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First Seacoast Bancorp - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from _______________ to _______________

Commission File No. 001-38985

 

 

First Seacoast Bancorp

(Exact Name of Registrant as Specified in Its Charter)

 

 

United States of America

 

84-2404519

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

633 Central Avenue, Dover, New Hampshire

 

03820

(Address of Principal Executive Offices)

 

(Zip Code)

 

(603)742-4680

(Registrant’s Telephone Number, Including Area Code)

 

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.01 par value per share

 

FSEA

 

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 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 No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

Smaller reporting company

 

 

 

Emerging growth company

 

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 Exchange Act). Yes No

6,064,891 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of November 7, 2022, of which 3,345,925 shares were owned by First Seacoast Bancorp, MHC.


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Consolidated Financial Statements

2

 

Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021

2

 

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

3

 

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

4

 

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

5

 

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

6

 

Notes to Consolidated Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

46

PART II.

OTHER INFORMATION

47

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 3.

Defaults Upon Senior Securities

47

Item 4.

Mine Safety Disclosures

47

Item 5.

Other Information

47

Item 6.

Exhibits

48

 

Signatures

49

 

1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Balance Sheets

(Dollars in thousands)

 

(Unaudited)
September 30,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

6,849

 

 

$

6,638

 

Interest bearing time deposits with other banks

 

 

747

 

 

 

1,245

 

Securities available-for-sale, at fair value

 

 

100,800

 

 

 

91,365

 

Federal Home Loan Bank stock

 

 

3,346

 

 

 

1,688

 

Loans

 

 

395,769

 

 

 

376,641

 

Less allowance for loan losses

 

 

(3,584

)

 

 

(3,590

)

Net loans

 

 

392,185

 

 

 

373,051

 

Land, building and equipment, net

 

 

4,293

 

 

 

4,566

 

Bank-owned life insurance

 

 

4,541

 

 

 

4,461

 

Accrued interest receivable

 

 

1,787

 

 

 

1,499

 

Other assets

 

 

9,253

 

 

 

2,561

 

Total assets

 

$

523,801

 

 

$

487,074

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing deposits

 

$

89,484

 

 

$

98,624

 

Interest bearing deposits

 

 

297,265

 

 

 

294,619

 

Total deposits

 

 

386,749

 

 

 

393,243

 

Advances from Federal Home Loan Bank

 

 

82,892

 

 

 

29,462

 

Mortgagors’ tax escrow

 

 

2,052

 

 

 

652

 

Deferred compensation liability

 

 

1,773

 

 

 

1,729

 

Other liabilities

 

 

2,605

 

 

 

1,520

 

Total liabilities

 

 

476,071

 

 

 

426,606

 

Stockholders' Equity:

 

 

 

 

 

 

Preferred Stock, $.01 par value, 10,000,000 shares authorized, none issued

 

 

 

 

 

 

Common Stock, $.01 par value, 90,000,000 shares authorized; 6,201,770
   issued and
6,064,891 shares outstanding at September 30, 2022; and 6,201,770
   shares issued and
6,123,337 outstanding as of December 31, 2021, respectively

 

 

62

 

 

 

62

 

Additional paid-in capital

 

 

26,787

 

 

 

26,783

 

Retained earnings

 

 

37,853

 

 

 

36,813

 

Accumulated other comprehensive (loss) income

 

 

(12,823

)

 

 

721

 

Treasury stock, at cost: 136,879 and 78,433 shares outstanding as
   of September 30, 2022 and December 31, 2021, respectively

 

 

(1,371

)

 

 

(748

)

Unearned stock compensation

 

 

(2,778

)

 

 

(3,163

)

Total stockholders' equity

 

 

47,730

 

 

 

60,468

 

Total liabilities and stockholders' equity

 

$

523,801

 

 

$

487,074

 

 

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

2


FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

3,543

 

 

$

3,503

 

 

$

10,427

 

 

$

10,728

 

Interest on debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

295

 

 

 

134

 

 

 

752

 

 

 

276

 

Non-taxable

 

 

342

 

 

 

215

 

 

 

900

 

 

 

659

 

Total interest on debt securities

 

 

637

 

 

 

349

 

 

 

1,652

 

 

 

935

 

Dividends

 

 

37

 

 

 

8

 

 

 

60

 

 

 

10

 

Total interest and dividend income

 

 

4,217

 

 

 

3,860

 

 

 

12,139

 

 

 

11,673

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

151

 

 

 

136

 

 

 

400

 

 

 

464

 

Interest on borrowings

 

 

276

 

 

 

99

 

 

 

418

 

 

 

283

 

Total interest expense

 

 

427

 

 

 

235

 

 

 

818

 

 

 

747

 

Net interest and dividend income

 

 

3,790

 

 

 

3,625

 

 

 

11,321

 

 

 

10,926

 

(Benefit) provision for loan losses

 

 

(60

)

 

 

60

 

 

 

 

 

 

145

 

Net interest and dividend income after (benefit)
   provision for loan losses

 

 

3,850

 

 

 

3,565

 

 

 

11,321

 

 

 

10,781

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

211

 

 

 

236

 

 

 

673

 

 

 

725

 

Gain on sale of loans

 

 

 

 

 

25

 

 

 

2

 

 

 

113

 

Securities gains, net

 

 

 

 

 

 

 

 

52

 

 

 

535

 

Income from bank-owned life insurance

 

 

40

 

 

 

45

 

 

 

80

 

 

 

85

 

Loan servicing income

 

 

27

 

 

 

38

 

 

 

116

 

 

 

122

 

Investment services fees

 

 

76

 

 

 

62

 

 

 

252

 

 

 

180

 

Other income

 

 

11

 

 

 

25

 

 

 

30

 

 

 

50

 

Total non-interest income

 

 

365

 

 

 

431

 

 

 

1,205

 

 

 

1,810

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,228

 

 

 

2,073

 

 

 

6,905

 

 

 

5,824

 

Director compensation

 

 

86

 

 

 

70

 

 

 

223

 

 

 

198

 

Occupancy expense

 

 

179

 

 

 

136

 

 

 

554

 

 

 

473

 

Equipment expense

 

 

121

 

 

 

138

 

 

 

375

 

 

 

419

 

Marketing

 

 

137

 

 

 

85

 

 

 

286

 

 

 

286

 

Data processing

 

 

329

 

 

 

345

 

 

 

1,053

 

 

 

1,016

 

Deposit insurance fees

 

 

35

 

 

 

28

 

 

 

109

 

 

 

87

 

Professional fees and assessments

 

 

265

 

 

 

253

 

 

 

780

 

 

 

734

 

Debit card fees

 

 

50

 

 

 

46

 

 

 

136

 

 

 

137

 

Employee travel and education expenses

 

 

87

 

 

 

38

 

 

 

153

 

 

 

81

 

Other expense

 

 

191

 

 

 

184

 

 

 

749

 

 

 

566

 

Total non-interest expense

 

 

3,708

 

 

 

3,396

 

 

 

11,323

 

 

 

9,821

 

Income before income tax expense

 

 

507

 

 

 

600

 

 

 

1,203

 

 

 

2,770

 

Income tax expense

 

 

39

 

 

 

137

 

 

 

163

 

 

 

566

 

Net income

 

$

468

 

 

$

463

 

 

$

1,040

 

 

$

2,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

0.08

 

 

$

0.18

 

 

$

0.38

 

Diluted

 

$

0.08

 

 

$

0.08

 

 

$

0.18

 

 

$

0.38

 

Weighted Average Shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,752,863

 

 

 

5,807,665

 

 

 

5,765,043

 

 

 

5,820,875

 

Diluted

 

 

5,782,289

 

 

 

5,807,665

 

 

 

5,785,862

 

 

 

5,820,875

 

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

3


FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Statements of COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

468

 

 

$

463

 

 

$

1,040

 

 

$

2,204

 

Other comprehensive loss, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses on securities available-for-sale
   arising during the period, net of income taxes of $(
1,914),
   $(
275), $(5,449) and $(382), respectively

 

 

(5,153

)

 

 

(750

)

 

 

(14,671

)

 

 

(1,037

)

Reclassification adjustment for securities gains, net and net
   amortization of bond premiums included in net income, net of
   income taxes of $
71, $48, $189 and $(12), respectively

 

 

193

 

 

 

129

 

 

 

510

 

 

 

(29

)

Total unrealized loss on securities available-for-sale

 

 

(4,960

)

 

 

(621

)

 

 

(14,161

)

 

 

(1,066

)

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Change in interest rate swaps, net of income taxes of $93,
   $(
1), $238 and $46, respectively

 

 

250

 

 

 

(2

)

 

 

642

 

 

 

125

 

Reclassification adjustment for net interest (income) expense
   on swaps included in net income, net of income taxes of
   $(
11), $4, $(9) and $9, respectively

 

 

(30

)

 

 

11

 

 

 

(25

)

 

 

24

 

      Total change in interest rate swaps

 

 

220

 

 

 

9

 

 

 

617

 

 

 

149

 

Other comprehensive loss

 

 

(4,740

)

 

 

(612

)

 

 

(13,544

)

 

 

(917

)

Comprehensive (loss) income

 

$

(4,272

)

 

$

(149

)

 

$

(12,504

)

 

$

1,287

 

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

4


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Statements of Changes in STOCKHOLDERS’ EQUITY (UNAUDITED)

 

(Dollars in thousands)

 

Shares of
Common
Stock

 

 

Common
Stock

 

 

Additional Paid-in
Capital

 

 

Retained Earnings

 

 

Accumulated
Other
Comprehensive
(Loss) Income

 

 

Treasury
Stock

 

 

Unearned
Stock
Compensation

 

 

Total
Stockholders'
Equity

 

Balance June 30, 2022

 

 

6,064,891

 

 

$

62

 

 

$

26,785

 

 

$

37,385

 

 

$

(8,083

)

 

$

(1,371

)

 

$

(2,906

)

 

$

51,872

 

Net income

 

 

 

 

 

 

 

 

 

 

 

468

 

 

 

 

 

 

 

 

 

 

 

 

468

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,740

)

 

 

 

 

 

 

 

 

(4,740

)

Amortization of unearned stock
   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

98

 

 

 

98

 

ESOP shares earned - 2,981 shares

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

32

 

Balance September 30, 2022

 

 

6,064,891

 

 

$

62

 

 

$

26,787

 

 

$

37,853

 

 

$

(12,823

)

 

$

(1,371

)

 

$

(2,778

)

 

$

47,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2021

 

 

6,123,337

 

 

$

62

 

 

$

26,783

 

 

$

36,813

 

 

$

721

 

 

$

(748

)

 

$

(3,163

)

 

$

60,468

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,040

 

 

 

 

 

 

 

 

 

 

 

 

1,040

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,544

)

 

 

 

 

 

 

 

 

(13,544

)

Treasury stock activity

 

 

(58,446

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(623

)

 

 

 

 

 

(623

)

Amortization of unearned stock
   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

295

 

 

 

295

 

ESOP shares earned - 8,943 shares

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

90

 

 

 

94

 

Balance September 30, 2022

 

 

6,064,891

 

 

$

62

 

 

$

26,787

 

 

$

37,853

 

 

$

(12,823

)

 

$

(1,371

)

 

$

(2,778

)

 

$

47,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2021

 

 

6,016,022

 

 

$

60

 

 

$

25,603

 

 

$

35,933

 

 

$

1,076

 

 

$

(636

)

 

$

(2,086

)

 

$

59,950

 

Net income

 

 

 

 

 

 

 

 

 

 

 

463

 

 

 

 

 

 

 

 

 

 

 

 

463

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(612

)

 

 

 

 

 

 

 

 

(612

)

Treasury stock activity

 

 

(3,463

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

(34

)

ESOP shares earned - 2,981 shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

29

 

Balance September 30, 2021

 

 

6,012,559

 

 

$

61

 

 

$

25,603

 

 

$

36,396

 

 

$

464

 

 

$

(671

)

 

$

(2,057

)

 

$

59,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2020

 

 

6,058,024

 

 

$

61

 

 

$

25,606

 

 

$

34,192

 

 

$

1,381

 

 

$

(233

)

 

$

(2,146

)

 

$

58,861

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,204

 

 

 

 

 

 

 

 

 

 

 

 

2,204

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(917

)

 

 

 

 

 

 

 

 

(917

)

Treasury stock activity

 

 

(45,465

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(438

)

 

 

 

 

 

(438

)

ESOP shares earned - 8,943 shares

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

86

 

Balance September 30, 2021

 

 

6,012,559

 

 

$

61

 

 

$

25,603

 

 

$

36,396

 

 

$

464

 

 

$

(671

)

 

$

(2,057

)

 

$

59,796

 

 

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

5


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

1,040

 

 

$

2,204

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

ESOP expense

 

 

94

 

 

 

86

 

Stock based compensation

 

 

295

 

 

 

 

Depreciation and amortization

 

 

401

 

 

 

419

 

Net amortization of bond premium

 

 

751

 

 

 

494

 

Provision for loan losses

 

 

 

 

 

145

 

Gain on sale of loans

 

 

(2

)

 

 

(113

)

Securities gains, net

 

 

(52

)

 

 

(535

)

Proceeds from loans sold

 

 

639

 

 

 

4,365

 

Origination of loans sold

 

 

(637

)

 

 

(4,252

)

Increase in bank-owned life insurance

 

 

(80

)

 

 

(85

)

Increase in deferred costs on loans

 

 

(601

)

 

 

(687

)

Deferred tax expense

 

 

105

 

 

 

166

 

Increase in accrued interest receivable

 

 

(288

)

 

 

(31

)

Increase in other assets

 

 

(880

)

 

 

(313

)

Increase in deferred compensation liability

 

 

44

 

 

 

5

 

Increase in other liabilities

 

 

1,020

 

 

 

824

 

Net cash provided by operating activities

 

 

1,849

 

 

 

2,692

 

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sales, maturities and principal payments from securities available-for-sale

 

 

4,087

 

 

 

19,127

 

Purchase of securities available-for-sale

 

 

(33,642

)

 

 

(42,625

)

Purchase of property and equipment

 

 

(103

)

 

 

(36

)

Loan purchases

 

 

(3,002

)

 

 

(12,279

)

Loan originations and principal collections, net

 

 

(15,525

)

 

 

8,158

 

Net loan (charge offs) recoveries

 

 

(6

)

 

 

41

 

Net purchase of Federal Home Loan Bank stock

 

 

(1,658

)

 

 

(226

)

Proceeds from sales of interest bearing time deposits with other banks

 

 

498

 

 

 

1,243

 

Net cash used by investing activities

 

 

(49,351

)

 

 

(26,597

)

Cash flows from financing activities:

 

 

 

 

 

 

Net (decrease) increase in NOW, demand deposits, money market and savings accounts

 

 

(623

)

 

 

53,076

 

Net (decrease) increase in certificates of deposit

 

 

(5,871

)

 

 

8,643

 

Increase in mortgagors’ escrow accounts

 

 

1,400

 

 

 

613

 

Treasury stock purchases

 

 

(623

)

 

 

(438

)

Net proceeds (payments ) from short-term FHLB advances

 

 

55,224

 

 

 

(95

)

Proceeds from long-term FHLB advances

 

 

468

 

 

 

5,000

 

Payments on long-term FHLB advances

 

 

(2,262

)

 

 

 

Payments on short-term FRB advances

 

 

 

 

 

(18,195

)

Net cash provided by financing activities

 

 

47,713

 

 

 

48,604

 

Net change in cash and cash equivalents

 

 

211

 

 

 

24,699

 

Cash and cash equivalents at beginning of period

 

 

6,638

 

 

 

5,996

 

Cash and cash equivalents at end of period

 

$

6,849

 

 

$

30,695

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash activities:

 

 

 

 

 

 

Cash paid for interest

 

$

789

 

 

$

782

 

Cash paid for income taxes

 

 

53

 

 

 

318

 

Noncash activities:

 

 

 

 

 

 

Effect of change in fair value of securities available-for-sale:

 

 

 

 

 

 

Securities available-for-sale

 

 

(19,421

)

 

 

(1,463

)

Deferred taxes

 

 

5,261

 

 

 

397

 

Other comprehensive loss

 

 

(14,161

)

 

 

(1,066

)

Effect of change in fair value of interest rate swaps:

 

 

 

 

 

 

Interest rate swaps

 

 

846

 

 

 

204

 

Deferred taxes

 

 

(229

)

 

 

(55

)

Other comprehensive income

 

 

617

 

 

 

149

 

Effect of the adoption of ASU 2016-02:

 

 

 

 

 

 

Other assets

 

 

224

 

 

NA

 

Other liabilities

 

 

224

 

 

NA

 

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

6


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements include the accounts of First Seacoast Bancorp (the “Company”), its wholly-owned subsidiary, First Seacoast Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, FSB Service Corporation, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim consolidated financial information, general practices within the banking industry and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all the information or footnotes required by U.S. GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of these consolidated financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 25, 2022.

Corporate Structure

The Company is the federally-chartered holding company for the Bank (formerly named Federal Savings Bank). Effective July 16, 2019, pursuant to a Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock Issuance Plan, the Bank reorganized into the mutual holding company structure, and the Company completed a concurrent stock offering. On August 11, 2022, First Seacoast Bancorp, MHC, the parent mutual holding company of the Company, adopted a Plan of Conversion and Reorganization (the “Plan”) pursuant to which First Seacoast Bancorp, MHC will undertake a “second-step” conversion and the Bank, the wholly-owned subsidiary of the Company, will reorganize from the two-tier mutual holding company structure to the fully-public stock holding company structure. Following the conversion and reorganization, First Seacoast Bancorp, MHC will cease to exist and a newly-chartered stock holding company will succeed the Company as the stock holding company of the Bank. The Plan is subject to regulatory approval as well as approval by the members of First Seacoast Bancorp, MHC (depositors and certain borrowers of the Bank) and by stockholders of the Company (including approval by the holders of a majority of the outstanding shares of common stock of the Company owned by persons other than First Seacoast Bancorp, MHC).

The Bank offers a full range of banking and wealth management services to its customers. The Bank focuses on four core services that center around customer needs. The core services include residential lending, commercial banking, personal banking and wealth management. The Bank offers a full range of commercial and consumer banking services through its network of five full-service branch locations.

The Bank is engaged principally in the business of attracting deposits from the public and investing those funds in various types of loans, including residential and commercial real estate loans, and a variety of commercial and consumer loans. The Bank also invests its deposits and borrowed funds in investment securities. Deposits at the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) for the maximum amount permitted by law.

Banking services, the Company’s only reportable operating segment, is managed as a single strategic unit.

Investment management services are offered through FSB Wealth Management. FSB Wealth Management is a division of First Seacoast Bank. The division currently consists of two financial advisors who are located in Dover, New Hampshire. FSB Wealth Management provides access to non-FDIC insured products that include retirement planning, portfolio management, investment and insurance strategies, business retirement plans and college planning to individuals throughout our primary market area. These investments and services are offered through a third-party registered broker-dealer and investment advisor. FSB Wealth Management receives fees from advisory services and commissions on individual investment and insurance products purchased by clients. The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the Company’s consolidated balance sheets.

On August 17, 2021, the Bank entered into a definitive agreement with an investment advisory and wealth management firm (the “seller”) to purchase certain of its client accounts and client relationships for a purchase price of $347,000 (included in other assets at September 30, 2022 and December 31, 2021 net of accumulated amortization), of which $172,000 was paid at closing. Each client account has been assigned a value, and as each client transfers to the Bank, 85% of this value will be paid to the seller. By December 31, 2022, or upon mutual agreement that the transition of client accounts is complete, whichever is

7


 

earlier, the balance of the purchase price will be paid to the seller. As of September 30, 2022 and December 31, 2021, approximately $22.8 million and $17.4 million, respectively, of purchased client accounts are included in total assets under management. Assets under management totaled approximately $90.7 million and $88.0 million at September 30, 2022 and December 31, 2021, respectively. The client accounts purchased are recorded as a customer list intangible asset. Identifiable intangible assets that are subject to amortization will be reviewed for impairment, at least annually, based on their fair value. Any impairment will be recognized as a charge to earnings and the adjusted carrying amount of the intangible asset will become its new accounting basis. The remaining useful life of the intangible asset will also be evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company is amortizing the customer list intangible on a straight-line basis over a ten year period. During the three months ended September 30, 2022 and 2021, $9,000 and $-0- of amortization expense was recorded in other expense, respectively. During the nine months ended September 30, 2022 and 2021, $26,000 and $-0- of amortization expense was recorded in other expense, respectively.

Recently Adopted Accounting Standards

As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards without an extended transition period. As of September 30, 2022, there was no significant difference in the comparability of the Company’s consolidated financial statements as a result of this extended transition period except for the accounting treatment for measuring and recording the Company’s allowance for loan losses. The Company measures and records an allowance for loan losses based upon the incurred loss model while other public companies may be required to calculate their allowance for loan losses based upon the current expected credit loss (“CECL”) model. For a “smaller reporting company,” like the Company, the planned implementation of the CECL model is January 1, 2023. The CECL approach requires an estimate of the loan loss expected over the life of the loan, while the incurred loss approach delays the recognition of a loan loss until it is probable a loss event has occurred. The Company’s status as an “emerging growth company” will end on the earlier of: (i) the last day of the fiscal year of the Company during which it had total annual gross revenues of $1.07 billion (as adjusted for inflation) or more; (ii) the last day of the fiscal year of the Company following the fifth anniversary of the effective date of the Company’s initial public offering; (which will be December 31, 2024 for the Company) (iii) the date on which the Company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which the Company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

In January 2020, the FASB issued ASU 2020-1,“Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (A Consensus of the Emerging Issues Task Force),” which clarifies the interaction among the accounting standards for equity securities, equity method investments and certain derivatives. This ASU became effective for public entities for fiscal years beginning after December 15, 2020 and all other entities for fiscal years beginning after December 15, 2021. Early adoption was permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12,“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies accounting for income taxes by removing specific technical exceptions. The guidance removes the need for companies to analyze whether (1) the exception to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses apply in a given period. The amendments in this ASU are effective for smaller reporting companies for fiscal years beginning after December 15, 2021. Early adoption was permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

8


 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In particular, this guidance requires a lessee of operating or finance leases to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous U.S. GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the statement of condition. Initially, the FASB approved a proposal to delay the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2020. On June 30, 2020, the FASB further delayed the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2021. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies ASU 2016-02 with respect to certain aspects of the update and ASU 2018-11,“Targeted Improvements,” to allow an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements. Using the optional transition method discussed above, the Company adopted the new lease guidance on January 1, 2022 and recorded a right-of- use asset in other assets and a corresponding net lease liability in other liabilities at March 31, 2022 (see Note 9, Leases, for more information).

Recent Accounting Pronouncements Yet To Be Adopted

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-2,“Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted Topic 326, “Financial Instruments – Credit Losses.” All other creditors must continue to apply the TDR accounting model until they adopt ASU 2016-13,“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Due to the removal of the TDR accounting model, all loan modifications now will be accounted for under the general loan modification guidance in Subtopic 310-20. In addition, on a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage (that is, year of origination). This ASU becomes effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU 2021-1,“Reference Rate Reform (Topic 848) (Scope),” which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transition. This ASU becomes effective immediately for all entities on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04,“Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential burden in accounting due to reference rate reform. The guidance in this update provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made, and hedging relationships entered into, on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

In February 2020, the FASB issued ASU 2020-2,“Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” This ASU adds an SEC paragraph pursuant to the issuance of SEC SAB Topic No. 119 to the FASB Codification Topic 326 and updates the SEC section of the Codification for the change in the effective dates of Topic 842. This ASU primarily details guidance on what SEC staff would expect a registrant to perform and document when measuring and recording its allowance for credit losses for financial assets recorded at amortized cost.

In November 2019, the FASB issued ASU 2019-11,“Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” to increase stakeholder awareness of the improvements made to the various amendments to Topic 326 and to clarify certain areas of guidance as companies transition to the new standard. Also, during November 2019, the FASB issued ASU 2019-10,“Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” finalizing various effective date deferrals for private companies, not-for-profit organizations and certain

9


 

smaller reporting companies applying the credit losses (CECL), leases and hedging standards. The effective date for ASU 2016-13,“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” is deferred to years beginning after December 15, 2022. The effective date for ASU 2016-02,“Leases (Topic 842),” was deferred to fiscal years beginning after December 15, 2021.

In April 2019, the FASB issued ASU 2019-04,“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification. In May 2019, the FASB issued ASU 2019-05,“Financial Instruments—Credit Losses, Topic 326.” This ASU addresses certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information.

In June 2016, the FASB issued ASU 2016-13,“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including loans and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change. The ASU was originally to be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In November 2018, the FASB issued ASU 2018-19,“Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” extending the implementation date by one year for smaller reporting companies and clarifying that operating lease receivables are outside the scope of Accounting. On October 16, 2019, the FASB approved a proposal to delay the implementation of this standard for smaller reporting companies to years beginning after December 15, 2022. Early adoption is permitted. Upon adoption, however, the Company will apply the standard’s provisions as a cumulative effect adjustment to equity capital as of the first reporting period in which the guidance is effective. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in the assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company is reviewing the requirements of ASU 2016-13 and is developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, the Company anticipates the allowance for loan losses will decrease as a result of the implementation of this ASU. As the Company completes its final evaluation, the adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements at this time.

2.
Securities Available-for-Sale

The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses, are as follows as of September 30, 2022 and December 31, 2021:

 

 

 

September 30, 2022

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

U.S. Government-sponsored enterprises obligations

 

$

6,532

 

 

$

 

 

$

(1,022

)

 

$

5,510

 

U.S. Government agency small business administration
   pools guaranteed by SBA

 

 

9,515

 

 

 

 

 

 

(1,061

)

 

 

8,454

 

Collateralized mortgage obligations issued by
   the FHLMC, FNMA and GNMA

 

 

6,118

 

 

 

 

 

 

(712

)

 

 

5,406

 

Residential mortgage-backed securities

 

 

26,901

 

 

 

 

 

 

(4,841

)

 

 

22,060

 

Municipal bonds

 

 

65,312

 

 

 

 

 

 

(10,435

)

 

 

54,877

 

Corporate subordinated debt

 

 

5,055

 

 

 

 

 

 

(562

)

 

 

4,493

 

 

 

$

119,433

 

 

$

 

 

$

(18,633

)

 

$

100,800

 

 

10


 

 

 

 

December 31, 2021

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

U.S. Government-sponsored enterprises obligations

 

$

6,098

 

 

$

 

 

$

(127

)

 

$

5,971

 

U.S. Government agency small business administration
   pools guaranteed by SBA

 

 

5,059

 

 

 

22

 

 

 

(36

)

 

 

5,045

 

Collateralized mortgage obligations issued by
   the FHLMC, FNMA and GNMA

 

 

3,400

 

 

 

1

 

 

 

(69

)

 

 

3,332

 

Residential mortgage-backed securities

 

 

23,784

 

 

 

32

 

 

 

(484

)

 

 

23,332

 

Municipal bonds

 

 

49,164

 

 

 

1,501

 

 

 

(52

)

 

 

50,613

 

Corporate subordinated debt

 

 

3,072

 

 

 

 

 

 

 

 

 

3,072

 

 

 

$

90,577

 

 

$

1,556

 

 

$

(768

)

 

$

91,365

 

 

The amortized cost and fair values of available-for-sale securities at September 30, 2022 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Amortized
Cost

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

September 30, 2022

 

 

 

 

 

 

Due in one year or less

 

$

 

 

$

 

Due after one year through five years

 

 

530

 

 

 

461

 

Due after five years through ten years

 

 

12,745

 

 

 

11,119

 

Due after ten years

 

 

63,624

 

 

 

53,300

 

Total U.S. Government-sponsored enterprises obligations,
   municipal bonds and corporate subordinated debt

 

 

76,899

 

 

 

64,880

 

U.S. Government agency small business pools guaranteed
   by SBA
(1)

 

 

9,515

 

 

 

8,454

 

Collateralized mortgage obligations issued by the FHLMC,
    FNMA and GNMA
(1)

 

 

6,118

 

 

 

5,406

 

Residential mortgage-backed securities(1)

 

 

26,901

 

 

 

22,060

 

Total

 

$

119,433

 

 

$

100,800

 

 

11


 

(1) Actual maturities for these debt securities are dependent upon the interest rate environment and prepayments on the underlying loans.

The following is a summary of gross unrealized losses and fair value for those investments with unrealized losses, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at September 30, 2022 and December 31, 2021:

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Number of
Securities

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Number of
Securities

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

(Dollars in thousands)

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
   enterprises obligations

 

 

1

 

 

$

452

 

 

$

(44

)

 

 

9

 

 

$

5,058

 

 

$

(978

)

 

$

5,510

 

 

$

(1,022

)

U.S. Government agency small
   business administration pools
   guaranteed by SBA

 

 

9

 

 

 

6,799

 

 

 

(752

)

 

 

2

 

 

 

1,655

 

 

 

(309

)

 

 

8,454

 

 

 

(1,061

)

Collateralized mortgage
   obligations issued by the
   FHLMC, FNMA and GNMA

 

 

7

 

 

 

3,939

 

 

 

(351

)

 

 

3

 

 

 

1,467

 

 

 

(361

)

 

 

5,406

 

 

 

(712

)

Residential mortgage-backed
   securities

 

 

11

 

 

 

6,646

 

 

 

(1,013

)

 

 

20

 

 

 

14,447

 

 

 

(3,828

)

 

 

21,093

 

 

 

(4,841

)

Municipal bonds

 

 

96

 

 

 

51,218

 

 

 

(9,320

)

 

 

5

 

 

 

3,250

 

 

 

(1,115

)

 

 

54,468

 

 

 

(10,435

)

Corporate subordinated debt

 

 

4

 

 

 

4,493

 

 

 

(562

)

 

 

 

 

 

 

 

 

 

 

 

4,493

 

 

 

(562

)

 

 

 

128

 

 

$

73,547

 

 

$

(12,042

)

 

 

39

 

 

$

25,877

 

 

$

(6,591

)

 

$

99,424

 

 

$

(18,633

)

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
   enterprises obligations

 

 

7

 

 

$

5,022

 

 

$

(80

)

 

 

2

 

 

$

949

 

 

$

(47

)

 

$

5,971

 

 

$

(127

)

U.S. Government agency small
   business administration pools
   guaranteed by SBA

 

 

3

 

 

 

2,988

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

2,988

 

 

 

(36

)

Collateralized mortgage
   obligations issued by the
   FHLMC, FNMA and GNMA

 

 

4

 

 

 

2,779

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

 

 

2,779

 

 

 

(69

)

Residential mortgage-backed
   securities

 

 

22

 

 

 

19,541

 

 

 

(399

)

 

 

1

 

 

 

2,304

 

 

 

(85

)

 

 

21,845

 

 

 

(484

)

Municipal bonds

 

 

7

 

 

 

6,494

 

 

 

(49

)

 

 

1

 

 

 

584

 

 

 

(3

)

 

 

7,078

 

 

 

(52

)

 

 

 

43

 

 

$

36,824

 

 

$

(633

)

 

 

4

 

 

$

3,837

 

 

$

(135

)

 

$

40,661

 

 

$

(768

)

 

In evaluating whether investments have suffered an other-than-temporary decline, management evaluated the amount of the decline compared to cost, the length of time and extent to which fair value has been less than cost, the underlying creditworthiness of the issuer, the fair values exhibited during the year and estimated future fair values. In general, management concluded the declines are due to coupon rates compared to market rates and current economic conditions. The Company does not intend to sell investments with unrealized losses, and it is more likely than not that the Company will not be required to sell these investments before recovery of their amortized cost basis. Based on evaluations of the underlying issuers’ financial condition, current trends and economic conditions, management does not believe any securities suffered an other-than-temporary decline in value as of September 30, 2022.

Proceeds from sales, maturities, principal payments received and gross realized gains and losses on available-for-sale securities were as follows for the three and nine months ended September 30, 2022 and 2021:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(Dollars in thousands)

 

Proceeds from sales, maturities, and principal payments
     received on securities available-for-sale

 

$

1,545

 

 

$

684

 

 

$

4,087

 

 

$

19,127

 

Gross realized gains

 

 

 

 

 

 

 

 

52

 

 

 

588

 

Gross realized losses

 

 

 

 

 

 

 

 

 

 

 

(53

)

Net realized gains

 

$

 

 

$

 

 

$

52

 

 

$

535

 

As of September 30, 2022 and December 31, 2021, there were no holdings of securities of any issuer, other than the SBA, FHLMC and FNMA, whose aggregate carrying value exceeded 10% of stockholders’ equity.

12


 

3.
Loans

The Bank’s lending activities are primarily conducted in and around Dover, New Hampshire and in the areas surrounding its branches. The Bank grants commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land loans, 1–4 family residential loans, home equity line of credit loans and consumer loans. Most loans are collateralized by real estate. The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’ geographic area and the general economy.

In response to the COVID-19 pandemic, the Small Business Administration (“SBA”) established the Paycheck Protection Program (“PPP”), which was designed to aid small- and medium-sized businesses through federally guaranteed SBA loans (“PPP loans”) distributed through banks. PPP loans are fully guaranteed as to principal and interest by the SBA. During the year ended December 31, 2021, the Bank originated 134 PPP loans with aggregate outstanding principal balances of $13.1 million. As of September 30, 2022 and December 31, 2021, total PPP loan principal balances were $-0- and $5.5 million, respectively, and are included in commercial and industrial loans (C+I).

Loans consisted of the following at September 30, 2022 and December 31, 2021:

 

 

 

September 30,
2022

 

 

December 31,
2021

 

 

 

(Dollars in thousands)

 

Commercial real estate (CRE)

 

$

77,951

 

 

$

72,057

 

Multifamily (MF)

 

 

8,564

 

 

 

8,998

 

Commercial and industrial (C+I)

 

 

25,090

 

 

 

26,851

 

Acquisition, development, and land (ADL)

 

 

20,005

 

 

 

21,365

 

1-4 family residential (RES)

 

 

246,057

 

 

 

234,199

 

Home equity loans and lines of credit (HELOC)

 

 

9,379

 

 

 

6,947

 

Consumer (CON)

 

 

6,472

 

 

 

4,574

 

Total loans

 

 

393,518

 

 

 

374,991

 

Net deferred loan costs

 

 

2,251

 

 

 

1,650

 

Allowance for loan losses

 

 

(3,584

)

 

 

(3,590

)

Total loans, net

 

$

392,185

 

 

$

373,051

 

 

13


 

Changes in the allowance for loan losses (“ALL”) for the three and nine months ended September 30, 2022 and 2021, by portfolio segment, are summarized as follows:

 

(Dollars in thousands)

 

CRE

 

 

MF

 

 

C+I

 

 

ADL

 

 

RES

 

 

HELOC

 

 

CON

 

 

Unallocated

 

 

Total

 

Balance, June 30, 2022

 

$

1,019

 

 

$

57

 

 

$

208

 

 

$

110

 

 

$

2,025

 

 

$

87

 

 

$

111

 

 

$

27

 

 

$

3,644

 

(Benefit) provision for loan losses

 

 

(75

)

 

 

(1

)

 

 

(11

)

 

 

16

 

 

 

24

 

 

 

4

 

 

 

(18

)

 

 

1

 

 

 

(60

)

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

944

 

 

 

56

 

 

 

197

 

 

 

126

 

 

 

2,049

 

 

 

91

 

 

 

93

 

 

 

28

 

 

 

3,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2021

 

 

792

 

 

 

91

 

 

 

218

 

 

 

191

 

 

 

1,750

 

 

 

78

 

 

 

52

 

 

 

294

 

 

 

3,466

 

Provision for loan losses

 

 

(45

)

 

 

 

 

 

(8

)

 

 

36

 

 

 

68

 

 

 

(34

)

 

 

22

 

 

 

21

 

 

 

60

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

2

 

Balance, September 30, 2021

 

 

747

 

 

 

91

 

 

 

211

 

 

 

227

 

 

 

1,818

 

 

 

44

 

 

 

75

 

 

 

315

 

 

 

3,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

833

 

 

 

80

 

 

 

194

 

 

 

178

 

 

 

2,139

 

 

 

63

 

 

 

75

 

 

 

28

 

 

 

3,590

 

Provision for loan losses

 

 

111

 

 

 

(24

)

 

 

2

 

 

 

(52

)

 

 

(90

)

 

 

28

 

 

 

25

 

 

 

 

 

 

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Recoveries

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

3

 

Balance, September 30, 2022

 

 

944

 

 

 

56

 

 

 

197

 

 

 

126

 

 

 

2,049

 

 

 

91

 

 

 

93

 

 

 

28

 

 

 

3,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

753

 

 

 

60

 

 

 

267

 

 

 

174

 

 

 

1,656

 

 

 

78

 

 

 

52

 

 

 

302

 

 

 

3,342

 

Provision for loan losses

 

 

(6

)

 

 

31

 

 

 

(94

)

 

 

53

 

 

 

162

 

 

 

(34

)

 

 

20

 

 

 

13

 

 

 

145

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

41

 

Balance, September 30, 2021

 

$

747

 

 

$

91

 

 

$

211

 

 

$

227

 

 

$

1,818

 

 

$

44

 

 

$

75

 

 

$

315

 

 

$

3,528

 

 

As of September 30, 2022 and December 31, 2021, information about loans and the ALL, by portfolio segment, are summarized below:

 

(Dollars in thousands)

 

CRE

 

 

MF

 

 

C+I

 

 

ADL

 

 

RES

 

 

HELOC

 

 

CON

 

 

Unallocated

 

 

Total

 

September 30, 2022 Loan Balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

190

 

 

$

 

 

$

5

 

 

$

 

 

$

195

 

Collectively evaluated for impairment

 

 

77,951

 

 

 

8,564

 

 

 

25,090

 

 

 

20,005

 

 

 

245,867

 

 

 

9,379

 

 

 

6,467

 

 

 

 

 

 

393,323

 

Total

 

$

77,951

 

 

$

8,564

 

 

$

25,090

 

 

$

20,005

 

 

$

246,057

 

 

$

9,379

 

 

$

6,472

 

 

$

 

 

$

393,518

 

ALL related to the loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Collectively evaluated for impairment

 

 

944

 

 

 

56

 

 

 

197

 

 

 

126

 

 

 

2,049

 

 

 

91

 

 

 

93

 

 

 

28

 

 

 

3,584

 

Total

 

$

944

 

 

$

56

 

 

$

197

 

 

$

126

 

 

$

2,049

 

 

$

91

 

 

$

93

 

 

$

28

 

 

$

3,584

 

December 31, 2021 Loan Balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

104

 

 

$

 

 

$

28

 

 

$

 

 

$

722

 

 

$

115

 

 

$

 

 

$

 

 

$

969

 

Collectively evaluated for impairment

 

 

71,953

 

 

 

8,998

 

 

 

26,823

 

 

 

21,365

 

 

 

233,477

 

 

 

6,832

 

 

 

4,574

 

 

 

 

 

 

374,022

 

Total

 

$

72,057

 

 

$

8,998

 

 

$

26,851

 

 

$

21,365

 

 

$

234,199

 

 

$

6,947

 

 

$

4,574

 

 

$

 

 

$

374,991

 

ALL related to the loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Collectively evaluated for impairment

 

 

833

 

 

 

80

 

 

 

194

 

 

 

178

 

 

 

2,139

 

 

 

63

 

 

 

75

 

 

 

28

 

 

 

3,590

 

Total

 

$

833

 

 

$

80

 

 

$

194

 

 

$

178

 

 

$

2,139

 

 

$

63

 

 

$

75

 

 

$

28

 

 

$

3,590

 

 

The following is an aging analysis of past due loans by portfolio segment as of September 30, 2022:

 

(Dollars in thousands)

 

30-59 Days

 

 

60-89 Days

 

 

90 + Days

 

 

Total Past Due

 

 

Current

 

 

Total Loans

 

 

Non-Accrual
Loans

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

77,951

 

 

$

77,951

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,564

 

 

 

8,564

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,090

 

 

 

25,090

 

 

 

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,005

 

 

 

20,005

 

 

 

 

RES

 

 

154

 

 

 

 

 

 

 

 

 

154

 

 

 

245,903

 

 

 

246,057

 

 

 

 

HELOC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,379

 

 

 

9,379

 

 

 

 

CON

 

 

105

 

 

 

21

 

 

 

5

 

 

 

131

 

 

 

6,341

 

 

 

6,472

 

 

 

5

 

 

 

$

259

 

 

$

21

 

 

$

5

 

 

$

285

 

 

$

393,233

 

 

$

393,518

 

 

$

5

 

 

14


 

 

The following is an aging analysis of past due loans by portfolio segment as of December 31, 2021:

 

(Dollars in thousands)

 

30-59 Days

 

 

60-89 Days

 

 

90 + Days

 

 

Total Past Due

 

 

Current

 

 

Total Loans

 

 

Non-Accrual
Loans

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

72,057

 

 

$

72,057

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,998

 

 

 

8,998

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,851

 

 

 

26,851

 

 

 

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,365

 

 

 

21,365

 

 

 

 

RES

 

 

 

 

 

487

 

 

 

235

 

 

 

722

 

 

 

233,477

 

 

 

234,199

 

 

 

722

 

HELOC

 

 

117

 

 

 

129

 

 

 

 

 

 

246

 

 

 

6,701

 

 

 

6,947

 

 

 

115

 

CON

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

4,568

 

 

 

4,574

 

 

 

 

 

 

$

123

 

 

$

616

 

 

$

235

 

 

$

974

 

 

$

374,017

 

 

$

374,991

 

 

$

837

 

 

There were no loans collateralized by residential real estate property in the process of foreclosure at September 30, 2022 or December 31, 2021.

The following table provides information on impaired loans as of September 30, 2022 and December 31, 2021:

 

 

 

As of September 30, 2022

 

 

At September 30, 2022

 

(Dollars in thousands)

 

Recorded
Investment

 

 

Unpaid
Principal
Balance

 

 

Related
Allowance

 

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RES

 

 

190

 

 

 

190

 

 

 

 

 

 

575

 

 

 

14

 

HELOC

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

3

 

CON

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Total impaired loans

 

$

195

 

 

$

195

 

 

$

 

 

$

664

 

 

$

17

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021

 

 

At December 31, 2021

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

203

 

 

 

12

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RES

 

 

722

 

 

 

722

 

 

 

 

 

 

77

 

 

 

2

 

HELOC

 

 

115

 

 

 

115

 

 

 

 

 

 

10

 

 

 

 

CON

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans

 

$

837

 

 

$

837

 

 

$

 

 

$

290

 

 

$

14

 

 

Included in impaired loans at September 30, 2022 and December 31, 2021 is a non-performing residential mortgage loan that was repurchased from an investor and restructured in 2021. This loan was returned to performing status during June 2022. The outstanding balance of this now accruing TDR was approximately $190,000 and $195,000 at September 30, 2022 and December 31, 2021, respectively.

Credit Quality Information

The Bank utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition, development, and land loans. Residential real estate, home equity line of credit and consumer loans are considered “pass” rated loans until they become delinquent. Once delinquent, loans can be rated an 8, 9 or 10 as applicable.

Loans rated 1 through 6: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 7: 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.

15


 

Loans rated 8: 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 9: 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 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted and should be charged off.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on its commercial and industrial, commercial real estate and multifamily loans. On a periodic basis, the Bank engages an independent third party to review a significant portion of loans within these segments and to assess the credit risk management practices of its commercial lending department. Management uses the results of these reviews as part of its annual review process and overall credit risk administration.

On a quarterly basis, the Bank formally reviews the ratings on its applicable residential real estate and home equity loans if they have become classified as non-accrual. Criteria used to determine ratings consist of loan-to-value ratios and days delinquent.

The following presents the internal risk rating of loans by portfolio segment as of September 30, 2022:

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Total

 

CRE

 

$

77,951

 

 

$

 

 

$

 

 

 

$

77,951

 

MF

 

 

8,564

 

 

 

 

 

 

 

 

 

8,564

 

C+I

 

 

25,090

 

 

 

 

 

 

 

 

 

25,090

 

ADL

 

 

20,005

 

 

 

 

 

 

 

 

 

20,005

 

RES

 

 

246,057

 

 

 

 

 

 

 

 

 

246,057

 

HELOC

 

 

9,379

 

 

 

 

 

 

 

 

 

9,379

 

CON

 

 

6,472

 

 

 

 

 

 

 

 

 

6,472

 

Total loans

 

$

393,518

 

 

$

 

 

$

 

 

$

393,518

 

 

The following presents the internal risk rating of loans by portfolio segment as of December 31, 2021:

 

(Dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Total

 

CRE

 

$

69,252

 

 

$

2,701

 

 

$

104

 

 

$

72,057

 

MF

 

 

8,998

 

 

 

 

 

 

 

 

 

8,998

 

C+I

 

 

26,823

 

 

 

 

 

 

28

 

 

 

26,851

 

ADL

 

 

21,365

 

 

 

 

 

 

 

 

 

21,365

 

RES

 

 

233,477

 

 

 

 

 

 

722

 

 

 

234,199

 

HELOC

 

 

6,832

 

 

 

 

 

 

115

 

 

 

6,947

 

CON

 

 

4,574

 

 

 

 

 

 

 

 

 

4,574

 

Total loans

 

$

371,321

 

 

$

2,701

 

 

$

969

 

 

$

374,991

 

Certain directors and executive officers of the Company and entities in which they have significant ownership interests are customers of the Bank. Loans outstanding to these persons and entities at September 30, 2022 and December 31, 2021 were $4.6 million and $5.0 million, respectively.

4.
Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of such loans were $36.8 million and $40.6 million at September 30, 2022 and December 31, 2021, respectively. Substantially all of these loans were originated by the Bank and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see Note 14, Fair Value of Assets and Liabilities, for more information). Changes to the balance of mortgage servicing rights are recorded in loan servicing income in the Company’s consolidated statements of income.

The Bank’s mortgage servicing activities include: collecting principal, interest and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Loan servicing income, including late and ancillary fees, was $27,000 and $38,000 for the three months ended September 30, 2022 and 2021, respectively, and $116,000 and

16


 

$122,000 for the nine months ended September 30, 2022 and 2021, respectively. The Bank’s residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in the Bank’s market areas.

The following summarizes activity in mortgage servicing rights for the three and nine months ended September 30, 2022 and 2021:

 

(Dollars in thousands)

 

2022

 

 

2021

 

Balance, June 30,

 

$

364

 

 

$

303

 

Additions

 

 

1

 

 

 

13

 

Payoffs

 

 

(6

)

 

 

(12

)

Change in fair value due to change in assumptions

 

 

10

 

 

 

11

 

Balance, September 30,

 

 

369

 

 

 

315

 

 

 

 

 

 

 

 

Balance, January 1,

 

 

322

 

 

 

273

 

Additions

 

 

6

 

 

 

43

 

Payoffs

 

 

(24

)

 

 

(44

)

Change in fair value due to change in assumptions

 

 

65

 

 

 

43

 

Balance, September 30,

 

$

369

 

 

$

315

 

 

5.
Deposits

Deposits consisted of the following at September 30, 2022 and December 31, 2021:

 

(Dollars in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

NOW and demand deposits

 

$

208,825

 

 

$

206,235

 

Money market deposits

 

 

64,022

 

 

 

71,317

 

Savings deposits

 

 

61,447

 

 

 

57,365

 

Time deposits of $250,000 and greater

 

 

3,852

 

 

 

6,281

 

Time deposits less than $250,000

 

 

48,603

 

 

 

52,045

 

 

 

$

386,749

 

 

$

393,243

 

 

At September 30, 2022, the scheduled maturities of time deposits were as follows:

 

(Dollars in thousands)

 

 

 

2022

 

$

6,364

 

2023

 

 

23,786

 

2024

 

 

9,943

 

2025

 

 

7,277

 

2026

 

 

3,651

 

2027

 

 

1,434

 

 

 

$

52,455

 

 

There were $18.1 million of brokered time deposits which were bifurcated into amounts below the FDIC insurance limit at September 30, 2022 and December 31, 2021.

17


 

6.
Borrowings

Federal Home Loan Bank (“FHLB”)

A summary of borrowings from the FHLB is as follows:

 

 

 

 

September 30, 2022

 

 

 

Principal Amounts

 

 

Maturity Dates

 

 

Interest Rates

 

 

 

(Dollars in thousands)

 

 

 

$

65,224

 

 

 

2022

 

 

2.40% to 3.15% – fixed

 

15,000

 

 

 

2023

 

 

0.44% to 0.45% – fixed

 

800

 

 

 

2024

 

 

0.00% – fixed

 

520

 

 

 

2025

 

 

0.00% – fixed

 

718

 

 

 

2028

 

 

0.00% – fixed

 

200

 

 

 

2030

 

 

0.00% – fixed

 

430

 

 

 

2031

 

 

0.00% – fixed

$

82,892

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

Principal Amounts

 

 

Maturity Dates

 

 

Interest Rates

 

 

 

(Dollars in thousands)

 

 

 

$

12,262

 

 

 

2022

 

 

0.00% to 0.31%– fixed

 

15,000

 

 

 

2023

 

 

0.44% to 0.45%– fixed

 

800

 

 

 

2024

 

 

0.00% – fixed

 

520

 

 

 

2025

 

 

0.00% – fixed

 

250

 

 

 

2028

 

 

0.00% – fixed

 

200

 

 

 

2030

 

 

0.00% – fixed

 

430

 

 

 

2031

 

 

0.00% – fixed

$

29,462

 

 

 

 

 

 

 

All borrowings from the FHLB are secured by a blanket security agreement on qualified collateral, principally residential mortgage loans and certain U.S. government sponsored mortgage-backed securities, in an aggregate amount equal to outstanding advances. The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $48.0 million and $109.7 million at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program.

As of September 30, 2022 and December 31, 2021, borrowings include $2.7 million and $4.5 million, respectively, of advances through the FHLB’s Jobs for New England program where certain qualifying small business loans that create or preserve jobs, expand woman-, minority- or veteran- owned businesses or otherwise stimulate the economy in New England communities are offered at an interest rate of 0%.

At September 30, 2022 and December 31, 2021, the Bank had an overnight line of credit with the FHLB that may be drawn up to $3.0 million. Additionally, the Bank had a total of $5.0 million of unsecured Fed Funds borrowing lines of credit with two correspondent banks. The entire balance of all these credit facilities was available at September 30, 2022 and December 31, 2021.

7.
Employee Benefits

401(k) Plan

The Company sponsors a 401(k) defined contribution plan for substantially all employees pursuant to which employees of the Company could elect to make contributions to the plan subject to Internal Revenue Service limits. The Company makes matching and profit-sharing contributions to eligible participants in accordance with plan provisions. The Company’s contributions for the three months ended September 30, 2022 and 2021were $56,000 and $49,000, respectively, and $153,000 and $140,000 for the nine months ended September 30, 2022 and 2021, respectively.

 

18


 

Pension Plan

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (The Pentegra DB Plan), a tax-qualified defined benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan. The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413 (c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

The funded status (fair value of plan assets divided by funding target) as of July 1, 2022 is as follows:

 

2022 Valuation Report

 

 

96.24

%

(1)

 

 

 

 

 

 

(1)
Fair value of plan assets reflects any contributions received through June 30, 2022.

Based upon the funded status of the Pentegra DB Plan as of July 1, 2022, no funding improvement plan or rehabilitation plan has been implemented or is pending as of September 30, 2022.

Total pension plan expense for the three months ended September 30, 2022 and 2021 was $50,000, and $90,000, respectively, and $150,000 and $270,000 for the nine months ended September 30, 2022 and 2021, respectively, and is included in salaries and employee benefits expense in the accompanying consolidated statements of income. The Company did not pay a surcharge to the Pentegra DB Plan during the three or nine months ended September 30, 2022.

The Company enacted a “hard freeze” for the Pentegra DB Plan as of December 31, 2018, eliminating all future service-related accruals for participants. Prior to this enactment the Company maintained a “soft freeze” status that continued service-related accruals for its active participants with no new participants permitted into the Pentegra DB Plan. The Company estimates a contribution amount of approximately $200,000 for the fiscal year ending December 31, 2022, however, the contribution amount will change significantly as the Company has given notice of its withdrawal from the Pentegra DB Plan as of September 30, 2022 (see next paragraph below).

On May 26, 2022, the board of directors approved a resolution authorizing the Company to give notice of its intent to withdraw from the Pentegra DB Plan as of September 30, 2022. The Company initiated a resolution to withdraw from the Pentegra DB Plan on June 30, 2022 so that a preliminary estimate of withdrawal costs could be determined. On September 30, 2022, the Company proceeded with its notification to withdraw from the Pentegra DB Plan as of September 30, 2022. As a result, a contribution amount that achieves a funded status of 100% - market value of plan assets equal to the final withdrawal liability - is due. The Company is not able to reasonably estimate the contribution amount necessary to achieve a funded status of 100% as of September 30, 2022 due to recent and significant changes to the interest and discount rates used to determine the final withdrawal liability, as well as, yet to be determined vested participant benefit settlement elections (either the purchase of an annuity contract or lump-sum payment). At this time, the Company anticipates the withdrawal costs to be approximately $2.3 million; however, due to continuing changes to interest and discount rates used to determine the final withdrawal liability, this estimate is not recognizable as of September 30, 2022. The Company expects a final contribution amount to be determined during the latter part of the fourth quarter of 2022 or early 2023 as vested participant benefit settlement elections become known and applicable annuity contracts are purchased or lump-sum payments are made.

Supplemental Executive Retirement Plans

Salary Continuation Plan

The Company maintains a nonqualified supplemental retirement plan for its current President and its former President. The plan provides supplemental retirement benefits payable in installments over a period of years upon retirement or death. The recorded liability at September 30, 2022 and December 31, 2021 relating to this supplemental retirement plan was $653,000 and $634,000, respectively. The discount rate used to determine the Company’s obligation was 5.00%. The projected rate of salary increase for its current President was 3%. The expense of this salary retirement plan was $20,000 for each of the three months ended September 30, 2022 and 2021 and $61,000 for each of the nine months ended September 30, 2022 and 2021.

Executive Supplemental Retirement Plan

The recorded liability at September 30, 2022 and December 31, 2021 relating to the supplemental retirement plan for the Bank’s former President was $46,000 and $90,000, respectively. The discount rate used to determine the Company’s obligation was 6.25% at September 30, 2022 and December 31, 2021. The expense of this salary retirement plan was $-0- and $1,000 for the three months ended September 30, 2022 and 2021, respectively, and $2,000 and $4,000 for the nine months ended September 30, 2022 and 2021, respectively.

19


 

Endorsement Method Split Dollar Plan

The Company has an endorsement method split dollar plan for a former President. The recorded liability at September 30, 2022 and December 31, 2021 relating to this supplemental executive benefit agreement was $35,000. The expense of this supplemental plan was $-0- and $1,000 for the three and nine months ended September 30, 2022 and 2021.

Directors Deferred Supplemental Retirement Plan

The Company has a supplemental retirement plan for eligible directors that provides for monthly benefits based upon years of service to the Company, subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the estimated period of service. The estimated liability at September 30, 2022 and December 31, 2021 relating to this plan was $515,000 and $550,000, respectively. The discount rate used to determine the Company’s obligation was 6.25% at September 30, 2022 and December 31, 2021. Total supplemental retirement plan expense amounted to $22,000 and $17,000 for the three months ended September 30, 2022 and 2021, respectively, and $54,000 and $51,000 for the nine months ended September 30, 2022 and 2021, respectively. The Company enacted a “hard freeze” for this supplemental retirement plan as of January 1, 2022. On February 10, 2022, the Bank and the non-employee members of the board of directors of the Bank entered into amendments to the Supplemental Director Retirement Agreements (the “Agreements”) previously entered into by the Bank and the directors. The amendments eliminate the formula for determining the normal annual retirement benefit (previously “70% of Final Base Fee”) and replaces it with a fixed annual benefit of $20,000. The amendments also eliminate the formula for determining the benefit payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a fixed amount equal to the present value of $200,000. The effect of the amendments is to eliminate the variable and increasing costs associated with the Agreements. Instead, since the normal annual retirement benefit will be a fixed amount, the future costs associated with the Agreements is now more predictable. It is the intention of the Bank that no new directors of the Bank would enter into similar agreements.

Additionally, the Company has a deferred director’s fee plan, which allows members of the board of directors to defer the receipt of fees that otherwise would be paid to them in cash. At September 30, 2022 and December 31, 2021, the total deferred director’s fees amounted to $524,000 and $420,000, respectively.

8.
Stock Based Compensation

Employee Stock Ownership Plan

The Company maintains the First Seacoast Bank Employee Stock Ownership Plan (“ESOP”) to provide eligible employees of the Company the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year through 2038 is 11,924.

The ESOP funded its purchase of 238,473 shares through a loan from the Company equal to 100% of the aggregate purchase price of the common stock. The ESOP trustee is repaying the loan principally through the Bank’s contributions to the ESOP over the remaining loan term that matures on December 31, 2038. At September 30, 2022 and December 31, 2021, the remaining principal balance on the ESOP debt was $2.1 million.

Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants’ accounts under the plan. Total compensation expense recognized in connection with the ESOP for the three months ended September 30, 2022 and 2021 was $32,000 and $29,000, respectively, and $94,000 and $86,000 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021, total unearned compensation for the ESOP was $1.9 million and $2.0 million, respectively.

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Shares held by the ESOP include the following:

 

 

 

 

 

 

 

 

Allocated

 

 

35,772

 

 

 

23,848

 

Committed to be allocated

 

 

8,943

 

 

 

11,924

 

Unallocated

 

 

193,758

 

 

 

202,701

 

Total

 

 

238,473

 

 

 

238,473

 

The fair value of unallocated shares was approximately $2.0 million and $2.2 million at September 30, 2022 and December 31, 2021, respectively.

 

20


 

Equity Incentive Plan

Effective May 27, 2021, the Company adopted the First Seacoast Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The Company’s stockholders approved the 2021 plan on that date. The 2021 Plan provides for the granting of incentive and non-statutory stock options to purchase shares of common stock and the granting of shares of restricted stock awards and restricted stock units.

The 2021 Plan authorizes the issuance or delivery to participants of up to 417,327 shares of common stock. Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 298,091 shares and the maximum number of shares of common stock that may be issued as restricted stock awards or restricted stock units is 119,236 shares. The exercise price of stock options may not be less than the fair market value on the date the stock option is granted. Further, stock options may not be granted with a term that is longer than 10 years.

As of September 30, 2022, no stock options have been granted. On November 18, 2021, 118,270 restricted stock awards were granted to directors and certain members of management at $9.99 per share. The total fair value related to the November 18, 2021 grant was $1.2 million. Restricted stock awards time-vest over a three year period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting rights when granted and dividend rights when vested. A summary of non-vested restricted shares outstanding as of September 30, 2022 and changes during the nine months then ended is presented below:

 

 

September 30, 2022

 

 

Number of Shares

 

 

Weighted Average Grant Value

 

Restricted stock:

 

 

 

 

 

 

 

Non-vested at beginning of period

 

118,270

 

 

$

9.99

 

     Granted

 

 

 

 

 

     Vested

 

 

 

 

 

Forfeited

 

 

 

 

 

Non-vested at end of period

 

118,270

 

 

$

9.99

 

 

For the three and nine months ended September 30, 2022, the expense recognized for this equity incentive plan was $98,000 and $295,000, respectively, which provided a tax benefit of $27,000 and $77,000, respectively. At September 30, 2022 and December 31, 2021, total unrecognized compensation expense for this equity incentive plan was $0.8 million and $1.1 million, respectively, with a 2.1 and 2.9 year weighted average future recognition period, respectively.

9.
Leases

The Company is obligated under various lease agreements for one of its branch offices and certain equipment. These agreements are accounted for as operating leases and their terms expire between 2022 and 2027 and, in some instances, contain options to renew for periods up to four years. The Company has no financing leases.

The Company adopted ASU 2016-02 –Leases (Topic 842)– on January 1, 2022 and began recognizing its operating leases on its consolidated balance sheet by recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a Right-Of-Use (“ROU”) asset, representing the Company’s legal right to use the leased assets. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. The Company does not have any sub-lease agreements.

The following table summarizes information related to the Company’s right-of-use asset and net lease liability:

 

 

 

September 30, 2022

 

 

Operating Leases

 

 

Balance Sheet Location

 

 

(Dollars in thousands)

Right-of-use asset

 

$

213

 

 

Other Assets

Net lease liability

 

 

213

 

 

Other Liabilities

 

21


 

The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The discount rate is either implicit in the lease or, when a rate cannot be readily determined, the Company’s incremental borrowing rate is used. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.

22


 

The components of operating lease cost and other related information are as follows:

 

 

 

Nine Months Ended September 30, 2022

 

 

 

(Dollars in thousands)

 

Operating lease cost

 

$

42

 

Short-term lease cost

 

 

 

Variable lease cost (Cost excluded from lease payments)

 

 

 

Sublease income

 

 

 

   Total operating lease cost

 

 

42

 

Other Information:

 

 

 

Cash paid for amounts included in the measurement of lease liabilities - operating cash flows from operating leases

 

 

42

 

Operating lease - operating cash flows (liability reduction)

 

$

 

Weighted average lease term

 

 

4.59

 

Weighted average discount rate

 

 

3.28

%

 

 

 

 

 

The total minimum lease payments due in future periods for lease agreements in effect at September 30, 2022 were as follows:

 

As of September 30, 2022

 

Future Minimum Lease Payments

 

 

 

(Dollars in thousands)

 

Remainder of 2022

 

$

13

 

2023

 

 

52

 

2024

 

 

49

 

2025

 

 

44

 

2026

 

 

43

 

Thereafter

 

 

29

 

Total minimum lease payments

 

 

230

 

Less: interest

 

 

(17

)

Total lease liability

 

$

213

 

 

23


 

 

One of the Company’s lease agreements contains clauses calling for escalation of minimum lease payments contingent on increases in LIBOR, or a similar replacement index, and the consumer price index.

10.
Other Comprehensive Income

The Company reports certain items as “other comprehensive income” and reflects total accumulated other comprehensive income (“AOCI”) in the consolidated financial statements for all periods containing elements of other comprehensive income or loss. The following table presents a reconciliation of the changes in the components of other comprehensive income or loss for the dates indicated, including the amount of income tax expense or benefit allocated to each component of other comprehensive income or loss:

 

 

 

Three Months Ended September 30,

 

 

 

Reclassification Adjustment

 

2022

 

 

2021

 

 

Affected Line Item in Consolidated Statements of Income

 

 

(Dollars in thousands)

 

 

 

Gains on sale of securities available-for-sale

 

$

 

 

$

 

 

Securities gains, net

Tax effect

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

Net income

Net amortization of bond premiums

 

 

264

 

 

 

177

 

 

Interest on debt securities

Tax effect

 

 

(71

)

 

 

(48

)

 

Income tax expense

 

 

 

193

 

 

 

129

 

 

Net income

Net interest (income) expense on swaps

 

 

(41

)

 

 

15

 

 

Interest expense on borrowings

Tax effect

 

 

11

 

 

 

(4

)

 

Income tax expense

 

 

 

(30

)

 

 

11

 

 

Net income

Total reclassification adjustments

 

$

163

 

 

$

140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

(Dollars in thousands)

 

 

 

Gains on sale of securities available-for-sale

 

$

(52

)

 

$

(535

)

 

Securities gains, net

Tax effect

 

 

14

 

 

 

146

 

 

Income tax expense

 

 

 

(38

)

 

 

(389

)

 

Net income

Net amortization of bond premiums

 

 

751

 

 

 

494

 

 

Interest on debt securities

Tax effect

 

 

(203

)

 

 

(134

)

 

Income tax expense

 

 

 

548

 

 

 

360

 

 

Net income

Net interest (income) expense on swaps

 

 

(34

)

 

 

33

 

 

Interest expense on borrowings

Tax effect

 

 

9

 

 

 

(9

)

 

Income tax expense

 

 

 

(25

)

 

 

24

 

 

Net income

Total reclassification adjustments

 

$

485

 

 

$

(5

)

 

 

 

24


 

The following tables present the changes in each component of AOCI for the periods indicated:

 

(Dollars in thousands)

 

Net Unrealized Gains
(Losses) on AFS
Securities
(1)

 

 

Net Unrealized Gains
(Losses) on Cash Flow
Hedges
(1)

 

 

AOCI(1)

 

Balance at June 30, 2022

 

$

(8,626

)

 

$

543

 

 

$

(8,083

)

Other comprehensive (loss) income before
      reclassification

 

 

(5,153

)

 

 

250

 

 

 

(4,903

)

      Amounts reclassified from AOCI

 

 

193

 

 

 

(30

)

 

 

163

 

Other comprehensive (loss) income

 

 

(4,960

)

 

 

220

 

 

 

(4,740

)

Balance at September 30, 2022

 

$

(13,586

)

 

$

763

 

 

$

(12,823

)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

 

$

1,036

 

 

$

40

 

 

$

1,076

 

Other comprehensive income loss before
      reclassification

 

 

(750

)

 

 

(2

)

 

 

(752

)

      Amounts reclassified from AOCI

 

 

129

 

 

 

11

 

 

 

140

 

Other comprehensive (loss) income

 

 

(621

)

 

 

9

 

 

 

(612

)

Balance at September 30, 2021

 

$

415

 

 

$

49

 

 

$

464

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

$

575

 

 

$

146

 

 

$

721

 

Other comprehensive (loss) income before
      reclassification

 

 

(14,671

)

 

 

642

 

 

 

(14,029

)

      Amounts reclassified from AOCI

 

 

510

 

 

 

(25

)

 

 

485

 

Other comprehensive (loss) income

 

 

(14,161

)

 

 

617

 

 

 

(13,544

)

Balance at September 30, 2022

 

$

(13,586

)

 

$

763

 

 

$

(12,823

)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

$

1,481

 

 

$

(100

)

 

$

1,381

 

Other comprehensive (loss) income before
      reclassification

 

 

(1,037

)

 

 

125

 

 

 

(912

)

      Amounts reclassified from AOCI

 

 

(29

)

 

 

24

 

 

 

(5

)

Other comprehensive (loss) income

 

 

(1,066

)

 

 

149

 

 

 

(917

)

Balance at September 30, 2021

 

$

415

 

 

$

49

 

 

$

464

 

 

(1)
All amounts are net of tax

 

25


 

11.
Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). As of September 30, 2022, the most recent notification from the Office of the Comptroller of the Currency 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 capital amounts and ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes that, as of September 30, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which it was subject, including the capital conservation buffer, at those dates.

The following table presents actual and required capital ratios as of September 30, 2022 and December 31, 2021 for the Bank under the Basel Committee on Banking Supervisions capital guidelines for U.S. banks (“Basel III Capital Rules”) as fully phased-in on January 1, 2019. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

 

 

 

 

 

 

 

 

 

Minimum
Capital

 

 

Minimum
Capital Required to be Well

 

 

Minimum Capital Required For Capital Adequacy Plus Capital Conservation Buffer

 

 

 

Actual

 

 

Requirement

 

 

Capitalized

 

 

Fully Phased-In

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

As of September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

$

54,632

 

 

 

16.37

%

 

$

26,695

 

 

 

8.00

%

 

$

33,368

 

 

 

10.00

%

 

$

35,037

 

 

 

10.50

%

Tier 1 Capital (to risk-weighted assets)

 

 

51,003

 

 

 

15.28

 

 

 

20,021

 

 

 

6.00

 

 

 

26,695

 

 

 

8.00

 

 

 

28,363

 

 

 

8.50

 

Tier 1 Capital (to average assets)

 

 

51,003

 

 

 

9.81

 

 

 

20,795

 

 

 

4.00

 

 

 

25,994

 

 

 

5.00

 

 

 

20,795

 

 

 

4.00

 

Common Equity Tier 1 (to risk-weighted assets)

 

 

51,003

 

 

 

15.28

 

 

 

15,016

 

 

 

4.50

 

 

 

21,689

 

 

 

6.50

 

 

 

23,358

 

 

 

7.00

 

 

 

 

 

 

 

 

 

 

Minimum
Capital

 

 

Minimum
Capital Required to be Well

 

 

Minimum Capital Required For Capital Adequacy Plus Capital Conservation Buffer

 

 

 

Actual

 

 

Requirement

 

 

Capitalized

 

 

Fully Phased-In

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

As of December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

$

52,798

 

 

 

17.87

%

 

$

23,641

 

 

 

8.00

%

 

$

29,546

 

 

 

10.00

%

 

$

31,029

 

 

 

10.50

%

Tier 1 Capital (to risk-weighted assets)

 

 

49,151

 

 

 

16.63

 

 

 

17,731

 

 

 

6.00

 

 

 

23,644

 

 

 

8.00

 

 

 

25,119

 

 

 

8.50

 

Tier 1 Capital (to average assets)

 

 

49,151

 

 

 

9.92

 

 

 

19,811

 

 

 

4.00

 

 

 

24,774

 

 

 

5.00

 

 

 

19,811

 

 

 

4.00

 

Common Equity Tier 1 (to risk-weighted assets)

 

 

49,151

 

 

 

16.63

 

 

 

13,298

 

 

 

4.50

 

 

 

19,211

 

 

 

6.50

 

 

 

20,686

 

 

 

7.00

 

 

26


 

12.
Common Stock Repurchases

On September 23, 2020, the board of directors of the Company authorized the repurchase of up to 136,879 shares of the Company’s outstanding common stock, which equals approximately 2.3% of all shares then outstanding and approximately 5.0% of the then outstanding shares owned by stockholders other than the MHC. As of September 30, 2022, the Company had repurchased all 136,879 shares authorized. The Company holds repurchased shares as treasury stock.

13.
Derivatives and Hedging Activities

 

Derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation. The Company utilizes interest rate swap agreements as part of its asset liability management strategy. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. These derivative instruments are designated as cash flow hedges with changes in the fair value of the derivative recorded in other comprehensive (loss) income and recognized in earnings when the hedged transaction affects earnings. The hedges were determined to be effective and the Company expects the hedges to remain effective during the remaining terms of the swaps.

The Company entered into two $5 million notional interest rate swaps that have been designated as cash flow hedges on 90-day advances from FHLB. The purpose of these cash flow hedges is to reduce potential interest rate risk by swapping a variable rate borrowing to a fixed rate. Management deemed it prudent to limit the variability of these interest payments by entering into these interest rate swap agreements. These agreements provide for the Company to receive payments at a variable rate determined by a specific index (three-month LIBOR) in exchange for making payments at a fixed rate. Publication of LIBOR is expected to cease in June of 2023. The swap agreements allow for substitution of an alternative reference rate such as the secured overnight financing rate (“SOFR”) at that time.

The changes in the fair value of interest rate swaps are reported in other comprehensive (loss) income and are subsequently reclassified into interest expense or income in the period that the hedged transactions affect earnings. Due to the increase in the three-month LIBOR rate, the Company estimates that an additional $180,000 will be reclassified as an increase to interest income during the next twelve months. The change in fair value for these derivative instruments for the three months ended September 30, 2022 and 2021, was $302,000 and $12,000, respectively, and $846,000 and $204,000 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021, the fair value of interest rate swap derivatives resulted in an asset of $1.0 million and $200,000, respectively, and is recorded in other assets.

The following tables summarizes the Company’s derivatives associated with its interest rate risk management activities:

 

 

 

 

 

 

 

 

 

September 30, 2022

 

(Dollars in thousands)

 

Start Date

 

Maturity Date

 

Rate

 

Notional

 

 

Other
Assets

 

 

Other
Liabilities

 

Debt Hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swap 2020

 

4/13/2020

 

4/13/2025

 

0.68%

 

$

5,000

 

 

$

460

 

 

$

 

Interest Rate Swap 2021

 

4/13/2021

 

4/13/2026

 

0.74%

 

 

5,000

 

 

 

586

 

 

 

 

Total Hedging Instruments

 

 

 

 

 

 

 

$

10,000

 

 

$

1,046

 

 

$

 

Hedged Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variability in cash flows related to 90-day FHLB advances

 

 

 

 

 

 

 

N/A

 

 

$

 

 

$

10,000

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(Dollars in thousands)

 

Start Date

 

Maturity Date

 

Rate

 

Notional

 

 

Other
Assets

 

 

Other
Liabilities

 

Debt Hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swap 2020

 

4/13/2020

 

4/13/2025

 

0.68%

 

$

5,000

 

 

$

85

 

 

$

 

Interest Rate Swap 2021

 

4/13/2021

 

4/13/2026

 

0.74%

 

 

5,000

 

 

 

115

 

 

 

 

Total Hedging Instruments

 

 

 

 

 

 

 

$

10,000

 

 

$

200

 

 

$

 

Hedged Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variability in cash flows related to 90-day FHLB advances

 

 

 

 

 

 

 

N/A

 

 

$

 

 

$

10,000

 

 

27


 

 

The following tables summarize the effect of cash flow hedge accounting on the consolidated statements of income for the three and nine months ended September 30, 2022 and 2021:

 

 

Location and Amount of Gain or Loss Recognized in Consolidated Statements of Income

 

 

Three Months Ended September 30,

 

 

2022

 

 

2021

 

(Dollars in thousands)

Interest
Income
(Expense)

 

 

Other
Income
(Expense)

 

 

Interest
Income
(Expense)

 

 

Other
Income
(Expense)

 

The effect of cash flow hedge accounting:

 

 

 

 

 

 

 

 

 

 

 

    Amount reclassified from
         AOCI into expense

$

41

 

 

$

 

 

$

(15

)

 

$

 

 

 

Location and Amount of Gain or Loss Recognized in Consolidated Statements of Income

 

 

Nine Months Ended September 30,

 

 

2022

 

 

2021

 

(Dollars in thousands)

Interest
Income
(Expense)

 

 

Other
Income
(Expense)

 

 

Interest
Income
(Expense)

 

 

Other
Income
(Expense)

 

The effect of cash flow hedge accounting:

 

 

 

 

 

 

 

 

 

 

 

    Amount reclassified from
         AOCI into expense

$

34

 

 

$

 

 

$

(33

)

 

$

 

 

The credit risk associated with these interest rate swaps is the risk of default by the counterparty. To minimize this risk, the Company only enters into interest rate swap agreements with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, therefore, are not a measure of the potential loss exposure. Risk management results for the three and nine months ended September 30, 2022 and 2021, related to the balance sheet hedging of $10.0 million of 90 day FHLB advances, included in borrowings, indicate that the hedge was 100% effective and there was no component of the derivative instruments’ unrealized gain or loss which was excluded from the assessment of hedge effectiveness. The Company’s arrangement with its counterparty requires it to post cash or other assets as collateral for its interest rate swap contracts in a net liability position based on their aggregate fair value and the Company’s credit rating. At September 30, 2022 and December 31, 2021, the Company posted $529,000 and $526,000, respectively, of cash to the counterparty as collateral on its interest rate swap contracts which was presented within cash and due from banks on the consolidated balance sheets.

14.
Fair Values of Assets and Liabilities

Determination of Fair Value

The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the observability and reliability of the assumptions used to determine fair value.

Level 1 - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 - Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Level 3 inputs are unobservable inputs for the asset or liability.

28


 

For assets and liabilities, fair value is based upon the lowest level of observable input that is significant to the fair value measurement.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented therein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. 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 the Company’s financial assets and financial liabilities carried at fair value at September 30, 2022 and December 31, 2021.

Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities Available-for-Sale: The Company’s investment in U.S. Government-sponsored entities bonds, U.S Government agency small business administration pools guaranteed by the SBA, collateralized mortgage obligations issued by the FHLMC, residential mortgage-backed securities and other municipal bonds is generally classified within Level 2 of the fair value hierarchy. For these securities, the Company obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that may include reported trades, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Mortgage Servicing Rights: Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (see Note 4, Loan Servicing, for more information). These assumptions are inherently sensitive to change as these unobservable inputs are not based on quoted prices in active markets or otherwise observable.

Derivative Instruments and Hedges: The valuation of these instruments is determined using the discounted cash flow method on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(Dollars in thousands)

 

September 30, 2022

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises obligations

 

$

5,510

 

 

$

 

 

$

5,510

 

 

$

 

U.S Government agency small business administration
   pools guaranteed by the SBA

 

 

8,454

 

 

 

 

 

 

8,454

 

 

 

 

Collateralized mortgage obligations issued by the
   FHLMC, FNMA and GNMA

 

 

5,406

 

 

 

 

 

 

5,406

 

 

 

 

Residential mortgage-backed securities

 

 

22,060

 

 

 

 

 

 

22,060

 

 

 

 

Municipal bonds

 

 

54,877

 

 

 

 

 

 

54,877

 

 

 

 

Corporate subordinated debt

 

 

4,493

 

 

 

 

 

 

4,493

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

369

 

 

 

 

 

 

 

 

 

369

 

Derivatives

 

 

1,046

 

 

 

 

 

 

1,046

 

 

 

 

 

29


 

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(Dollars in thousands)

 

December 31, 2021

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises obligations

 

$

5,971

 

 

$

 

 

$

5,971

 

 

$

 

U.S Government agency small business administration
   pools guaranteed by the SBA

 

 

5,045

 

 

 

 

 

 

5,045

 

 

 

 

Collateralized mortgage obligations issued by the
   FHLMC, FNMA and GNMA

 

 

3,332

 

 

 

 

 

 

3,332

 

 

 

 

Residential mortgage-backed securities

 

 

23,332

 

 

 

 

 

 

23,332

 

 

 

 

Municipal bonds

 

 

50,613

 

 

 

 

 

 

50,613

 

 

 

 

Corporate subordinated debt

 

 

3,072

 

 

 

 

 

 

3,072

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

322

 

 

 

 

 

 

 

 

 

322

 

Derivatives

 

 

200

 

 

 

 

 

 

200

 

 

 

 

 

30


 

For the nine months ended September 30, 2022 and 2021, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:

 

(Dollars in thousands)

 

Mortgage
Servicing
Rights
 (1)

 

Balance as of January 1, 2022

 

$

322

 

Included in net income

 

 

47

 

Balance as of September 30, 2022

 

$

369

 

Total unrealized net gains (losses) included in net income
   related to assets still held as of September 30, 2022

 

$

 

 

 

 

 

Balance as of January 1, 2021

 

$

273

 

Included in net income

 

 

42

 

Balance as of September 30, 2021

 

$

315

 

Total unrealized net gains (losses) included in net income
   related to assets still held as of September 30, 2021

 

$

 

 

(1)
Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of loan servicing income in the Company’s consolidated statements of income.

 

For Level 3 assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

September 30, 2022

 

(Dollars in thousands)

 

Valuation
Technique

 

Description

 

Range

 

Weighted
Average
 (1)

 

Fair
Value

 

Mortgage Servicing Rights

 

Discounted Cash Flow

 

Prepayment Rate

 

6.71% -17.19%

 

7.96%

 

$

369

 

 

 

 

 

Discount Rate

 

9.00% - 9.00%

 

9.00%

 

 

 

 

 

 

 

Delinquency Rate

 

2.27% - 3.10%

 

2.41%

 

 

 

 

 

 

 

Default Rate

 

0.16% - 0.24%

 

0.17%

 

 

 

 

 

 

December 31, 2021

 

(Dollars in thousands)

 

Valuation Technique

 

Description

 

Range

 

Weighted Average (1)

 

Fair Value

 

Mortgage Servicing Rights

 

Discounted Cash Flow

 

Prepayment Rate

 

6.63% - 25.56%

 

13.39%

 

$

322

 

 

 

 

 

Discount Rate

 

9.00% - 9.00%

 

9.00%

 

 

 

 

 

 

 

Delinquency Rate

 

2.82% - 3.63%

 

2.96%

 

 

 

 

 

 

 

Default Rate

 

0.08% - 0.14%

 

0.13%

 

 

 

 

(1)
Unobservable inputs for mortgage servicing rights were weighted by loan amount.

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are the weighted-average prepayment rate, weighted-average discount rate, weighted average delinquency rate and weighted-average default rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions of each other.

The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Observable and unobservable inputs are entered into this model as prescribed by an independent third party to arrive at an estimated fair value. See Note 4, Loan Servicing, for a roll forward of our Level 3 item and related inputs and assumptions used to determine fair value at September 30, 2022.

31


 

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis during the reported periods may include certain impaired loans reported at the fair value of the underlying collateral. Fair value is measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3.

Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Financial assets measured at fair value on a non-recurring basis during the reported periods also include loans held for sale. Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. The fair values for loans held for sale are estimated based on commitments in effect from investors or prevailing market prices for loans with similar terms to borrowers of similar credit quality and are included in Level 3. At September 30, 2022 and December 31, 2021, there were no assets measured at fair value on a non-recurring basis.

Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in other non-interest expense. There were no foreclosed assets at September 30, 2022 or December 31, 2021.

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. At September 30, 2022 and December 31, 2021, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

32


 

Summary of Fair Values of Financial Instruments not Carried at Fair Value

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments at September 30, 2022 and December 31, 2021 are as follows:

 

(Dollars in thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

6,849

 

 

$

6,849

 

 

$

6,849

 

 

$

 

 

$

 

Interest-bearing time deposits with other banks

 

 

747

 

 

 

747

 

 

 

 

 

 

747

 

 

 

 

Federal Home Loan Bank stock

 

 

3,346

 

 

 

3,346

 

 

 

 

 

 

3,346

 

 

 

 

Bank-owned life insurance

 

 

4,541

 

 

 

4,541

 

 

 

 

 

 

4,541

 

 

 

 

Loans, net

 

 

392,185

 

 

 

358,702

 

 

 

 

 

 

 

 

 

358,702

 

Accrued interest receivable

 

 

1,787

 

 

 

1,787

 

 

 

1,787

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

386,749

 

 

$

384,101

 

 

$

334,294

 

 

$

49,807

 

 

$

 

Advances from Federal Home Loan Bank

 

 

82,892

 

 

 

81,047

 

 

 

 

 

 

81,047

 

 

 

 

Mortgagors’ tax escrow

 

 

2,052

 

 

 

2,052

 

 

 

 

 

 

2,052

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

6,638

 

 

$

6,638

 

 

$

6,638

 

 

$

 

 

$

 

Interest-bearing time deposits with other banks

 

 

1,245

 

 

 

1,245

 

 

 

 

 

 

1,245

 

 

 

 

Federal Home Loan Bank stock

 

 

1,688

 

 

 

1,688

 

 

 

 

 

 

1,688

 

 

 

 

Bank-owned life insurance

 

 

4,461

 

 

 

4,461

 

 

 

 

 

 

4,461

 

 

 

 

Loans, net

 

 

373,051

 

 

 

371,587

 

 

 

 

 

 

 

 

 

371,587

 

Accrued interest receivable

 

 

1,499

 

 

 

1,499

 

 

 

1,499

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

393,243

 

 

$

393,145

 

 

$

334,917

 

 

$

58,228

 

 

$

 

Advances from Federal Home Loan Bank

 

 

29,462

 

 

 

29,063

 

 

 

 

 

 

29,063

 

 

 

 

Mortgagors’ tax escrow

 

 

652

 

 

 

652

 

 

 

 

 

 

652

 

 

 

 

 

33


 

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

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the Company’s consolidated financial condition at September 30, 2022 and consolidated results of operations for the three and nine months ended September 30, 2022 and 2021. It should be read in conjunction with our unaudited consolidated financial statements and accompanying notes presented elsewhere in this report and with the Company’s audited consolidated financial statements and accompanying notes presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on March 25, 2022 with the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation.

Overview

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the FHLB, in one- to four-family residential real estate loans, commercial real estate and multi-family loans, acquisition, development and land loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. In recent years, we have increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real estate and commercial and industrial loans.

We conduct our operations from four full-service banking offices in Strafford County, New Hampshire and one full-service banking office in Rockingham County, New Hampshire. We consider our primary lending market area to be Strafford and Rockingham Counties in New Hampshire and York County in Southern Maine.

COVID-19 Pandemic

On March 11, 2020, the world health organization declared the outbreak of COVID-19 a global pandemic. Since then, the COVID-19 pandemic has continued to evolve and mutate, including through its variants, and has adversely affected, and may continue to adversely affect, local, national and global economic activity. Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, localized quarantines and government-mandated closures of certain businesses. While certain of these restrictions have been loosened, the same or new restrictions may be implemented again. Although vaccines for COVID-19 have largely been made available in the U.S., the ultimate efficacy of the vaccines will depend on various factors including, the number of people who receive the vaccines as well as the vaccines’ effectiveness against contracting and spreading COVID-19 and any of its existing or new variants. While management has taken measures to mitigate the impact of the pandemic on the Company, such as temporary branch closures, transitioning to a more remote work environment and participation in government stimulus programs, the long-term impact to the Company remains uncertain. We continue to monitor the impact of COVID-19 closely; however, the extent to which the COVID-19 pandemic will impact our operations and financial results during the remainder of 2022 and beyond is uncertain.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” 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 and investment portfolios; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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:

general economic conditions, either nationally or in our market areas, that are worse than expected;
the extent, severity or duration of the COVID-19 pandemic on us and on our customers, employees and third-party service providers;
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;
our ability to access cost-effective funding;
fluctuations in real estate values and both residential and commercial real estate market conditions;

34


 

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 and 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;
our ability to manage market risk, credit risk and operational risk in the current economic environment;
our ability to enter new markets successfully and capitalize on growth opportunities;
system failures or breaches of our network security;
electronic fraudulent activity within the financial services industry;
our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
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;
our ability to retain key employees;
our compensation expense associated with equity allocated or awarded to our employees; and
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

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

Critical Accounting Policies and Use of Critical Accounting Estimates

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

Our critical accounting policies involve the calculation of the allowance for loan losses and the measurement of the fair value of financial instruments. A detailed description of these critical accounting policies can be found in Note 2 of the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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

Total Assets. Total assets were $523.8 million as of September 30, 2022, an increase of $36.7 million, or 7.5%, compared to total assets of $487.1 million at December 31, 2021. The increase was due primarily to a $19.1 million increase in net loans, a $9.4 million increase in securities available-for-sale and a $6.7 million increase in other assets which resulted from an increase in a deferred tax benefit related to the increase in our net unrealized losses within the available-for-sale securities portfolio.

35


 

Cash and Due From Banks. Cash and due from banks increased $211,000, or 3.2%, to $6.8 million at September 30, 2022 from $6.6 million at December 31, 2021. This increase primarily resulted from a $53.4 million increase in borrowings offset by a $6.5 million decrease in total deposits, a $19.1 million increase in net loans and a $9.4 million increase in securities available-for-sale ($28.8 million net of increase in net unrealized losses) during the nine months ended September 30, 2022.

Available-for-Sale Securities. Available-for-sale securities increased by $9.4 million, or 10.3%, to $100.8 million at September 30, 2022 from $91.4 million at December 31, 2021. This increase was primarily due to net investments purchases of $33.6 million offset by $4.1 million of proceeds from sales, maturities and principal received and a $19.4 million increase in net unrealized losses within the portfolio during the nine months ended September 30, 2022.

Net Loans. Net loans increased $19.1 million, or 5.1%, to $392.2 million at September 30, 2022 from $373.1 million at December 31, 2021. During the nine months ended September 30, 2022, we originated $72.3 million of loans. We also purchased $1.3 million of one- to four-family residential mortgage loans and $1.7 million of consumer loans secured by manufactured housing properties. As of September 30, 2022 and December 31, 2021, the portfolio of purchased loans had outstanding principal balances of $31.2 million and $29.7 million, respectively, and were performing in accordance with their original repayment terms. Net deferred loan costs increased $601,000, or 36.4%, to $2.3 million at September 30, 2022 from $1.7 million at December 31, 2021 due primarily to the increase in deferred costs on consumer loans and the net decrease in unearned fees received from the SBA for processing PPP loans. SBA fee and interest income recognized during the three and nine months ended September 30, 2022 was $7,000 and $233,000, respectively, as compared to $263,000 and $972,000 during the three and nine months ended September 30, 2021, respectively. SBA fee and interest income is included in interest and fees on loans.

One- to four-family residential mortgage loans increased $11.9 million, or 5.1%, to $246.1 million at September 30, 2022 from $234.2 million at December 31, 2021. Commercial real estate mortgage loans increased $5.9 million, or 8.2%, to $78.0 million at September 30, 2022 from $72.1 million at December 31, 2021. Multi-family loans decreased $434,000, or 4.8%, to $8.6 million at September 30, 2022 from $9.0 million at December 31, 2021. Commercial and industrial loans decreased $1.8 million (net of $5.5 million of PPP loan forgiveness), or 6.6%, to $25.1 million at September 30, 2022 from $26.9 million at December 31, 2021. Acquisition, development, and land loans decreased $1.4 million, or 6.4%, to $20.0 million at September 30, 2022 from $21.4 million at December 31, 2021. Home equity loans and lines of credit increased $2.4 million, or 35.0%, to $9.4 million at September 30, 2022 from $6.9 million at December 31, 2021. Consumer loans increased $1.9 million, or 41.5%, to $6.5 million at September 30, 2022 from $4.6 million at December 31, 2021.

Our strategy to grow the balance sheet continues to be through originations and, to a lesser extent, purchases of one- to four-family residential mortgage loans and consumer loans secured by manufactured housing properties, while also diversifying into higher yielding commercial real estate mortgage loans and commercial and industrial loans to improve net margins and manage interest rate risk. We also continue to sell selected, conforming 15-year and 30-year residential fixed rate mortgage loans to the secondary market on a servicing retained basis, providing us a recurring source of revenue from loan servicing income and gains on the sale of such loans.

Our allowance for loan losses was $3.6 million at September 30, 2022 and December 31, 2021. The Company measures and records its allowance for loan losses based upon an incurred loss model. Under this approach, loan loss is recognized when it is probable that a loss event was incurred. This approach also considers qualitative adjustments to the quantitative baseline determined by the model. The Company considers the impact of current environmental factors at the measurement date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies and the level of criticized loans. The Company made relevant adjustments to its qualitative factors in the measurement of its allowance for loan losses at September 30, 2022 and December 31, 2021 that balanced the need to consider the recognition of a provision during the period while adhering to an incurred loss recognition and measurement principle which prohibits the recognition of future or lifetime losses.

The Company has limited or no direct exposure to industries that have been significantly impacted by the COVID-19 pandemic, including oil and gas/energy, credit cards, airlines, cruise ships, arts/entertainment/recreation, hotels/motels, casinos and shopping malls. Our exposure to the transportation and hospitality/restaurant industries amounted to less than 5% of our gross loan portfolio at September 30, 2022 and December 31, 2021.

Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, savings accounts, money market accounts and time deposits, for both individuals and businesses.

Deposits decreased $6.5 million, or 1.7%, to $386.7 million at September 30, 2022 from $393.2 million at December 31, 2021 primarily as a result of a $4.5 million decrease in commercial deposits and a $2.0 million decrease in retail deposits. Core deposits (defined as deposits other than time deposits) decreased $0.6 million, or 0.2%, to $334.3 million at September 30, 2022 from $334.9 million at December 31, 2021. As of September 30, 2022, savings deposits increased $4.1 million, money market deposits decreased

36


 

$7.3 million, NOW and demand deposit accounts increased $2.6 million and time deposits decreased $5.9 million. There were $18.1 of brokered deposits included in time deposits at September 30, 2022 and December 31, 2021.

Borrowings. Total borrowings increased $53.4 million, or 181.4%, to $82.9 million at September 30, 2022 from $29.5 million at December 31, 2021 in support of the Company’s investment and loan growth initiatives.

Total Stockholders’ Equity. Total stockholders’ equity decreased $12.8 million, or 21.1%, to $47.7 million at September 30, 2022 from $60.5 million at December 31, 2021. This decrease was due primarily to an other comprehensive loss of $13.5 million related to net changes in unrealized holding losses in the available-for-sale securities portfolio and changes in the fair value of interest rate swap derivatives, as a result of an increase in market interest rates during the nine months ended September 30, 2022, and treasury stock purchases of $623,000, partially offset by the recognition of $385,000 of previously unearned compensation and net income of $1.0 million for the nine months ended September 30, 2022.

Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including troubled debt restructurings on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven or loans modified at interest rates materially less than current market rates.

Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis.

We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Interest received on non-accrual loans generally is applied against principal or applied to interest on a cash basis. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for at least six consecutive months and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Non-performing loans were $5,000 and $837,000 at September 30, 2022 and December 31, 2021, respectively. At December 31, 2021, non-performing loans consisted primarily of a residential mortgage loan and HELOC to deceased borrowers and a $195,000 non-performing residential mortgage loan that was repurchased from an investor and restructured in 2021. The property securing both credit facilities was sold in July 2022 and all outstanding loan balances were paid. The non-performing residential mortgage loan that was repurchased from an investor and restructured in 2021 was returned to performing status during June 2022. The outstanding balance of this now accruing TDR was approximately $190,000 and $195,000 at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, we had no foreclosed assets.

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

Net Income. Net income was $468,000 for the three months ended September 30, 2022, compared to net income of $463,000 for the three months ended September 30, 2021, an increase of $5,000, or 1.1%. The increase was due primarily to an increase in net interest and dividend income after provision for loan losses of $285,000 and a decrease in income tax expense of $98,000, offset by an increase in non-interest expenses of $312,000 and a decrease in non-interest income of $66,000 during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Interest and Dividend Income. Total interest and dividend income increased $357,000, or 9.2%, to $4.2 million for the three months ended September 30, 2022 compared to $3.9 million for the three months ended September 30, 2021. This increase was due to a $317,000 increase in interest and dividend income on investments and a $40,000 increase in interest and fees on loans. Interest and fees on loans for the three months ended September 30, 2022 and 2021 included $7,000 and $263,000 of interest and fees earned on PPP loans, respectively.

Average interest-earning assets increased $25.4 million, to $504.1 million for the three months ended September 30, 2022 from $478.7 million for the three months ended September 30, 2021. The weighted average annualized yield on interest earning-assets increased to 3.35% for the three months ended September 30, 2022 from 3.23% for the three months ended September 30, 2021. The weighted average annualized yield for the loan portfolio decreased to 3.66% for the three months ended September 30, 2022 from 3.75% for the three months ended September 30, 2021 due primarily to the decrease in interest and fees earned on PPP loans.

The weighted average annualized yield for all other interest-earning assets increased to 2.31% for the three months ended September 30, 2022 from 1.36% for the three months ended September 30, 2021 due primarily to the investment in higher-yielding taxable and non-taxable debt securities.

37


 

Interest Expense. Total interest expense increased $192,000, or 81.7%, to $427,000 for the three months ended September 30, 2022 from $235,000 for the three months ended September 30, 2021. Interest expense on deposits increased $15,000, or 11.0%, to $151,000 for the three months ended September 30, 2022 from $136,000 for the three months ended September 30, 2021. The average balance of interest-bearing deposits increased $3.9 million, or 1.3%, to $299.6 million for the three months ended September 30, 2022 from $295.7 million for the three months ended September 30, 2021 primarily as a result of an increase in the average balance of savings and NOW and demand deposits offset by a decrease in the average balances of money market and time deposits. The weighted average annualized rate of interest-bearing deposits increased to 0.20% for the three months ended September 30, 2022 from 0.18% for the three months ended September 30, 2021 primarily as a result of an increase in market interest rates.

Interest expense on borrowings increased $177,000, or 178.8%, to $276,000 for the three months ended September 30, 2022 from $99,000 for the three months ended September 30, 2021 primarily due to an increase in the average balance of borrowings and market interest rates partially offset by the retirement of $20.0 million of long-term borrowings from the FHLB in advance of their scheduled maturities in late 2021. The interest rates on the retired borrowings were above then current market rates and were scheduled to mature in 2024 and 2025. We were able to retire these borrowings without incurring prepayment penalties. The average balance of borrowings increased $32.0 million, or 80.0%, to $72.1 million for the three months ended September 30, 2022 from $40.0 million for the three months ended September 30, 2021. The weighted average annualized rate of borrowings increased to 1.53% for the three months ended September 30, 2022 from 0.99% for the three months ended September 30, 2021 due primarily to an increase in market interest rates.

Net Interest and Dividend Income. Net interest and dividend income increased $165,000, or 4.6%,to $3.8 million for the three months ended September 30, 2022 from $3.6 million for the three months ended September 30, 2021. This increase was due to a $25.4 million, or 5.3%, increase in the average balance of interest-earning assets, consisting primarily of increases in the average balances of loans and debt securities, offset by an increase of $36.0 million, or 10.7%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of borrowings, during the three months ended September 30, 2022. Annualized net interest margin decreased to 3.01% for the three months ended September 30, 2022 from 3.03% for the three months ended September 30, 2021 due primarily to a decrease in the average yield on loans and an increase in the average rate of borrowings offset by an increase in the average yield on debt securities.

Provision for Loan Losses. Based on management’s analysis of the allowance for loan losses, a $60,000 benefit to provision for loan losses was recorded for the three months ended September 30, 2022, compared to a $60,000 expense for the three months ended September 30, 2021.

Non-Interest Income. Non-interest income decreased $66,000, or 15.3%, to $365,000 for the three months ended September 30, 2022 compared to $431,000 for the three months ended September 30, 2021. The decrease in non-interest income during the three months ended September 30, 2022 was due primarily to a $25,000 decrease in gain on sale of loans, a $25,000 decrease in customer service fees and a $11,000 decrease in loan servicing income during the three months ended September 30, 2022, offset by a $14,000 increase in investment services fees.

Non-Interest Expense. Non-interest expense increased $312,000, or 9.2%, to $3.7 million for the three months ended September 30, 2022 from $3.4 million for the three months ended September 30, 2021. The increase was primarily due to a $155,000, or 7.5% , increase in salaries and employee benefits, a $52,000, or 61.2%, increase in marketing, a $43,000, or 31.6%, increase in occupancy expense and a $49,000, or 129.0%, increase in employee travel and education expenses. The increase in salaries and employee benefits during the three months ended September 30, 2022, was due to filling certain open positions and associated recruitment fees, normal salary increases and the recognition of previously unearned compensation associated with the restricted stock awards granted in 2021.

Income Taxes. Income tax expense decreased $98,000, or 71.5%, to $39,000 for the three months ended September 30, 2022 from $137,000 for the three months ended September 30, 2021. The effective tax rate was 7.7% and 22.8% for the three months ended September 30, 2022 and 2021, respectively. The decrease in income tax expense was due primarily to the decrease in income before income tax expense. Income before income tax expense decreased $93,000, or 15.5%, to $507,000 for the three months ended September 30, 2022 from $600,000 for the three months ended September 30, 2021. The decrease in the effective tax rate for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was due primarily to the amount of non-taxable income as a percentage of income before income tax expense for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

38


 

Average Balance Sheets

The following table sets forth average balance sheets, average yields and costs and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average loan balances exclude loans held for sale, if applicable. The following table includes no out-of-period items or adjustments.

 

 

 

For the Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (4)

 

$

387,604

 

 

$

3,543

 

 

 

3.66

%

 

$

373,438

 

 

$

3,503

 

 

 

3.75

%

Taxable debt securities

 

 

55,966

 

 

 

271

 

 

 

1.94

%

 

 

33,698

 

 

 

114

 

 

 

1.35

%

Non-taxable debt securities

 

 

50,726

 

 

 

342

 

 

 

2.70

%

 

 

38,316

 

 

 

216

 

 

 

2.25

%

Interest-bearing deposits with other banks

 

 

6,802

 

 

 

24

 

 

 

1.41

%

 

 

31,184

 

 

 

19

 

 

 

0.24

%

Federal Home Loan Bank stock

 

 

2,982

 

 

 

37

 

 

 

4.96

%

 

 

2,022

 

 

 

8

 

 

 

1.58

%

Total interest-earning assets

 

 

504,080

 

 

 

4,217

 

 

 

3.35

%

 

 

478,658

 

 

 

3,860

 

 

 

3.23

%

Non-interest-earning assets

 

 

16,539

 

 

 

 

 

 

 

 

 

11,734

 

 

 

 

 

 

 

Total assets

 

$

520,619

 

 

 

 

 

 

 

 

$

490,392

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

$

116,690

 

 

$

43

 

 

 

0.15

%

 

$

107,973

 

 

$

33

 

 

 

0.12

%

Money market deposits

 

 

65,596

 

 

 

31

 

 

 

0.19

%

 

 

73,939

 

 

 

28

 

 

 

0.15

%

Savings accounts

 

 

63,526

 

 

 

8

 

 

 

0.05

%

 

 

56,196

 

 

 

9

 

 

 

0.06

%

Time deposits

 

 

53,760

 

 

 

69

 

 

 

0.51

%

 

 

57,542

 

 

 

66

 

 

 

0.46

%

Total interest-bearing deposits

 

 

299,572

 

 

 

151

 

 

 

0.20

%

 

 

295,650

 

 

 

136

 

 

 

0.18

%

Borrowings

 

 

72,079

 

 

 

276

 

 

 

1.53

%

 

 

40,047

 

 

 

99

 

 

 

0.99

%

Other

 

 

1,642

 

 

 

 

 

 

 

 

 

1,626

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

373,293

 

 

 

427

 

 

 

0.46

%

 

 

337,323

 

 

 

235

 

 

 

0.28

%

Non-interest-bearing deposits

 

 

90,645

 

 

 

 

 

 

 

 

 

88,618

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

4,029

 

 

 

 

 

 

 

 

 

3,965

 

 

 

 

 

 

 

Total liabilities

 

 

467,967

 

 

 

 

 

 

 

 

 

429,906

 

 

 

 

 

 

 

Total stockholders' equity

 

 

52,652

 

 

 

 

 

 

 

 

 

60,486

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

520,619

 

 

 

 

 

 

 

 

$

490,392

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

3,790

 

 

 

 

 

 

 

 

$

3,625

 

 

 

 

Net interest rate spread (1)

 

 

 

 

 

 

 

 

2.89

%

 

 

 

 

 

 

 

 

2.95

%

Net interest-earning assets (2)

 

$

130,787

 

 

 

 

 

 

 

 

$

141,335

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

 

3.01

%

 

 

 

 

 

 

 

 

3.03

%

Average interest-earning assets to interest-bearing liabilities

 

 

135.04

%

 

 

 

 

 

 

 

 

141.90

%

 

 

 

 

 

 

 

(1)
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.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by average total interest-earning assets.
(4)
Net deferred fee (expense) income included in loan interest totaled $(118,000) and $64,000 for the three months ended September 30, 2022 and 2021, respectively.

39


 

Rate/Volume Analysis

The following table presents 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 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.

 

 

 

Three Months Ended September 30, 2022 vs. 2021

 

 

 

Increase (Decrease) Due to Change in

 

 

 

Volume

 

 

Rate

 

 

Total

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

131

 

 

$

(91

)

 

$

40

 

Taxable debt securities

 

 

95

 

 

 

62

 

 

 

157

 

Non-taxable debt securities

 

 

79

 

 

 

47

 

 

 

126

 

Interest-bearing deposits with other banks

 

 

(25

)

 

 

30

 

 

 

5

 

Federal Home Loan Bank stock

 

 

5

 

 

 

24

 

 

 

29

 

Total interest-earning assets

 

 

285

 

 

 

72

 

 

 

357

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

 

3

 

 

 

7

 

 

 

10

 

Money market deposits

 

 

(3

)

 

 

6

 

 

 

3

 

Savings accounts

 

 

1

 

 

 

(2

)

 

 

(1

)

Time deposits

 

 

(5

)

 

 

8

 

 

 

3

 

Total interest-bearing deposits

 

 

(4

)

 

 

19

 

 

 

15

 

Borrowings

 

 

105

 

 

 

72

 

 

 

177

 

Total interest-bearing liabilities

 

 

101

 

 

 

91

 

 

 

192

 

Change in net interest income

 

$

184

 

 

$

(19

)

 

$

165

 

 

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

Net Income. Net income was $1.0 million for the nine months ended September 30, 2022, compared to $2.2 million for the nine months ended September 30, 2021, a decrease of $1.2 million, or 52.8%. The decrease was due primarily to an increase in non-interest expenses of $1.5 million and a decrease in non-interest income of $605,000, offset by an increase in net interest and dividend income after provision for loan losses of $540,000 and a decrease in income tax expense of $403,000 during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Interest and Dividend Income. Interest and dividend income increased $466,000, or 4.0%, to $12.1 million for the nine months ended September 30, 2022 from $11.7 million for the nine months ended September 30, 2021. The increase was due primarily to a $767,000, or 81.2%, increase in interest and dividend income on investments offset by a $301,000, or 2.8%, decrease in interest and fees on loans. Interest and fees on loans for the nine months ended September 30, 2022 and 2021 included $233,000 and $972,000 of interest and fees earned on PPP loans, respectively.

Average interest-earning assets increased $29.3 million, to $491.7 million for the nine months ended September 30, 2022 from $462.4 million for the nine months ended September 30, 2021. The annualized yield on interest earning-assets decreased 8 basis points to 3.29% for the nine months ended September 30, 2022 from 3.37% for the nine months ended September 30, 2021. The weighted average annualized yield for the loan portfolio decreased to 3.64% for the nine months ended September 30, 2022 from 3.84% for the nine months ended September 30, 2021 due primarily to the decrease in interest and fees earned on PPP loans. The weighted average annualized yield for all other interest-earning assets increased to 2.07% for the nine months ended September 30, 2022 from 1.40% for the nine months ended September 30, 2021 due primarily to the investment in higher-yielding taxable and non-taxable debt securities.

Interest Expense. Total interest expense increased $71,000, or 9.5%, to $818,000 for the nine months ended September 30, 2022 from $747,000 for the nine months ended September 30, 2021. Interest expense on deposits decreased $64,000 for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The average balance of interest-bearing deposits increased $5.6 million, or 1.9%, to $296.7 million for the nine months ended September 30, 2022 from $291.1 million for the nine months ended September 30, 2021 primarily as a result of an increase in the average balance of NOW and demand and savings deposits offset by a decrease in the average balances of money market and time deposits. The weighted average annualized rate of interest-bearing deposits decreased to 0.18% for the nine months ended September 30, 2022 from 0.21% for the nine months ended September 30, 2021 due primarily to the maturity of higher cost time deposits.

40


 

Interest expense on borrowings increased $135,000, or 47.7%, to $418,000 for the nine months ended September 30, 2022 from $283,000 for the nine months ended September 30, 2021 primarily due to an increase in the average balance of borrowings and market interest rates partially offset by the retirement of $20.0 million of long-term borrowings from the FHLB in advance of their scheduled maturities in late 2021. The average balance of borrowings increased $12.9 million, or 30.3%, to $55.4 million for the nine months ended September 30, 2022 from $42.5 million for the nine months ended September 30, 2021. The weighted average annualized rate of borrowings increased to 1.01% for the nine months ended September 30, 2022 from 0.89% for the nine months ended September 30, 2021 due primarily to an increase in market interest rates.

Net Interest and Dividend Income. Net interest and dividend income increased $395,000, or 3.6%, to $11.3 million for the nine months ended September 30, 2022 from $10.9 million for the nine months ended September 30, 2021. This increase was primarily due to a $29.3 million, or 6.3%, increase in the average balance of interest-earning assets, consisting primarily of increases in the average balances of loans and debt securities, offset by an increase of $18.0 million, or 5.4%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of borrowings, during the nine months ended September 30, 2022. Annualized net interest margin decreased to 3.07% for the nine months ended September 30, 2022 from 3.15% for the nine months ended September 30, 2021 due primarily to a decrease in the average yield on loans offset by an increase in the average yield on debt securities.

Provision for Loan Losses. Based on management’s analysis of the allowance for loan losses, no provision for loan losses was recorded for the nine months ended September 30, 2022, compared to $145,000 for the nine months ended September 30, 2021.

Non-Interest Income. Non-interest income decreased $605,000, or 33.4%, to $1.2 million for the nine months ended September 30, 2022 compared to $1.8 million for the nine months ended September 30, 2021. The decrease in non-interest income during the nine months ended September 30, 2022 was due primarily to a $483,000 decrease in securities gains, net, a $111,000 decrease in gain on sale of loans and a $52,000 decrease in customer service fees offset by a $72,000 increase in investment services fees.

Non-Interest Expense. Non-interest expense increased $1.5 million, or 15.3%, to $11.3 million for the nine months ended September 30, 2022 compared to $9.8 million for the nine months ended September 30, 2021. The increase in non-interest expense was due primarily to a $1.1 million, or 18.6%, increase in salaries and employee benefits expense. The increase in salaries and benefits during the nine months ended September 30, 2022 was due to filling certain open positions and associated recruitment fees, normal salary increases and the recognition of previously unearned compensation associated with the restricted stock awards granted in 2021.

Income Taxes. Income tax expense decreased $403,000, or 71.2%, to $163,000 for the nine months ended September 30, 2022 from $566,000 for the nine months ended September 30, 2021. The effective tax rate was 13.5% and 20.4% for the nine months ended September 30, 2022 and 2021, respectively. The decrease in income tax expense was due primarily to the decrease in income before income tax expense. Income before income tax expense decreased $1.6 million, or 56.6%, to $1.2 million for the nine months ended September 30, 2022 from $2.8 million for the nine months ended September 30, 2021. The decrease in the effective tax rate for the nine months ended September 30, 2022 as compared to the prior period was due primarily to the amount of non-taxable income as a percentage of income before income tax expense for the nine months ended September 30, 2022 as compared to the prior period offset by an increase in the valuation allowance related to a charitable contribution carryforward during the nine months ended September 30, 2022 as it was determined that it is more likely than not that the benefit from the charitable contribution carryforward will not be realized prior to expiration due to a decrease in our forecasted taxable income during the remaining carryforward period.

41


 

Average Balance Sheets

The following table sets forth average balance sheets, average yields and costs and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average loan balances exclude loans held for sale, if applicable. The following table includes no out-of-period items or adjustments.

 

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (4)

 

$

381,466

 

 

$

10,427

 

 

 

3.64

%

 

$

372,257

 

 

$

10,728

 

 

 

3.84

%

Taxable debt securities

 

 

52,915

 

 

 

706

 

 

 

1.78

%

 

 

25,066

 

 

 

219

 

 

 

1.16

%

Non-taxable debt securities

 

 

48,298

 

 

 

900

 

 

 

2.48

%

 

 

37,589

 

 

 

659

 

 

 

2.34

%

Interest-bearing deposits with other banks

 

 

6,535

 

 

 

46

 

 

 

0.93

%

 

 

25,560

 

 

 

57

 

 

 

0.30

%

Federal Home Loan Bank stock

 

 

2,483

 

 

 

60

 

 

 

3.22

%

 

 

1,955

 

 

 

10

 

 

 

0.68

%

Total interest-earning assets

 

 

491,697

 

 

 

12,139

 

 

 

3.29

%

 

 

462,427

 

 

 

11,673

 

 

 

3.37

%

Non-interest-earning assets

 

 

14,946

 

 

 

 

 

 

 

 

 

11,855

 

 

 

 

 

 

 

Total assets

 

$

506,643

 

 

 

 

 

 

 

 

$

474,282

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

$

111,978

 

 

$

75

 

 

 

0.09

%

 

$

105,714

 

 

$

101

 

 

 

0.13

%

Money market deposits

 

 

67,407

 

 

 

86

 

 

 

0.17

%

 

 

73,241

 

 

 

83

 

 

 

0.15

%

Savings accounts

 

 

61,510

 

 

 

21

 

 

 

0.05

%

 

 

53,449

 

 

 

25

 

 

 

0.06

%

Time deposits

 

 

55,813

 

 

 

218

 

 

 

0.52

%

 

 

58,744

 

 

 

255

 

 

 

0.58

%

Total interest-bearing deposits

 

 

296,708

 

 

 

400

 

 

 

0.18

%

 

 

291,148

 

 

 

464

 

 

 

0.21

%

Borrowings

 

 

55,404

 

 

 

418

 

 

 

1.01

%

 

 

42,508

 

 

 

283

 

 

 

0.89

%

Other

 

 

1,747

 

 

 

 

 

 

 

 

 

2,226

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

353,859

 

 

 

818

 

 

 

0.31

%

 

 

335,882

 

 

 

747

 

 

 

0.30

%

Non-interest-bearing deposits

 

 

93,617

 

 

 

 

 

 

 

 

 

74,837

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

3,807

 

 

 

 

 

 

 

 

 

3,800

 

 

 

 

 

 

 

Total liabilities

 

 

451,283

 

 

 

 

 

 

 

 

 

414,519

 

 

 

 

 

 

 

Total stockholders' equity

 

 

55,360

 

 

 

 

 

 

 

 

 

59,763

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

506,643

 

 

 

 

 

 

 

 

$

474,282

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

11,321

 

 

 

 

 

 

 

 

$

10,926

 

 

 

 

Net interest rate spread (1)

 

 

 

 

 

 

 

 

2.98

%

 

 

 

 

 

 

 

 

3.07

%

Net interest-earning assets (2)

 

$

137,838

 

 

 

 

 

 

 

 

$

126,545

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

 

3.07

%

 

 

 

 

 

 

 

 

3.15

%

Average interest-earning assets to
   interest-bearing liabilities

 

 

138.95

%

 

 

 

 

 

 

 

 

137.68

%

 

 

 

 

 

 

 

(1)
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.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by average total interest-earning assets.
(4)
Net deferred fee (expense) income included in loan interest totaled $(71,000) and $466,000 for the nine months ended September 30, 2022 and 2021, respectively.

42


 

Rate/Volume Analysis

The following table presents 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 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.

 

 

 

Nine Months Ended September 30, 2022 vs. 2021

 

 

 

Increase (Decrease) Due to Change in

 

 

 

Volume

 

 

Rate

 

 

Total

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

261

 

 

$

(562

)

 

$

(301

)

Taxable debt securities

 

 

330

 

 

 

157

 

 

 

487

 

Non-taxable debt securities

 

 

197

 

 

 

44

 

 

 

241

 

Interest-bearing deposits with other banks

 

 

(65

)

 

 

54

 

 

 

(11

)

Federal Home Loan Bank stock

 

 

3

 

 

 

47

 

 

 

50

 

Total interest-earning assets

 

 

726

 

 

 

(260

)

 

 

466

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

 

6

 

 

 

(32

)

 

 

(26

)

Money market deposits

 

 

(7

)

 

 

10

 

 

 

3

 

Savings accounts

 

 

4

 

 

 

(8

)

 

 

(4

)

Time deposits

 

 

(13

)

 

 

(24

)

 

 

(37

)

Total interest-bearing deposits

 

 

(10

)

 

 

(54

)

 

 

(64

)

Borrowings

 

 

94

 

 

 

41

 

 

 

135

 

Total interest-bearing liabilities

 

 

84

 

 

 

(13

)

 

 

71

 

Change in net interest income

 

$

642

 

 

$

(247

)

 

$

395

 

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, proceeds from the sale of loans and proceeds from sales and maturities of securities. We also rely on borrowings from the FHLB as supplemental sources of funds. At September 30, 2022 and December 31, 2021, we had $82.9 million and $29.5 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $48.0 million and $109.7 million, respectively. Additionally, at September 30, 2022 and December 31, 2021, we had an overnight line of credit with the FHLB for up to $3.0 million and unsecured Fed Funds borrowing lines of credit with two correspondent banks for up to $5.0 million. At September 30, 2022 and December 31, 2021, there were no outstanding balances under any of these additional credit facilities.

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 cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided by operating activities was $1.8 million and $2.7 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash used by investing activities, which consists primarily of disbursements for loan originations and purchases, and the purchase of securities available-for-sale, offset by principal collections on loans, proceeds from the sale, maturity and principal payments on securities available-for-sale, was $49.4 million and $26.6 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by financing activities, consisting primarily of activity in deposit accounts and FHLB advances, was $47.7 million and $48.6 million for the nine months ended September 30, 2022 and 2021, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. We have no material commitments for capital expenditures as of September 30, 2022. COVID-19 has impacted our business and that of many of our customers, and the ultimate impact will depend on future developments, which remain uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities in response to it. Our current strategy is to increase core deposits and utilize FHLB advances, as well as brokered deposits, to fund loan growth.

43


 

First Seacoast Bancorp is a separate legal entity from First Seacoast Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations and to fund repurchases of shares of common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At September 30, 2022, the Company (on an unconsolidated basis) had liquid assets of $9.2 million. As of September 30, 2022, the Company repurchased 136,879 shares of its common stock at an average price of $10.01 per share.

At September 30, 2022, First Seacoast Bank exceeded all its regulatory capital requirements. See Note 11 of the unaudited consolidated financial statements appearing under Item 1 of this quarterly report. Management is not aware of any conditions or events that would change First Seacoast Bank’s categorization as well-capitalized.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General. Most of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the board of directors established a management-level Asset/Liability Management Committee (the “ALCO”), which takes responsibility for overseeing the asset/liability management process and related procedures. The ALCO meets on at least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors.

We manage our interest rate risk in an effort to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; promoting core deposit products; selling a portion of fixed-rate one- to four-family residential real estate loans; maintaining investments as available-for-sale; diversifying our loan portfolio; utilizing interest rate swaps; and strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology, while the NPV ratio reflects that value as a form of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100, 200 and 300 basis points from current market rates.

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of September 30, 2022.

 

 

 

Net Portfolio Value (“NPV”)

 

NPV as Percent of Portfolio
Value of Assets

 

Basis Point (“bp”) Change in Interest Rates

 

Dollar
Amount

 

 

Dollar
Change

 

 

Percent
Change

 

NPV Ratio

 

 

Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

400 bp

 

$

69,508

 

 

$

(28,240

)

 

 

(28.9

)%

 

 

 

16.6

%

 

 

(324

)

300 bp

 

 

76,244

 

 

 

(21,504

)

 

 

(22.0

)

 

 

 

17.5

 

 

 

(233

)

200 bp

 

 

83,294

 

 

 

(14,454

)

 

 

(14.8

)

 

 

 

18.4

 

 

 

(146

)

100 bp

 

 

90,837

 

 

 

(6,911

)

 

 

(7.1

)

 

 

 

19.2

 

 

 

(62

)

0

 

 

97,748

 

 

 

 

 

 

 

 

 

 

19.8

 

 

 

 

(100) bp

 

 

102,027

 

 

 

4,279

 

 

 

4.4

 

 

 

 

19.9

 

 

 

4

 

(200) bp

 

 

103,981

 

 

 

6,233

 

 

 

6.4

 

 

 

 

19.5

 

 

 

(35

)

(300) bp

 

 

103,629

 

 

 

5,881

 

 

 

6.0

 

 

 

 

18.7

 

 

 

(111

)

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the way actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

44


 

Economic Value of Equity. Like most financial institutions, our profitability depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities adjusted for the value of off-balance sheet contracts, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate sensitive assets and liabilities in response to these movements. Factors such as inflation, and instability in financial markets, among other factors beyond our control, may affect interest rates.

In a rising interest rate environment, we would expect that the rates on our deposits and borrowings would reprice upwards faster than the rates on our long-term loans and investments, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income. If interest rates rise, we expect that our economic value of equity would decrease. Economic value of equity represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The Bank’s economic value of equity analysis as of September 30, 2022 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 14.8% decrease in economic value of equity. At the same date, our analysis estimated that, in the event of an instantaneous 200 basis point decrease in interest rates, the Bank would experience a 6.4% increase in the economic value of equity.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

45


 

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. As of September 30, 2022, the Company conducted an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022 for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in SEC rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Changes in Internal Controls over Financial Reporting. During the quarter ended September 30, 2022, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

46


 

PART II – OTHER INFORMATION

We are not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At September 30, 2022, we were not involved in any legal proceedings the outcome of which we believe would be material to our consolidated financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as First Seacoast Bancorp is a “smaller reporting company.”

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

On September 23, 2020, the board of directors of the Company authorized the repurchase of up to 136,879 shares of the Company’s outstanding common stock, which equals approximately 2.2% of all shares then outstanding and approximately 5.0% of the then outstanding shares owned by stockholders other than the MHC. The Company holds repurchased shares as treasury stock. As of September 30, 2022 and December 31 2021, the Company had repurchased 136,879 and 78,433 shares of its common stock, respectively. There were no sales of unregistered securities during the three months ended September 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

47


 

Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

 

  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

 

 

 

  32.1

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.2

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials for the quarter ended September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

104

 

Cover Page Interactive Data Files (embedded within Inline XBRL document)

 

48


 

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.

 

 

 

FIRST SEACOAST BANCORP

 

 

 

 

 

 

Date: November 14, 2022

 

/s/ James R. Brannen

 

 

James R. Brannen

 

 

President and Chief Executive Officer

 

 

 

 

 

 

Date: November 14, 2022

 

/s/ Richard M. Donovan

 

 

Richard M. Donovan

 

 

Senior Vice President and Chief Financial Officer

 

49