10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2024


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

For the transition period from ________________________ to ______________________

Commission File Number: 001-41456

ECB Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)


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

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

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



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

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

Yes [ X ] No [ ]

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

Yes [X] No [ ]

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


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

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

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

As of November 8, 2024, 9,117,521 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

ECB Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	1

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023	2

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023	3

	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2024 and 2023	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	43

Part II. Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

	Signature Page	46

Part I. – Financial Information

Item 1. Financial Statements

ECB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

(unaudited)

(Dollars in thousands)


	September 30, 2024			December 31, 2023

ASSETS
Cash and due from banks	$	4,783		$	3,786
Short-term investments		114,847			115,250
Total cash and cash equivalents		119,630			119,036
Interest-bearing time deposits		200			—
Investments in available-for-sale securities, at fair value (amortized cost of $4,175 at September 30, 2024 and $5,000 at December 31, 2023)		4,163			5,003
Investments in held-to-maturity securities, at amortized cost (fair values of $72,841 at September 30, 2024 and $70,590 at December 31, 2023)		77,233			76,979
Loans held-for-sale		703			—
Loans, net of allowance for credit losses of $9,068 at September 30, 2024 and $8,591 at December 31, 2023		1,114,943			1,039,789
Federal Home Loan Bank stock, at cost		9,850			9,892
Premises and equipment, net		3,587			3,754
Accrued interest receivable		4,164			3,766
Deferred tax asset, net		5,592			4,767
Bank-owned life insurance		14,825			14,472
Other assets		3,064			2,877
Total assets	$	1,357,954		$	1,280,335

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	74,059		$	78,342
Interest-bearing		870,266			789,872
Total deposits		944,325			868,214
Federal Home Loan Bank advances		234,000			234,000
Other liabilities		13,580			13,220
Total liabilities		1,191,905			1,115,434

Shareholders' Equity:
Preferred Stock, par value $0.01; Authorized: 1,000,000 shares; Issued and outstanding: 0 shares		—			—
Common Stock, par value $0.01; Authorized: 30,000,000 shares; Issued and outstanding: 9,152,280 shares and 9,291,810 shares, respectively		92			93
Additional paid-in capital		86,670			87,431
Retained earnings		86,399			83,854
Accumulated other comprehensive (loss) income		(781	)		129
Unallocated common shares held by the Employee Stock Ownership Plan		(6,331	)		(6,606	)
Total shareholders' equity		166,049			164,901
Total liabilities and shareholders' equity	$	1,357,954		$	1,280,335

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

(unaudited)

(Dollars in thousands, except share data)


	Three months ended					Nine months ended
	September 30,					September 30,
	2024		2023			2024		2023
Interest and dividend income:
Interest and fees on loans	$	14,849	$	12,313		$	42,468	$	35,362
Interest and dividends on securities		803		723			2,346		1,950
Interest on short term investments		1,503		1,130			4,420		2,567
Total interest and dividend income		17,155		14,166			49,234		39,879
Interest expense:
Interest on deposits		8,795		5,843			24,479		14,815
Interest on Federal Home Loan Bank advances		2,069		2,237			6,550		6,213
Total interest expense		10,864		8,080			31,029		21,028
Net interest and dividend income		6,291		6,086			18,205		18,851
Provision (benefit) for credit losses		46		(184	)		485		696
Net interest and dividend income after provision (benefit) for credit losses		6,245		6,270			17,720		18,155
Noninterest income:
Customer service fees		142		123			426		375
Income from bank-owned life insurance		119		175			353		372
Net gain on sales of loans		27		9			80		13
Other income		16		15			39		31
Total noninterest income		304		322			898		791
Noninterest expense:
Salaries and employee benefits		3,202		2,914			9,643		8,623
Director compensation		209		139			626		379
Occupancy and equipment		250		243			788		695
Data processing		288		275			883		810
Computer software and licensing		109		111			318		282
Advertising and promotions		159		201			396		576
Professional fees		240		304			831		962
Federal Deposit Insurance Corporation deposit insurance		189		206			561		613
Other expense		365		418			1,140		1,076
Total noninterest expense		5,011		4,811			15,186		14,016
Income before income tax expense		1,538		1,781			3,432		4,930
Income tax expense		405		440			887		1,263
Net income	$	1,133	$	1,341		$	2,545	$	3,667
Share data:
Weighted average shares outstanding, basic		8,240,602		8,486,577			8,268,550		8,485,936
Weighted average shares outstanding, diluted		8,343,736		8,486,577			8,354,170		8,485,936
Basic earnings per share	$	0.14	$	0.16		$	0.31	$	0.43
Diluted earnings per share	$	0.14	$	0.16		$	0.30	$	0.43

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(unaudited)

(Dollars in thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2024			2023			2024			2023

Net income	$	1,133		$	1,341		$	2,545		$	3,667
Other comprehensive (loss) income, net of tax:
Net unrealized holding loss on securities available-for-sale		(9	)		(2	)		(12	)		(3	)
Net change in fair value of cash flow hedges		(1,328	)		—			(898	)		—

Other comprehensive loss, net of tax		(1,337	)		(2	)		(910	)		(3	)

Comprehensive (loss) income	$	(204	)	$	1,339		$	1,635		$	3,664

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

ECB Bancorp, Inc. and Subsidiary

Statements of Changes in Shareholders' Equity

(unaudited)

(in thousands except share data)


	Three months ended
	Shares of Common Stock Outstanding			Common Stock			Additional Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Unallocated Common Stock Held by ESOP			Total
Balance at June 30, 2023		9,175,247		$	92		$	89,355		$	81,725	$	248		$	(6,791	)	$	164,629
Net income		-			-			-			1,341		-			-			1,341
Other comprehensive loss, net of tax		-			-			-			-		(2	)		-			(2	)
ESOP shares committed to be released (9,251 shares)		-			-			22			-		-			92			114
Shares repurchased under share repurchase plan		(49,242	)		(1	)		(589	)		-		-			-			(590	)
Restricted stock awards issued		69,984			1			(1	)		-		-			-			-
Stock-based compensation		-			-			20			-		-			-			20
Balance at September 30, 2023		9,195,989		$	92		$	88,807		$	83,066	$	246		$	(6,699	)	$	165,512

Balance at June 30, 2024		9,200,219		$	92		$	86,974		$	85,266	$	556		$	(6,424	)	$	166,464
Net income		-			-			-			1,133		-			-			1,133
Other comprehensive loss, net of tax		-			-			-			-		(1,337	)		-			(1,337	)
ESOP shares committed to be released (9,225 shares)		-			-			32			-		-			93			125
Shares repurchased under share repurchase plan		(48,939	)		-			(664	)		-		-			-			(664	)
Restricted stock awards issued		1,000			-			-			-		-			-			-
Stock-based compensation		-			-			328			-		-			-			328
Balance at September 30, 2024		9,152,280		$	92		$	86,670		$	86,399	$	(781	)	$	(6,331	)	$	166,049

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

ECB Bancorp, Inc. and Subsidiary

Statements of Changes in Shareholders' Equity

(unaudited)

(in thousands except share data)


	Nine months ended
	Shares of Common Stock Outstanding			Common Stock			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unallocated Common Stock Held by ESOP			Total
Balance at December 31, 2022		9,175,247		$	92		$	89,286		$	80,076		$	249		$	(6,973	)	$	162,730
Cumulative Effect Accounting Adjustment for ASU 2016-13 Adoption		-			-			-			(677	)		-			-			(677	)
Net income		-			-			-			3,667			-			-			3,667
Other comprehensive loss, net of tax		-			-			-			-			(3	)		-			(3	)
ESOP shares committed to be released (27,451 shares)		-			-			91			-			-			274			365
Shares repurchased under share repurchase plan		(49,242	)		(1	)		(589	)		-			-			-			(590	)
Restricted stock awards issued		69,984			1			(1	)		-			-			-			-
Stock-based compensation		-			-			20			-			-			-			20
Balance at September 30, 2023		9,195,989		$	92		$	88,807		$	83,066		$	246		$	(6,699	)	$	165,512

Balance at December 31, 2023		9,291,810		$	93		$	87,431		$	83,854		$	129		$	(6,606	)	$	164,901
Net income		-			-			-			2,545			-			-			2,545
Other comprehensive loss, net of tax		-			-			-			-			(910	)		-			(910	)
ESOP shares committed to be released (27,475 shares)		-			-			81			-			-			275			356
Shares repurchased under share repurchase plan		(140,530	)		(1	)		(1,819	)		-			-			-			(1,820	)
Restricted stock awards issued		1,000			-			-			-			-			-			-
Stock-based compensation		-			-			977			-			-			-			977
Balance at September 30, 2024		9,152,280		$	92		$	86,670		$	86,399		$	(781	)	$	(6,331	)	$	166,049

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

ECB Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2024			2023
Cash flows from operating activities:
Net income	$	2,545		$	3,667
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion) amortization of securities, net		(20	)		9
Provision for credit losses		485			696
Change in deferred loan costs/fees		254			(29	)
Gain on sales of loans, net		(80	)		(13	)
Proceeds from sales of loans		5,754			359
Loans originated for sale, net		(6,377	)		(346	)
Depreciation and amortization expense		227			205
Increase in accrued interest receivable		(398	)		(758	)
Increase in accrued interest payable		606			548
Increase in bank-owned life insurance		(353	)		(300	)
Gain from life insurance policy death benefit		—			(72	)
Deferred income tax benefit		(470	)		(76	)
ESOP expense		356			365
Stock-based compensation expense		977			20
Increase in other assets		(187	)		(1,513	)
(Decrease) increase in other liabilities		(1,501	)		1,041
Net cash provided by operating activities		1,818			3,803

Cash flows from investing activities:
Purchases of held-to-maturity securities		(8,874	)		(2,437	)
Proceeds from paydowns and maturities of held-to-maturity securities		8,640			5,141
Purchases of available-for-sale securities		(4,175	)		—
Proceed from payments and maturities of available-for-sale securities		5,000			—
Purchase of interest-bearing time deposits		(200	)		—
Proceeds from maturities of interest-bearing time deposits		—			300
Purchase of Federal Home Loan Bank Stock		(1,734	)		(3,204	)
Redemption of Federal Home Loan Bank Stock		1,776			926
Loan originations and principal collections, net		(67,713	)		(103,487	)
Purchase of loans		(8,175	)		(9,262	)
Recoveries of loans previously charged off		—			1
Capital expenditures		(60	)		(236	)
Net cash used in investing activities		(75,515	)		(112,258	)

Cash flows from financing activities:
Net decrease in demand deposits, interest-bearing checking, savings and money market accounts		(6,928	)		(27,794	)
Net increase in time deposits		83,039			122,176
Proceeds from long-term Federal Home Loan Bank advances		45,000			185,000
Repayments of long-term Federal Home Loan Bank advances		(70,000	)		(80,000	)
Net change in short-term Federal Home Loan Bank advances		25,000			(55,000	)
Payments for shares repurchased under share repurchase plan		(1,820	)		(590	)
Net cash provided by financing activities		74,291			143,792

Net increase in cash and cash equivalents		594			35,337
Cash and cash equivalents at beginning of year		119,036			62,050
Cash and cash equivalents at end of period	$	119,630		$	97,387


Supplemental disclosures:
Interest paid	$	31,635		$	20,480
Income taxes paid		1,401			1,931
Noncash activities:
Transfer of bank-owned life insurance to other assets		—			72
Effect of the adoption of ASU 2016-13
Allowance for credit losses		—			182
Deferred income taxes		—			266
Other liabilities		—			761

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

ECB Bancorp, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 - CONVERSION

Effective July 27, 2022, Everett Co-operative Bank (the "Bank") completed its conversion to a Massachusetts stock co-operative bank and became the wholly owned subsidiary of ECB Bancorp, Inc. (the “Company”). As part of the Bank’s conversion, the Company completed its initial public offering in which it sold 8,915,247 shares of common stock at a per share price of $10.00 for gross offering proceeds of $89.2 million. Additionally, the Company contributed 260,000 shares and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation (the “Foundation”).

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

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

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

NOTE 2 – BASIS OF PRESENTATION

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2024 and the results of operations and cash flows for the interim periods ended September 30, 2024 and 2023. Such adjustments were of a normal recurring nature. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023 and accompanying notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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

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

RECENT ACCOUNTING STANDARDS

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis disclose specific categories in the rate reconciliation. ASU 2023-09 also requires entities to provide additional information for reconciling items that meet a quantitative threshold. As an emerging growth company, the amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2025 with early adoption permitted. ASU 2023-09 is not expected to have a significant impact on the company's consolidated financial statements.

In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures, but expects additional disclosures upon adoption.

NOTE 3 – INVESTMENTS IN SECURITIES

Held to Maturity Securities

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


			Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			for Credit		Fair
Held-to-maturity:	Cost		Gains		Losses			Losses		Value
			(in thousands)
September 30, 2024
Debt securities issued by U.S. government-sponsored enterprises	$	8,337	$	—	$	(175	)	$	—	$	8,162
Agency mortgage-backed securities		45,562		160		(4,112	)		—		41,610
Corporate bonds		17,900		135		(437	)		—		17,598
U.S. Treasury securities		5,434		37		—			—		5,471
Total held-to-maturity securities	$	77,233	$	332	$	(4,724	)	$	—	$	72,841

December 31, 2023
Debt securities issued by U.S. government-sponsored enterprises	$	10,225	$	—	$	(381	)	$	—	$	9,844
Agency mortgage-backed securities		49,445		36		(5,235	)		—		44,246
Corporate bonds		14,408		—		(779	)		—		13,629
U.S. Treasury securities		2,901		—		(30	)		—		2,871
Total held-to-maturity securities	$	76,979	$	36	$	(6,425	)	$	—	$	70,590

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

Substantially all held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities during the three and nine months ended September 30, 2024 and 2023. The Company's investments in corporate bonds are deemed “investment grade” and (a) the Company does not intend to sell these securities before recovery and (b) it is more likely than not that the Company will not be required to sell these securities before recovery. The Company does not expect to suffer a credit loss as of September 30, 2024 and December 31, 2023. Excluded from the table above is accrued interest on held to maturity securities of $358,000 and $310,000 at September 30, 2024 and December 31, 2023, respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the three and nine months ended September 30, 2024 and 2023. No securities held by the Company were delinquent on contractual payments at September 30, 2024 and December 31, 2023, nor were any securities placed on non-accrual status for the three and nine months ended September 30, 2024 and 2023.

Available-for-Sale Securities

The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses of available-for-sale securities at the dates indicated:


			Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			for Credit		Fair
Available-for-sale	Cost		Gains		Losses			Losses		Value
			(in thousands)
September 30, 2024
Debt securities
Agency mortgage-backed securities	$	4,175	$	—	$	(12	)	$	—	$	4,163
Total available-for-sale securities	$	4,175	$	—	$	(12	)	$	—	$	4,163

December 31, 2023
Debt securities
Corporate bonds	$	5,000	$	4	$	(1	)	$	—	$	5,003
Total available-for-sale securities	$	5,000	$	4	$	(1	)	$	—	$	5,003

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

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three and nine months ended September 30, 2024 and 2023. Excluded from the table above is accrued interest on available-for-sale securities of $9,000 and $58,000 at September 30, 2024 and December 31, 2023, respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on available-for-sale securities for the three and nine months ended September 30, 2024 and 2023. No securities held by the Company were delinquent on contractual payments at September 30, 2024 and December 31, 2023, nor were any securities placed on non-accrual status for the three and nine months ended September 30, 2024 and 2023.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of securities during the three and nine months ended September 30, 2024 and 2023.

The aggregate fair value and unrealized losses of available-for-sale securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and have no allowance for credit losses, are as follows as of September 30, 2024 and December 31, 2023:


			Less than 12 Months					12 Months or Longer				Total
	# of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Holdings		Value		Losses			Value		Losses		Value		Losses
								(Dollars in thousands)
September 30, 2024
Available for Sale:
Agency mortgage-backed securities		2	$	4,163	$	(12	)	$	-	$	-	$	4,163	$	(12	)
Total		2	$	4,163	$	(12	)	$	-	$	-	$	4,163	$	(12	)

December 31, 2023
Available for Sale:
Corporate bonds		1	$	2,500	$	(1	)	$	-	$	-	$	2,500	$	(1	)
Total		1	$	2,500	$	(1	)	$	-	$	-	$	2,500	$	(1	)

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

Held to Maturity and Available-for-Sale Securities

The actual maturities of certain available-for-sale or held-to-maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available-for-sale and held-to-maturity securities as of September 30, 2024 is presented below:



	Available-for-sale		Held-to-maturity
	Fair		Amortized		Fair
	Value		Cost		Value

Within 1 year	$	2,007	$	13,793	$	13,626
After 1 year through 5 years		2,156		21,920		21,805
After 5 years through 10 years		-		3,983		3,808
After 10 years		-		37,537		33,602
Total	$	4,163	$	77,233	$	72,841

The carrying value of securities pledged to secure advances from the Federal Home Loan Bank of Boston (“FHLBB”) was $58.1 million and $62.6 million as of September 30, 2024 and December 31, 2023, respectively.

The carrying value of securities pledged to secure advances from the Federal Reserve Bank (“FRB”) was $16.0 million as of September 30, 2024. There were no securities pledged to FRB at December 31, 2023.

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

Loans

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan origination costs and fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest, or sooner if management considers such action to be prudent, are classified as nonaccrual loans. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual

loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, generally six months. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance. Under the current expected credit loss (CECL) methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics. The Company has elected to segment its loans based on Federal Call codes used for reporting loans to the Federal Deposit Insurance Corporation as part of the Call Report process. These segments are collectively evaluated for expected credit losses using a quantitative Discounted Cash Flow ("DCF") model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The Company has elected to use this approach because DCF models allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner and peer data is available for certain inputs such as the probability of default and the loss given default. The quantitative model utilizes a loss factor based approach to estimate expected credit losses, which are derived from internal historical and industry peer loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average using the straight-line reversion method. Management periodically evaluates a reasonable and supportable period and a reversion period to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following:

•

Lending policies and procedures

•

Economic and business conditions

•

Nature and volume of loans

•

Changes in management

•

Changes in credit quality

•

Changes in loan review system

•

Changes to underlying collateral values

•

Concentrations of credit risk

•

Other external factors

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

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

Loans consisted of the following as of the dates indicated:


	At September 30,						At December 31,
	2024						2023
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to-four family residential	$	419,373			37.3	%	$	410,131			39.1	%
Multi-family		326,975			29.1	%		287,361			27.4	%
Commercial		222,680			19.8	%		196,365			18.7	%
Home equity lines of credit and loans		39,413			3.5	%		33,357			3.2	%
Construction		101,401			9.0	%		112,000			10.7	%
Other loans:
Commercial		14,508			1.3	%		9,219			0.9	%
Consumer		141			0.0	%		173			0.0	%
Total loans, gross		1,124,491			100.0	%		1,048,606			100.0	%
Less:
Net deferred loan fees		(480	)					(226	)
Allowance for credit losses		(9,068	)					(8,591	)
Total loans, net	$	1,114,943					$	1,039,789

The carrying value of loans pledged to secure advances from the FHLBB were $676.5 million and $553.0 million as of September 30, 2024 and December 31, 2023, respectively.

The following tables set forth information regarding the allowance for credit losses on loans as of and for the three and nine months ended September 30, 2024 and 2023:


	For the three months ended September 30, 2024
	(in thousands)
	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	3,604	$	-	$	-	$	81		$	3,685
Multi-family		1,304		-		-		53			1,357
Commercial		1,740		-		-		95			1,835
Home equity lines of credit and loans		363		-		-		19			382
Construction		1,814		-		-		(211	)		1,603
Other loans:
Commercial		199		-		-		6			205
Consumer		1		-		-		-			1
Total	$	9,025	$	-	$	-	$	43		$	9,068



	For the nine months ended September 30, 2024
	(in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance(1)
Real estate loans:
One-to-four family residential	$	3,555	$	-		$	-	$	130		$	3,685
Multi-family		1,190		-			-		167			1,357
Commercial		1,636		-			-		199			1,835
Home equity lines of credit and loans		321		-			-		61			382
Construction		1,757		-			-		(154	)		1,603
Other loans:												-
Commercial		131		-			-		74			205
Consumer		1		(3	)		-		3			1
Total	$	8,591	$	(3	)	$	-	$	480		$	9,068


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


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

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $3.5 million and $2.9 million as of September 30, 2024 and September 30, 2023.

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

The following tables show the age analysis of past due loans as of the dates indicated:


	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more past due and accruing		Loans on Non-accrual
	(in thousands)
As of September 30, 2024
Real estate loans:
One-to-four family residential	$	1,545	$	—	$	—	$	1,545	$	417,828	$	419,373	$	—	$	1,012
Multi-family		—		—		—		—		326,975		326,975		—		—
Commercial		—		—		—		—		222,680		222,680		—		—
Home equity lines of credit and loans		220		258		—		478		38,935		39,413		—		85
Construction		—		—		—		—		101,401		101,401		—		—

Other loans:
Commercial		—		—		—		—		14,508		14,508		—		—
Consumer		1		1		—		2		139		141		—		1
	$	1,766	$	259	$	—	$	2,025	$	1,122,466	$	1,124,491	$	—	$	1,098


	30–59 Days		60–89 Days		90 Days or More		Total Past Due		Total Current		Total Loans		90 days or more past due and accruing		Loans on Non-accrual
	(in thousands)
As of December 31, 2023
Real estate loans:
One-to-four family residential	$	722	$	225	$	809	$	1,756	$	408,375	$	410,131	$	—	$	1,191
Multi-family		—		—		—		—		287,361		287,361		—		—
Commercial		—		—		—		—		196,365		196,365		—		—
Home equity lines of credit and loans		360		—		8		368		32,989		33,357		—		22
Construction		—		—		—		—		112,000		112,000		—		—

Other loans:
Commercial		—		—		—		—		9,219		9,219		—		—
Consumer		1		—		—		1		172		173		—		—
	$	1,083	$	225	$	817	$	2,125	$	1,046,481	$	1,048,606	$	—	$	1,213

During the three months ended September 30, 2024 and 2023, interest income recognized on nonaccrual loans amounted to $13,000 and $12,000, respectively. During the nine months ended September 30, 2024 and 2023, interest income recognized on nonaccrual loans amounted to $49,000 and $26,000, respectively. The following tables show information regarding nonaccrual loans as of the dates indicated:


	As of September 30, 2024
	With an Allowance for Credit Losses		Without an Allowance for Credit Losses		Total
	(in thousands)

Real estate loans:
One-to-four family residential	$	—	$	1,012	$	1,012
Home equity lines of credit and loans		—		85		85
Consumer		—		1		1
Total nonaccrual loans	$	—	$	1,098	$	1,098


	As of December 31, 2023
	With an Allowance for Credit Losses		Without an Allowance for Credit Losses		Total
	(in thousands)

Real estate loans:
One-to-four family residential	$	—	$	1,191	$	1,191
Home equity lines of credit and loans		—		22		22
Total nonaccrual loans	$	—	$	1,213	$	1,213

Credit Quality Information

During the second quarter of 2024, the Company expanded its internal loan risk rating system from a seven grade system to a ten grade system. The new loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit is as follows:

Loans rated 1 – 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.

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.

The rating system as of December 31, 2023 was as follows:

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

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

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

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

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

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $500,000 or more, and all commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $2.0 million or more. For loans that are not formally rated, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

The following tables detail the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of September 30, 2024 and December 31, 2023:


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2024		2023		2022		2021		2020		Prior
As of September 30, 2024	(in thousands)
One-to-four family residential
Pass	$	2,734	$	14,157	$	35,081	$	15,229	$	4,018	$	11,892	$	—	$	—	$	83,111
Special Mention		—		—		—		—		636		440		—		—		1,076
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		24,692		46,686		85,337		69,451		48,868		60,152		—		—		335,186
Total	$	27,426	$	60,843	$	120,418	$	84,680	$	53,522	$	72,484	$	—	$	—	$	419,373

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Pass	$	11,373	$	54,026	$	202,121	$	35,545	$	8,682	$	8,874	$	6,354	$	—	$	326,975
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	11,373	$	54,026	$	202,121	$	35,545	$	8,682	$	8,874	$	6,354	$	—	$	326,975

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Pass	$	22,655	$	41,411	$	77,828	$	25,839	$	15,586	$	32,556	$	6,805	$	—		222,680
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	22,655	$	41,411	$	77,828	$	25,839	$	15,586	$	32,556	$	6,805	$	—	$	222,680

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity lines of credit and loans
Pass	$	199	$	323	$	—	$	—	$	—	$	—	$	6,033	$	—	$	6,555
Special Mention		—		—		—		—		—		10		74		—		84
Substandard		—		—		—		—		—		—		99		—		99
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		127		390		27		8		—		75		31,452		596		32,675
Total	$	326	$	713	$	27	$	8	$	—	$	85	$	37,658	$	596	$	39,413

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction
Pass	$	19,615	$	32,207	$	39,820	$	4,516	$	—	$	2,988	$	—	$	—	$	99,146
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		459		1,796		—		—		—		—		—		—		2,255
Total	$	20,074	$	34,003	$	39,820	$	4,516	$	—	$	2,988	$	—	$	—	$	101,401

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial
Pass	$	5,100	$	4,419	$	2,768	$	355	$	20	$	202	$	1,644	$	—	$	14,508
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	5,100	$	4,419	$	2,768	$	355	$	20	$	202	$	1,644	$	—	$	14,508

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		8		17		31		41		—		8		36		—		141
Total	$	8	$	17	$	31	$	41	$	—	$	8	$	36	$	—	$	141

Current-period gross charge-offs	$	3	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2023		2022		2021		2020		2019		Prior
As of December 31, 2023	(in thousands)
One-to-four family residential
Pass	$	9,689	$	36,662	$	15,529	$	4,476	$	4,230	$	9,224	$	—	$	—	$	79,810
Special Mention		—		—		—		809		—		451		—		—		1,260
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		48,688		90,827		72,463		51,035		7,129		58,919		—		—		329,061
Total	$	58,377	$	127,489	$	87,992	$	56,320	$	11,359	$	68,594	$	—	$	—	$	410,131

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multi-family
Pass	$	45,188	$	194,999	$	26,820	$	8,873	$	—	$	9,798	$	1,683	$	—	$	287,361
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	45,188	$	194,999	$	26,820	$	8,873	$	—	$	9,798	$	1,683	$	—	$	287,361

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Pass	$	43,639	$	72,671	$	24,138	$	16,407	$	4,054	$	31,132	$	4,324	$	—	$	196,365
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		—		—		—		—		—		—		—
Total	$	43,639	$	72,671	$	24,138	$	16,407	$	4,054	$	31,132	$	4,324	$	—	$	196,365

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity lines of credit and loans
Pass	$	326	$	—	$	—	$	—	$	—	$	—	$	4,986	$	—	$	5,312
Special Mention		—		—		—		—		—		14		8		—		22
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		410		36		12		—		65		22		26,970		508		28,023
Total	$	736	$	36	$	12	$	—	$	65	$	36	$	31,964	$	508	$	33,357

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction
Pass	$	33,707	$	55,170	$	17,228	$	—	$	786	$	2,988	$	—	$	—	$	109,879
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		2,121		—		—		—		—		—		—		—		2,121
Total	$	35,828	$	55,170	$	17,228	$	—	$	786	$	2,988	$	—	$	—	$	112,000

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial
Pass	$	4,444	$	3,349	$	428	$	35	$	89	$	154	$	655	$	—	$	9,154
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		—		—		65		—		—		—		—		—		65
Total	$	4,444	$	3,349	$	493	$	35	$	89	$	154	$	655	$	—	$	9,219

Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Loans not formally rated (1)		31		38		45		—		—		13		46		—		173
Total	$	31	$	38	$	45	$	—	$	—	$	13	$	46	$	—	$	173

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

(1) All loans not formally rated were accruing as of September 30, 2024 and December 31, 2023.

At September 30, 2024 and December 31, 2023, the Company had no consumer mortgage loans secured by residential real estate property in the process of foreclosure.

For the three and nine months ended September 30, 2024 and 2023, the Company did not provide loan restructurings involving borrowers that are experiencing financial difficulty.

NOTE 5 – EMPLOYEE BENEFITS

401(k) Plan

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

Total expense related to the 401(k) plan for the three and nine months ended September 30, 2024 amounted to $121,000 and $365,000, respectively. Total expense related to the 401(k) plan for the three and nine months ended September 30, 2023 amounted to $120,000 and $351,000, respectively.

Employee Incentive Plan

The Company provides an employee incentive plan which is approved annually by the Board of Directors, based on various factors. The employee incentive plan expense for the three and nine months ended September 30, 2024 amounted to $354,000 and $1,041,000, respectively. The employee incentive plan expense for the three and nine months ended September 30, 2023 amounted to $363,000 and $1,077,000, respectively.

Supplemental Executive Retirement Plan (SERP)

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

The liability for the SERP amounted to $1,064,000 and $1,106,000 as of September 30, 2024 and December 31, 2023, respectively. The expense for the three and nine months ended September 30, 2024 amounted to $13,000 and $38,000, respectively. For the three and nine months ended September 30, 2023, the credit to expense recorded was $19,000 and $58,000, respectively.

Director Fee Continuation Plan (DFCP)

Effective January 1, 2017, the Company established a Director Fee Continuation Plan which provides supplemental retirement benefits for directors. Under the DFCP, individuals who are directors as of the effective date of the DFCP are 100% vested in their benefits. Individuals who become directors after the effective date shall be fully vested in their accounts after having served on the Board of Directors for twelve years. The liability for the DFCP amounted to $823,000 and $769,000 as of September 30, 2024 and December 31, 2023, respectively. The expense for the three and nine months ended September 30, 2024 amounted to $28,000 and $84,000, respectively. The expense for the three and nine months ended September 30, 2023 amounted to $23,000 and $67,000, respectively.

Supplemental Executive Retirement Agreement

On January 1, 2018, the Company entered into a supplemental executive retirement agreement with a named executive officer whereby the Company is obligated to provide post-retirement salary continuation benefits equal to 60% of the executive officer’s final average compensation, as defined. Benefits are 100% vested, commence upon retirement, and are payable based on a ten-year certain and life annuity. The liability amounted to $3,339,000 and $3,200,000 as of September 30, 2024 and December 31, 2023, respectively. The expense recognized for the three and nine months ended September 30, 2024 amounted to $46,000 and $139,000, respectively. The expense recognized for the three and nine months ended September 30, 2023 amounted to $30,000 and $89,000, respectively.

Executive Deferred Compensation Plans

In 2021 and 2023, the Company entered into deferred compensation plans with two named executive officers that allow the Company to make contributions to an account for the executive officers each year, as of January 1, based on the prior year’s performance and the Company's intent is that the contribution equal 10% of the executive officers' salaries and bonuses. The Company may make other contributions to the deferred compensation plans, at its discretion, at other times during the year. The expense recognized under the deferred compensation plans for the three and nine months ended September 30, 2024 amounted to $24,000 and $71,000, respectively. The expense recognized under the deferred compensation plans for the three and nine months ended September 30, 2023 amounted to $41,000 and $63,000, respectively.

Deferred Compensation Plan for Directors

The Company maintains the Everett Co-operative Bank Deferred Compensation Plan for Directors (the “Director Deferred Compensation Plan”) to allow for certain tax planning opportunities and additional retirement income for directors of the Company. All non-employee directors are eligible to participate in the Director Deferred Compensation Plan. Under the Director Deferred Compensation Plan, directors may elect to defer the receipt of up to 100% of their director fees. Participants are always 100% vested in their deferred fees and any interest credited to those deferrals. Earnings are credited to a participant’s deferrals each year and are indexed to the highest certificate of deposit rate offered by the Bank on January 1st of each year. The liability for the Director Deferred Compensation Plan amounted to $724,000 and $698,000 as of September 30, 2024 and December 31, 2023, respectively.

Employment and Change in Control Agreements

The Company entered into Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements.

Survivor Benefit Plan

The Company entered into Survivor Benefit Plan Participation Agreements with a group of employees whereby the Company is obligated to provide up to two years of recognized compensation, as defined, to the beneficiary if the participant dies while employed by the Company. There was no expense recorded during the three and nine months ended September 30, 2024 and 2023.

Employee Stock Ownership Plan

As part of the Initial Public Offering ("IPO") completed on July 27, 2022, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $7.3 million

from the Company to purchase 734,020 common shares during the IPO. The loan is payable in annual installments over 20 years at an interest rate of 4.75%. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan.

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

Total compensation expense recognized in connection with the ESOP was $124,000 and $356,000 for the three and nine months ended September 30, 2024, respectively. Total compensation expense recognized in connection with the ESOP was $114,000 and $365,000 for the three and nine months ended September 30, 2023, respectively. The following table presents share information held by the ESOP:


	As of September 30, 2024		As of December 31, 2023
	(Dollars in thousands)

Allocated shares		70,438		72,017
Shares committed to be released		27,476		-
Unallocated shares		633,142		660,618
Total shares		731,056		732,635
Fair value of unallocated shares	$	9,067	$	8,297

NOTE 6 - STOCK-BASED COMPENSATION

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

The following table summarizes the Company's stock option activities for the periods indicated:


	Three months ended				Nine months ended
	September 30, 2024				September 30, 2024
	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Non-vested balance at beginning of period		763,969	$	10.50		763,969	$	10.50
Granted		-		-		-		-
Exercised		-		-		-		-
Vested		34,992		11.80		34,992		11.80
Forfeited or expired		-		-		-		-
Non-vested balance at end of period		728,977	$	10.44		728,977	$	10.44


	Three months ended				Nine months ended
	September 30, 2023				September 30, 2023
	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Non-vested balance at beginning of period		-	$	-		-	$	-
Granted		174,960		11.80		174,960		11.80
Exercised		-		-		-		-
Vested		-		-		-		-
Forfeited or expired		-		-		-		-
Non-vested balance at beginning of period		174,960	$	11.80		174,960	$	11.80

The restricted stock awards are measured based on grant-date fair value, which reflects the closing price of our stock on the date of grant. All of the restricted stock awards which have been granted to date vest over five years in equal portions beginning on the first anniversary date of the restricted stock award. The following table summarizes the Company's restricted stock award activities for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30, 2024				September 30, 2024
	Number of Shares		Weighted-Average Grant Date Fair Value Per Share		Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Balance at beginning of period		305,957	$	10.50		305,957	$	10.50
Granted		1,000		13.00		1,000		13.00
Vested		13,997		11.80		13,997		11.80
Forfeited		-		-		-		-
Balance at end of period		292,960	$	10.45		292,960	$	10.45


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

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


	Three months ended		Nine months ended		Three months ended		Nine months ended
	September 30, 2024				September 30, 2023
	(in thousands)
Stock-based compensation expense
Stock options	$	166	$	495	$	10	$	10
Restricted stock awards		162		482		10		10
Total stock-based compensation expense	$	328	$	977	$	20	$	20
Related tax benefits recognized in earnings	$	71	$	211	$	6	$	6

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


	September 30, 2024				December 31, 2023
	Amount		Weighted average period		Amount		Weighted average period
	(Dollars in thousands)
Stock options	$	2,667		4.05	$	3,162		4.80
Restricted stock awards		2,612		4.05		3,081		4.80
Total	$	5,279			$	6,243

NOTE 7 - FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for September 30, 2024 and December 31, 2023.

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

The fair value of interest rate swaps was determined using discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period of maturity, and uses observable market-based inputs including interest rate curves. The inputs used to value the Company’s interest rate swaps fall within Level 2 of the fair value hierarchy and as a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy.

As of September 30, 2024 and December 31, 2023, the following summarizes assets and liabilities measured at fair value on a recurring basis:


	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices		Significant		Significant
			in Active		Other		Unobservable
			Markets for		Observable		Inputs
			Identical Assets		Inputs		Level 3
			Level 1		Level 2
			(in thousands)
September 30, 2024
Assets:
Available-for-sale securities
Agency mortgage-backed securities	$	4,163		—		4,163		—
Total assets measured at fair value on a recurring basis	$	4,163	$	—	$	4,163	$	—

Liabilities:
Derivative instruments	$	1,250	$	—	$	1,250	$	—
Total liabilities measured at fair value on a recurring basis	$	1,250	$	—	$	1,250	$	—

December 31, 2023
Assets:
Available-for-sale securities
Corporate bonds	$	5,003	$	—	$	5,003	$	—
Total assets measured at fair value on a recurring basis	$	5,003	$	—	$	5,003	$	—

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

As of September 30, 2024 and December 31, 2023, the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded.

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. At September 30, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

The following table represents the fair value of financial instruments that are not measured at fair value at September 30, 2024 and December 31, 2023.


	September 30, 2024
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(in thousands)
Financial assets:
Cash and cash equivalents	$	119,630	$	119,630	$	119,630	$	-	$	-
Held-to-maturity securities		77,233		72,841		-		72,841		-
Federal Home Loan Bank stock		9,850		9,850		-		9,850		-
Loans, net		1,114,943		1,039,071		-		-		1,039,071
Loans held for sale		703		703		-		703		-
Accrued interest receivable		4,164		4,164		4,164		-		-

Financial liabilities:
Deposits, other than certificates of deposit	$	362,783	$	362,783	$	-	$	362,783	$	-
Certificates of deposit		581,542		583,113		-		583,113		-
Federal Home Loan Bank advances		234,000		237,619		-		237,619		-
Accrued interest payable		2,351		2,351		2,351		-		-


	December 31, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
			(in thousands)
Financial assets:
Cash and cash equivalents	$	119,036	$	119,036	$	119,036	$	-	$	-
Held-to-maturity securities		76,979		70,590		-		70,590		-
Federal Home Loan Bank stock		9,892		9,892		-		9,892		-
Loans, net		1,039,789		952,867		-		-		952,867
Accrued interest receivable		3,766		3,766		3,766		-		-

Financial liabilities:
Deposits, other than certificates of deposit	$	369,711	$	369,711	$	-	$	369,711	$	-
Certificates of deposit		498,503		495,551		-		495,551		-
Federal Home Loan Bank advances		234,000		233,878		-		233,878		-
Accrued interest payable		2,191		2,191		2,191		-		-

NOTE 8 – COMMITMENTS AND CONTINGENCIES

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

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

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

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon,

the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Amounts of financial instruments whose contract amounts represent off-balance sheet credit risk are as follows as of September 30, 2024 and December 31, 2023:


	September 30, 2024		December 31, 2023
	(in thousands)

Commitments to originate loans	$	33,370	$	22,701
Commitments to purchase loans		920		415
Unadvanced funds on lines of credit		78,041		78,378
Unadvanced funds on construction loans		46,974		53,013
Letters of credit		50		-
	$	159,355	$	154,507

The Bank accrues for credit losses related to off-balance sheet financial instruments. Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses, adjusted for the likelihood that funding will occur. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $761,000 and $756,000 as of September 30, 2024 and December 31, 2023, respectively. For the three and nine months ended September 30, 2024, provision recorded for off-balance sheet commitments was $4,000 and $5,000, respectively. For the three and nine months ended September 30, 2023, a benefit was recorded for off-balance sheet commitments for $6,000 and $214,000, respectively. The provision and benefit for off-balance sheet commitments are recorded with provision for credit losses on the consolidated statements of income.

NOTE 9 – OTHER COMPREHENSIVE (LOSS) INCOME

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

The components of other comprehensive (loss) income and related tax effects are as follows for the three and nine months ended September 30, 2024 and 2023:


	Three months ended						Nine months ended
	September 30,						September 30,
	2024			2023			2024			2023
	(in thousands)						(in thousands)

Available-for-sale securities:
Net unrealized holding (losses) gains on available-for-sale securities	$	(12	)	$	(2	)	$	(15	)	$	(4	)
Reclassification adjustment for realized gains in net income		—			—			—			—
Total		(12	)		(2	)		(15	)		(4	)
Income tax benefit		3			—			3			1
Net-of-tax amount		(9	)		(2	)		(12	)		(3	)

Net change in fair value of cash flow hedges
Change in fair value of cash flow hedges	$	(1,615	)	$	—		$	(639	)	$	—
Reclassification adjustment for cash flow hedge gains into net income		(232	)		—			(611	)		—
Total		(1,847	)		—			(1,250	)		—
Income expense benefit		519			—			352			—
Net-of-tax amount		(1,328	)		—			(898	)		—

Other comprehensive (loss) income, net of tax	$	(1,337	)	$	(2	)	$	(910	)	$	(3	)

Accumulated other comprehensive income as of September 30, 2024 and December 31, 2023 consists of unrecognized benefit costs, net of taxes, unrealized holding gains on securities available for sale, net of tax, and fair value of cash flow hedges, net of tax as follows:


	As of September 30, 2024			As of December 31, 2023
	(in thousands)
Net unrealized holding (losses) gains on securities available-for-sale, net of tax	$	(9	)	$	3
Unrecognized SERP gain, net of tax		56			56
Unrecognized DFCP gain, net of tax		70			70
Fair value of cash flow hedges, net of tax		(898	)		—

Accumulated other comprehensive (loss) income	$	(781	)	$	129

NOTE 10 – REGULATORY MATTERS

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

Management believes, as of September 30, 2024, that the Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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


				Minimum For Capital			Minimum To Be Well
				Adequacy Purposes			Capitalized Under
				Plus Capital			Prompt Corrective
	Actual			Conservation Buffer			Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio
				(dollars in thousands)
As of September 30, 2024
Total Capital (to Risk Weighted Assets)	$	153,215	16.80%	$	95,755	10.50%	$	91,196	10.00%
Tier 1 Capital (to Risk Weighted Assets)		143,386	15.72%		77,516	8.50%		72,956	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		143,386	15.72%		63,837	7.00%		59,277	6.50%
Tier 1 Capital (to Average Assets)		143,386	10.67%		53,776	4.00%		67,220	5.00%

As of December 31, 2023
Total Capital (to Risk Weighted Assets)	$	149,014	17.30%	$	90,440	10.50%	$	86,133	10.00%
Tier 1 Capital (to Risk Weighted Assets)		139,667	16.22%		73,213	8.50%		68,907	8.00%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		139,667	16.22%		60,293	7.00%		55,987	6.50%
Tier 1 Capital (to Average Assets)		139,667	11.31%		49,406	4.00%		61,758	5.00%

NOTE 11 - EARNINGS PER SHARE ("EPS")

Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the

exercise of stock options) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
	(Dollars in thousands, except per share data)
Net income allocated to common stock	$	1,133	$	1,341	$	2,545	$	3,667

Weighted-average common shares outstanding used to calculate basic earnings per common share		8,240,602		8,486,577		8,268,550		8,485,936
Add: Dilutive effect of restricted stock awards		103,134		—		85,620		—
Weighted-average common shares outstanding used to calculate diluted earnings per common share		8,343,736		8,486,577		8,354,170		8,485,936

Earnings per common share
Basic	$	0.14	$	0.16	$	0.31	$	0.43
Diluted	$	0.14	$	0.16	$	0.30	$	0.43

For the three and nine months ended September 30, 2024, the shares that were anti-dilutive, and therefore excluded from the calculation of diluted earnings per share, included options to purchase 763,969 shares of common stock. For the three and nine months ended September 30, 2023, the shares that were anti-dilutive, and therefore excluded from the calculation of diluted earnings per share, included options to purchase 174,960 shares of common stock and 69,984 shares of restricted stock awards.

NOTE 12 - DERIVATIVE AND HEDGING ACTIVITIES

The Company uses derivative financial instruments to manage its interest rate risk resulting from the differences in the amount, timing, and duration of known or expected cash payments. The Company has entered into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy.

An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The Company has entered into interest rate swaps in which it pays fixed and receives floating interest in order to manage its interest rate risk exposure to the variability in interest cash flows on certain floating-rate FHLB Advances and brokered certificates of deposit. The interest rate swaps effectively convert the floating rate payments made on the FHLB Advances and brokered certificates of deposit to a fixed rate and consequently reduce the Company’s exposure to variability in short-term interest rates.

Derivative instruments are carried at fair value in the Company’s Consolidated Financial Statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not the instrument qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.

The Company’s interest rate swaps have been designated as and are accounted for as cash flow hedges. The changes in fair value are included in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income.

Cash flow hedges are initially assessed for effectiveness using regression analysis. Changes in the fair value of derivatives that are designated as and that qualify as cash flow hedges are recorded in OCI and are subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a quantitative analysis is performed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially, and continue to be, highly effective at September 30, 2024.

The following table reflects the Company's derivative position at the date indicated below for the interest rate swaps:


	As of September 30, 2024
	(Dollars in thousands)
Notional amount	$	60,000
Weighted-average pay rate		3.80	%
Weighted-average receive rate		5.14	%
Weighted-average maturity in years		4.00

The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets as of September 30, 2024:


	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)
Derivatives designated as hedging instruments
Interest rate swaps	Other assets	$	-	Other liabilities	$	(1,250	)
Total		$	-		$	(1,250	)

For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $10,000 to be reclassified as a decrease to interest expense from OCI related to the Company’s cash flow hedges in the twelve months following September 30, 2024. This reclassification is due to anticipated payments that will be received on the swaps based upon the forward curve at September 30, 2024.

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 4.6 years.

The pre-tax effects of cash flow hedges on accumulated other comprehensive income and current earnings for the period indicated are as follows:


	Three Months Ended			Nine Months Ended
	September 30, 2024
	(in thousands)
Interest rate swaps
Amount of loss recognized in OCI on derivatives	$	(1,847	)	$	(1,250	)
Gain reclassified from OCI into interest expense	$	(232	)	$	(611	)

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty not secured by variation margin plus any initial margin collateral posted. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. As of September 30, 2024, the Company has pledged cash collateral to a derivative counterparty totaling $2,240,000. The Company may need to post additional collateral or may receive additional collateral in the future in proportion to potential changes in the overall unrealized gain or loss position.

The Company had no derivatives as of December 31, 2023. There was no OCI or interest expense related to cash flow hedges recognized for the three and nine months ended September 30, 2023.

NOTE 13 - SUBSEQUENT EVENTS

Management has reviewed events occurring through November 8, 2024, the date the unaudited consolidated financial statements were issued and determined that no subsequent events occurred requiring adjustment to or disclosure in these unaudited consolidated financial statements.

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

General

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2024 and 2023 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

statements of our goals, intentions and expectations;

•

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

•

statements regarding the quality of our loan portfolio; and

•

estimates of our risks and future costs and benefits.

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

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

•

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

•

our ability to access cost-effective funding;

•

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

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

•

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

•

adverse changes in the securities or secondary mortgage markets;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

changes in consumer spending, borrowing and savings habits;

•

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

•

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

•

our ability to attract and retain key employees; and

•

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

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

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in ECB Bancorp, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2024.

Critical Accounting Estimates

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

Allowance for Credit Losses

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

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

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

Income Taxes

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

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

Securities Valuation

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

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

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total Assets. Total assets increased $77.6 million, or 6.1%, to $1.36 billion at September 30, 2024 from $1.28 billion at December 31, 2023. The increase was primarily the result of increases in loans.

Cash and Cash Equivalents. Cash and cash equivalents increased $594,000, or 0.5%, to $119.6 million at September 30, 2024 from $119.0 million at December 31, 2023.

Investment Securities Available for Sale. Investment securities available for sale decreased $840,000, or 16.8%, to $4.2 million as of September 30, 2024 from $5.0 million as of December 31, 2023. The decrease was due to maturities and was partially offset by purchases. No securities were sold during the nine months ended September 30, 2024.

Investment Securities Held to Maturity. Investment securities held to maturity increased $254,000, or 0.3%, to $77.2 million as of September 30, 2024 from $77.0 million as of December 31, 2023 due to purchases of investment securities partially offset by principal paydowns and maturities.

Loans. Gross loans increased $75.9 million, or 7.2%, to $1.12 billion at September 30, 2024 from $1.05 billion at December 31, 2023.

•

Multi-family real estate loans increased $39.6 million, or 13.8%, to $327.0 million at September 30, 2024 from $287.4 million at December 31, 2023.

•

Commercial real estate loans increased $26.3 million, or 13.4%, to $222.7 million at September 30, 2024 from $196.4 million at December 31, 2023.

•

Residential real estate loans increased $9.2 million, or 2.3%, to $419.4 million at September 30, 2024 from $410.1 million at December 31, 2023.

•

Home equity lines of credit increased $6.1 million, or 18.2%, to $39.4 million at September 30, 2024 from $33.4 million at December 31, 2023.

•

Commercial loans increased $5.3 million, or 57.4%, to $14.5 million at September 30, 2024 from $9.2 million at December 31, 2023.

•

Construction loans decreased $10.6 million, or 9.5%, to $101.4 million at September 30, 2024 from $112.0 million at December 31, 2023.

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $9.9 million at September 30, 2024 and December 31, 2023.

Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $353,000, or 2.4%, to $14.8 million at September 30, 2024 from $14.5 million at December 31, 2023. The increase was due to an increase of $353,000 in the cash surrender value of our bank-owned life insurance portfolio during the nine months ended September 30, 2024.

Deposits. Deposits increased $76.1 million, or 8.8%, to $944.3 million at September 30, 2024 from $868.2 million at December 31, 2023.

•

Certificates of deposit increased $83.0 million, or 16.7%, to $581.5 million at September 30, 2024 from $498.5 million at December 31, 2023.

•

Money market deposit accounts increased $32.1 million, or 24.4%, to $163.4 million at September 30, 2024 from $131.4 million at December 31, 2023.

•

Savings accounts decreased $31.5 million, or 22.8%, to $106.4 million at September 30, 2024 from $137.8 million at December 31, 2023.

•

Demand deposit accounts decreased $4.3 million, or 5.5%, to $74.1 million at September 30, 2024 from $78.3 million at December 31, 2023.

•

Interest-bearing checking accounts decreased $3.2 million, or 14.5%, to $18.9 million at September 30, 2024 from $22.2 million at December 31, 2023

Core deposits (defined as all deposits other than certificates of deposit) decreased $6.9 million, or 1.9%, to $362.8 million at September 30, 2024 from $369.7 million at December 31, 2023.

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank remained unchanged at $234.0 million from December 31, 2023 to September 30, 2024.

Shareholders' Equity. Total shareholders' equity increased $1.1 million, or 0.7%, to $166.0 million at September 30, 2024 from $164.9 million at December 31, 2023. This increase is primarily the result of net income of $2.5 million. Partially offsetting this increase in shareholders' equity was a decrease in accumulated other comprehensive income ("AOCI") of $910,000 and a decrease in additional paid-in capital of $761,000. The decrease in AOCI was driven by a decrease in the fair value of cash flow hedges entered into during the nine months ended September 30, 2024. The decrease in additional paid in capital was driven by $1.8 million in shares repurchased under our share repurchase plan, partially offset by an increase in additional paid in capital of $1.1 million related to stock based compensation and ESOP shares committed to be released. The book value per share increased $0.39 to $18.14 at September 30, 2024 from $17.75 at December 31, 2023.

Comparison of Operating Results for the Three Months Ended September 30, 2024 and September 30, 2023

Net Income. We recorded net income of $1.1 million for the three months ended September 30, 2024, compared to net income of $1.3 million for the three months ended September 30, 2023. The decrease in net income was driven by an increase in net interest and dividend income, which was more than offset by an increase in provision for credit losses and an increase in noninterest expense.

Interest and Dividend Income. Interest and dividend income increased $3.0 million, or 21.1%, to $17.2 million for the three months ended September 30, 2024 from $14.2 million for the three months ended September 30, 2023. This increase was due to a $2.5 million increase in interest and fees on loans, an $80,000 increase in interest and dividends on investment securities and a $373,000 increase in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $119.6 million in the average balance of the loan portfolio to $1.12 billion for the three months ended September 30, 2024 from $1.00 billion for the

three months ended September 30, 2023, as well as an increase in the average yield of 39 basis points to 5.27% during the three months ended September 30, 2024 from 4.88% during the three months ended September 30, 2023. The yield for the three months ended September 30, 2024 benefited from new loans with higher rates as well as adjustable rate loans repricing higher. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 42 basis points to 3.00% during the three months ended September 30, 2024 from 2.58% during the three months ended September 30, 2023. The increase in other interest income resulted primarily from an increase of $27.3 million in the average balance of short term investments to $110.5 million for the three months ended September 30, 2024 from $83.2 million for the three months ended September 30, 2023.

Average interest-earning assets increased $145.3 million, to $1.31 billion for the three months ended September 30, 2024 from $1.17 billion for the three months ended September 30, 2023. The yield on interest-earning assets increased 39 basis points to 5.14% for the three months ended September 30, 2024 from 4.75% for the three months ended September 30, 2023.

Interest Expense. Total interest expense increased $2.8 million, or 34.5%, to $10.9 million for the three months ended September 30, 2024 from $8.1 million for the three months ended September 30, 2023. Interest expense on deposit accounts increased $3.0 million, or 50.5%, to $8.8 million for the three months ended September 30, 2024 from $5.8 million for the three months ended September 30, 2023, primarily due to an increase in the average balance of interest-bearing deposits of $165.7 million, or 23.2%, to $879.2 million for the three months ended September 30, 2024 from $713.5 million for the three months ended September 30, 2023 as well as an increase in the cost of interest-bearing deposits of 73 basis points to 3.98% for the three months ended September 30, 2024 from 3.25% for the three months ended September 30, 2023. Interest expense on FHLB advances decreased $168,000, or 7.5%, to $2.1 million for the three months ended September 30, 2024 from $2.2 million for the three months ended September 30, 2023, primarily due to a decrease in the average balance of FHLB advances of $15.1 million, or 6.8%, to $208.2 million for the three months ended September 30, 2024 from $223.3 million for the three months ended September 30, 2023, and a decrease in the cost of FHLB advances of 2 basis points to 3.95% for the three months ended September 30, 2024 from 3.97% for the three months ended September 30, 2023.

Net Interest and Dividend Income. Net interest and dividend income increased $205,000, or 3.4%, to $6.3 million for the three months ended September 30, 2024 from $6.1 million for the three months ended September 30, 2023, primarily due to a $145.3 million increase in the average balance of interest-earning assets during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, partially offset by a decrease in net interest margin of 15 basis points to 1.85% for the three months ended September 30, 2024 from 2.00% for the three months ended September 30, 2023. The decrease in the net interest margin was due to an increase in the cost of interest-bearing liabilities that exceeded the increase in the yield on interest-earning assets resulting from the significant increase in market interest rates that directly impact our funding costs.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $46,000 was recorded for the three months ended September 30, 2024, compared to a benefit for credit losses of $184,000 for the three months ended September 30, 2023. The increase in the provision was driven by higher loan growth during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. In addition, the three months ended September 30, 2023 included a shift in the mix of our loan portfolio to loan segments with lower estimated credit loss reserve requirements.

Noninterest Income. Noninterest income decreased $18,000, or 5.6%, to $304,000 for the three months ended September 30, 2024 from $322,000 for the three months ended September 30, 2023. The decrease was driven by lower income from bank-owned life insurance as the third quarter of 2023 included a $72,000 gain recognized into income from a life insurance policy death benefit. Partially offsetting this decrease were increases in both net gains on sales of loans and customer service fees. The table below sets forth our noninterest income for three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	142	$	123	$	19			15.4		%
Income from bank-owned life insurance		119		175		(56	)		(32.0	)
Net gain on sales of loans		27		9		18			200.0
Other		16		15		1			6.7
Total noninterest income	$	304	$	322	$	(18	)		(5.6	)	%

Noninterest Expense. Noninterest expense increased $200,000, or 4.2%, to $5.0 million for the three months ended September 30, 2024 from $4.8 million for the three months ended September 30, 2023. Significant changes are as follows:

•

Salaries and employee benefits increased $288,000, or 9.9%, driven by $245,000 in stock based compensation recorded during the three months ended September 30, 2024, related to the 2023 Equity Incentive Plan. There were no stock based compensation costs recorded during the three months ended September 30, 2023 as the employee stock awards were granted in the fourth quarter of 2023;

•

Director compensation increased $70,000, or 50.4%, driven by $83,000 in stock based compensation recorded during the three months ended September 30, 2024 as compared to $20,000 in stock based compensation recorded during the three months ended September 30, 2023. The director stock awards were granted at the end of the three months ended September 30, 2023;

•

Advertising and promotions decreased $42,000, or 20.9%. We have strategically reduced certain advertising costs in an effort to manage overall noninterest expenses; and

•

Professional fees decreased $64,000, or 21.1%, primarily due to higher legal and consulting costs during the three months ended September 30, 2023 related to operating a new publicly traded company.

The table below sets forth our noninterest expense for the three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	3,202	$	2,914	$	288			9.9		%
Director compensation		209		139		70			50.4
Occupancy and equipment		250		243		7			2.9
Data processing		288		275		13			4.7
Computer software and licensing fees		109		111		(2	)		(1.8	)
Advertising and promotions		159		201		(42	)		(20.9	)
Professional fees		240		304		(64	)		(21.1	)
FDIC deposit insurance		189		206		(17	)		(8.3	)
Other expense		365		418		(53	)		(12.7	)
Total noninterest expense	$	5,011	$	4,811	$	200			4.2		%

Income Tax Expense. We recorded a provision for income tax expense of $405,000 for the three months ended September 30, 2024, compared to a provision for income tax expense of $440,000 for the three months ended September 30, 2023, reflecting effective tax rates of 26.3% and 24.7%, respectively.

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


	For the Three Months Ended September 30,
	2024							2023
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	1,121,335	$	14,849		5.27	%	$	1,001,686	$	12,313		4.88	%
Securities (1)		79,700		601		3.00			81,446		530		2.58
Short term investments		110,497		1,501		5.41			83,194		1,130		5.39
Interest-bearing time deposits		115		2		5.45			-		-		0.00
Total interest-earning assets		1,311,647		16,953		5.14	%		1,166,326		13,973		4.75	%
Non-interest-earning assets		33,278							33,337
Total assets	$	1,344,925						$	1,199,663

Interest-bearing liabilities:
Checking accounts		18,301		3		0.07	%		21,135		4		0.08	%
Savings accounts		108,303		764		2.81			169,767		1,109		2.59
Money market accounts		160,517		1,467		3.64			94,988		579		2.42
Certificates of deposit		592,074		6,561		4.41			427,561		4,151		3.85
Total interest-bearing deposits		879,195		8,795		3.98			713,451		5,843		3.25
Federal Home Loan Bank advances		208,239		2,069		3.95			223,348		2,237		3.97
Total interest-bearing liabilities		1,087,434		10,864		3.97	%		936,799		8,080		3.42	%
Non-interest-bearing demand deposits		77,801							85,577
Non-interest-bearing liabilities		12,528							11,499
Total liabilities		1,177,763							1,033,875
Shareholders' Equity		167,162							165,788
Total liabilities and shareholders' equity	$	1,344,925						$	1,199,663

Net interest income			$	6,089						$	5,893
Net interest rate spread (2)						1.17	%						1.33	%
Net interest-earning assets (3)	$	224,213						$	229,527
Net interest margin (4)						1.85	%						2.00	%

Average interest-earning assets to interest- bearing liabilities						120.62	%						124.50	%

(1) Excludes interest and dividends on cost method investments of $202,000 and $193,000 for the three months ended September 30, 2024 and 2023, respectively.

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

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

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

(5) Annualized

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


	Three Months Ended September 30, 2024 vs. 2023
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,517		$	1,019		$	2,536
Securities		(12	)		83			71
Short term investments		367			4			371
Interest-bearing time deposits		2			—			2
Total interest-earning assets	$	1,874		$	1,106		$	2,980

Interest-bearing liabilities:
Checking accounts	$	(1	)	$	—		$	(1	)
Savings accounts		(430	)		85			(345	)
Money market accounts		513			375			888
Certificates of deposit		1,752			658			2,410
Total interest-bearing deposits		1,834			1,118			2,952
Federal Home Loan Bank advances		(156	)		(12	)		(168	)
Total interest-bearing liabilities	$	1,678		$	1,106		$	2,784

Change in net interest income	$	196		$	—		$	196

Comparison of Operating Results for the Nine Months Ended September 30, 2024 and September 30, 2023

Net Income. We recorded net income of $2.5 million for the nine months ended September 30, 2024, compared to net income of $3.7 million for the nine months ended September 30, 2023. The decrease in net income was driven by an increase in noninterest expense as well as a decrease in net interest and dividend income, partially offset by a lower provision for credit losses as well as higher noninterest income.

Interest and Dividend Income. Interest and dividend income increased $9.4 million, or 23.5%, to $49.2 million for the nine months ended September 30, 2024 from $39.9 million for the nine months ended September 30, 2023. This increase was due to a $7.1 million increase in interest and fees on loans, a $396,000 increase in interest and dividends on investment securities and a $1.9 million increase in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $111.1 million in the average balance of the loan portfolio to $1.09 billion for the nine months ended September 30, 2024 from $981.1 million for the nine months ended September 30, 2023, as well as an increase in the average yield of 37 basis points to 5.19% during the nine months ended September 30, 2024 from 4.82% during the nine months ended September 30, 2023. The yield for the nine months ended September 30, 2024 benefited from new loans with higher rates as well as adjustable rate loans repricing higher. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 36 basis points to 2.88% during the nine months ended September 30, 2024 from 2.52% during the nine months ended September 30, 2023. The increase in other interest income resulted primarily from an increase of $40.9 million in the average balance of short term investments to $108.2 million for the nine months ended September 30, 2024 from $67.3 million for the nine months ended September 30, 2023 as well as an increase in the yield on short term investments of 35 basis points to 5.45% during the nine months ended September 30, 2024 from 5.10% during the nine months ended September 30, 2023. The increase in yield was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Average interest-earning assets increased $150.4 million, to $1.28 billion for the nine months ended September 30, 2024 from $1.13 billion for the nine months ended September 30, 2023. The yield on interest-earning assets increased 40 basis points to 5.07% for the nine months ended September 30, 2024 from 4.67% for the nine months ended September 30, 2023.

Interest Expense. Total interest expense increased $10.0 million, or 47.6%, to $31.0 million for the nine months ended September 30, 2024 from $21.0 million for the nine months ended September 30, 2023. Interest expense on deposit accounts increased

$9.7 million, or 65.2%, to $24.5 million for the nine months ended September 30, 2024 from $14.8 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in the average balance of interest-bearing deposits of $150.5 million, or 21.8%, to $839.4 million for the nine months ended September 30, 2024 from $688.9 million for the nine months ended September 30, 2023 as well as an increase in the cost of interest-bearing deposits of 102 basis points to 3.90% for the nine months ended September 30, 2024 from 2.88% for the nine months ended September 30, 2023. Interest expense on FHLB advances increased $337,000, or 5.4%, to $6.6 million for the nine months ended September 30, 2024 from $6.2 million for the nine months ended September 30, 2023, primarily due to an increase in the average balance of FHLB advances of $6.1 million, or 2.8%, to $219.5 million for the nine months ended September 30, 2024 from $213.4 million for the nine months ended September 30, 2023 as well as an increase in the cost of FHLB advances of 10 basis points to 3.99% for the nine months ended September 30, 2024 from 3.89% for the nine months ended September 30, 2023. The increase in FHLB advances was used to fund loan growth and for liquidity management.

Net Interest and Dividend Income. Net interest and dividend income decreased $646,000, or 3.4%, to $18.2 million for the nine months ended September 30, 2024 from $18.9 million for the nine months ended September 30, 2023, primarily due to a decrease in the net interest margin of 35 basis points to 1.83% for the nine months ended September 30, 2024 from 2.18% for the nine months ended September 30, 2023. The decrease in the net interest margin was due to an increase in the cost of interest-bearing liabilities that exceeded the increase in the yield on interest-earning assets resulting from the significant increase in market interest rates that directly impact our funding costs.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $485,000 was recorded for the nine months ended September 30, 2024, compared to a provision for credit losses of $696,000 for the nine months ended September 30, 2023. The decrease in the provision for credit losses was driven by lower loan growth during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Noninterest Income. Noninterest income increased $107,000, or 13.5%, to $898,000 for the nine months ended September 30, 2024 from $791,000 for the nine months ended September 30, 2023. The increase was driven by increases in net gains on sales of loans and customer service fees. The table below sets forth our noninterest income for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	426	$	375	$	51			13.6		%
Income from bank-owned life insurance		353		372		(19	)		(5.1	)
Net gain on sales of loans		80		13		67			515.4
Other		39		31		8			25.8
Total noninterest income	$	898	$	791	$	107			13.5		%

Noninterest Expense. Noninterest expense increased $1.2 million, or 8.3%, to $15.2 million for the nine months ended September 30, 2024 from $14.0 million for the nine months ended September 30, 2023. Significant changes are as follows:

•

Salaries and employee benefits increased $1.0 million, or 11.8%, driven by $729,000 in stock based compensation recorded during the nine months ended September 30, 2024, related to the 2023 Equity Incentive Plan. There were no stock based compensation costs during the nine months ended September 30, 2023 related to this plan as the employee stock awards were granted in the fourth quarter of 2023;

•

Director compensation increased $247,000, or 65.2%, driven by $248,000 in stock based compensation recorded in the nine months ended September 30, 2024 as compared to $20,000 in stock based compensation costs recorded during the nine months ended September 30, 2023. The director stock awards were granted at the end of the third quarter of 2023;

•

Occupancy and equipment costs increased $93,000, or 13.4%, primarily due to our new branch in Woburn, MA;

•

Advertising and promotions decreased $180,000, or 31.3%. We have strategically reduced certain advertising costs in an effort to manage overall noninterest expenses; and

•

Professional fees decreased $131,000, or 13.6%, primarily due to higher legal and consulting costs during the nine months ended September 30, 2023 related to operating a new publicly traded company.

The table below sets forth our noninterest expense for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	9,643	$	8,623	$	1,020			11.8		%
Director compensation		626		379		247			65.2
Occupancy and equipment		788		695		93			13.4
Data processing		883		810		73			9.0
Computer software and licensing fees		318		282		36			12.8
Advertising and promotions		396		576		(180	)		(31.3	)
Professional fees		831		962		(131	)		(13.6	)
FDIC deposit insurance		561		613		(52	)		(8.5	)
Other expense		1,140		1,076		64			5.9
Total noninterest expense	$	15,186	$	14,016	$	1,170			8.3		%

Income Tax Expense. Income tax expense decreased $376,000, or 29.8%, to $887,000 for the nine months ended September 30, 2024 from $1.3 million for the nine months ended September 30, 2023. The effective tax rate was 25.8% and 25.6% for the nine months ended September 30, 2024 and 2023, respectively.


	For the Nine Months Ended September 30,
	2024							2023
	Average Outstanding Balance		Interest		Yield/ Rate(5)			Average Outstanding Balance		Interest		Yield/ Rate(5)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	1,092,216	$	42,468		5.19	%	$	981,116	$	35,362		4.82	%
Securities (1)		79,974		1,722		2.88			81,562		1,539		2.52
Short term investments		108,233		4,418		5.45			67,286		2,566		5.10
Interest-bearing time deposits		39		2		5.40			84		1		2.29
Total interest-earning assets		1,280,462		48,610		5.07	%		1,130,048		39,468		4.67	%
Non-interest-earning assets		33,962							32,272
Total assets	$	1,314,424						$	1,162,320

Interest-bearing liabilities:
Checking accounts		18,904		11		0.08	%		22,388		14		0.08	%
Savings accounts		114,655		2,426		2.83			169,817		3,129		2.46
Money market accounts		152,526		4,114		3.60			102,054		1,508		1.98
Certificates of deposit		553,329		17,928		4.33			394,673		10,164		3.44
Total interest-bearing deposits		839,414		24,479		3.90			688,932		14,815		2.88
Federal Home Loan Bank advances		219,474		6,550		3.99			213,399		6,213		3.89
Total interest-bearing liabilities		1,058,888		31,029		3.91	%		902,331		21,028		3.12	%
Non-interest-bearing demand deposits		76,610							84,698
Non-interest-bearing liabilities		12,202							10,805
Total liabilities		1,147,700							997,834
Shareholders' Equity		166,724							164,486
Total liabilities and shareholders' equity	$	1,314,424						$	1,162,320

Net interest income			$	17,581						$	18,440
Net interest rate spread (2)						1.16	%						1.55	%
Net interest-earning assets (3)	$	221,574						$	227,717
Net interest margin (4)						1.83	%						2.18	%

Average interest-earning assets to interest- bearing liabilities						120.93	%						125.24	%

(1) Excludes interest and dividends on cost method investments of $624,000 and $411,000 for the nine months ended September 30, 2024 and 2023, respectively.

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

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

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

(5) Annualized


	Nine Months Ended September 30, 2024 vs. 2023
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	4,212		$	2,894		$	7,106
Securities		(30	)		213			183
Short term investments		1,662			190			1,852
Interest-bearing time deposits		1			—			1
Total interest-earning assets	$	5,845		$	3,297		$	9,142

Interest-bearing liabilities:
Checking accounts	$	(2	)	$	(1	)	$	(3	)
Savings accounts		(1,118	)		415			(703	)
Money market accounts		978			1,628			2,606
Certificates of deposit		4,736			3,028			7,764
Total deposits		4,594			5,070			9,664
Federal Home Loan Bank advances		182			155			337
Total interest-bearing liabilities	$	4,776		$	5,225		$	10,001

Change in net interest income	$	1,069		$	(1,928	)	$	(859	)

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At September 30, 2024, we had outstanding advances of $234.0 million from the Federal Home Loan Bank. At September 30, 2024, we had unused borrowing capacity of $274.2 million with the Federal Home Loan Bank, $15.1 million with the Federal Reserve Bank and $10.0 million with the Atlantic Community Bankers Bank.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing and investing activities during any given period.

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

At September 30, 2024, we had $34.3 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $78.0 million in unused lines of credit to borrowers and $47.0 million in unadvanced construction loans.

Non brokered certificates of deposit due within one year of September 30, 2024 totaled $259.8 million, or 27.5%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2025, or on our savings and money market accounts.

We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2024.

Our primary investing activity is originating loans. During the nine months ended September 30, 2024 and the year ended December 31, 2023, we originated and purchased $149.3 million and $268.1 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $76.1 million and $150.1 million for the nine months ended September 30, 2024 and the year ended December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, the level of brokered time deposits was $125.6 million and $115.5 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. FHLB advances stayed unchanged for the nine months ended September 30, 2024, compared to an increase of $60.0 million for the year ended December 31, 2023.

For additional information, see the consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.

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

At September 30, 2024, Everett Co-operative Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 10 of the notes to consolidated financial statements.

Impact of Inflation and Changing Prices

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

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

On August 10, 2023, the Company announced the commencement of a stock repurchase program to acquire up to 458,762 shares, or 5% of the Company’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company. The following table sets forth the information regarding the Company's common stock repurchase activities during the three months ended September 30, 2024:


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

From July 1, 2024 to July 31, 2024		9,841	$	13.17		9,841		167,936
From August 1, 2024 to August 31, 2024		12,709	$	13.49		12,709		155,227
From September 1, 2024 to September 30, 2024		26,389	$	13.66		26,389		128,838
Total		48,939	$	13.56		48,939

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


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

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

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

SIGNATURES

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


		ECB BANCORP, INC.


Date: November 8, 2024		/s/Richard J. O'Neil, Jr.
		Richard J. O’Neil, Jr.
		President and Chief Executive Officer


Date: November 8, 2024		/s/Brandon N. Lavertu
		Brandon N. Lavertu
		Senior Vice President and Chief Financial Officer