ECB Bancorp, Inc. /MD/ - Quarter Report: 2023 September (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


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

For the transition period from ________________________ to ______________________

Commission File Number: 001-41456

ECB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)


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

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

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



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

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

Yes [ X ] No [ ]

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

Yes [X] No [ ]

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


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

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

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

As of November 8th, 2023, 9,388,678 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

ECB Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	1

	Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	3

	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	44

Part II. Other Information

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	45

Item 3.	Defaults upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

	Signature Page	47

EXPLANATORY NOTE

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

Part I. – Financial Information

Item 1. Financial Statements

ECB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2023 (unaudited) and December 31, 2022

(in thousands except share data)


	September 30, 2023			December 31, 2022

ASSETS
Cash and due from banks	$	3,430		$	3,123
Short-term investments		93,957			58,927
Total cash and cash equivalents		97,387			62,050
Interest-bearing time deposits		—			300
Investments in available-for-sale securities (at fair value)		5,006			5,001
Investments in held-to-maturity securities, at cost (fair values of $65,844 at September 30, 2023 (unaudited) and $69,707 at December 31, 2022)		74,869			77,591
Loans, net of allowance for credit losses of $8,292 as of September 30, 2023 (unaudited) and $7,200 as of December 31, 2022		997,359			885,674
Federal Home Loan Bank stock, at cost		9,571			7,293
Premises and equipment, net		3,729			3,698
Accrued interest receivable		3,390			2,632
Deferred tax asset, net		4,687			4,344
Bank-owned life insurance		14,367			14,067
Other assets		3,397			1,812
Total assets	$	1,213,762		$	1,064,462

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	84,785		$	84,903
Interest-bearing		727,746			633,246
Total deposits		812,531			718,149
Federal Home Loan Bank advances		224,000			174,000
Other liabilities		11,719			9,583
Total liabilities		1,048,250			901,732

Shareholders' Equity:
Preferred Stock, par value $0.01; Authorized: 1,000,000 shares; Issued and outstanding: 0 shares and 0 shares, respectively		—			—
Common Stock, par value $0.01; Authorized: 30,000,000 shares; Issued and outstanding: 9,195,989 shares and 9,175,247 shares, respectively		92			92
Additional paid-in capital		88,807			89,286
Retained earnings		83,066			80,076
Accumulated other comprehensive income		246			249
Unallocated common shares held by the Employee Stock Ownership Plan		(6,699	)		(6,973	)
Total shareholders' equity		165,512			162,730
Total liabilities and shareholders' equity	$	1,213,762		$	1,064,462

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Loss)

(unaudited)

(in thousands except share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023		2022
Interest and dividend income:
Interest and fees on loans	$	12,313		$	7,150		$	35,362	$	18,095
Interest and dividends on securities		723			360			1,950		1,022
Other interest income		1,130			251			2,567		355
Total interest and dividend income		14,166			7,761			39,879		19,472
Interest expense:
Interest on deposits		5,843			1,025			14,815		2,332
Interest on Federal Home Loan Bank advances		2,237			197			6,213		310
Total interest expense		8,080			1,222			21,028		2,642
Net interest and dividend income		6,086			6,539			18,851		16,830
(Benefit) provision for credit losses		(184	)		925			696		1,800
Net interest and dividend income after (benefit) provision for credit losses		6,270			5,614			18,155		15,030
Noninterest income:
Customer service fees		123			114			371		326
Income from bank-owned life insurance		175			90			372		731
Net gain on sales of loans		9			16			13		84
Other income		15			8			35		28
Total noninterest income		322			228			791		1,169
Noninterest expense:
Salaries and employee benefits		2,914			2,679			8,623		6,960
Director compensation		139			108			379		325
Occupancy and equipment expense		243			190			695		561
Data processing		275			222			810		624
Computer software and licensing		88			78			216		180
Advertising and promotions		201			236			576		511
Professional fees		304			176			962		560
Federal Deposit Insurance Corporation deposit insurance		206			54			613		163
Charitable contributions		7			3,214			17		3,249
Other expense		434			346			1,125		928
Total noninterest expense		4,811			7,303			14,016		14,061
Income (loss) before income tax expense		1,781			(1,461	)		4,930		2,138
Income tax expense (benefit)		440			(426	)		1,263		394
Net income (loss)	$	1,341		$	(1,035	)	$	3,667	$	1,744
Share data:
Weighted average shares outstanding, basic		8,486,577			8,445,615			8,485,936		8,445,615
Weighted average shares outstanding, diluted		8,486,577			8,445,615			8,485,936		8,445,615
Basic earnings (loss) per share	$	0.16		$	(0.12	)	$	0.43	$	0.21
Diluted earnings (loss) per share	$	0.16		$	(0.12	)	$	0.43	$	0.21

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(in thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022

Net income (loss)	$	1,341		$	(1,035	)	$	3,667		$	1,744
Other comprehensive (loss) income, net of tax:
Net unrealized holding (loss) gain on securities available-for-sale		(2	)		2			(3	)		(17	)

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

Comprehensive income (loss)	$	1,339		$	(1,033	)	$	3,664		$	1,727

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

ECB Bancorp, Inc. and Subsidiary

Statements of Changes in Shareholders' Equity

(unaudited)

(in thousands except share data)


	Three months ended
	Shares of Common Stock Outstanding			Common Stock			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)/Income			Unallocated Common Stock Held by ESOP			Total
Balance at June 30, 2022		-		$	-		$	-		$	80,135		$	(102	)	$	-		$	80,033
Net loss		-			-			-			(1,035	)					-			(1,035	)
Other comprehensive income, net of tax		-			-			-			-			2			-			2
Proceeds of stock offering and issuance of common shares (net of costs of $2.6 million )		8,181,227			82			79,165			-			-			-			79,247
Issuance of common shares donated to the Everett Co-operative Bank Charitable Foundation		260,000			3			2,597			-			-			-			2,600
Purchase of common shares by the ESOP (734,020 shares)		734,020			7			7,333			-			-			(7,340	)		-
ESOP shares committed to be released (15,195 shares)		-			-			63			-			-			152			215
Balance at September 30, 2022		9,175,247		$	92		$	89,158		$	79,100		$	(100	)	$	(7,188	)	$	161,062

Balance at June 30, 2023		9,175,247		$	92		$	89,355		$	81,725		$	248		$	(6,791	)	$	164,629
Net income		-			-			-			1,341			-			-			1,341
Other comprehensive loss, net of tax		-			-			-			-			(2	)		-			(2	)
ESOP shares committed to be released (9,251 shares)		-			-			22			-			-			92			114
Repurchase of common stock		(49,242	)		(1	)		(589	)		-			-			-			(590	)
Restricted stock awards issued		69,984			1			(1	)		-			-			-			-
Stock-based compensation		-			-			20			-			-			-			20
Balance at September 30, 2023		9,195,989		$	92		$	88,807		$	83,066		$	246		$	(6,699	)	$	165,512


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

Balance at December 31, 2022		9,175,247		$	92		$	89,286		$	80,076		$	249		$	(6,973	)	$	162,730
Cumulative Effect Accounting Adjustment for ASU 2016-13 Adoption		-			-			-			(677	)		-			-			(677	)
Net income		-			-			-			3,667			-			-			3,667
Other comprehensive loss, net of tax		-			-			-			-			(3	)		-			(3	)
ESOP shares committed to be released (27,451 shares)		-			-			91			-			-			274			365
Repurchase of common stock		(49,242	)		(1	)		(589	)		-			-			-			(590	)
Restricted stock awards issued		69,984			1			(1	)		-			-			-			-
Stock-based compensation		-			-			20			-			-			-			20
Balance at September 30, 2023		9,195,989		$	92		$	88,807		$	83,066		$	246		$	(6,699	)	$	165,512

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2023			2022
Cash flows from operating activities:
Net income	$	3,667		$	1,744
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net		9			153
Provision for credit losses		696			1,800
Change in deferred loan costs/fees		(29	)		(169	)
Gain on sales of loans, net		(13	)		(84	)
Proceeds from sales of loans		359			5,824
Loans originated for sale, net		(346	)		(4,439	)
Depreciation and amortization expense		205			223
Increase in accrued interest receivable		(758	)		(556	)
Increase in accrued interest payable		548			247
Increase in bank-owned life insurance		(300	)		(301	)
Gain from life insurance policy death benefit		(72	)		(430	)
Deferred income tax benefit		(76	)		(1,045	)
Issuance of common shares donated to the Everett Co-operative Bank Charitable Foundation		—			2,600
ESOP expense		365			215
Stock-based compensation expense		20			—
Increase in other assets		(1,513	)		(1,624	)
Increase in other liabilities		1,041			582
Net cash provided by operating activities		3,803			4,740

Cash flows from investing activities:
Purchases of held-to-maturity securities		(2,437	)		(11,704	)
Proceeds from paydowns and maturities of held-to-maturity securities		5,141			7,150
Purchase of interest-bearing time deposits		—			(300	)
Proceeds from maturities of interest bearing time deposits		300			—
Purchase of Federal Home Loan Bank Stock		(3,204	)		(3,084	)
Redemption of Federal Home Loan Bank Stock		926			1,819
Loan originations and principal collections, net		(103,487	)		(212,760	)
Purchase of loans		(9,262	)		(7,059	)
Recoveries of loans previously charged off		1			1
Capital expenditures		(236	)		(177	)
Proceeds from life insurance policy death benefit		—			896
Net cash used in investing activities		(112,258	)		(225,218	)

Cash flows from financing activities:
Net (decrease) increase in demand deposits, NOW and savings accounts		(27,794	)		13,468
Net increase in time deposits		122,176			67,527
Proceeds from long-term Federal Home Loan Bank advances		185,000			20,000
Repayments of long-term Federal Home Loan Bank advances		(80,000	)		—
Net change in short-term Federal Home Loan Bank advances		(55,000	)		21,475
Net proceeds from issuance of common stock		—			79,247
Common stock repurchased		(590	)		—
Net cash provided by financing activities		143,792			201,717

Net increase (decrease) in cash and cash equivalents		35,337			(18,761	)
Cash and cash equivalents at beginning of year		62,050			52,975
Cash and cash equivalents at end of period	$	97,387		$	34,214


Supplemental disclosures:
Interest paid	$	20,480		$	2,395
Income taxes paid		1,931			1,595
Noncash activities:
Transfer of bank-owned life insurance to other assets		72			—
Effect of the adoption of ASU 2016-13
Allowance for credit losses		182			—
Deferred income taxes		266			—
Other liabilities		761			—

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

ECB Bancorp, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 - CONVERSION

On March 9, 2022, the Board of Directors of Everett Co-operative Bank (the "Bank") adopted a Plan of Conversion under which the Bank would convert from a Massachusetts mutual co-operative bank into a Massachusetts stock co-operative bank and become the wholly owned subsidiary of a newly chartered stock holding company, ECB Bancorp, Inc. (the “Holding Company”). The Plan of Conversion received all of the approvals of various regulatory agencies and the Plan of Conversion was approved by the required vote of more than two-thirds of the Bank’s depositors present and voting at a special meeting of depositors held on May 5, 2022. The Bank’s mutual to stock conversion and the Company’s stock offering were consummated on July 27, 2022. In the offering, the Company sold 8,915,247 shares of common stock at a per share price of $10.00 for gross offering proceeds of $89.2 million. Additionally, the Company contributed 260,000 shares and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation (the “Foundation”).

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 Company's stock offering. The function of the Liquidation Account is to establish a priority on liquidation of the Bank. The Liquidation Account will be maintained by the Bank for the benefit of the eligible account holders who continue to maintain deposit accounts with the Bank following the conversion. Each eligible account holder shall, with respect to each deposit account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to each deposit account balance at the eligibility record date, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance shall not be increased, and shall be subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any eligible account holder in accordance with the regulations of the Division of Banks of the Commonwealth of Massachusetts.

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

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

NOTE 2 – BASIS OF PRESENTATION

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2023 and the results of operations and cash flows for the interim periods ended September 30, 2023 and 2022. 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, 2022 and accompanying notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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.

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

RECENT ACCOUNTING STANDARDS

ASU 2016-13 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments

Effective January 1, 2023, the Company adopted Accounting Standards Update (ASU) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. In addition, this update makes changes to the accounting for credit-related impairment of available for sale debt securities by eliminating other-than-temporary impairment charges. Following the expected loss model, credit-related losses on available for sale debt securities will be reflected as a valuation allowance for credit losses on those securities. The Company adopted Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Accordingly, a cumulative effect transition adjustment amounting to $677,000 decreased the opening balance of retained earnings, effective January 1, 2023. Prior periods have not been restated and continue to be presented under the incurred loss model. A summary of the financial statement impact upon adoption of Topic 326 is as follows:


	Financial Statement Impact of Adoption
	Balance		Transition		Balance
	12/31/2022		Adjustment		1/1/2023
	(In Thousands)

Assets:
Allowance for credit losses on loans	$	7,200	$	182	$	7,382
Deferred tax asset, net		4,344		266		4,610

Liabilities
Allowance for credit losses on off balance sheet credit exposures	$	402	$	761	$	1,163

Effective January 1, 2023, the Company adopted 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 ASC 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.

NOTE 3 – INVESTMENTS IN SECURITIES

Allowance for Credit Losses - Available for Sale Securities

The Company's available for sale securities are carried at fair value. For available for sale securities in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income. For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, Management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.

Allowance for Credit Losses - Held to Maturity Securities

The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held-to maturity portfolio into the following major security types: U.S. Government Sponsored Enterprises, U.S. Treasury, Agency Mortgage-Backed Securities, and Corporate Bonds.

Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses at the dates indicated:


			Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			for Credit		Fair
Held-to-maturity:	Cost		Gains		Losses			Losses		Value
			(in thousands)
September 30, 2023
Debt securities issued by U.S. government-sponsored enterprises	$	10,220	$	—	$	(523	)	$	—	$	9,697
Mortgage-backed securities		47,687		1		(7,368	)		—		40,320
Corporate bonds		11,585		—		(1,080	)		—		10,505
U.S. Treasury securities		5,377		—		(55	)		—		5,322
Total held-to-maturity securities	$	74,869	$	1	$	(9,026	)	$	—	$	65,844

December 31, 2022
Debt securities issued by U.S. government-sponsored enterprises	$	11,213	$	6	$	(578	)	$	—	$	10,641
Mortgage-backed securities		51,864		3		(6,181	)		—		45,686
Corporate bonds		11,612		—		(1,041	)		—		10,571
U.S. Treasury securities		2,902		—		(93	)		—		2,809
Total held-to-maturity securities	$	77,591	$	9	$	(7,893	)	$	—	$	69,707

Substantially all held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities during the three and nine months ended September 30, 2023. The Company's investments in corporate bonds are deemed “investment grade” and (a) the Company does not intend to sell these securities before recovery and (b) it is more likely than not that the Company will not be required to sell these securities before recovery. The Company does not expect to suffer a credit loss as of September 30, 2023. Excluded from the table above is accrued interest on held to maturity securities of $265,000 and $267,000 at September 30, 2023 and December 31, 2022, respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the three and nine months ended September 30, 2023. No securities held by the Company were delinquent on contractual payments at September 30, 2023, nor were any securities placed on non-accrual status for the three and nine months then ended.


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
Available-for-sale	Cost		Gains		Losses		Losses		Value
			(in thousands)
September 30, 2023
Debt securities
Corporate bonds	$	5,000	$	6	$	—	$	—	$	5,006
Total available-for-sale securities	$	5,000	$	6	$	—	$	—	$	5,006
December 31, 2022
Debt securities
Corporate bonds	$	4,991	$	10	$	—	$	—	$	5,001
Total available-for-sale securities	$	4,991	$	10	$	—	$	—	$	5,001

The Company did not record a provision for estimated credit losses on any available for sale securities for the three and nine months ended September 30, 2023. Excluded from the table above is accrued interest on available for sale securities of $57,000 and $49,000 at September 30, 2023 and December 31, 2022, respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the three and nine months ended September 30, 2023. No securities held by the Company were delinquent on contractual payments at September 30, 2023, nor were any securities placed on non-accrual status for the three and nine months then ended.

The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of September 30, 2023 is presented below:


	Available-
	for-sale		Held-to-maturity
	Fair		Amortized		Fair
	Value		Cost		Value
	(in thousands)
Within 1 year	$	5,006	$	7,267	$	7,183
After 1 year through 5 years		—		21,672		20,324
After 5 years through 10 years		—		3,538		3,068
After 10 years		—		42,392		35,269
Total	$	5,006	$	74,869	$	65,844

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of securities during the three and nine months ended September 30, 2023 and 2022.

The carrying value of securities pledged to secure advances from the Federal Home Loan Bank of Boston (“FHLBB”) was $63.3 million and $63.0 million as of September 30, 2023 and December 31, 2022, respectively.

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and have no allowance for credit losses, are as follows as of September 30, 2023 and December 31, 2022:


	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
						(in thousands)
September 30, 2023
Held to Maturity:
Debt securities issued by U.S. government-sponsored enterprises	$	2,723	$	(23	)	$	6,974	$	(500	)	$	9,697	$	(523	)
Mortgage-backed securities		7,442		(275	)		32,748		(7,093	)		40,190		(7,368	)
Corporate bonds		-		-			10,505		(1,080	)		10,505		(1,080	)
U.S. Treasury securities		2,476		(1	)		2,846		(54	)		5,322		(55	)
Total temporarily impaired securities	$	12,641	$	(299	)	$	53,073	$	(8,727	)	$	65,714	$	(9,026	)


December 31, 2022
Held to Maturity:
Debt securities issued by U.S. government-sponsored enterprises	$	2,847	$	(40	)	$	5,046	$	(538	)	$	7,893	$	(578	)
Mortgage-backed securities		20,795		(1,294	)		24,710		(4,887	)		45,505		(6,181	)
Corporate bonds		10,571		(1,041	)		-		-			10,571		(1,041	)
U.S. Treasury securities		2,809		(93	)		-		-			2,809		(93	)
Total temporarily impaired securities	$	37,022	$	(2,468	)	$	29,756	$	(5,425	)	$	66,778	$	(7,893	)

Management evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

At September 30, 2023, four debt securities issued by U.S. government-sponsored enterprises, fifty-two mortgage backed securities, seven corporate bonds and two U.S. treasury securities had unrealized losses with aggregate depreciation of 5.1%, 15.5%, 9.3% and 1.0%, respectively, from the Company’s amortized cost basis. These unrealized losses relate to changes in market interest rates since acquiring the securities. As management has the intent and ability to hold debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of September 30, 2023.

NOTE 4 – LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Loans

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, generally six months. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance. Under the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The quantitative model utilizes a loss factor based approach to estimate expected credit losses, which are derived from internal historical and industry loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average. Management has determined a reasonable and supportable period of 12 months, and a reversion period of 12 months, to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following:

•

Lending policies and procedures

•

Economic and business conditions

•

Nature and volume of loans

•

Changes in management

•

Changes in credit quality

•

Changes in loan review system

•

Changes to underlying collateral values

•

Concentrations of credit risk

•

Other external factors

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable. Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within accrued interest receivable in the consolidated balance sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status.

In the ordinary course of business, the Company enters into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses. The reserve for unfunded lending commitments is included in other liabilities in the consolidated balance sheets.

Loans consisted of the following as of the dates indicated:


	At September 30,						At December 31,
	2023						2022
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to-four family residential	$	395,290			39.3	%	$	355,381			39.8	%
Multi-family		281,192			28.0	%		241,951			27.1	%
Commercial		185,657			18.5	%		156,212			17.5	%
Home equity lines of credit and loans		33,407			3.3	%		27,783			3.1	%
Construction		101,615			10.1	%		107,317			12.0	%
Other loans:
Commercial loans		8,471			0.8	%		4,266			0.5	%
Consumer		248			0.0	%		222			0.0	%
		1,005,880			100.0	%		893,132			100.0	%
Less:
Net deferred loan fees		(229	)					(258	)
Allowance for credit losses		(8,292	)					(7,200	)
Total loans, net	$	997,359					$	885,674

Certain directors and executive officers of the Company and companies in which they have a significant ownership interest are also customers of the Bank. Total outstanding loan balances to such persons and their companies amounted to $889,000 and $943,000 as of September 30, 2023 and December 31, 2022, respectively. The following table sets forth the activity for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
	(in thousands)						(in thousands)

Beginning Balance	$	909		$	1,223		$	943		$	1,257
New Loans		—			—			—			—
Advances		—			75			—			375
Paydowns		(20	)		(325	)		(54	)		(659	)
Ending Balance	$	889		$	973		$	889		$	973

The carrying value of loans pledged to secure advances from the FHLBB were $558.3 million and $333.5 million as of September 30, 2023 and December 31, 2022, respectively.

The following tables set forth information regarding the allowance for credit losses as of and for the three and nine months ended September 30, 2023:


	For the three months ended September 30, 2023
	(in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	1,980	$	-		$	-	$	40		$	2,020
Multi-family		2,150		-			-		79			2,229
Commercial		2,348		-			-		(154	)		2,194
Home equity lines of credit and loans		203		-			-		4			207
Construction		1,570		-			-		(126	)		1,444
Other loans:
Commercial loans		218		-			-		(21	)		197
Consumer		1		(1	)		1		-			1
Total	$	8,470	$	(1	)	$	1	$	(178	)	$	8,292



	For the nine months ended September 30, 2023
	(in thousands)
	Beginning Balance		Cumulative effect accounting adjustment(2)			Charge-offs			Recoveries		Provision		Ending Balance(1)
Real estate loans:
One-to-four family residential	$	1,703	$	130		$	-		$	-	$	187	$	2,020
Multi-family		1,839		77			-			-		313		2,229
Commercial		1,797		145			-			-		252		2,194
Home equity lines of credit and loans		194		(20	)		-			-		33		207
Construction		1,286		136			-			-		22		1,444
Other loans:
Commercial loans		60		34			-			-		103		197
Consumer		1		-			(1	)		1		-		1
Unallocated		320		(320	)		-			-		-		-
Total	$	7,200	$	182		$	(1	)	$	1	$	910	$	8,292

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $2.9 million as of September 30, 2023.

(2) Represents an adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment for the nine months ended September 30, 2023 represents a $182,000 increase to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard.

The following table shows the age analysis of past due loans as of the date indicated:


	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more and accruing
	(in thousands)
As of September 30, 2023
Real estate loans:
One-to-four family residential	$	507	$	—	$	274	$	781	$	394,509	$	395,290	$	—
Multi-family		—		—		—		—		281,192		281,192		—
Commercial		—		—		—		—		185,657		185,657		—
Home equity lines of credit and loans		97		8		16		121		33,286		33,407		—
Construction		—		—		—		—		101,615		101,615		—

Other loans:
Commercial		—		—		—		—		8,471		8,471		—
Consumer		—		—		—		—		248		248		—
	$	604	$	8	$	290	$	902	$	1,004,978	$	1,005,880	$	—

The following table shows information regarding nonaccrual loans as of the dates indicated:


	As of September 30, 2023						Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
	With Allowance for Credit Losses		Without Allowance for Credit Losses		Total		Interest Income Recognized		Interest Income Recognized
	(in thousands)

Real estate loans:
One-to-four family residential	$	—	$	1,195	$	1,195	$	12	$	26
Multi-family		—		—		—		—		—
Commercial		—		—		—		—		—
Home equity lines of credit and loans		—		16		16		—		—
Construction		—		—		—		—		—
Other loans:
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—
Total nonaccrual loans	$	—	$	1,211	$	1,211	$	12	$	26

Credit Quality Information

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

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

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

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

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

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

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $500,000 or more, and all commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $1.0 million or more. For loans that are not formally rated, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of September 30, 2023:


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2023		2022		2021		2020		2019		Prior
As of September 30, 2023	(in thousands)
One-to-four family residential
Pass	$	2,956	$	36,791	$	15,626	$	5,206	$	4,268	$	9,320	$	—	$	—	$	74,167
Special Mention		—		—		—		810		—		457		—		—		1,267
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		35,886		89,996		73,559		52,081		7,482		60,852		—		—		319,856
Total	$	38,842	$	126,787	$	89,185	$	58,097	$	11,750	$	70,629	$	—	$	—	$	395,290

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Pass	$	40,732	$	195,365	$	24,872	$	8,942	$	—	$	10,031	$	1,050	$	—	$	280,992
Special Mention		200		—		—		—		—		—		—		—		200
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	40,932	$	195,365	$	24,872	$	8,942	$	—	$	10,031	$	1,050	$	—	$	281,192

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Pass	$	32,013	$	72,933	$	24,286	$	16,663	$	4,096	$	31,970	$	3,696	$	—	$	185,657
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	32,013	$	72,933	$	24,286	$	16,663	$	4,096	$	31,970	$	3,696	$	—	$	185,657

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity lines of credit and loans
Pass	$	327	$	—	$	—	$	—	$	—	$	—	$	6,252	$	—	$	6,579
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		377		37		12		—		67		41		25,734		560		26,828
Total	$	704	$	37	$	12	$	—	$	67	$	41	$	31,986	$	560	$	33,407

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction
Pass	$	20,653	$	54,145	$	18,883	$	—	$	2,006	$	2,988	$	—	$	—	$	98,675
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—


Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		1,303		1,637		—		—		—		—		—		—		2,940
Total	$	21,956	$	55,782	$	18,883	$	—	$	2,006	$	2,988	$	—	$	—	$	101,615

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial loans
Pass	$	3,402	$	3,454	$	440	$	40	$	87	$	159	$	817	$	—	$	8,399
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		72		—		—		—		—		—		72
Total	$	3,402	$	3,454	$	512	$	40	$	87	$	159	$	817	$	—	$	8,471

Current-period gross charge-offs (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		38		40		48		—		—		74		48		—		248
Total	$	38	$	40	$	48	$	—	$	—	$	74	$	48	$	—	$	248

Current-period gross charge-offs (2)	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(1) There was one home equity line of credit loan originated prior to 2019 with an amortized cost of $16,000 that is not formally rated and was on non-accrual as of September 30, 2023. All other loans not formally rated were accruing as of September 30, 2023.

(2) Gross charge-off disclosures are made starting in the period of adoption and prospectively.

At September 30, 2023, the Company had one consumer mortgage loan secured by residential real estate property in the process of foreclosure with a carrying amount of $110,000.

For the three and nine months ended September 30, 2023, the Company did not provide loan restructurings involving borrowers that are experiencing financial difficulty.

Prior Period Disclosures Pre Adoption of ASC 326

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


	For the three months ended September 30, 2022
	(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Real estate loans:
One-to-four family residential	$	1,469	$	-	$	-	$	183	$	1,652
Multi-family		779		-		-		386		1,165
Commercial		1,353		-		-		201		1,554
Home equity lines of credit and loans		193		-		1		10		204
Construction		950		-		-		131		1,081
Other loans:
Commercial loans		46		-		-		14		60
Consumer		1		-		-		-		1
Unallocated		320		-		-		-		320
Total	$	5,111	$	-	$	1	$	925	$	6,037


	For the nine months ended September 30, 2022
	(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance
Real estate loans:
One-to-four family residential	$	1,271	$	-	$	-	$	381		$	1,652
Multi-family		417		-		-		748			1,165
Commercial		1,099		-		-		455			1,554
Home equity lines of credit and loans		185		-		1		18			204
Construction		855		-		-		226			1,081
Other loans:
Commercial loans		60		-		-		-			60
Consumer		2		-		-		(1	)		1
Unallocated		347		-		-		(27	)		320
Total	$	4,236	$	-	$	1	$	1,800		$	6,037

The following table sets forth information regarding the allowance for loan losses and portfolio evaluation method as of December 31, 2022:


	As of December 31, 2022
	(in thousands)
	Allowance for loans individually evaluated for impairment		Allowance for loans collectively evaluated for impairment		Total allowance for loan losses		Loans individually evaluated for impairment		Loans collectively evaluated for impairment
Real estate loans:
One-to-four family residential	$	-	$	1,703	$	1,703	$	656	$	354,725
Multi-family		-		1,839		1,839		-		241,951
Commercial		-		1,797		1,797		-		156,212
Home equity lines of credit and loans		-		194		194		-		27,783
Construction		-		1,286		1,286		-		107,317
Other loans:
Commercial loans		-		60		60		-		4,266
Consumer		-		1		1		-		222
Unallocated		-		320		320		-		-
Total	$	-	$	7,200	$	7,200	$	656	$	892,476

The following table shows the age analysis of past due financing receivables as of the date 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 December 31, 2022
Real estate loans:
One-to-four family residential	$	—	$	—	$	189	$	189	$	355,192	$	355,381	$	—	$	656
Multi-family		—		—		—		—		241,951		241,951		—		—
Commercial		—		—		—		—		156,212		156,212		—		—
Home equity lines of credit and loans		—		—		—		—		27,783		27,783		—		—
Construction		—		—		—		—		107,317		107,317		—		—

Other loans:
Commercial		—		—		—		—		4,266		4,266		—		—
Consumer		—		—		—		—		222		222		—		—
	$	—	$	—	$	189	$	189	$	892,943	$	893,132	$	—	$	656

The following table presents the Bank’s loans by credit quality indicator as of December 31, 2022:


	Real Estate
							Home Equity
	Residential		Multi-family		Commercial		Lines of Credit and Loans		Construction		Commercial		Consumer		Total
	(In Thousands)
As of December 31, 2022
Grade
Pass	$	63,817	$	241,951	$	156,212	$	2,995	$	103,272	$	4,266	$	—	$	572,513
Special mention		467		—		—		—		—		—		—		467
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Loans not formally rated		291,097		—		—		24,788		4,045		—		222		320,152
	$	355,381	$	241,951	$	156,212	$	27,783	$	107,317	$	4,266	$	222	$	893,132

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


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

September 30, 2022
With no related allowance recorded:
One-to-four family residential	$	699	$	699	$	—	$	701	$	29	$	694	$	41
Home equity lines of credit and loans		—		—		—		—		—		33		1
Total impaired loans	$	699	$	699	$	—	$	701	$	29	$	727	$	42

There were no impaired loans with an allowance recorded as of or during the nine months ended September 30, 2022.

Information about loans that meet the definition of an impaired loan in Accounting Standards Codification (ASC) 310-10-35 is as follows as of December 31, 2022:


	As of December 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)

December 31, 2022
With no related allowance recorded:
One-to-four family residential	$	656	$	656	$	—
Total impaired loans	$	656	$	656	$	—

There were no impaired loans with an allowance recorded as of December 31, 2022.

There were no consumer mortgage loans secured by residential real estate in the process of foreclosure as of December 31, 2022.

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

NOTE 5 – EMPLOYEE BENEFITS

Pension Plans

Defined Benefit Plan

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

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

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

401(k) Plan

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

Total expense related to the 401(k) plan for the three and nine months ended September 30, 2023 amounted to $120,000 and $351,000, respectively. Total expense related to the 401(k) plan for the three and nine months ended September 30, 2022 amounted to $100,000 and $280,000, respectively.

Employee Incentive Plan

The Company provides an employee incentive plan which is approved annually by the Board of Directors, based on various factors. The employee incentive plan expense for the three and nine months ended September 30, 2023 amounted to $363,000 and $1,077,000, respectively. The employee incentive plan expense for the three and nine months ended September 30, 2022 amounted to $355,000 and $918,000, respectively.

Supplemental Executive Retirement Plan (SERP)

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

The liability for the SERP amounted to $1,022,000 and $1,156,000 as of September 30, 2023 and December 31, 2022, respectively. The benefit for the three and nine months ended September 30, 2023 amounted to $19,000 and $58,000, respectively. The expense for the three and nine months ended September 30, 2022 amounted to $25,000 and $76,000, respectively.

Director Fee Continuation Plan (DFCP)

Effective January 1, 2017, the Company established a Director Fee Continuation Plan which provides supplemental retirement benefits for directors. Under the DFCP, individuals who are directors as of the effective date of the DFCP are 100% vested in their benefits. Individuals who become directors after the effective date shall be fully vested in their accounts after having served on the Board of Directors for twelve years. The expense for the three and nine months ended September 30, 2023 amounted to $22,000 and

$66,000, respectively. The expense for the three and nine months ended September 30, 2022 amounted to $32,000 and $96,000, respectively.

Supplemental Executive Retirement Agreement

On January 1, 2018, the Company entered into a supplemental executive retirement agreement with a named executive officer whereby the Company is obligated to provide post-retirement salary continuation benefits equal to 60% of the executive officer’s final average compensation, as defined. Benefits are 100% vested, commence upon retirement, and are payable based on a ten-year certain and life annuity. The liability for the Plan amounted to $3,170,000 and $3,081,000 as of September 30, 2023 and December 31, 2022, respectively. The expense recognized for the Plan for the three and nine months ended September 30, 2023 amounted to $30,000 and $89,000, respectively. The expense recognized for the Plan for the three and nine months ended September 30, 2022 amounted to $187,000 and $561,000, respectively.

Executive Deferred Compensation Plans

In 2021 and 2023, the Company entered into deferred compensation plans with two named executive officers that allow the Company to make contributions to an account for the executive officers each year, as of January 1, based on the prior year’s performance and the Company's intent that the contribution equal 10% of the executive officers' salaries and bonuses. The Company may make other contributions to the deferred compensation plans, at its discretion, at other times during the year. The expense recognized under the deferred compensation plans for the three and nine months ended September 30, 2023 amounted to $41,000 and $63,000, respectively. The expense recognized under the deferred compensation plans for the three and nine months ended September 30, 2022 amounted to $5,000 and $27,000, respectively.

Deferred Compensation Plan for Directors

The Company maintains the Everett Co-operative Bank Deferred Compensation Plan for Directors (the “Director Deferred Compensation Plan”) to allow for certain tax planning opportunities and additional retirement income for directors of the Company. All non-employee directors are eligible to participate in the Director Deferred Compensation Plan. Under the Director Deferred Compensation Plan, directors may elect to defer the receipt of up to 100% of their director fees. Participants are always 100% vested in their deferred fees and any interest credited to those deferrals. Earnings are credited to a participant’s deferrals each year and are indexed to the highest certificate of deposit rate offered by the Bank on January 1st of each year. The liability for the Director Deferred Compensation Plan amounted to $658,000 and $592,000 as of September 30, 2023 and December 31, 2022, respectively.

Employment and Change in Control Agreements

During 2022, the Company entered into an employment agreement with the Chief Executive Officer and Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements.

Survivor Benefit Plan

The Company entered into Survivor Benefit Plan Participation Agreements with a group of employees whereby the Company is obligated to provide up to two years of recognized compensation, as defined, to the beneficiary if the participant dies while employed by the Company. There was no expense recorded during the three and nine months ended September 30, 2023. The expense recognized for the three and nine months ended September 30, 2022 was $0 and $166,000, respectively.

Employee Stock Ownership Plan

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

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

Total compensation expense recognized in connection with the ESOP was $114,000 and $365,000 for the three and nine months ended September 30, 2023, respectively. The expense recognized was $215,000 for both the three and nine months ended September 30, 2022. The following table presents share information held by the ESOP:


	As of September 30, 2023		As of December 31, 2022
	(Dollars in thousands)

Allocated shares		36,701		36,701
Shares committed to be released		27,451		-
Unallocated shares		669,868		697,319
Total shares		734,020		734,020
Fair value of unallocated shares	$	7,353	$	11,192

NOTE 6 - STOCK-BASED COMPENSATION

On September 7, 2023, the Company adopted the ECB Bancorp, Inc. 2023 Equity Incentive Plan ("2023 Equity Plan”). The 2023 Equity Plan provides 1,248,133 shares of common stock for equity based compensation awards including restricted stock awards, restricted stock units, stock options, and incentive stock options. As of September 30, 2023, there were 1,003,189 shares available for future grants.

Stock-Based Compensation - Stock Options

On September 8, 2023, the Company granted 174,960 stock options to non-employee directors. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The following table sets forth information regarding the grant:


Date of grant	9/8/2023
Options granted		174,960
Vesting period (years)		5
Expiration date	9/8/2033
Expected volatility (1)		30.17	%
Expected term (years) (2)		6.50
Expected dividend yield (3)		0.00	%
Risk free rate of return (4)		4.31	%
Fair value per option	$	4.74

(1) Expected volatility is based on the standard deviation of the historical volatility of the daily adjusted closing price of a group of peers' shares.

(2) Expected term represents the period of time that the option is expected to be outstanding. The Company determined that expected life using the "Simplified Method."

(3) Expected dividend yield is determined based on management's expectations regarding issuing dividends in the foreseeable future.

(4) The risk-free rate of return is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected term of the option.

The following tables represent stock option activities for the periods indicated:


	Three months ended September 30, 2023
	Outstanding and exercisable								Non-vested
	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($1000)		Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($1000)
Balance at beginning of period		-	$	-		-	$	-		-	$	-		-	$	-
Granted		-		-		-		-		174,960		11.80		9.95		-
Exercised		-		-		-		-		-		-		-		-
Vested		-		-		-		-		-		-		-		-
Forfeited or expired		-		-		-		-		-		-		-		-
Balance at end of period		-	$	-		-	$	-		174,960	$	11.80		9.95	$	-


	Nine months ended September 30, 2023
	Outstanding and exercisable								Non-vested
	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($1000)		Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($1000)
Balance at beginning of period		-	$	-		-	$	-		-	$	-		-	$	-
Granted		-		-		-		-		174,960		11.80		9.95		-
Exercised		-		-		-		-		-		-		-		-
Vested		-		-		-		-		-		-		-		-
Forfeited or expired		-		-		-		-		-		-		-		-
Balance at end of period		-	$	-		-	$	-		174,960	$	11.80		9.95	$	-

Stock-Based Compensation - Restricted Stock Awards

The restricted stock awards are measured based on grant-date fair value, which reflects the closing price of our stock on the date of grant. Restricted stock awards vest over five years in equal portions beginning on the first anniversary date of the restricted stock award.

On September 8, 2023, the Company granted 69,984 restricted stock awards to non-employee directors with a five-year vesting period. The following table represents information regarding non-vested restricted stock award activities for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30, 2023				September 30, 2023
	Number of Shares		Weighted-Average Grant Date Fair Value Per Share		Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Balance at beginning of period		-	$	-		-	$	-
Granted		69,984		11.80		69,984		11.80
Vested		-		-		-		-
Forfeited		-		-		-		-
Balance at end of period		69,984	$	11.80		69,984	$	11.80

The following table represents the compensation expense and income tax benefit recognized for stock options and restricted stock awards for the periods indicated:


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
	(in thousands)
Stock-based compensation expense
Stock options	$	10	$	10
Restricted stock awards		10		10
Total stock-based compensation expense	$	20	$	20
Related tax benefits recognized in earnings	$	6	$	6

There was no stock-based compensation expense or related income tax benefit recognized for the three and nine months ended September 30, 2022.

The following table sets forth the total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized as of September 30, 2023:


	Amount		Weighted average period
	(in thousands)
Stock options	$	819		4.95
Restricted stock awards		816		4.95
Total	$	1,635

There was no unrecognized stock-based compensation expense as of December 31, 2022.

NOTE 7 - FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for September 30, 2023 and December 31, 2022.

The Company’s investment in debt instruments available for sale is generally classified within Level 2 of the fair value hierarchy. For those securities, the Bank obtains fair value measurements from independent pricing services. The fair value

measurements consider observable data that considers standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

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

As of September 30, 2023 and December 31, 2022, the following summarizes assets measured at fair value on a recurring basis:


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

			(in thousands)
September 30, 2023
Corporate bonds	$	5,006	$	—	$	5,006	$	—
							$	—
Total available for-sale-securities	$	5,006	$	—	$	5,006	$	—

December 31, 2022
Corporate bonds	$	5,001	$	—	$	5,001	$	—

Total available for-sale-securities	$	5,001	$	—	$	5,001	$	—

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

As of September 30, 2023 and December 31, 2022, the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded.

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. For September 30, 2023 and December 31, 2022, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.


	September 30, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(in thousands)
Financial assets:
Cash and cash equivalents	$	97,387	$	97,387	$	97,387	$	-	$	-
Held-to-maturity securities		74,869		65,844		-		65,844		-
Federal Home Loan Bank stock		9,571		9,571		-		9,571		-
Loans, net		997,359		915,147		-		-		915,147
Accrued interest receivable		3,390		3,390		3,390		-		-
Bank-owned life insurance		14,367		14,367		-		14,367		-

Financial liabilities:
Deposits, other than certificates of deposit	$	370,508	$	370,508	$	-	$	370,508	$	-
Certificates of deposit		442,023		434,310		-		434,310		-
Federal Home Loan Bank advances		224,000		217,282		-		217,282		-
Accrued interest payable		1,284		1,284		1,284		-		-


	December 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(in thousands)
Financial assets:
Cash and cash equivalents	$	62,050	$	62,050	$	62,050	$	-	$	-
Interest bearing time deposits		300		300		-		300		-
Held-to-maturity securities		77,591		69,707		-		69,707		-
Federal Home Loan Bank stock		7,293		7,293		-		7,293		-
Loans, net		885,674		841,271		-		-		841,271
Accrued interest receivable		2,632		2,632		2,632		-		-
Bank-owned life insurance		14,067		14,067		-		14,067		-

Financial liabilities:
Deposits, other than certificates of deposit	$	398,302	$	398,302	$	-	$	398,302	$	-
Certificates of deposit		319,847		310,943		-		310,943		-
Federal Home Loan Bank advances		174,000		172,427		-		172,427		-
Accrued interest payable		736		736		736		-		-

NOTE 8 – COMMITMENTS AND CONTINGENCIES

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

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

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

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of September 30, 2023 and December 31, 2022, the maximum potential amount of the Company’s obligation was $0

and $13,000, respectively, for standby letters of credit. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Amounts of financial instruments whose contract amounts represent off-balance sheet credit risk are as follows as of September 30, 2023 and December 31, 2022:


	September 30, 2023		December 31, 2022
	(in thousands)
Commitments to originate loans	$	32,696	$	37,220
Commitments to purchase loans		3,035		6,653
Unadvanced funds on lines of credit		79,871		80,224
Unadvanced funds on construction loans		56,275		72,431
Letters of credit		-		13
	$	171,877	$	196,541

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 credit losses, adjusted for the likelihood that funding will occur. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $949,000 and $402,000 as of September 30, 2023 and December 31, 2022, respectively. For the three and nine months ended September 30, 2023, a benefit of $6,000 and $214,000, respectively, was recorded to reflect a reduction in allowance for off-balance sheet commitments. Provision recorded for off-balance sheet commitments was $61,000 and $120,000 for the three and nine months ended September 30, 2022, respectively.

NOTE 9 – OTHER COMPREHENSIVE (LOSS) INCOME

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

The components of other comprehensive (loss) income and related tax effects are as follows for the three and nine months ended September 30, 2023 and 2022:


	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
	(in thousands)						(in thousands)

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

Accumulated other comprehensive income as of September 30, 2023 and December 31, 2022 consists of unrecognized benefit costs, net of taxes, and unrealized holding gains on securities available for sale, net of tax, as follows:


	As of September 30, 2023		As of December 31, 2022
	(in thousands)
Net unrealized holding gains on securities available-for-sale, net of tax	$	6	$	9
Unrecognized SERP costs, net of tax		149		149
Unrecognized director fee continuation plan costs, net of tax		91		91

Accumulated other comprehensive income	$	246	$	249

NOTE 10 – REGULATORY MATTERS

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

Management believes, as of September 30, 2023, that the Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 2023, 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 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
				(dollars in thousands)
As of September 30, 2023
Total Capital (to Risk Weighted Assets)	$	142,830	16.40%	$	91,443	10.50%	$	87,089	10.00%
Tier 1 Capital (to Risk Weighted Assets)		133,589	15.34%		74,026	8.50%		69,671	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		133,589	15.34%		60,962	7.00%		56,608	6.50%
Tier 1 Capital (to Average Assets)		133,589	11.14%		47,955	4.00%		59,943	5.00%

As of December 31, 2022
Total Capital (to Risk Weighted Assets)	$	138,023	16.40%	$	88,386	10.50%	$	84,177	10.00%
Tier 1 Capital (to Risk Weighted Assets)		130,421	15.49%		71,550	8.50%		67,342	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		130,421	15.49%		58,924	7.00%		54,715	6.50%
Tier 1 Capital (to Average Assets)		130,421	13.89%		37,562	4.00%		46,953	5.00%

NOTE 11 - EARNINGS PER SHARE ("EPS")

Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. There were no securities that had a dilutive effect during the three and nine months ended September 30, 2023 or the three and nine months ended September 30, 2022. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.


	Three months ended					Nine months ended
	September 30,					September 30,
	2023		2022			2023		2022
	(in thousands, except per share data)
Net income (loss) allocated to common stock	$	1,341	$	(1,035	)	$	3,667	$	1,744

Weighted-average common shares outstanding used to calculate basic earnings (loss) per common share		8,486,577		8,445,615			8,485,936		8,445,615
Add: Dilutive effect of stock options and restricted stock awards		-		-			-		-
Weighted-average common shares outstanding used to calculate diluted earnings (loss) per common share		8,486,577		8,445,615			8,485,936		8,445,615

Earnings (loss) per common share
Basic	$	0.16	$	(0.12	)	$	0.43	$	0.21
Diluted	$	0.16	$	(0.12	)	$	0.43	$	0.21

For the three and nine months ended September 30, 2023, the shares that were anti-dilutive, and therefore excluded from the calculation of diluted earnings per share, included options to purchase 174,960 shares of common stock and 69,984 shares of restricted stock awards. For the three and nine months ended September 30, 2022, there were no anti-dilutive shares.

NOTE 12 - SUBSEQUENT EVENTS

On October 31, 2023, the Company granted a total of 235,973 restricted stock awards to certain employees pursuant to its 2023 Equity Incentive Plan. The fair value of the stock granted was approximately $2.4 million.

On October 31, 2023, the Company granted a total of 589,009 stock options to certain employees pursuant to its 2023 Equity Incentive Plan. These options were granted with an exercise price of $10.12.

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

General

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2023 and 2022 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

statements of our goals, intentions and expectations;

•

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

•

statements regarding the quality of our loan portfolio; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

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

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2023.

Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Allowance for Credit Losses

The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment.

The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Management's judgement is required for the selection and application of these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts.

Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Changes in these judgements and assumptions could be due to a number of circumstances which may have a direct impact on the provision for credit losses and may result in changes to the amount of allowance. The allowance for credit losses is increased by the provision for credit losses and by recoveries of loans previously charged off. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan.

Income Taxes

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

reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Securities Valuation

We classify our investments in debt securities as either held-to-maturity or available-for-sale. Securities classified as held-to maturity are recorded at amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from one or more third-party services. This service’s fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows.

For any debt security with a fair value less than its amortized cost basis, we will determine whether we have the intent to sell the debt security or whether it is more likely than not we will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment charge to earnings. For all other debt securities that don't meet either condition and that have expected credit losses, the credit loss will be recognized in earnings. Any non-credit related loss impairment related to all other factors will be recorded in other comprehensive income (loss). Management also assesses the nature of the unrealized losses taking into consideration factors such as changes in risk-free interest rates, general credit spread widening, market supply and demand, creditworthiness of the issuer, and quality of the underlying collateral.

Comparison of Financial Condition at September 30, 2023 and December 31, 2022

Total Assets. Total assets increased $149.3 million, or 14.0%, to $1.21 billion at September 30, 2023 from $1.06 billion at December 31, 2022. The increase was primarily the result of increases in loans and cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents increased $35.3 million, or 56.9%, to $97.4 million at September 30, 2023 from $62.1 million at December 31, 2022. Cash and cash equivalents increased primarily due to increases in deposits and borrowings that were greater than our loan growth as we have focused on maintaining strong levels of liquidity.

Loans. Net loans increased $111.7 million, or 12.6%, to $997.4 million at September 30, 2023 from $885.7 million at December 31, 2022.

•

One-to-four family residential real estate loans increased $39.9 million, or 11.2%, to $395.3 million at September 30, 2023 from $355.4 million at December 31, 2022.

•

Multi-family real estate loans increased $39.3 million, or 16.2%, to $281.2 million at September 30, 2023 from $242.0 million at December 31, 2022.

•

Commercial real estate loans increased $29.4 million, or 18.8%, to $185.7 million at September 30, 2023 from $156.2 million at December 31, 2022.

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $9.6 million and $7.3 million at September 30, 2023 and December 31, 2022, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. Accordingly, the increase in the FHLB stock is due to increased borrowings.

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 increased $300,000, or 2.1%, to $14.4 million at September 30, 2023 from $14.1 million at December 31, 2022. The increase was due

to an increase of $300,000 in the cash surrender value of our bank-owned life insurance portfolio during the nine months ended September 30, 2023.

Deposits. Deposits increased $94.4 million, or 13.1%, to $812.5 million at September 30, 2023 from $718.1 million at December 31, 2022.

•

Certificates of deposit increased $122.2 million, or 38.2%, to $442.0 million at September 30, 2023 from $319.8 million at December 31, 2022. Brokered certificates of deposit decreased $13.1 million, or 13.1%, to $87.7 million at September 30, 2023 from $100.8 million at December 31, 2022.

•

Savings accounts increased $19.5 million, or 13.2%, to $167.9 million at September 30, 2023 from $148.4 million at December 31, 2022.

•

Money market deposit accounts decreased $38.7 million, or 28.5%, to $97.4 million at September 30, 2023 from $136.1 million at December 31, 2022.

•

Interest bearing checking accounts decreased $8.4 million, or 29.2%, to $20.5 million at September 30, 2023 from $28.9 million at December 31, 2022.

Core deposits (defined as all deposits other than certificates of deposit), decreased $27.8 million, or 7.0%, to $370.5 million at September 30, 2023 from $398.3 million at December 31, 2022.

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank increased $50.0 million, or 28.7%, to $224.0 million at September 30, 2023 from $174.0 million at December 31, 2022. The increase in advances was utilized to support loan growth and enhance liquidity.

Shareholders' Equity. Total shareholders' equity increased $2.8 million, or 1.7%, to $165.5 million at September 30, 2023 from $162.7 million at December 31, 2022. The increase was primarily due to net income of $3.7 million for the nine months ended September 30, 2023 partially offset by a $677,000 reduction in retained earnings related to the adoption of CECL and a $589,000 reduction in additional paid-in capital related to stock repurchases.

Comparison of Operating Results for the Three Months Ended September 30, 2023 and September 30, 2022

Net Income. We recorded net income of $1.3 million for the three months ended September 30, 2023, compared to a net loss of $1.0 million for the three months ended September 30, 2022. The net loss during the three months ended September 30, 2022 was driven by a $3.2 million charitable contribution to the Everett Co-operative Bank Charitable Foundation made in connection with our initial public offering.

Interest and Dividend Income. Interest and dividend income increased $6.4 million, or 82.5%, to $14.2 million for the three months ended September 30, 2023 from $7.8 million for the three months ended September 30, 2022. This increase was due to a $5.2 million increase in interest and fees on loans, a $363,000 increase in interest and dividends on investment securities and an $879,000 increase in other interest income. The increase in interest and fees on loans was driven by an increase of $324.1 million in the average balance of the loan portfolio to $1.0 billion for the three months ended September 30, 2023 from $677.6 million for the three months ended September 30, 2022, as well as an increase in the average yield of 69 basis points to 4.88% during the three months ended September 30, 2023 from 4.19% during the three months ended September 30, 2022. The yield for the three months ended September 30, 2023 benefited from new loans with higher rates as well as adjustable rate loans repricing higher. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 73 basis points to 2.58% during the three months ended September 30, 2023 from 1.85% during the three months ended September 30, 2022, as well as an increase of $7.2 million in the average balance of the investment security portfolio to $81.4 million for the three months ended September 30, 2023 from $74.3 million for the three months ended September 30, 2022. The increase in other interest income resulted primarily from an increase in the yield on short term investments of 321 basis points to 5.39% during the three months ended September 30, 2023 from 2.18% during the three months ended September 30, 2022, as well as an increase of $37.6 million in the average balance of short term investments to $83.2 million for the three months ended September 30, 2023 from $45.6 million for the three months ended September 30, 2022. The increase in yield was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Average interest-earning assets increased $368.5 million, to $1.17 billion for the three months ended September 30, 2023 from $797.8 million for the three months ended September 30, 2022. The yield on interest-earning assets increased 90 basis points to 4.75% for the three months ended September 30, 2023 from 3.85% for the three months ended September 30, 2022.

Interest Expense. Total interest expense increased $6.9 million, or 561.2%, to $8.1 million for the three months ended September 30, 2023 from $1.2 million for the three months ended September 30, 2022. Interest expense on deposit accounts increased $4.8 million, or 470.0%, to $5.8 million for the three months ended September 30, 2023 from $1.0 million for the three months ended September 30, 2022, primarily due to an increase in the cost of interest bearing deposits of 251 basis points to 3.25% for the three months ended September 30, 2023 from 0.74% for the three months ended September 30, 2022 and an increase in the average balance of interest-bearing deposits of $167.3 million, or 30.6%, to $713.5 million for the three months ended September 30, 2023 from $546.2 million for the three months ended September 30, 2022. Interest expense on FHLB advances increased $2.0 million, or 1,035.5%, to $2.2 million for the three months ended September 30, 2023 from $197,000 for the three months ended September 30, 2022, primarily due to an increase in the average balance of FHLB advances of $179.2 million, or 405.6%, to $223.3 million for the three months ended September 30, 2023 from $44.2 million for the three months ended September 30, 2022 as well as an increase in the cost of FHLB advances of 220 basis points to 3.97% for the three months ended September 30, 2023 from 1.77% for the three months ended September 30, 2022. The increase in FHLB advances was used to fund loan growth and for liquidity management.

Net Interest and Dividend Income. Net interest and dividend income decreased $453,000, or 6.9%, to $6.1 million for the three months ended September 30, 2023 from $6.5 million for the three months ended September 30, 2022, primarily due to a decrease in the net interest rate spread of 170 basis points to 1.33% for the three months ended September 30, 2023 from 3.03% for the three months ended September 30, 2022, partially offset by a $22.0 million increase in the average balance of net interest-earning assets during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities that exceeded the increase in the yield on interest-earning assets resulting primarily from the significant increase in market interest rates that directly impact our funding costs. The net interest margin decreased 124 basis points to 2.00% for the three months ended September 30, 2023 from 3.24% for the three months ended September 30, 2022.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a benefit of $184,000 was recorded for the three months ended September 30, 2023, compared to a provision of $925,000 for the three months ended September 30, 2022. The $1.1 million, or 119.9%, decrease in the provision was driven by lower loan growth during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 as well as a shift in the mix of our loan portfolio to loan segments with lower estimated credit loss reserve requirements.

Noninterest Income. Noninterest income increased $94,000, or 41.2%, to $322,000 for the three months ended September 30, 2023 from $228,000 for the three months ended September 30, 2022. The increase was driven by a $72,000 gain recognized in income from a life insurance policy death benefit during the three months ended September 30, 2023. The table below sets forth our noninterest income for three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Change
	2023		2022		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	123	$	114	$	9			7.9		%
Income from bank-owned life insurance		175		90		85			94.4
Net gain on sales of loans		9		16		(7	)		(43.8	)
Other		15		8		7			87.5
Total noninterest income	$	322	$	228	$	94			41.2		%

Noninterest Expense. Noninterest expense decreased $2.5 million, or 34.1%, to $4.8 million for the three months ended September 30, 2023 from $7.3 million for the three months ended September 30, 2022. Significant changes are as follows:

•

Charitable contributions decreased $3.2 million, or 99.8%, driven by a $3.2 million contribution to the Everett Co-operative Bank Charitable Foundation made in the third quarter of 2022 in connection with the Company’s initial public offering;

•

Salaries and employee benefits increased $235,000, or 8.8%, driven by merit increases and additional staffing to support our strategic plan. Partially offsetting this increase was a decrease in supplemental executive retirement plan expenses driven by increases in defined benefit plan discount rates as well as a decrease in Employee Stock Ownership Plan (“ESOP”) costs. ESOP costs decreased due to a lower average stock price and lower number of shares committed to be released in the quarter ended September 30, 2023 as compared to the quarter ended September 30, 2022;

•

FDIC deposit insurance expense increased $152,000, or 281.5%, driven by both increases in assessment rates charged by the FDIC as well as an increase in our asset size; and

•

Professional fees increased $128,000 or 72.7% driven by increased costs related to operating as a public company.

The table below sets forth our noninterest expense for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Change
	2023		2022		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	2,914	$	2,679	$	235			8.8		%
Director compensation		139		108		31			28.7
Occupancy and equipment		243		190		53			27.9
Data processing		275		222		53			23.9
Computer software and licensing fees		88		78		10			12.8
Advertising and promotions		201		236		(35	)		(14.8	)
Professional fees		304		176		128			72.7
FDIC deposit insurance		206		54		152			281.5
Charitable contributions		7		3,214		(3,207	)		(99.8	)
Other expense		434		346		88			25.4
Total noninterest expense	$	4,811	$	7,303	$	(2,492	)		(34.1	)	%

Income Tax Expense. Income tax expense increased $866,000, or 203.3%, to $440,000 for the three months ended September 30, 2023 from an income tax benefit of $426,000 for the three months ended September 30, 2022. The effective tax rate was 24.7% and 29.2% for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate in the three months ended September 30, 2023 benefited from a $72,000 non-taxable gain recognized into income from life insurance policy death benefits.

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


	For the Three Months Ended September 30,
	2023							2022
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	1,001,686	$	12,313		4.88	%	$	677,634	$	7,150		4.19	%
Securities (1)		81,446		530		2.58			74,273		346		1.85
Short term investments		83,194		1,130		5.39			45,638		250		2.18
Interest bearing time deposits		-		-		-			300		1		0.71
Total interest-earning assets		1,166,326		13,973		4.75	%		797,845		7,747		3.85	%
Non-interest-earning assets		33,337							28,102
Total assets	$	1,199,663						$	825,947

Interest-bearing liabilities:
Checking accounts		21,135		4		0.08	%		48,135		5		0.04	%
Savings accounts		169,767		1,109		2.59			57,106		13		0.09
Money market accounts		94,988		579		2.42			178,833		215		0.48
Certificates of deposit		427,561		4,151		3.85			262,082		792		1.20
Total interest-bearing deposits		713,451		5,843		3.25			546,156		1,025		0.74
Federal Home Loan Bank advances		223,348		2,237		3.97			44,171		197		1.77
Total interest-bearing liabilities		936,799		8,080		3.42	%		590,327		1,222		0.82	%
Non-interest-bearing demand deposits		85,577							89,299
Non-interest-bearing liabilities		11,499							7,996
Total liabilities		1,033,875							687,622
Shareholders' Equity		165,788							138,325
Total liabilities and shareholders' equity	$	1,199,663						$	825,947

Net interest income			$	5,893						$	6,525
Net interest rate spread (2)						1.33	%						3.03	%
Net interest-earning assets (3)	$	229,527						$	207,518
Net interest margin (4)						2.00	%						3.24	%

Average interest-earning assets to interest- bearing liabilities						124.50	%						135.15	%

(1) Excludes interest and dividends on cost method investments of $193,000 and $14,000 for the three months ended September 30, 2023 and 2022, respectively.

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

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

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

(5) Annualized

Rate/Volume Analysis. The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior period volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.


	Three Months Ended September 30, 2023 vs. 2022
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	3,839		$	1,324		$	5,163
Securities		36			148			184
Short term investments		315			565			880
Interest bearing time deposits		(1	)		-			(1	)
Total interest-earning assets	$	4,189		$	2,037		$	6,226

Interest-bearing liabilities:
Checking accounts	$	(4	)	$	3		$	(1	)
Savings accounts		73			1,023			1,096
Money market accounts		(143	)		507			364
Certificates of deposit		746			2,613			3,359
Total interest-bearing deposits		672			4,146			4,818
Federal Home Loan Bank advances		1,561			479			2,040
Total interest-bearing liabilities	$	2,233		$	4,625		$	6,858

Change in net interest income	$	1,956		$	(2,588	)	$	(632	)

Comparison of Operating Results for the Nine Months Ended September 30, 2023 and September 30, 2022

Net Income. We recorded net income of $3.7 million for the nine months ended September 30, 2023, compared to net income of $1.7 million for the nine months ended September 30, 2022.

Interest and Dividend Income. Interest and dividend income increased $20.4 million, or 104.8%, to $39.9 million for the nine months ended September 30, 2023 from $19.5 million for the nine months ended September 30, 2022. This increase was due to a $17.3 million increase in interest and fees on loans, a $928,000 increase in interest and dividends on investment securities and a $2.2 million increase in other interest income. The increase in interest and fees on loans was driven by an increase of $388.5 million in the average balance of the loan portfolio to $981.1 million for the nine months ended September 30, 2023 from $592.6 million for the nine months ended September 30, 2022, as well as an increase in the average yield of 74 basis points to 4.82% during the nine months ended September 30, 2023 from 4.08% during the nine months ended September 30, 2022. The yield for the nine months ended September 30, 2023 benefited from new loans with higher rates as well as adjustable-rate loans repricing higher. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 79 basis points to 2.52% during the nine months ended September 30, 2023 from 1.73% during the nine months ended September 30, 2022, as well as an increase of $7.7 million in the average balance of the investment security portfolio to $81.6 million for the nine months ended September 30, 2023 from $73.9 million for the nine months ended September 30, 2022. The increase in other interest income resulted primarily from an increase in the yield on short term investments of 400 basis points to 5.10% during the nine months ended September 30, 2023 from 1.10% during the nine months ended September 30, 2022, as well as an increase of $24.1 million in the average balance of short term investments to $67.3 million for the nine months ended September 30, 2023 from $43.1 million for the nine months ended September 30, 2022. The increase in yield was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Average interest-earning assets increased $420.2 million to $1.13 billion for the nine months ended September 30, 2023 from $709.9 million for the nine months ended September 30, 2022. The yield on interest earning-assets increased 102 basis points to 4.67% for the nine months ended September 30, 2023 from 3.65% for the nine months ended September 30, 2022.

Interest Expense. Total interest expense increased $18.4 million, or 695.9%, to $21.0 million for the nine months ended September 30, 2023 from $2.6 million for the nine months ended September 30, 2022. Interest expense on deposit accounts increased $12.5 million, or 535.3%, to $14.8 million for the nine months ended September 30, 2023 from $2.3 million for the nine months ended September 30, 2022, primarily due to an increase in the cost of interest-bearing deposits of 228 basis points to 2.88% for the nine months ended September 30, 2023 from 0.60% for the nine months ended September 30, 2022 and an increase in the average balance of interest-bearing deposits of $170.8 million, or 33.0%, to $688.9 million for the nine months ended September 30, 2023 from $518.1 million for the nine months ended September 30, 2022. Interest expense on FHLB advances increased $5.9 million, or 1,904.2%, to $6.2 million for the nine months ended September 30, 2023 from $310,000 for the nine months ended September 30, 2022, due to an increase in the average balance of FHLB advances of $186.3 million, or 686.3%, to $213.4 million for the nine months ended September 30, 2023 from $27.1 million for the nine months ended September 30, 2022 as well as an increase in the cost of FHLB advances of 236 basis points to 3.89% for the nine months ended September 30, 2023 from 1.53% for the nine months ended September 30, 2022. The increase in FHLB advances were used to fund loan growth and for liquidity management.

Net Interest and Dividend Income. Net interest and dividend income increased $2.0 million, or 12.0%, to $18.9 million for the nine months ended September 30, 2023 from $16.8 million for the nine months ended September 30, 2022, primarily due to a $63.1 million increase in the average balance of net interest-earning assets during the nine months ended September 30, 2023, partially offset by a decrease in the net interest rate spread of 145 basis points to 1.55% for the nine months ended September 30, 2023 from 3.00% for the nine months ended September 30, 2022. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities that exceeded the increase in the yield on interest-earning assets resulting primarily from the significant increase in market interest rates that directly impact our funding costs. The net interest margin decreased 98 basis points to 2.18% for the nine months ended September 30, 2023 from 3.16% for the nine months ended September 30, 2022.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision of $696,000 was recorded for the nine months ended September 30, 2023, which decreased $1.1 million, or 61.3%, from a provision of $1.8 million for the nine months ended September 30, 2022. The decrease in the provision was driven by lower loan growth during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Noninterest Income. Noninterest income decreased $378,000, or 32.3%, to $791,000 for the nine months ended September 30, 2023 from $1.2 million for the nine months ended September 30, 2022. The decrease resulted primarily from a decrease in income from bank-owned life insurance of $359,000. Noninterest income for the nine months ended September 30, 2023 included a gain of $72,000 from life insurance policy death benefits. Noninterest income for the nine months ended September 30, 2022 included a gain of $440,000 from life insurance policy death benefits. The table below sets forth our noninterest income for nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,				Change
	2023		2022		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	371	$	326	$	45			13.8		%
Income from bank-owned life insurance		372		731		(359	)		(49.1	)
Net gain on sales of loans		13		84		(71	)		(84.5	)
Other		35		28		7			25.0
Total noninterest income	$	791	$	1,169	$	(378	)		(32.3	)	%

Noninterest Expense. Noninterest expense decreased $45,000, or 0.3%, to $14.0 million for the nine months ended September 30, 2023 from $14.1 million for the nine months ended September 30, 2022. Significant changes are as follows:

•

Charitable contributions decreased $3.2 million, or 99.5%, driven by a $3.2 million contribution to the Everett Co-operative Bank Charitable Foundation made in the third quarter of 2022 in connection with the Company’s initial public offering;

•

Salaries and employee benefits increased $1.7 million, or 23.9%, driven by merit increases, additional staffing to support our strategic plan as well as expenses related to the ESOP which did not exist in the first half of 2022. Partially offsetting these increases was a decrease in supplemental executive retirement plan expenses driven by increases in defined benefit plan discount rates. The nine months ended September 30, 2022 included a benefit of $582,000 to reflect a reduction in

the liability related to our withdrawal from the defined benefit plan as well as expenses of $166,000 related to our Survivor Benefit Plan, both of which did not recur in the nine months ended September 30, 2023;

•

FDIC deposit insurance expense increased $450,000, or 276.1%, driven by both increases in assessment rates charged by the FDIC as well as an increase in our asset size; and

•

Professional fees increased $402,000, or 71.8%, driven by increased costs related to operating as a public company.

The table below sets forth our noninterest expense for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,				Change
	2023		2022		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	8,623	$	6,960	$	1,663			23.9		%
Director compensation		379		325		54			16.6
Occupancy and equipment		695		561		134			23.9
Data processing		810		624		186			29.8
Computer software and licensing fees		216		180		36			20.0
Advertising and promotions		576		511		65			12.7
Professional fees		962		560		402			71.8
FDIC deposit insurance		613		163		450			276.1
Charitable contributions		17		3,249		(3,232	)		(99.5	)
Other expense		1,125		928		197			21.3
Total noninterest expense	$	14,016	$	14,061	$	(45	)		(0.3	)	%

Income Tax Expense. Income tax expense increased $869,000, or 220.6%, to $1.3 million for the nine months ended September 30, 2023 from $394,000 for the nine months ended September 30, 2022. The effective tax rate was 25.6% and 18.4% for the nine months ended September 30, 2023 and 2022, respectively. The lower effective tax rate in the nine months ended September 30, 2022 was driven by $427,000 in non-taxable gains recognized into income from life insurance policy death benefits.


	For the Nine Months Ended September 30,
	2023							2022
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	981,116	$	35,362		4.82	%	$	592,641	$	18,095		4.08	%
Securities (1)		81,562		1,539		2.52			73,865		954		1.73
Short term investments		67,286		2,566		5.10			43,139		354		1.10
Interest bearing time deposits		84		1		0.69			218		1		0.71
Total interest-earning assets		1,130,048		39,468		4.67	%		709,863		19,404		3.65	%
Non-interest-earning assets		32,272							27,442
Total assets	$	1,162,320						$	737,305

Interest-bearing liabilities:
Checking accounts		22,388		14		0.08	%		38,898		23		0.08	%
Savings accounts		169,817		3,129		2.46			53,691		27		0.07
Money market accounts		102,054		1,508		1.98			188,300		515		0.37
Certificates of deposit		394,673		10,164		3.44			237,245		1,767		1.00
Total interest-bearing deposits		688,932		14,815		2.88			518,134		2,332		0.60
Federal Home Loan Bank advances		213,399		6,213		3.89			27,139		310		1.53
Total interest-bearing liabilities		902,331		21,028		3.12	%		545,273		2,642		0.65	%
Non-interest-bearing demand deposits		84,698							85,270
Non-interest-bearing liabilities		10,805							7,923
Total liabilities		997,834							638,466
Shareholders' Equity		164,486							98,839
Total liabilities and shareholders' equity	$	1,162,320						$	737,305

Net interest income			$	18,440						$	16,762
Net interest rate spread (2)						1.55	%						3.00	%
Net interest-earning assets (3)	$	227,717						$	164,590
Net interest margin (4)						2.18	%						3.16	%

Average interest-earning assets to interest- bearing liabilities						125.24	%						130.18	%

(1) Excludes interest and dividends on cost method investments of $411,000 and $68,000 for the nine months ended September 30, 2023 and 2022, 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


	Nine Months Ended September 30, 2023 vs. 2022
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	13,540		$	3,727		$	17,267
Securities		108			477			585
Short term investments		294			1,918			2,212
Interest bearing time deposits		-			-			-
Total interest-earning assets	$	13,942		$	6,122		$	20,064

Interest-bearing liabilities:
Checking accounts	$	(10	)	$	1		$	(9	)
Savings accounts		177			2,925			3,102
Money market accounts		(334	)		1,327			993
Certificates of deposit		1,785			6,612			8,397
Total deposits		1,618			10,865			12,483
Federal Home Loan Bank advances		4,816			1,087			5,903
Total interest-bearing liabilities	$	6,434		$	11,952		$	18,386

Change in net interest income	$	7,508		$	(5,830	)	$	1,678

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston and the Atlantic Community Bankers Bank. At September 30, 2023, we had outstanding advances of $224.0 million from the Federal Home Loan Bank. At September 30, 2023, we had unused borrowing capacity of $213.0 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 and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.

At September 30, 2023, we had $35.7 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $79.9 million in unused lines of credit to borrowers and $56.3 million in unadvanced construction loans.

Non brokered certificates of deposit due within one year of September 30, 2023 totaled $220.1 million, or 27.2%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2024, or on our savings and money market accounts.

We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2023.

Our primary investing activity is originating loans. During the nine months ended September 30, 2023 and the year ended December 31, 2022, we originated and purchased $198.6 million and $557.5 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $94.4 million and $146.4 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, the level of brokered time deposits was $87.7 million and $100.8 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. FHLB advances increased by $50.0 million and $165.0 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

For additional information, see the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 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 continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At September 30, 2023, 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.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Form 10-Q have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2023. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2023, 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 Company 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, Use of Proceeds and Issuer Purchases of Equity Securities

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

On August 10, 2023, the Company announced the commencement of a stock repurchase program to acquire up to 458,762 shares, or 5% of the Company’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company. The following table sets forth the information regarding the Company's common stock repurchase activities during the three months ended September 30, 2023:


	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Under the Program

From July 1, 2023 to July 31, 2023		-		-		-		-
From August 1, 2023 to August 31, 2023		17,538	$	12.00		17,538		441,224
From September 1, 2023 to September 30, 2023		31,704	$	11.88		31,704		409,520
Total		49,242	$	11.92		49,242

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

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101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

SIGNATURES

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


		ECB BANCORP, INC.


Date: November 9, 2023		/s/Richard J. O'Neil, Jr.
		Richard J. O’Neil, Jr.
		President and Chief Executive Officer


Date: November 9, 2023		/s/John A. Citrano
		John A. Citrano
		Executive Vice President and Chief Financial Officer