased $34.9 million, or 13.4%, from December 31, 2021 to June 30, 2022. Commercial real estate loans increased $17.7 million, or 17.7%, from December 31, 2021 to June 30, 2022. Construction loans increased $7.9 million, or 11.2%, from December 31, 2021 to June 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 six months ended June 30, 2022, we sold $3.6 million in loans and recognized gains of $68,000.

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 $265,000, or 1.9%, to $13.9 million at June 30, 2022 from $14.1 million at December 31, 2021. The decrease was due to death benefits receivable of $905,000, which included a reduction of our cash surrender value of $465,000 and $440,000 in gains. Partially offsetting the decrease to cash surrender value, we recognized $200,000 from the increase in cash surrender value of our bank-owned life insurance portfolio during the six months ended June 30, 2022.

Deposits. Deposits increased $91.7 million, or 16.0%, to $663.4 million at June 30, 2022 from $571.7 million at December 31, 2021. This increase was primarily the result of an increase in interest bearing demand deposits of $74.5 million. Interest bearing demand deposits included $75.5 million of subscription funds from prospective investors in our initial public offering prior to the closing of the offering. Core deposits (defined as all deposits other than certificates of deposit), excluding the $75.5 million in interest bearing demand deposits related to the offering, increased $18.0 million, or 5.2%, to $362.9 million at June 30, 2022 from $344.9 million at December 31, 2021. This increase was primarily a result of a $12.5 million, or 6.8%, increase in money market accounts to $195.8 million at June 30, 2022 from $183.2 million at December 31, 2021. At June 30, 2022 and December 31, 2021, we had $19.9 million of brokered deposits.

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank increased $21.5 million, or 238.6%, to $30.5 million at June 30, 2022 from $9.0 million at December 31, 2021. The increase in advances was due to a new New England Fund advance of $1.5 million being used to fund an affordable housing initiative as well as $20.0 million advance to support loan growth.

Equity. Total equity increased $2.8 million, or 3.6%, to $80.0 million at June 30, 2022 from $77.3 million at December 31, 2021, primarily due to net income of $2.8 million for the six months ended June 30, 2022.

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

Net Income. Net income was $1.4 million for the three months ended June 30, 2022, compared to net income of $1.4 million for the three months ended June 30, 2021.

Interest and Dividend Income. Interest and dividend income increased $518,000, or 9.3%, to $6.1 million for the three months ended June 30, 2022 from $5.6 million for the three months ended June 30, 2021. The increase was due to a $360,000 increase in interest and fees on loans, an $80,000 increase in interest and dividends on securities and a $78,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $79.3 million in the average balance of the loan portfolio to $571.5 million for the three months ended June 30, 2022 from $492.2 million for the three months ended June 30, 2021. Partially offsetting this, the weighted average yield for the loan portfolio decreased 35 basis points to 3.98% for the three months ended June 30, 2022 from 4.33% for the three months ended June 30, 2021, primarily due to lower market interest rates and $169,000 in prepayment penalties recognized for the three months ended June 30, 2021 as compared to $1,000 recognized for the three months ended June 30, 2022. In addition, Paycheck Protection Program ("PPP") loans contributed an additional $45,000 and $83,000 in net fees for the three months ended June 30, 2022 and 2021, respectively. PPP loans at June 30, 2022 totaled $878,000 compared to $3.4 million at December 31, 2021.The increase in interest and dividends on securities was due to both an increase of $9.0 million in the average balance of the investment security portfolio to $75.3 million for the three months ended June 30, 2022 from $66.3 million for the three months ended June 30, 2021 as well as an increase in the yield on securities to 1.67% for the three months ended June 30, 2022 from 1.48% for the three months ended June 30, 2021. The increase in other interest income was due to an increase in the yield on short term investments and federal funds sold to 0.86% for the three months ended June 30, 2022 from 0.09% for the three months ended June 30, 2021.

Average interest-earning assets increased $83.5 million, to $687.7 million for the three months ended June 30, 2022 from $604.2 million for the three months ended June 30, 2021. The yield on interest earning-assets decreased 15 basis points to 3.55% for the three months ended June 30, 2022 from 3.70% for the three months ended June 30, 2021.

Interest Expense. Total interest expense decreased $231,000, or 24.0%, to $730,000 for the three months ended June 30, 2022 from $961,000 for the three months ended June 30, 2021. Interest expense on deposit accounts decreased $281,000, or 30.3%, to $647,000 for the three months ended June 30, 2022 from $928,000 for the three months ended June 30, 2021, due to a decrease in the weighted average rate on interest-bearing deposits to 0.50% for the three months ended June 30, 2022 from 0.82% for the three months ended June 30, 2021, which more than offset an increase in the average balance of interest-bearing deposits of $60.8 million, or 13.4%, to $515.2 million for the three months ended June 30, 2022 from $454.4 million for the three months ended June 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income increased $749,000, or 16.2%, to $5.4 million for the three months ended June 30, 2022 from $4.6 million for the three months ended June 30, 2021, primarily due to a $7.9 million increase in the average balance of net interest-earning assets during the three months ended June 30, 2022, together with an increase in the interest rate spread to 3.01% for the three months ended June 30, 2022 from 2.88% for the three months ended June 30, 2021. The increase in the interest rate spread was primarily due to a decrease in the weighted average rate paid on interest-bearing liabilities to 0.54% for the three months ended June 30, 2022 from 0.82% for the three months ended June 30, 2021. The net interest margin increased to 3.12% for the three months ended June 30, 2022 from 3.06% for the three months ended June 30, 2021.

Provision for Loan and Lease Losses. Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $754,000 was recorded for the three months ended June 30, 2022, compared to a provision of $90,000 for the three months ended June 30, 2021. The $664,000, or 737.8%, increase in the provision was primarily due to loan portfolio growth.

Noninterest Income. Noninterest income increased $427,000, or 162.4%, to $690,000 for the three months ended June 30, 2022 from $263,000 for the three months ended June 30, 2021. The increase was driven by $440,000 of gains recognized into income from life insurance policy death benefits, partially offset by a decrease in net gains on sales of loans of $64,000. The table below sets forth our noninterest income for three months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	112	$	91	$	21			23.1		%
Income from bank-owned life insurance		539		75		464			618.7
Net gain on sales of loans		23		87		(64	)		(73.6	)
Other		16		10		6			60.0
Total noninterest income	$	690	$	263	$	427			162.4		%

Noninterest Expense. Noninterest expense increased $725,000, or 25.4%, to $3.6 million for the three months ended June 30, 2022 from $2.9 million for the three months ended June 30, 2021, mainly driven by increases in salary and employee benefits. Salary and employee benefit expenses increased $523,000, or 29.6%, resulting primarily from additional employees and normal salary increases. Included within salaries and employee benefits is a benefit of $241,000 recorded to reflect a reduction in the liability related to our withdrawal from our defined benefit plan. In addition, during the three months ended June 30, 2022, we recorded expense of $166,000 related to our Survivor Benefit Plan. 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.

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


	Three Months Ended June 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	2,291	$	1,768	$	523			29.6		%
Director Compensation		107		92		15			16.5
Occupancy and equipment		201		216		(15	)		(6.9	)
Data processing		180		174		6			3.4
Computer software and licensing fees		55		58		(3	)		5.2
Advertising and promotions		138		153		(15	)		(9.8	)
Professional fees		194		79		115			145.6
FDIC Assessment		64		39		25			64.1
Other		351		277		74			26.7
Total noninterest expense	$	3,581	$	2,856	$	725			25.4		%

Income Tax Expense. Income tax expense decreased $191,000, or 37.0%, to $325,000 for the three months ended June 30, 2022 from $516,000 for the three months ended June 30, 2021. The effective tax rate was 18.9% and 26.7% for the three months ended June 30, 2022 and 2021, respectively. The reduction was driven by the non-taxable bank owned life insurance death benefits recognized during the three months ended June 30, 2022.

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 June 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	$	571,505	$	5,678		3.98	%	$	492,169	$	5,318		4.33	%
Securities (1)		75,261		314		1.67			66,252		244		1.48
Short term investments and federal funds sold		40,624		87		0.86			45,749		10		0.09
Interest bearing deposits		300		1		0.71			-		—	0.00
Total interest-earning assets		687,690		6,080		3.55	%		604,170		5,572		3.70	%
Non-interest-earning assets		28,042							21,833
Total assets	$	715,732						$	626,003

Interest-bearing liabilities:
Regular savings accounts		52,836		8		0.06	%		46,114		8		0.07	%
Checking accounts		41,137		7		0.07			25,034		14		0.22
Money market accounts		198,936		170		0.34			159,197		129		0.33
Certificates of deposit		222,340		462		0.83			224,064		777		1.39
Total interest-bearing deposits		515,249		647		0.50			454,409		928		0.82
Federal Home Loan Bank advances		27,618		83		1.21			12,846		33		1.03
Total interest-bearing liabilities		542,867		730		0.54	%		467,255		961		0.82	%
Non-interest-bearing demand deposits		85,592							78,723
Non-interest-bearing liabilities		7,726							5,073
Total liabilities		636,185							551,051
Stockholders' Equity		79,547							74,952
Total liabilities and stockholders' equity	$	715,732						$	626,003

Net interest income			$	5,350						$	4,611
Net interest rate spread (2)						3.01	%						2.87	%
Net interest-earning assets (3)	$	144,823						$	136,915
Net interest margin (4)						3.12	%						3.06	%

Average interest-earning assets to interest- bearing liabilities						126.68	%						129.30	%


(1)	Excludes interest and dividends on cost method investments of $16,000 and $6,000 for the three months ended June 30, 2022 and June 30, 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

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 June 30, 2022 vs. 2021
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	811		$	(451	)	$	360
Securities		34			36			70
Short term investments and Federal funds sold		(1	)		78			77
Interest bearing deposits		1			-			1
Total interest-earning assets	$	845		$	(337	)	$	508

Interest-bearing liabilities:
Interest-bearing demand deposits	$	1		$	(1	)	$	-
Regular savings and other deposits		1			(8	)		(7	)
Money market deposits		34			7			41
Certificates of deposit		(6	)		(309	)		(315	)
Total deposits		30			(311	)		(281	)
Advances from the Federal Home Loan Bank		44			6			50
Other interest-bearing liabilities
Total interest-bearing liabilities	$	74		$	(305	)	$	(231	)

Change in net interest income	$	771		$	(32	)	$	739

Comparison of Operating Results for the Six Months Ended June 30, 2022 and June 30, 2021

Net Income. Net income was $2.8 million for the six months ended June 30, 2022, compared to net income of $2.7 million for the six months ended June 30, 2021, an increase of $72,000, or 2.7%. The increase was primarily due to a $1.3 million increase in net interest and dividend income and a $387,000 increase in noninterest income, partially offset in part by a $695,000 increase in provision for loan losses and a $1.1 million increase in non-interest expense.

Interest and Dividend Income. Interest and dividend income increased $710,000, or 6.5%, to $11.7 million for the six months ended June 30, 2022 from $11.0 million for the six months ended June 30, 2021, primarily due to a $459,000 increase in interest and fees on loans, $166,000 increase in interest and dividends on securities and an $85,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $63.2 million in the average balance of the loan portfolio to $549.4 million for the six months ended June 30, 2022 from $486.3 million for the six months ended June 30, 2021. The weighted average yield for the loan portfolio decreased 33 basis points to 4.02% for the six months ended June 30, 2022 from 4.35% for the six months ended June 30, 2021, primarily due to lower market interest rates. PPP loans contributed an additional $103,000 and $202,000 in net fees for the six months ended June 30, 2022 and 2021, respectively. PPP loans at June 30, 2022 totaled $878,000 compared to $3.4 million at December 31, 2021.The increase in interest and dividends on securities was driven primarily by an increase of $9.8 million in the average balance of the investment security portfolio to $73.7 million for the six months ended June 30, 2022 from $63.8 million for the six months ended June 30, 2021 as well as $32,000 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 and federal funds sold to 0.50% for the six months ended June 30, 2022 from 0.08% for the six months ended June 30, 2021.

Average interest-earning assets increased $69.9 million, to $665.1 million for the six months ended June 30, 2022 from $595.2 million for the six months ended June 30, 2021. The yield on interest-earning assets decreased 19 basis points to 3.53% for the six months ended June 30, 2022 from 3.72% for the six months ended June 30, 2021.

Interest Expense. Total interest expense decreased $614,000, or 30.2%, to $1.4 million for the six months ended June 30, 2022 from $2.0 million for the six months ended June 30, 2021. Interest expense on deposit accounts decreased $652,000, or 33.3%, to $1.3 million for the six months ended June 30, 2022 from $2.0 million for the six months ended June 30, 2021, due to a decrease in the weighted average rate on interest-bearing deposits to 0.52% for the six months ended June 30, 2022 from 0.88% for the six months

ended June 30, 2021, which more than offset an increase in the average balance of interest-bearing deposits of $54.2 million, or 12.1%, to $503.9 million for the six months ended June 30, 2022 from $449.7 million for the six months ended June 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income increased $1.3 million, or 14.8%, to $10.3 million for the six months ended June 30, 2022 from $9.0 million for the six months ended June 30, 2021, primarily due to a $13.0 million increase in the average balance of net interest-earning assets during the six months ended June 30, 2022, together with an increase in the interest rate spread to 2.98% for the six months ended June 30, 2022 from 2.84% for the six months ended June 30, 2021. The increase in the interest rate spread was primarily due to a decrease in the weighted average rate paid on interest-bearing liabilities to 0.55% for the six months ended June 30, 2022 from 0.88% for the six months ended June 30, 2021. The net interest margin increased to 3.10% for the six months ended June 30, 2022 from 3.03% for the six months ended June 30, 2021.

Provision for Loan and Lease Losses. Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $875,000 was recorded for the six months ended June 30, 2022, compared to a provision of $180,000 for the six months ended June 30, 2021. The $695,000, or 386.1%, increase in the provision was primarily due to loan portfolio growth.

Noninterest Income. Noninterest income increased $387,000, or 69.9%, to $941,000 for the six months ended June 30, 2022 from $554,000 for the six months ended June 30, 2021. The increase was driven by $440,000 of gains recognized into income from life insurance policy death benefits. A $139,000 decrease in net gains on sales of loans was due to the current interest rate environment and lower originations of saleable loans. The table below sets forth our noninterest income for six months ended June 30, 2022 and 2021:


	Six Months Ended June 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	212	$	192	$	20			10.4		%
Income from bank-owned life insurance		640		139		501			360.4
Net gain on sales of loans		68		207		(139	)		(67.1	)
Other		21		16		5			31.3
Total noninterest income	$	941	$	554	$	387			69.9		%

Noninterest Expense. Noninterest expense increased $1.1 million, or 19.7%, to $6.8 million for the six months ended June 30, 2022 from $5.6 million for the six months ended June 30, 2021, driven by increases in salary and employee benefits. Salary and employee benefit expenses increased $835,000, or 24.2%, resulting primarily from additional employees and normal salary increases. Included within salaries and employee benefits 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. In addition, during the six months ended June 30, 2022, we recorded expense of $166,000 related to our Survivor Benefit Plan. 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.

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


	Six Months Ended June 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	4,280	$	3,445	$	835			24.2		%
Director Compensation		214		183		31			16.9
Occupancy and equipment		384		404		(20	)		(5.0	)
Data processing		350		343		7			2.0
Computer software and licensing fees		101		150		(49	)		(32.7	)
Advertising and promotions		275		335		(60	)		(17.9	)
Professional fees		359		189		170			89.9
FDIC Assessment		109		78		31			39.7
Other		682		516		166			32.2
Total noninterest expense	$	6,754	$	5,643	$	1,111			19.7		%

Income Tax Expense. Income tax expense decreased $167,000, or 16.9%, to $820,000 for the six months ended June 30, 2022 from $987,000 for the six months ended June 30, 2021. The effective tax rate was 22.8% and 26.7% for the six months ended June 30, 2022 and 2021, respectively. The reduction was driven by the non taxable bank owned life insurance death benefits recognized during the six months ended June 30, 2022.


	For the Six Months Ended June 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	$	549,439	$	10,941		4.02	%	$	486,250	$	10,482		4.35	%
Securities (1)		73,657		608		1.66			63,838		484		1.53
Short term investments and federal funds sold		41,868		103		0.50			45,116		19		0.08
Interest bearing deposits		176		1		0.71			-		—	0.00
Total interest-earning assets		665,140		11,653		3.53	%		595,204		10,985		3.72	%
Non-interest-earning assets		27,110							20,778
Total assets	$	692,250						$	615,982

Interest-bearing liabilities:
Regular savings accounts		51,955		15		0.06	%		44,902		18		0.08	%
Checking accounts		34,203		18		0.11			24,301		30		0.25
Money market accounts		193,112		301		0.31			156,493		300		0.39
Certificates of deposit		224,620		973		0.87			223,981		1,611		1.45
Total interest-bearing deposits		503,890		1,307		0.52			449,677		1,959		0.88
Federal Home Loan Bank advances		18,483		113		1.23			15,773		75		0.96
Total interest-bearing liabilities		522,373		1,420		0.55	%		465,450		2,034		0.88	%
Non-interest-bearing demand deposits		83,201							71,292
Non-interest-bearing liabilities		7,908							4,945
Total liabilities		613,482							541,687
Stockholders' Equity		78,768							74,295
Total liabilities and stockholders' equity	$	692,250						$	615,982

Net interest income			$	10,233						$	8,951
Net interest rate spread (2)						2.98	%						2.84	%
Net interest-earning assets (3)	$	142,767						$	129,754
Net interest margin (4)						3.10	%						3.03	%

Average interest-earning assets to interest- bearing liabilities						127.33	%						127.88	%


(1)	Excludes interest and dividends on cost method investments of $54,000 and $12,000 for the six months ended June 30, 2022 and June 30, 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.


	Six Months Ended June 30, 2022 vs. 2021
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,297		$	(838	)	$	459
Securities		78			46			124
Short term investments and Federal funds sold		(1	)		85			84
Interest bearing deposits		1			-			1
Total interest-earning assets	$	1,375		$	(707	)	$	668

Interest-bearing liabilities:
Interest-bearing demand deposits	$	3		$	(6	)	$	(3	)
Regular savings and other deposits		9			(21	)		(12	)
Money market deposits		63			(62	)		1
Certificates of deposit		5			(643	)		(638	)
Total deposits		80			(732	)		(652	)
Advances from the Federal Home Loan Bank		14			24			38
Other interest-bearing liabilities
Total interest-bearing liabilities	$	94		$	(708	)	$	(614	)

Change in net interest income	$	1,281		$	1		$	1,282

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 June 30, 2022, we had outstanding advances of $30.5 million from the Federal Home Loan Bank. At June 30, 2022, we had unused borrowing capacity of $118.1 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 June 30, 2022, we had $54.5 million in loan commitments outstanding. In addition to commitments to originate loans, we had $52.8 million in unused lines of credit to borrowers and $53.9 million in unadvanced construction loans.

Certificates of deposit due within one year of June 30, 2022 totaled $138.6 million, or 20.9%, 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 June 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 June 30, 2022.

Our primary investing activity is originating loans. During the six months ended June 30, 2022 and the year ended December 31, 2021, we funded $208.2 million and $254.6 million of loans, respectively.

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 $91.7 million and $80.3 million for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, the level of brokered time deposits was $19.9 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 six months ended June 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 June 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 will significantly increase 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 will be enhanced by the net proceeds from the offering, which 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 June 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 June 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)

On March 10, 2022, ECB Bancorp, Inc. (the “Company”) filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in connection with the mutual to stock conversion of Everett Co-operative Bank and the Company’s related offering of common stock. The Registration Statement (File No. 333-263449) was declared effective by the Securities and Exchange Commission on May 13, 2022. The Company registered 12,493,125 shares of common stock, par value $0.01 per share, pursuant to the Registration Statement for an aggregate offering price of $124.9 million. The stock offering commenced on May 21, 2022, and ended on June 29, 2022. Keefe Bruyette & Woods, Inc. (“KBW”) was engaged to assist in the marketing of the common stock and records management services. The stock offering resulted in gross proceeds of $89.2 million, through the sale of 8,915,247 shares of common stock at a price of $10 per share. Expenses related to the offering were approximately $2.5 million, including $1.1 million paid to KBW. Net proceeds of the offering were approximately $86.6 million. The Company contributed approximately $50.0 million of the net proceeds of the offering to the Bank. In addition, $7.3 million of the net proceeds were used to fund the loan to the employee stock ownership plan, the Company contributed 260,000 shares and $600,000 to the Everett Co-operative Bank Charitable Foundation and approximately $29.3 million of the net proceeds were retained by the Company. The use of proceeds have been and will continue to be deployed primarily to fund new loans. The net proceeds retained by the Company have been deposited with the Bank.

(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: August 12, 2022		/s/Richard J. O'Neil, Jr.
		Richard J. O’Neil, Jr.
		President and Chief Executive Officer


Date: August 12, 2022		/s/John A. Citrano
		John A. Citrano
		Executive Vice President and Chief Financial Officer