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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2025

OR

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

For the transition period from _______________ to _______________

Commission File No. 001-41597

 

 

First Seacoast Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

92-0334805

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

633 Central Avenue, Dover, New Hampshire

 

03820

(Address of Principal Executive Offices)

 

(Zip Code)

 

(603)742-4680

(Registrant’s Telephone Number, Including Area Code)

 

 

Not Applicable

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.01 par value per share

 

FSEA

 

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

As of May 2, 2025, there were 4,716,923 outstanding shares of the Registrant's common stock.


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Consolidated Financial Statements

2

 

Consolidated Balance Sheets at March 31, 2025 (unaudited) and December 31, 2024

2

 

Consolidated Statements of Loss for the Three Months Ended March 31, 2025 and 2024 (unaudited)

3

 

Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2025 and 2024 (unaudited)

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (unaudited)

6

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

47

PART II.

OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

 

Signatures

50

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED Balance Sheets

(Dollars in thousands)

 

(Unaudited)
March 31,
2025

 

 

December 31,
2024

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

6,180

 

 

$

7,100

 

Securities available-for-sale, at fair value

 

 

123,497

 

 

 

120,217

 

Federal Home Loan Bank stock

 

 

2,707

 

 

 

2,498

 

     Total loans

 

 

448,623

 

 

 

438,967

 

Less allowance for credit losses on loans

 

 

(3,517

)

 

 

(3,486

)

Net loans

 

 

445,106

 

 

 

435,481

 

Land, building and equipment, net

 

 

713

 

 

 

754

 

Bank-owned life insurance

 

 

4,789

 

 

 

4,768

 

Accrued interest receivable

 

 

2,098

 

 

 

2,103

 

Other assets

 

 

7,553

 

 

 

7,859

 

Total assets

 

$

592,643

 

 

$

580,780

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing deposits

 

$

65,247

 

 

$

62,168

 

Interest bearing deposits

 

 

388,887

 

 

 

392,040

 

Total deposits

 

 

454,134

 

 

 

454,208

 

Advances from Federal Home Loan Bank

 

 

63,388

 

 

 

52,268

 

Mortgagors’ tax escrow

 

 

1,979

 

 

 

654

 

Deferred compensation liability

 

 

2,378

 

 

 

2,392

 

Other liabilities

 

 

9,538

 

 

 

9,208

 

Total liabilities

 

 

531,417

 

 

 

518,730

 

Stockholders' Equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Common Stock, $.01 par value, 90,000,000 shares authorized; 5,304,812 issued and 4,730,753 outstanding at March 31, 2025 and 5,304,812 issued and 4,785,569 outstanding at December 31, 2024

 

 

53

 

 

 

53

 

Additional paid-in capital

 

 

54,053

 

 

 

53,900

 

Retained earnings

 

 

24,481

 

 

 

25,084

 

Accumulated other comprehensive loss

 

 

(6,969

)

 

 

(7,044

)

Treasury stock, at cost: 574,059 shares outstanding as of March 31, 2025 and 519,243 shares outstanding as of December 31, 2024

 

 

(5,659

)

 

 

(5,085

)

Unearned stock compensation

 

 

(4,733

)

 

 

(4,858

)

Total stockholders' equity

 

 

61,226

 

 

 

62,050

 

Total liabilities and stockholders' equity

 

$

592,643

 

 

$

580,780

 

 

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

2


 

FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)

 

 

Three Months Ended
March 31,

 

(Dollars in thousands, except per share data)

 

2025

 

 

2024

 

Interest and dividend income:

 

 

 

 

 

 

Interest and fees on loans

 

$

5,008

 

 

$

4,710

 

Interest on debt securities:

 

 

 

 

 

 

Taxable

 

 

1,176

 

 

 

852

 

Non-taxable

 

 

198

 

 

 

440

 

Total interest on debt securities

 

 

1,374

 

 

 

1,292

 

Dividends

 

 

50

 

 

 

68

 

Total interest and dividend income

 

 

6,432

 

 

 

6,070

 

Interest expense:

 

 

 

 

 

 

Interest on deposits

 

 

2,599

 

 

 

2,030

 

Interest on borrowings

 

 

654

 

 

 

1,149

 

Total interest expense

 

 

3,253

 

 

 

3,179

 

Net interest and dividend income

 

 

3,179

 

 

 

2,891

 

Provision (release) for credit losses

 

 

 

 

 

(20

)

Net interest and dividend income after provision (release) for credit losses

 

 

3,179

 

 

 

2,911

 

Non-interest income:

 

 

 

 

 

 

Customer service fees

 

 

187

 

 

 

168

 

Gain on sale of loans

 

 

4

 

 

 

 

Income from bank-owned life insurance

 

 

21

 

 

 

20

 

Loan servicing fee income

 

 

6

 

 

 

11

 

Investment services fees

 

 

122

 

 

 

89

 

Other income

 

 

11

 

 

 

9

 

Total non-interest income

 

 

351

 

 

 

297

 

Non-interest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,432

 

 

 

2,314

 

Director compensation

 

 

79

 

 

 

105

 

Occupancy expense

 

 

312

 

 

 

179

 

Equipment expense

 

 

72

 

 

 

105

 

Marketing

 

 

86

 

 

 

81

 

Data processing

 

 

388

 

 

 

335

 

Deposit insurance fees

 

 

104

 

 

 

98

 

Professional fees and assessments

 

 

337

 

 

 

389

 

Debit card fees

 

 

42

 

 

 

30

 

Employee travel and education expenses

 

 

55

 

 

 

32

 

Other expense

 

 

255

 

 

 

330

 

Total non-interest expense

 

 

4,162

 

 

 

3,998

 

Loss before income tax (benefit) expense

 

 

(632

)

 

 

(790

)

Income tax (benefit) expense

 

 

(29

)

 

 

362

 

Net loss

 

$

(603

)

 

$

(1,152

)

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

Basic

 

$

(0.14

)

 

$

(0.24

)

Diluted

 

$

(0.14

)

 

$

(0.24

)

Weighted Average Shares:

 

 

 

 

 

 

Basic

 

 

4,293,022

 

 

 

4,713,931

 

Diluted (1)

 

 

4,293,022

 

 

 

4,713,931

 

 

3


 

(1) Not adjusted for potentially dilutive shares for periods where a net loss was recognized. The three months ended March 31, 2025 and 2024 excludes 99,656 and 66,027, respectively, of stock-based awards that could potentially dilute earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the periods presented.

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

4


 

FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED Statements of COMPREHENSIVE LoSS (UNAUDITED)

 

 

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2025

 

 

2024

 

Net loss

 

$

(603

)

 

$

(1,152

)

Other comprehensive income (loss), net of income taxes:

 

 

 

 

 

 

       Securities available-for-sale:

 

 

 

 

 

 

            Unrealized holding losses on securities available-for-sale arising during
                     the period, net of income taxes of $(
9) and $(381), respectively

 

 

(24

)

 

 

(1,033

)

            Reclassification adjustment for net amortization of bond premiums
                     included in net loss, net of income taxes of $
42 and $40, respectively

 

 

114

 

 

 

110

 

                              Total unrealized income (loss) on securities available-for-sale

 

 

90

 

 

 

(923

)

       Derivatives:

 

 

 

 

 

 

            Change in interest rate swaps, net of income taxes of $(6) and $-0-, respectively

 

 

(15

)

 

 

 

Other comprehensive income (loss)

 

 

75

 

 

 

(923

)

Comprehensive loss

 

$

(528

)

 

$

(2,075

)

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

5


 

FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED Statements of Changes in STOCKHOLDERS’ EQUITY (UNAUDITED)

 

(Dollars in thousands)

 

Shares of
Common
Stock

 

Common
Stock

 

Additional
Paid-in Capital

 

Retained Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Treasury
Stock

 

Unearned Stock
Compensation

 

Total Stockholders' Equity

 

Balance December 31, 2023

 

 

5,077,164

 

$

52

 

$

52,642

 

$

25,597

 

$

(5,944

)

$

(1,381

)

$

(4,348

)

$

66,618

 

Net loss

 

 

 

 

 

 

 

 

(1,152

)

 

 

 

 

 

 

 

(1,152

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(923

)

 

 

 

 

 

(923

)

Amortization of unearned stock compensation

 

 

 

 

 

 

62

 

 

 

 

 

 

 

 

102

 

 

164

 

ESOP shares earned - 3,839 shares

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

38

 

 

32

 

Balance March 31, 2024

 

 

5,077,164

 

$

52

 

$

52,698

 

$

24,445

 

$

(6,867

)

$

(1,381

)

$

(4,208

)

$

64,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2024

 

 

4,785,569

 

$

53

 

$

53,900

 

$

25,084

 

$

(7,044

)

$

(5,085

)

$

(4,858

)

$

62,050

 

Net loss

 

 

 

 

 

 

 

 

(603

)

 

 

 

 

 

 

 

(603

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

Treasury stock activity

 

 

(54,816

)

 

 

 

 

 

 

 

 

 

(574

)

 

 

 

(574

)

Excise tax on stock repurchases

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

5

 

Amortization of unearned stock compensation

 

 

 

 

 

 

146

 

 

 

 

 

 

 

 

87

 

 

233

 

ESOP shares earned - 3,839 shares

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

38

 

 

40

 

Balance March 31, 2025

 

 

4,730,753

 

$

53

 

$

54,053

 

$

24,481

 

$

(6,969

)

$

(5,659

)

$

(4,733

)

$

61,226

 

 

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

6


 

FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

Three Months Ended
March 31,

 

(Dollars in thousands)

2025

 

 

2024

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(603

)

 

$

(1,152

)

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

 

 

 

 

 

ESOP expense

 

40

 

 

 

32

 

Stock-based compensation

 

233

 

 

 

164

 

Depreciation and amortization

 

80

 

 

 

112

 

Net amortization of bond premium

 

156

 

 

 

150

 

Provision (release) for credit losses

 

 

 

 

(20

)

Gain on sale of loans

 

(4

)

 

 

 

Proceeds from loans sold

 

259

 

 

 

 

Origination of loans sold

 

(255

)

 

 

 

Increase in bank-owned life insurance

 

(21

)

 

 

(20

)

(Increase) decrease in deferred costs on loans

 

(4

)

 

 

36

 

Deferred tax (benefit) expense

 

(28

)

 

 

342

 

Decrease (increase) in accrued interest receivable

 

5

 

 

 

(74

)

Decrease in other assets

 

356

 

 

 

636

 

(Decrease) increase in deferred compensation liability

 

(14

)

 

 

46

 

Increase (decrease) in other liabilities

 

373

 

 

 

(322

)

Net cash provided (used) by operating activities

 

573

 

 

 

(70

)

Cash flows from investing activities:

 

 

 

 

 

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

 

3,608

 

 

 

1,258

 

Purchase of securities available-for-sale

 

(6,920

)

 

 

(5,166

)

Purchase of property and equipment

 

(31

)

 

 

(11

)

Loan purchases

 

(1,933

)

 

 

(774

)

Loan originations and principal collections, net

 

(7,791

)

 

 

(1,772

)

Net purchases of Federal Home Loan Bank stock

 

(209

)

 

 

(462

)

Net cash used by investing activities

 

(13,276

)

 

 

(6,927

)

Cash flows from financing activities:

 

 

 

 

 

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

 

1,126

 

 

 

(1,757

)

Net (decrease) increase in time deposits

 

(1,200

)

 

 

2,554

 

Increase in mortgagors’ escrow accounts

 

1,325

 

 

 

1,439

 

Principal payments on finance lease

 

(14

)

 

 

 

Treasury stock purchases

 

(574

)

 

 

 

Net proceeds from short-term FHLB advances

 

11,120

 

 

 

5,405

 

Net cash provided by financing activities

 

11,783

 

 

 

7,641

 

Net change in cash and cash equivalents

 

(920

)

 

 

644

 

Cash and cash equivalents at beginning of period

 

7,100

 

 

 

6,069

 

Cash and cash equivalents at end of period

$

6,180

 

 

$

6,713

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash activities:

 

 

 

 

 

Cash paid for interest

$

3,258

 

 

$

2,916

 

Cash paid for income taxes

 

 

 

 

 

Noncash activities:

 

 

 

 

 

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

 

 

 

 

 

Securities available-for-sale

 

123

 

 

 

(1,264

)

Deferred taxes

 

(33

)

 

 

341

 

Other comprehensive income (loss)

 

90

 

 

 

(923

)

Cumulative fair value hedging adjustment - loans

 

(73

)

 

 

(690

)

Cumulative fair value hedging adjustment - securities available-for-sale

 

1

 

 

 

(149

)

Effect of change in fair value of interest rate swaps:

 

 

 

 

 

Interest rate swaps

 

(21

)

 

 

 

Deferred taxes

 

6

 

 

 

 

Other comprehensive loss

 

(15

)

 

 

 

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

7


 

FIRST SEACOAST BANCORP, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
Summary of Significant Accounting Policies

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

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim consolidated financial information, general practices within the banking industry and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all the information or footnotes required by U.S. GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of these consolidated financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 21, 2025.

Corporate Structure

 

The Bank offers a full range of banking and investment management services to its customers. The Bank focuses on four core services that center around customer needs. The core services include residential lending, commercial banking, personal banking and wealth management. The Bank offers a full range of commercial and consumer banking services through its network of five full-service branch locations. Investment management services are offered through FSB Wealth Management - a division of First Seacoast Bank. The division currently consists of two financial advisors who are located in Dover, New Hampshire. FSB Wealth Management provides access to non-FDIC insured products that include retirement planning, portfolio management, investment and insurance strategies, business retirement plans and college planning to individuals throughout our primary market area. These investments and services are offered through a third-party registered broker-dealer and investment advisor. FSB Wealth Management receives fees from advisory services and commissions on individual investment and insurance products purchased by clients. The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the Company’s consolidated balance sheets.

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

The Company has one reportable segment, “Banking Services.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and other borrowings and manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit.

The Company adopted Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures," on January 1, 2024, which provides updated guidance for segment reporting. The Company has determined that all of its banking services meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured whereby the Bank serves a similar base of customers who utilize a company-wide offering of similar products and services managed through similar processes that are collectively reviewed by the Company’s Chief Executive Officer, who has been identified as the chief operating decision maker (“CODM”).

The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based upon net income or loss calculated on the same basis as net income or loss is reported in the Company’s consolidated statements of net loss and other comprehensive (loss) income. The CODM is also regularly provided with the expense information at a level consistent with that disclosed in the Company’s consolidated statements of loss and of other comprehensive (loss) income.

 

8


 

Recent Accounting Pronouncements Yet To Be Adopted

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

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures.” ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 on a prospective basis. Retrospective application for all periods presented is permitted. Early adoption is also permitted. We are currently evaluating the effect this standard will have on our disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes- Improvements to Income Tax Disclosures", which will require enhancements and further transparency to various income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 becomes effective for annual periods beginning after December 15, 2024 on a prospective basis. Retrospective application for all periods presented is permitted. Early adoption is also permitted. We are currently evaluating the effect this standard will have on our disclosures.

Recently Adopted Accounting Pronouncements

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements,” which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 was effective January 1, 2025 and did not have a material impact on the Company's consolidated financial statements.

9


 

2.
Securities Available-for-Sale

The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses for which an allowance for credit losses has not been recorded, are as follows as of March 31, 2025 and December 31, 2024:

 

 

March 31, 2025

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

(Dollars in thousands)

 

U.S. Government-sponsored enterprises obligations

 

$

1,635

 

 

$

 

 

$

(217

)

 

$

1,418

 

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

 

 

13,392

 

 

 

5

 

 

 

(776

)

 

 

12,621

 

Collateralized mortgage obligations issued by the
   FHLMC, FNMA and GNMA

 

 

21,171

 

 

 

70

 

 

 

(530

)

 

 

20,711

 

Residential mortgage-backed securities

 

 

55,082

 

 

 

571

 

 

 

(3,749

)

 

 

51,904

 

Municipal bonds

 

 

32,860

 

 

 

23

 

 

 

(4,390

)

 

 

28,493

 

Corporate debt

 

 

500

 

 

 

 

 

 

(15

)

 

 

485

 

Corporate subordinated debt

 

 

8,330

 

 

 

158

 

 

 

(623

)

 

 

7,865

 

 

 

$

132,970

 

 

$

827

 

 

$

(10,300

)

 

$

123,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

(Dollars in thousands)

 

U.S. Government-sponsored enterprises obligations

 

$

1,642

 

 

$

 

 

$

(255

)

 

$

1,387

 

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

 

 

14,011

 

 

 

16

 

 

 

(902

)

 

 

13,125

 

Collateralized mortgage obligations issued by the
   FHLMC, FNMA and GNMA

 

 

19,924

 

 

 

34

 

 

 

(596

)

 

 

19,362

 

Residential mortgage-backed securities

 

 

52,452

 

 

 

392

 

 

 

(4,382

)

 

 

48,462

 

Municipal bonds

 

 

32,960

 

 

 

74

 

 

 

(3,502

)

 

 

29,532

 

Corporate debt

 

 

500

 

 

 

 

 

 

(16

)

 

 

484

 

Corporate subordinated debt

 

 

8,325

 

 

 

163

 

 

 

(623

)

 

 

7,865

 

 

 

$

129,814

 

 

$

679

 

 

$

(10,276

)

 

$

120,217

 

The amortized cost and fair values of securities available-for-sale at March 31, 2025 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

March 31, 2025

 

 

 

Amortized
Cost

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

Due in one year or less

 

$

 

 

$

 

Due after one year through five years

 

 

4,331

 

 

 

4,443

 

Due after five years through ten years

 

 

7,087

 

 

 

6,191

 

Due after ten years

 

 

31,907

 

 

 

27,627

 

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

 

 

43,325

 

 

 

38,261

 

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

 

 

13,392

 

 

 

12,621

 

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

 

 

21,171

 

 

 

20,711

 

Residential mortgage-backed securities(1)

 

 

55,082

 

 

 

51,904

 

Total

 

$

132,970

 

 

$

123,497

 

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

10


 

The following is a summary of gross unrealized losses and fair value for those investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at March 31, 2025 and December 31, 2024.

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Number of
Securities

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Number of
Securities

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

(Dollars in thousands)

 

March 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
   enterprises obligations

 

 

 

 

$

 

 

$

 

 

 

3

 

 

$

1,418

 

 

$

(217

)

 

$

1,418

 

 

$

(217

)

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

 

 

5

 

 

 

4,282

 

 

 

(34

)

 

 

8

 

 

 

6,074

 

 

 

(742

)

 

 

10,356

 

 

 

(776

)

Collateralized mortgage
   obligations issued by
   the FHLMC, FNMA
   and GNMA

 

 

5

 

 

 

9,675

 

 

 

(109

)

 

 

4

 

 

 

2,255

 

 

 

(421

)

 

 

11,930

 

 

 

(530

)

Residential mortgage-backed securities

 

 

10

 

 

 

14,726

 

 

 

(195

)

 

 

26

 

 

 

15,438

 

 

 

(3,554

)

 

 

30,164

 

 

 

(3,749

)

Municipal bonds

 

 

4

 

 

 

1,305

 

 

 

(30

)

 

 

36

 

 

 

26,398

 

 

 

(4,360

)

 

 

27,703

 

 

 

(4,390

)

Corporate debt

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

485

 

 

 

(15

)

 

 

485

 

 

 

(15

)

Corporate subordinated debt

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

4,882

 

 

 

(623

)

 

 

4,882

 

 

 

(623

)

 

 

24

 

 

$

29,988

 

 

$

(368

)

 

 

83

 

 

$

56,950

 

 

$

(9,932

)

 

$

86,938

 

 

$

(10,300

)

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
   enterprises obligations

 

 

 

 

$

 

 

$

 

 

 

3

 

 

$

1,387

 

 

$

(255

)

 

$

1,387

 

 

$

(255

)

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

 

 

5

 

 

 

4,245

 

 

 

(28

)

 

 

8

 

 

 

6,224

 

 

 

(874

)

 

 

10,469

 

 

 

(902

)

Collateralized mortgage
   obligations issued by
   the FHLMC, FNMA
   and GNMA

 

 

7

 

 

 

11,913

 

 

 

(126

)

 

 

4

 

 

 

2,256

 

 

 

(470

)

 

 

14,169

 

 

 

(596

)

Residential mortgage-backed securities

 

 

20

 

 

 

22,395

 

 

 

(422

)

 

 

24

 

 

 

14,485

 

 

 

(3,960

)

 

 

36,880

 

 

 

(4,382

)

Municipal bonds

 

 

3

 

 

 

825

 

 

 

(12

)

 

 

36

 

 

 

27,369

 

 

 

(3,490

)

 

 

28,194

 

 

 

(3,502

)

Corporate debt

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

484

 

 

 

(16

)

 

 

484

 

 

 

(16

)

Corporate subordinated debt

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

4,887

 

 

 

(623

)

 

 

4,887

 

 

 

(623

)

 

 

 

35

 

 

$

39,378

 

 

$

(588

)

 

 

81

 

 

$

57,092

 

 

$

(9,688

)

 

$

96,470

 

 

$

(10,276

)

Management evaluates securities available-for-sale in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2025, the Company had 107 securities available-for-sale in an unrealized loss position without an allowance for credit losses. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2025, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore the Company carried no allowance for credit losses on securities available-for-sale as of March 31, 2025.

Proceeds from sales, maturities, principal payments received and gross realized gains and losses on securities available-for-sale were as follows for the three months ended March 31, 2025 and 2024:

 

 

March 31,

 

 

 

2025

 

 

2024

 

 

 

(Dollars in thousands)

 

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

 

$

3,608

 

 

$

1,258

 

Gross realized gains

 

 

 

 

 

 

Gross realized losses

 

 

 

 

 

 

Net realized gains (losses)

 

$

 

 

$

 

 

11


 

As of March 31, 2025 and December 31, 2024, there were no holdings of securities of any issuer, other than the SBA, FHLMC, GNMA and FNMA, whose aggregate carrying value exceeded 10% of consolidated stockholders’ equity.

3.
Loans and Allowance for Credit Losses on Loans

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

Loans consisted of the following at March 31, 2025 and December 31, 2024:

 

 

March 31,
2025

 

 

December 31,
2024

 

 

 

(Dollars in thousands)

 

Commercial real estate (CRE)

 

$

89,564

 

 

$

86,020

 

Multifamily (MF)

 

 

5,662

 

 

 

5,752

 

Commercial and industrial (C+I)

 

 

24,565

 

 

 

23,711

 

Acquisition, development, and land (ADL)

 

 

17,407

 

 

 

14,946

 

1-4 family residential (RES)

 

 

276,962

 

 

 

275,235

 

Home equity line of credit (HELOC)

 

 

21,986

 

 

 

20,908

 

Consumer (CON)

 

 

12,477

 

 

 

12,395

 

Total loans

 

 

448,623

 

 

 

438,967

 

Allowance for credit losses on loans

 

 

(3,517

)

 

 

(3,486

)

Total loans, net

 

$

445,106

 

 

$

435,481

 

The Company elected to include deferred loan origination costs, net and to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2025 and December 31, 2024, accrued interest receivable for loans totaled $1.3 million and is included in the “accrued interest receivable” line item on the Company’s consolidated balance sheets.

Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures

The Company estimates its allowance for credit losses on loans and off-balance sheet credit exposures ("ACL") as outlined in ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended ("ASU 2016-13" or “ASC 326”)." Under ASC 326, the ACL at each reporting period serves as a best estimate of projected credit losses over the contractual life of certain assets and off-balance sheet exposures, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. The ACL is the sum of various components including the following: (a) historical loss experience, (b) a reasonable and supportable forecasts, (c) loans evaluated individually, and (d) changes in relevant environmental factors. The historical loss component is segmented by loan type and serves as the core of the ACL adequacy methodology. The Company has selected the Weighted Average Remaining Maturity Model (“WARM”), for the loss calculation of each of its loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate an ACL. A loss rate is applied to pool balances over time.

The application of ASC 326 may create volatility in the ACL, increasing or decreasing from period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative factors outlined in ASU 2016-13.

The significant key assumptions used with the ACL calculation at March 31, 2025 and December 31, 2024 using the ASC 326 methodology, included:

Macroeconomic factors (loss drivers): Monitoring and assessing local and national unemployment, changes in national GDP and other macroeconomic factors which may be the most predictive indicator of losses within the loan portfolio. The macroeconomic factors considered in determining the ACL may change from time to time.

Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable will be set annually and validated through an assessment of economic leading indicators. In periods of greater volatility and uncertainty, such as the current interest rate environment, management will likely use a shorter forecast period,

12


 

whereas when markets, economies, interest rate environment, political matters, and other factors are considered to be more stable and certain, a longer forecast period may be used. Also, in times of greater uncertainty, management may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, the forecasted period is expected to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. "reversion speed"), factors such as, historical credit loss experience over previous economic cycles, as well as where the Company believes it is within the current economic cycle, will be considered. The Company has chosen a forecast period of six quarters which will be similar to the historical loss period between January 2014 and December 2016 and then reverting to the long-term average over the following two quarters using the straight-line reversion method. The Company believes this historical forecast period to be representative of potential economic conditions over the next eighteen months.

Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing the Company's historical loan data, as well as consideration of current environmental factors. The prepayment speed assumption is utilized with the WARM method to forecast expected cash flows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.

Qualitative factors: ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses. The Company considers qualitative factors in determining and arriving at an ACL at each reporting period such as: (i) actual or expected changes in economic trends and conditions, (ii) changes in the value of underlying collateral for loans, (iii) changes to lending policies, underwriting standards and/or management personnel performing such functions, (iv) delinquency and other credit quality trends, (v) credit risk concentrations, if any, (vi) changes to the nature of the Company's business impacting the loan portfolio, (vii) and other external factors, that may include, but are not limited to, results of internal loan reviews and examinations by bank regulatory agencies.

Certain loans which may not share similar risk characteristics with other loans in the portfolio may be tested individually for estimated credit losses, including (i) loans classified as special mention, substandard or doubtful and are on non-accrual, (ii) a loan modified for a borrower experiencing financial difficulty or (iii) loans that have other unique characteristics. Factors considered in measuring the extent of the expected credit loss for these loans may include payment status, collateral value, borrower's financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

Changes in the ACL for the three months ended March 31, 2025 and 2024, by portfolio segment, are summarized as follows:

 

(Dollars in thousands)

 

CRE

 

 

MF

 

 

C+I

 

 

ADL

 

 

RES

 

 

HELOC

 

 

CON

 

 

Unallocated

 

 

Total

 

Balance, December 31, 2024

 

$

710

 

 

$

59

 

 

$

233

 

 

$

87

 

 

$

1,612

 

 

$

214

 

 

$

439

 

 

$

132

 

 

$

3,486

 

(Release) provision for credit losses on loans

 

 

23

 

 

 

(1

)

 

 

(33

)

 

 

32

 

 

 

34

 

 

 

18

 

 

 

114

 

 

 

(157

)

 

 

30

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Balance, March 31, 2025

 

$

733

 

 

$

58

 

 

$

200

 

 

$

119

 

 

$

1,646

 

 

$

232

 

 

$

554

 

 

$

(25

)

 

$

3,517

 

 

(Dollars in thousands)

 

CRE

 

 

MF

 

 

C+I

 

 

ADL

 

 

RES

 

 

HELOC

 

 

CON

 

 

Unallocated

 

 

Total

 

Balance, December 31, 2023

 

$

830

 

 

$

76

 

 

$

236

 

 

$

105

 

 

$

1,601

 

 

$

156

 

 

$

357

 

 

$

29

 

 

$

3,390

 

(Release) provision for credit losses on loans

 

 

(85

)

 

 

(1

)

 

 

15

 

 

 

(25

)

 

 

(1

)

 

 

13

 

 

 

15

 

 

 

99

 

 

 

30

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2024

 

$

745

 

 

$

75

 

 

$

251

 

 

$

80

 

 

$

1,600

 

 

$

169

 

 

$

372

 

 

$

128

 

 

$

3,420

 

The increase in the allowance for credit losses during the three months ended March 31, 2025 and 2024 was primarily a result of the increase in loans. The following represents the composition of the Company's provision (release) for credit losses for the three months ended March 31:

 

 

2025

 

 

2024

 

 

 

(Dollars in thousands)

 

Loans

 

$

30

 

 

$

30

 

Off-balance sheet credit exposures

 

 

(30

)

 

 

(50

)

    Total provision (release) for credit losses

 

$

 

 

$

(20

)

 

13


 

The following is an aging analysis of past due loans by portfolio segment as of March 31, 2025 and December 31, 2024 including non-accrual loans without an ACL:

March 31, 2025:

(Dollars in thousands)

 

30-59 Days

 

 

60-89 Days

 

 

90 + Days

 

 

Total Past Due

 

 

Current

 

 

Total Loans

 

 

Non-Accrual
Loans

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

89,564

 

 

$

89,564

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,662

 

 

 

5,662

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,565

 

 

 

24,565

 

 

 

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,407

 

 

 

17,407

 

 

 

 

RES

 

 

358

 

 

 

 

 

 

 

 

 

358

 

 

 

276,604

 

 

 

276,962

 

 

 

 

HELOC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,986

 

 

 

21,986

 

 

 

 

CON

 

 

8

 

 

 

17

 

 

 

 

 

 

25

 

 

 

12,452

 

 

 

12,477

 

 

 

 

 

$

366

 

 

$

17

 

 

$

 

 

$

383

 

 

$

448,240

 

 

$

448,623

 

 

$

 

December 31, 2024:

(Dollars in thousands)

 

30-59 Days

 

 

60-89 Days

 

 

90 + Days

 

 

Total Past Due

 

 

Current

 

 

Total Loans

 

 

Non-Accrual
Loans

 

CRE

 

$

 

 

$

 

 

$

 

 

$

 

 

$

86,020

 

 

$

86,020

 

 

$

 

MF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,752

 

 

 

5,752

 

 

 

 

C+I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,711

 

 

 

23,711

 

 

 

 

ADL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,946

 

 

 

14,946

 

 

 

 

RES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

275,235

 

 

 

275,235

 

 

 

 

HELOC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,908

 

 

 

20,908

 

 

 

 

CON

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,395

 

 

 

12,395

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

438,967

 

 

$

438,967

 

 

$

 

There were no loans past due over 90 days still accruing interest at March 31, 2025 and December 31, 2024. There were no loans collateralized by residential real estate property in the process of foreclosure at March 31, 2025 and December 31, 2024.

There were no loans modified for borrowers experiencing financial difficulty during the three months ended March 31, 2025 and 2024. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification, if applicable. The ACL incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. Because the effect of most modifications made to borrowers experiencing financial difficulty would already be included in the ACL as a result of the measurement methodologies used to estimate the allowance, a change in the ACL is generally not recorded upon modification.

Credit Quality Information

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

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

Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

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.

14


 

Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

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

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

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

15


 

Based upon the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of March 31, 2025 and December 31, 2024:

March 31, 2025:

(Dollars in thousands)

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Revolving Loans Amortized Cost Basis

 

 

Revolving Loans Converted to Term

 

 

Total

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

$

6,309

 

 

$

6,315

 

 

$

6,458

 

 

$

12,933

 

 

$

9,377

 

 

$

18,935

 

 

$

29,237

 

 

$

 

 

$

89,564

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total CRE

 

 

6,309

 

 

 

6,315

 

 

 

6,458

 

 

 

12,933

 

 

 

9,377

 

 

 

18,935

 

 

 

29,237

 

 

 

 

 

 

89,564

 

MF:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

 

 

 

 

 

 

1,910

 

 

 

124

 

 

 

614

 

 

 

2,740

 

 

 

274

 

 

 

 

 

 

5,662

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total MF

 

 

 

 

 

 

 

 

1,910

 

 

 

124

 

 

 

614

 

 

 

2,740

 

 

 

274

 

 

 

 

 

 

5,662

 

C+I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

1,879

 

 

 

4,081

 

 

 

4,830

 

 

 

4,369

 

 

 

1,004

 

 

 

4,865

 

 

 

3,537

 

 

 

 

 

 

24,565

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total C+I

 

 

1,879

 

 

 

4,081

 

 

 

4,830

 

 

 

4,369

 

 

 

1,004

 

 

 

4,865

 

 

 

3,537

 

 

 

 

 

 

24,565

 

ADL:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

450

 

 

 

6,152

 

 

 

10,287

 

 

 

210

 

 

 

308

 

 

 

 

 

 

 

 

 

 

 

 

17,407

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ADL

 

 

450

 

 

 

6,152

 

 

 

10,287

 

 

 

210

 

 

 

308

 

 

 

 

 

 

 

 

 

 

 

 

17,407

 

RES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

7,571

 

 

 

14,825

 

 

 

24,850

 

 

 

42,128

 

 

 

64,110

 

 

 

123,478

 

 

 

 

 

 

 

 

 

276,962

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total RES

 

 

7,571

 

 

 

14,825

 

 

 

24,850

 

 

 

42,128

 

 

 

64,110

 

 

 

123,478

 

 

 

 

 

 

 

 

 

276,962

 

HELOC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,917

 

 

 

69

 

 

 

21,986

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total HELOC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,917

 

 

 

69

 

 

 

21,986

 

CON:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

713

 

 

 

4,266

 

 

 

2,033

 

 

 

2,457

 

 

 

1,535

 

 

 

1,473

 

 

 

 

 

 

 

 

 

12,477

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total CON

 

 

713

 

 

 

4,266

 

 

 

2,033

 

 

 

2,457

 

 

 

1,535

 

 

 

1,473

 

 

 

 

 

 

 

 

 

12,477

 

Total

 

$

16,922

 

 

$

35,639

 

 

$

50,368

 

 

$

62,221

 

 

$

76,948

 

 

$

151,491

 

 

$

54,965

 

 

$

69

 

 

$

448,623

 

 

16


 

December 31, 2024:

(Dollars in thousands)

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving Loans Amortized Cost Basis

 

 

Revolving Loans Converted to Term

 

 

Total

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

$

7,613

 

 

$

6,602

 

 

$

13,078

 

 

$

10,161

 

 

$

1,822

 

 

$

17,732

 

 

$

29,012

 

 

$

 

 

$

86,020

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total CRE

 

 

7,613

 

 

 

6,602

 

 

 

13,078

 

 

 

10,161

 

 

 

1,822

 

 

 

17,732

 

 

 

29,012

 

 

 

 

 

 

86,020

 

MF:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

 

 

 

1,925

 

 

 

128

 

 

 

623

 

 

 

1,032

 

 

 

1,755

 

 

 

289

 

 

 

 

 

 

5,752

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total MF

 

 

 

 

 

1,925

 

 

 

128

 

 

 

623

 

 

 

1,032

 

 

 

1,755

 

 

 

289

 

 

 

 

 

 

5,752

 

C+I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

4,226

 

 

 

5,011

 

 

 

4,736

 

 

 

1,635

 

 

 

2,341

 

 

 

2,471

 

 

 

2,315

 

 

 

802

 

 

 

23,537

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

174

 

 

 

 

 

 

 

 

 

174

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total C+I

 

 

4,226

 

 

 

5,011

 

 

 

4,736

 

 

 

1,635

 

 

 

2,341

 

 

 

2,645

 

 

 

2,315

 

 

 

802

 

 

 

23,711

 

ADL:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

5,213

 

 

 

9,202

 

 

 

219

 

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,946

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ADL

 

 

5,213

 

 

 

9,202

 

 

 

219

 

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,946

 

RES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

15,675

 

 

 

25,144

 

 

 

42,750

 

 

 

64,686

 

 

 

44,838

 

 

 

82,142

 

 

 

 

 

 

 

 

 

275,235

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total RES

 

 

15,675

 

 

 

25,144

 

 

 

42,750

 

 

 

64,686

 

 

 

44,838

 

 

 

82,142

 

 

 

 

 

 

 

 

 

275,235

 

HELOC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,908

 

 

 

 

 

 

20,908

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total HELOC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,908

 

 

 

 

 

 

20,908

 

CON:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Pass

 

 

4,385

 

 

 

2,363

 

 

 

2,557

 

 

 

1,565

 

 

 

1,334

 

 

 

191

 

 

 

 

 

 

 

 

 

12,395

 

     Special mention

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Substandard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total CON

 

 

4,385

 

 

 

2,363

 

 

 

2,557

 

 

 

1,565

 

 

 

1,334

 

 

 

191

 

 

 

 

 

 

 

 

 

12,395

 

Total

 

$

37,112

 

 

$

50,247

 

 

$

63,468

 

 

$

78,982

 

 

$

51,367

 

 

$

104,465

 

 

$

52,524

 

 

$

802

 

 

$

438,967

 

Certain directors and executive officers of the Company and entities in which they have significant ownership interests are customers of the Company. Loans outstanding to these persons and entities at March 31, 2025 and December 31, 2024 were $4.1 million and $4.3 million, respectively.

4.
Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of such loans were $30.8 million and $31.3 million at March 31, 2025 and December 31, 2024, respectively. Substantially all of these loans were originated by the Bank and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see Note 14, Fair Values of Assets and Liabilities, for more information). Changes to the balance of mortgage servicing rights are recorded in loan servicing income in the Company’s consolidated statements of loss.

The Company’s mortgage servicing activities include: collecting principal, interest and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Loan servicing income, including late and ancillary fees, was $6,000 and $11,000 for the three months ended March 31, 2025 and 2024, respectively. The Company's residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in the Company’s market areas.

17


 

The following summarizes activity in mortgage servicing rights for the three months ended March 31, 2025 and 2024:

 

(Dollars in thousands)

 

2025

 

 

2024

 

Balance, December 31,

 

$

305

 

 

$

339

 

Additions

 

 

3

 

 

 

 

Payoffs

 

 

(4

)

 

 

(1

)

Change in fair value due to change in assumptions

 

 

(12

)

 

 

(9

)

Balance, March 31,

 

$

292

 

 

$

329

 

 

5.
Deposits

Deposits consisted of the following at March 31, 2025 and December 31, 2024:

 

(Dollars in thousands)

 

March 31, 2025

 

 

December 31, 2024

 

NOW and demand deposits

 

$

163,474

 

 

$

161,859

 

Money market deposits

 

 

71,458

 

 

 

71,107

 

Savings deposits

 

 

84,671

 

 

 

85,511

 

Time deposits $250,000 and greater

 

 

16,472

 

 

 

18,822

 

Time deposits of less than $250,000

 

 

118,059

 

 

 

116,909

 

 

 

$

454,134

 

 

$

454,208

 

At March 31, 2025, the scheduled maturities of time deposits were as follows:

 

(Dollars in thousands)

 

Total

 

2025

 

$

48,280

 

2026

 

 

70,057

 

2027

 

 

15,855

 

2028

 

 

222

 

2029

 

 

117

 

 

 

$

134,531

 

There were $62.5 million and $63.1 million of brokered time deposits which were bifurcated into amounts below the FDIC insurance limit at March 31, 2025 and December 31, 2024. Additionally, there were $22.0 million and $22.1 million of brokered deposits included in savings deposits at March 31, 2025 and December 31, 2024, respectively. Reciprocal deposits were $5.5 million and $6.0 million at March 31, 2025 and December 31, 2024, respectively.

Deposits from related parties totaled $11.4 million and $11.6 million at March 31, 2025 and December 31, 2024, respectively.

6.
Borrowings

Federal Home Loan Bank (“FHLB”)

All borrowings from the FHLB are secured by a blanket security agreement on qualified collateral, principally residential mortgage loans and commercial real estate loans, discounted by a certain percentage, in an aggregate amount greater than or equal to outstanding advances. The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $88.8 million and $94.0 million at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025 and December 31, 2024, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program.

18


 

A summary of borrowings from the FHLB is as follows:

 

 

 

March 31, 2025

 

 

 

Principal Amounts

 

 

Maturity Dates

 

 

Interest Rates

 

 

 

(Dollars in thousands)

 

 

 

$

11,640

 

 

 

2025

 

 

4.50% – fixed

 

50,000

 

 

 

2026

 

 

4.38% to 4.75% – fixed

 

718

 

 

 

2028

 

 

0.00% – fixed

 

400

 

 

 

2029

 

 

0.00% – fixed

 

200

 

 

 

2030

 

 

0.00% – fixed

 

430

 

 

 

2031

 

 

0.00% – fixed

$

63,388

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

Principal Amounts

 

 

Maturity Dates

 

 

Interest Rates

 

 

 

(Dollars in thousands)

 

 

 

$

520

 

 

 

2025

 

 

0.00% – fixed

 

50,000

 

 

 

2026

 

 

4.38% to 4.75% – fixed

 

718

 

 

 

2028

 

 

0.00% – fixed

 

400

 

 

 

2029

 

 

0.00% – fixed

 

200

 

 

 

2030

 

 

0.00% – fixed

 

430

 

 

 

2031

 

 

0.00% – fixed

$

52,268

 

 

 

 

 

 

Included in the above borrowings from the FHLB at March 31, 2025 and December 31, 2024 is a $25.0 million long-term advance, with an interest rate of 4.75%, which is callable by the FHLB on April 29, 2025 and quarterly thereafter. Also, included in the above borrowings from the FHLB at March 31, 2025 and December 31, 2024 is a $25.0 million long-term advance, with an interest rate of 4.38%, which is callable by the FHLB on December 8, 2025 and quarterly thereafter. As of March 31, 2025 and December 31, 2024 borrowings from the FHLB also include $2.3 million of advances through the FHLB’s Jobs for New England program where certain qualifying small business loans that create or preserve jobs, expand woman-, minority- or veteran-owned businesses, or otherwise stimulate the economy in New England communities are offered at an interest rate of 0%. At March 31, 2025 and December 31, 2024, the Bank had an overnight line of credit with the FHLB that may be drawn up to $3.0 million. The entire balance of this credit facility was available at March 31, 2025 and December 31, 2024.

Federal Reserve Bank of Boston (“FRB”)

The Bank has a secured credit facility with the FRB – Borrower-In-Custody of Collateral Program (“BIC”). Advances under the BIC would be collateralized by eligible collateral - principally commercial real estate loans. On January 7, 2025, the Bank completed the eligibility process whereby the FHLB agreed to subordinate their interest in commercial real estate loans up to a maximum of $65.0 million allowing these loans to be pledged to the BIC. The Bank subsequently pledged $65.0 million of its commercial real estate loans to the BIC. The Bank’s unused available borrowing capacity at the FRB was $38.5 million and $-0- at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025, the Bank was in compliance with the FRB’s collateral pledging program.

Correspondent Banks

At March 31, 2025 and December 31, 2024, the Bank had a total of $2.0 million of unsecured Fed Funds borrowing lines of credit with correspondent banks. The entire balance of these credit facilities was available at March 31, 2025 and December 31, 2024.

7.
Financial Instruments with Off-Balance Sheet Credit Exposures

The Company is 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 originate loans, unadvanced funds on loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract 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 loan commitments and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

19


 

Commitments to originate loans are agreements to lend to a customer provided 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 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 generally includes secured interests in mortgages.

Standby letters of credit are conditional commitments issued by the Company to guarantee 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.

In the ordinary course of business, the Company may be subject to various legal proceedings. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings will not be material to the consolidated balance sheet or consolidated statements of loss.

Notional amounts of financial instruments with off-balance sheet credit risk are approximately as follows as of March 31, 2025 and December 31, 2024:

 

2025

 

 

2024

 

Unadvanced portions of loans

 

$

41,041

 

 

$

42,883

 

Commitments to originate loans

 

 

6,129

 

 

 

9,333

 

Standby letters of credit

 

 

125

 

 

 

125

 

The Company records an ACL for off-balance sheet credit exposures that are not unconditionally cancelable through a charge to the provision for credit losses on the Company’s consolidated statements of loss. At March 31, 2025 and December 31, 2024 the ACL for off-balance sheet credit exposure totaled $169,000 and $199,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets. The provision (release) for credit losses for off-balance sheet credit exposures for the three months ended March 31, 2025 and 2024 was $(30,000) and $(50,000), respectively.

8.
Employee Benefits

401(k) Plan

The Company sponsors a 401(k) defined contribution plan for substantially all employees pursuant to which employees of the Company could elect to make contributions to the plan subject to Internal Revenue Service limits. The Company makes matching and profit-sharing contributions to eligible participants in accordance with plan provisions. The Company’s contributions for the three months ended March 31, 2025 and 2024 were $59,000.

Supplemental Executive Retirement Plans

Salary Continuation Plan

The Company maintains a nonqualified supplemental retirement plan for its current President and its former President. The plan provides supplemental retirement benefits payable in installments over a period of years upon retirement or death. The recorded liability at March 31, 2025 and December 31, 2024 relating to this supplemental retirement plan was $815,000 and $827,000, respectively. The discount rate used to determine the Company’s obligation was 5.00%. On March 5, 2025, the Bank and its current president entered into an amendment that limits the annual benefit to $64,817 if there is a separation from service for other than at or following a change of control. Accordingly, as a result of the amendment, the benefit, outside of a change in control, is now fixed and will no longer increase over time. The expense of this salary retirement plan was $2,000 and $37,000 for the three months ended March 31, 2025 and 2024, respectively.

Directors Deferred Supplemental Retirement Plan

The Company has a supplemental retirement plan for eligible directors that provides for monthly benefits based upon years of service to the Company, subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the estimated period of service. The estimated liability at March 31, 2025 and December 31, 2024 relating to this plan was $599,000 and $611,000, respectively. The discount rate used to determine the Company’s obligation was 6.25% at March 31, 2025 and December 31, 2024. Total supplemental retirement plan expense amounted to $18,000 and $15,000 for the three months ended March 31, 2025 and 2024, respectively.

The Company enacted a “hard freeze” for this supplemental retirement plan as of January 1, 2022. On February 10, 2022, the Bank and the non-employee members of the board of directors of the Bank entered into amendments to the Supplemental Director Retirement Agreements (the “Agreements”) previously entered into by the Bank and the directors. The amendments eliminate the formula for determining the normal annual retirement benefit (previously “70% of Final Base Fee”) and replaces it with a fixed annual benefit of $20,000. The amendments also eliminate the formula for determining the benefit

20


 

payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a fixed amount equal to the present value of $200,000. The effect of the amendments is to eliminate the variable and increasing costs associated with the Agreements. Instead, since the normal annual retirement benefit will be a fixed amount, the future costs associated with the Agreements is now more predictable. It is the intention of the Bank that no new directors of the Bank would enter into similar agreements.

Additionally, the Company has a deferred director’s fee plan, which allows members of the board of directors to defer the receipt of fees that otherwise would be paid to them in cash. At March 31, 2025 and December 31, 2024, the total deferred directors' fees amounted to $927,000 and $917,000, respectively.

9.
Stock Based Compensation

Employee Stock Ownership Plan

The Company maintains the First Seacoast Bank Employee Stock Ownership Plan (“ESOP”) to provide eligible employees of the Company the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year through 2047 is 15,354. The Company uses the principal and interest method to determine the release of shares amount.

The ESOP funded its purchase of 423,715 shares through a loan from the Company equal to 100% of the aggregate purchase price of the common stock. The ESOP trustee is repaying the loan principally through the Bank’s contributions to the ESOP over the remaining loan term that matures on December 31, 2047. At March 31, 2025 and December 31, 2024, the remaining principal balance on the ESOP debt was $4.1 million.

Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants’ accounts under the plan. Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2025 and 2024 was $40,000 and $32,000, respectively. At March 31, 2025 and December 31, 2024, total unearned compensation for the ESOP was $3.8 million.

 

 

March 31, 2025

 

 

December 31,
2024

 

Shares held by the ESOP include the following:

 

 

 

 

 

 

Allocated

 

 

70,572

 

 

 

55,218

 

Committed to be allocated

 

 

3,839

 

 

 

15,354

 

Unallocated

 

 

349,304

 

 

 

353,143

 

Total

 

 

423,715

 

 

 

423,715

 

The fair value of unallocated shares was approximately $4.1 million and $3.1 million at March 31, 2025 and December 31, 2024, respectively.

Equity Incentive Plan

Effective May 27, 2021, the Company adopted the First Seacoast Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the granting of incentive and non-statutory stock options to purchase shares of common stock and the granting of shares of restricted stock awards and restricted stock units. The 2021 Plan authorizes the issuance or delivery to participants of up to 348,801 shares of common stock (adjusted for the second step conversion transaction). Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 249,144 shares (adjusted for the second step conversion transaction), and the maximum number of shares of common stock that may be issued as restricted stock awards or restricted stock units is 99,657 shares (adjusted for the second step conversion transaction). The exercise price of stock options may not be less than the fair market value on the date the stock option is granted. Further, stock options may not be granted with a term that is longer than 10 years.

On May 25, 2023, 249,144 incentive and non-statutory stock options to purchase shares of common stock were granted under the 2021 Plan to directors for their services on the board of directors and certain members of management. The Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. Since it was determined that the Company lacked sufficient historical closing stock prices, the expected volatility assumption was based upon a combination of actual historical volatility combined with the historical volatility developed for comparable companies. Also, since the Company lacked the appropriate historical data, the expected term of the option was calculated using the simplified method. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated grant date fair value of each option is expensed as employee benefits expense ratably over the vesting period. The expense

21


 

recognized for this grant was $55,000 and $62,000, for the three months ended March 31, 2025 and 2024, respectively, which provided a tax benefit of $15,000 and $17,000, respectively. At March 31, 2025 and December 31, 2024, total unrecognized compensation expense for this equity incentive plan was $275,000 and $335,000, respectively, with a 1.2 and 1.4 year weighted average future recognition period, respectively.

Effective May 30, 2024, the Company adopted the First Seacoast Bancorp, Inc. 2024 Equity Incentive Plan (the “2024 Plan”). The 2024 Plan provides for the granting of incentive and non-statutory stock options to purchase shares of common stock or the granting of shares of restricted stock awards and restricted stock units. The 2024 Plan authorizes the issuance or delivery to participants of up to 392,700 converted shares of common stock. Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 280,500 shares, and the maximum number of shares of common stock that may be issued as restricted stock awards or restricted stock units is 112,200 shares.

On December 2, 2024, 280,500 incentive and non-statutory stock options to purchase shares of common stock were granted under the 2024 Plan to directors for their services on the board of directors and certain members of management. As noted above, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model which requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. The expected volatility assumption for this award was based upon the actual historical price volatility of the Company’s common stock. The expected term of the option was calculated using the simplified method since the Company continues to lack the appropriate historical data. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated grant date fair value of each option is expensed as employee benefits expense ratably over the vesting period. The expense recognized for this grant was $91,000 for the three months ended March 31, 2025, which provided a tax benefit of $25,000. At March 31, 2025 and December 31, 2024, total unrecognized compensation expense for this equity incentive plan was $1.0 million with a 2.7 and 2.9 year weighted average future recognition period, respectively.

The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22


 

A summary of stock options outstanding as of March 31, 2025 and December 31, 2024 and changes during the periods then ended is presented below:

 

March 31, 2025

 

 

Number of Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (in Years)

 

 

Aggregate Intrinsic Value

 

Stock options:

 

 

 

 

 

 

 

 

 

(In Thousands)

 

Outstanding at beginning of period

 

519,644

 

 

$

8.72

 

 

 

8.9

 

 

$

684

 

     Granted

 

 

 

 

 

 

 

 

 

 

 

     Exercised

 

 

 

 

 

 

 

 

 

 

 

 Forfeited

 

(2,750

)

 

 

9.29

 

 

 

 

 

 

 

Outstanding at end of period

 

516,894

 

 

$

8.72

 

 

 

8.6

 

 

$

1,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fully vested and expected to vest

 

79,715

 

 

$

8.06

 

 

 

8.1

 

 

$

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercisable at end of period

 

79,715

 

 

$

8.06

 

 

 

8.1

 

 

$

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

Number of Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (in Years)

 

 

Aggregate Intrinsic Value

 

Stock options:

 

 

 

 

 

 

 

 

 

(In Thousands)

 

Outstanding at beginning of year

 

249,144

 

 

$

8.06

 

 

 

9.4

 

 

$

 

     Granted

 

280,500

 

 

 

9.29

 

 

 

 

 

 

 

     Exercised

 

 

 

 

 

 

 

 

 

 

 

 Forfeited

 

(10,000

)

 

 

8.06

 

 

 

 

 

 

 

Outstanding at end of year

 

519,644

 

 

$

8.72

 

 

 

8.9

 

 

$

684

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fully vested and expected to vest

 

79,715

 

 

$

8.06

 

 

 

8.4

 

 

$

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercisable at end of year

 

79,715

 

 

$

8.06

 

 

 

8.4

 

 

$

158

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of grant

5/25/2023

 

 

12/2/2024

 

 

 

 

 

 

 

Options granted

 

249,144

 

 

 

280,500

 

 

 

 

 

 

 

Exercise price

$

8.06

 

 

$

9.29

 

 

 

 

 

 

 

Vesting period(1)

3 years

 

 

3 years

 

 

 

 

 

 

 

Expiration date

5/25/2033

 

 

12/2/2034

 

 

 

 

 

 

 

Expected volatility

 

27.8

%

 

 

31.5

%

 

 

 

 

 

 

Expected term

6.5 years

 

 

6.5 years

 

 

 

 

 

 

 

Expected dividend yield

 

0

%

 

 

0

%

 

 

 

 

 

 

Expected forfeiture rate

 

0

%

 

 

0

%

 

 

 

 

 

 

Risk free interest rate

 

3.9

%

 

 

4.1

%

 

 

 

 

 

 

Fair value per option

$

3.00

 

 

$

3.78

 

 

 

 

 

 

 

(1) Vesting is ratably and the period begins on the date of the grant.

 

 

 

 

 

 

 

 

 

 

 

On December 2, 2024, 112,200 restricted stock awards were granted under the 2024 Plan to directors for their services on the board of directors and certain members of management at $9.29 per share. The total fair value related to the December 2, 2024 grant was $1.0 million. These restricted stock awards time-vest over a three year period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting rights when granted and dividend rights when vested. For the three months ended March 31, 2025, the expense recognized for this grant was $87,000, which provided a tax benefit of $24,000. At March 31, 2025 and December

23


 

31, 2024, total unrecognized compensation expense for this equity incentive plan was $955,000 and $1.0 million, respectively, with a 2.7 and 2.9 year weighted average future recognition period, respectively.

On June 1, 2023, 2,478 restricted stock awards were granted to a certain member of management at $7.99 per share. The total fair value related to the June 1, 2023 grant was $20,000. These restricted stock awards time-vest 50% as of November 18, 2023 and 50% as of November 18, 2024 and have been fair valued as of the date of grant. On November 18, 2021, 98,850 restricted stock awards were granted to directors and certain members of management at $11.95 per share (adjusted for the second step conversion transaction). The total fair value related to the November 18, 2021 grant was $1.2 million. These restricted stock awards time-vest over a three year period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting rights when granted and dividend rights when vested. For the three months ended March 31, 2025 and 2024, the expense recognized for this grant was $-0- and $102,000, respectively, which provided a tax benefit of $-0- and $27,000, respectively.

A summary of non-vested restricted shares outstanding as of March 31, 2025 and December 31, 2024 and changes during the periods then ended is presented below:

 

Three Months Ended March 31, 2025

 

 

Number of Shares

 

 

Weighted Average Grant Value

 

Restricted stock:

 

 

 

 

 

Non-vested at beginning of period

 

112,200

 

 

$

9.29

 

     Granted

 

 

 

 

 

     Vested

 

 

 

 

 

 Forfeited

 

 

 

 

 

Non-vested at end of period

 

112,200

 

 

$

9.29

 

 

 

 

 

 

 

 

Year Ended December 31, 2024

 

Restricted stock:

 

 

 

 

 

Non-vested at beginning of year

 

33,629

 

 

$

11.80

 

     Granted

 

112,200

 

 

 

9.29

 

     Vested

 

(33,629

)

 

 

11.80

 

 Forfeited

 

 

 

 

 

Non-vested at end of year

 

112,200

 

 

$

9.29

 

 

10.
Leases

The Company’s lease arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate and equipment leases with remaining lease terms of up to 15 years. The Company accounts for leases under ASC Topic 842 –Leases (Topic 842) – and recognizes its operating leases on its consolidated balance sheet by recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a ROU asset, representing the Company’s legal right to use the leased assets. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. The Company does not have any sub-lease agreements.

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

On June 11, 2024, the Bank entered into and closed on an agreement with a single purchaser for the purchase and sale of four properties formerly owned and operated by the Bank, which included four branches (with an adjacent drive thru) and a parking lot, each adjacent to a sold branch, for an aggregate cash purchase price of $7.5 million. Concurrently with the sale-leaseback transaction, the Bank entered into an absolute net lease agreement with the purchaser under which the Bank will lease the properties for an initial term of 15 years with one renewal option of 15 years. The lease agreement includes a 2.5% annual rent escalation during the initial term and during the renewal term, if exercised. The sale-leaseback transaction resulted in a pre-tax gain of $2.5 million. Additionally, the Company recorded a $1.5 million finance lease liability related to this agreement representing the portion of the gain not eligible for immediate recognition. The Company's obligation under this operating lease expires in June 2039 and has future lease payments of $9.0 million as of March 31, 2025. Total lease expense for this operating lease was $131,000 for the three months ended March 31, 2025.

24


 

The Company's obligation under an operating lease related to its leased ATMs expires in August 2030 and has future lease payments of $413,000 as of March 31, 2025. Total lease expense under this operating lease was $19,000 for the three months ended March 31, 2025 and 2024.

The Company's obligation under an operating lease related to a branch not included in the sale-leaseback transaction expires in August 2027 and has future lease payments of $103,000 as of March 31, 2025. Total lease expense for this obligation was $10,000 for the three months ended March 31, 2025 and 2024. This lease agreement contains clauses calling for escalation of minimum lease payments contingent on increases in LIBOR, or a similar replacement index, and the consumer price index.

The following tables summarize information related to the Company’s lease portfolio and other supplemental lease information as of and for the periods ended:

 

 

March 31, 2025

 

 

December 31, 2024

 

 

 

Operating

 

 

Finance

 

 

Operating

 

 

Finance

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

ROU assets

 

$

5,575

 

 

$

 

 

$

5,648

 

 

$

 

Lease liabilities

 

 

5,575

 

 

 

1,495

 

 

 

5,648

 

 

 

1,509

 

Lease Term and Discount Rate:

 

 

 

 

 

 

 

 

 

 

 

 

   Weighted-average remaining lease term (years)

 

 

13.60

 

 

 

14.17

 

 

 

13.68

 

 

 

14.42

 

   Weighted-average discount rate(1)

 

 

7.84

%

 

 

8.12

%

 

 

7.82

%

 

 

8.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) A lease implicit rate or incremental borrowing rate is used based on information available at commencement date of lease.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The three months ended March 31,

 

(Dollars in thousands)

 

2025

 

 

2024

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

   Operating cash flows from operating leases

 

$

73

 

 

$

26

 

   Principal payments on finance lease

 

 

14

 

 

 

 

Net operating lease cost

 

$

73

 

 

$

26

 

Finance lease cost:

 

 

 

 

 

 

   Amortization of right-of-use assets

 

 

14

 

 

 

 

   Interest on lease liabilities

 

 

24

 

 

 

 

Total lease cost

 

$

111

 

 

$

26

 

The total minimum lease payments due in future periods for lease agreements in effect at March 31, 2025 were as follows:

As of March 31, 2025

 

Future Minimum Lease Payments

 

 (Dollars in thousands)

 

Operating

 

 

Finance

 

2025

 

$

493

 

 

$

117

 

2026

 

 

666

 

 

 

160

 

2027

 

 

666

 

 

 

164

 

2028

 

 

651

 

 

 

168

 

2029

 

 

665

 

 

 

172

 

2030

 

 

647

 

 

 

176

 

Thereafter

 

 

5,725

 

 

 

1,673

 

Total minimum lease payments

 

 

9,513

 

 

 

2,630

 

Less: interest

 

 

(3,938

)

 

 

(1,135

)

Total lease liability

 

$

5,575

 

 

$

1,495

 

 

25


 

11.
Other Comprehensive Income (Loss)

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

 

 

Three Months Ended March 31,

 

 

 

Reclassification Adjustments

 

2025

 

 

2024

 

 

Affected Line Item in
Consolidated Statements of Loss

 

 

(Dollars in thousands)

 

 

 

Net amortization of bond premiums

 

$

156

 

 

$

150

 

 

Interest on debt securities

Tax effect

 

 

(42

)

 

 

(40

)

 

Income tax (benefit) expense

Total reclassification adjustments

 

$

114

 

 

$

110

 

 

Net loss

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

(Dollars in thousands)

 

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

 

 

Net Unrealized Losses on Cash Flow
Hedges
(1)

 

 

AOCI(1)

 

Balance at December 31, 2024

 

$

(7,013

)

 

$

(31

)

 

$

(7,044

)

Other comprehensive loss before reclassification

 

 

(24

)

 

 

(15

)

 

 

(39

)

     Amounts reclassified from AOCI

 

 

114

 

 

 

 

 

 

114

 

 Other comprehensive income (loss)

 

 

90

 

 

 

(15

)

 

 

75

 

Balance at March 31, 2025

 

$

(6,923

)

 

$

(46

)

 

$

(6,969

)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

$

(5,944

)

 

$

 

 

$

(5,944

)

Other comprehensive loss before reclassification

 

 

(1,033

)

 

 

 

 

 

(1,033

)

     Amounts reclassified from AOCI

 

 

110

 

 

 

 

 

 

110

 

 Other comprehensive loss

 

 

(923

)

 

 

 

 

 

(923

)

Balance at March 31, 2024

 

$

(6,867

)

 

$

 

 

$

(6,867

)

 

(1)
All amounts are net of tax.

26


 

12.
Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). As of March 31, 2025, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank, as well capitalized under the regulatory framework, for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital amounts and ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes that, as of March 31, 2025 and December 31, 2024, the Bank met all capital adequacy requirements to which it was subject, including the capital conservation buffer, at those dates.

The following table presents actual and required capital ratios as of March 31, 2025 and December 31, 2024 for the Bank under the Basel Committee on Banking Supervisions capital guidelines for U.S. banks (“Basel III Capital Rules”) as fully phased-in on January 1, 2019. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

 

 

 

 

 

 

 

 

 

Minimum
Capital

 

 

Minimum
Capital Required to be Well

 

 

Minimum Capital
Required For Capital
Adequacy Plus
Capital Conservation
Buffer

 

 

 

Actual

 

 

Requirement

 

 

Capitalized

 

 

Fully Phased-In

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

March 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

$

55,155

 

 

 

15.16

%

 

$

29,101

 

 

 

8.00

%

 

$

36,376

 

 

 

10.00

%

 

$

38,195

 

 

 

10.50

%

Tier 1 Capital (to risk-weighted assets)

 

 

51,475

 

 

 

14.15

 

 

 

21,827

 

 

 

6.00

 

 

 

29,102

 

 

 

8.00

 

 

 

30,921

 

 

 

8.50

 

Tier 1 Capital (to average assets)

 

 

51,475

 

 

 

8.68

 

 

 

23,721

 

 

 

4.00

 

 

 

29,651

 

 

 

5.00

 

 

 

23,721

 

 

 

4.00

 

Common Equity Tier 1 (to risk-weighted assets)

 

 

51,475

 

 

 

14.15

 

 

 

16,370

 

 

 

4.50

 

 

 

23,646

 

 

 

6.50

 

 

 

25,465

 

 

 

7.00

 

 

 

 

 

 

 

 

 

 

Minimum
Capital

 

 

Minimum
Capital Required to be Well

 

 

Minimum Capital
Required For Capital
Adequacy Plus Capital
Conservation Buffer

 

 

 

Actual

 

 

Requirement

 

 

Capitalized

 

 

Fully Phased-In

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

$

55,506

 

 

 

15.55

%

 

$

28,555

 

 

 

8.00

%

 

$

35,694

 

 

 

10.00

%

 

$

37,479

 

 

 

10.50

%

Tier 1 Capital (to risk-weighted assets)

 

 

51,820

 

 

 

14.52

 

 

 

21,417

 

 

 

6.00

 

 

 

28,555

 

 

 

8.00

 

 

 

30,340

 

 

 

8.50

 

Tier 1 Capital (to average assets)

 

 

51,820

 

 

 

8.69

 

 

 

23,848

 

 

 

4.00

 

 

 

29,809

 

 

 

5.00

 

 

 

23,848

 

 

 

4.00

 

Common Equity Tier 1 (to risk-weighted assets)

 

 

51,820

 

 

 

14.52

 

 

 

16,062

 

 

 

4.50

 

 

 

23,201

 

 

 

6.50

 

 

 

24,986

 

 

 

7.00

 

 

13.
Derivatives and Hedging Activities

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. These derivative financial instruments are reported at fair value in other assets or other liabilities and are not reported on a net basis.

 

 

27


 

Derivatives Designated as Hedging Instruments

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreements without exchange of the underlying notional amount.

On July 12, 2024, the Company entered into a two-year interest rate contract that was designated as fair value hedge utilizing a pay fixed interest rate swap to hedge a portion of its index-based brokered deposits included in savings deposits and its change in fair value attributable to the movement in the one-month SOFR. The carrying amount of the hedged liability located in “savings deposits" includes the savings account balance used to designate hedging relationships in which the hedged items are the stated amount of liabilities anticipated to be outstanding for the designated hedged period. The carrying amount of the savings deposit used in the hedged relationship was $22.0 million and $22.1 million at March 31, 2025 and December 31, 2024, respectively. Under the "portfolio layer" approach, the Company designated a $10.0 million notional amount of portfolio liabilities that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows of the designated hedged layer. At inception, this fair value hedge had a pay fixed rate of 4.33% and a received rate of 5.32% (4.42% as of March 31, 2025). The change in the fair value of the interest rate swap was reported in other comprehensive income (loss) and was subsequently reclassified into interest expense or income in the period that the hedged transaction affected earnings. The change in fair value for this derivative instrument for the three months ended March 31, 2025 was $(21,000). For the three months ended March 31, 2025, $-0- of interest income was reclassified from AOCI into expense.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain pools of fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. The Company's interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreement without the exchange of the underlying notional amount. The hedging strategy effectively converts these fixed-rate assets to SOFR floating rate assets for the term of the swap starting on the effective date. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

In June 2023, the Company entered into a three-year $25 million notional amount interest rate contract that was designated as a fair value hedge utilizing a pay fixed interest rate swap to hedge a portion of the residential mortgage loan portfolio's change in fair value attributable to the movement in the one-month SOFR. In November 2023, the Company entered into a second three-year $25 million notional amount interest rate contract that was also designated as a fair value hedge utilizing a pay fixed interest rate swap to hedge a portion of the residential mortgage loan portfolio's change in fair value attributable to the movement in the one-month SOFR. On November 1, 2024, the Company terminated this second pay fixed interest rate swap which resulted in a swap termination fee of $398,000 due to the counterparty. The $398,000 fee was recorded as a residential mortgage loan basis adjustment and included in 1-4 family residential loans as it is amortized over the remaining expected life of the original swap – 24 months. Also, $1.2 million of cash posted to the counterparty as collateral for this interest rate swap contract was returned to the Company. The Company terminated this interest rate swap as it was determined that this derivative was no longer meeting the aims of the Company’s interest rate risk management strategy as it was probable that the hedged forecasted transaction – the potential interest rate risk/variability in fair value of the residential loan portfolio attributable to the movement in one-month SOFR – would not occur by the end of the original maturity date of the hedging instrument.

Additionally, in December 2023, the Company entered into a three-year $10 million notional amount interest rate contract that was designated as fair value hedge utilizing a pay fixed interest rate swap to hedge a portion of the securities available-for-sale municipal bond portfolio's change in fair value attributable to the movement in the one-month SOFR. On December 19, 2024 the Company terminated this pay fixed interest rate swap which resulted in a swap termination fee of $32,000 due to the counterparty. The $32,000 fee was recorded as a municipal bond basis adjustment and included in securities available-for-sale as it is amortized over a period consistent with the amortization of the discounts and premiums associated with the formerly hedged items. Also, $280,000 of cash posted to the counterparty as collateral for this interest rate swap contract was returned to the Company. The Company terminated this interest rate swap as it was determined that this derivative was no longer meeting the aims of the Company’s interest rate risk management strategy as it was probable that the hedged forecasted transaction – the potential interest rate risk/variability in fair value of the securities available-for-sale municipal bond portfolio attributable to the movement in one-month SOFR – would not occur by the end of the original maturity date of the hedging instrument.

 

28


 

 

As of March 31, 2025 and December 31, 2024, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:

Location in Consolidated Balance Sheets

 

Carrying Amount of Hedged Assets/(Liabilities)

 

 

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)

 

(Dollars in thousands)

 

March 31, 2025

 

 

December 31, 2024

 

 

March 31, 2025

 

 

December 31, 2024

 

Total loans

 

$

25,030

 

 

$

24,957

 

 

$

30

 

 

$

(43

)

The carrying amount of the hedged asset located in “total loans” includes the amortized cost basis of closed portfolios of fixed-rate residential loans used to designate hedging relationships in which the hedged items are the stated amount of assets anticipated to be outstanding for the designated hedged period. At March 31, 2025 and December 31, 2024, the amortized cost basis of the closed portfolios of fixed-rate residential loans used in the hedging relationship was in excess of the carrying amount of the hedged asset. At March 31, 2025 and December 31, 2024, the cumulative basis adjustments associated with this hedging relationship was $30,000 and $(43,000), respectively; and the notional amount of the designated hedged item was $25.0 million. Under the "portfolio layer" approach, the Company designated a notional amount of portfolio assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows of the designated hedged layer.

The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of potential loss exposure. At March 31, 2025 and December 31, 2024, the Company’s fair value hedges had a remaining maturity of 1.17 and 1.42 years, respectively, an average pay fixed rate of 3.99% and an average received rate of 5.07%.

Derivatives not Designated as Hedging Instruments

Customer Loan Swaps

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain commercial banking customers. On May 19, 2023, the Company entered into an interest rate swap with a commercial loan borrower. The Company executes interest rate swaps with customers to facilitate their respective risk management strategies. The interest rate swap contract with the commercial loan borrower allows them to convert floating-rate loan payments based on SOFR to fixed-rate loan payments. This interest rate swap is simultaneously hedged by an offsetting derivative that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivative and the offsetting derivative are recognized directly in earnings.

29


 

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet:

 

Derivative Assets

 

 

Derivative Liabilities

 

 

Notional Amount

 

 

Location

 

Fair Value

 

 

Notional Amount

 

 

Location

 

Fair Value

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts - fair value hedge

$

25,000

 

 

Other assets

 

$

 

 

$

 

 

Other liabilities

 

$

30

 

Interest rate contracts - cash flow hedge

 

10,000

 

 

Other assets

 

 

 

 

 

 

 

Other liabilities

 

 

64

 

Total derivatives designated as hedging instruments

$

35,000

 

 

 

 

$

 

 

$

 

 

 

 

$

94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer loan swaps

$

4,594

 

 

Other assets

 

$

16

 

 

$

4,594

 

 

Other liabilities

 

$

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts - fair value hedge

$

25,000

 

 

Other assets

 

$

43

 

 

$

 

 

 

 

$

 

Interest rate contracts - cash flow hedge

 

10,000

 

 

Other assets

 

 

 

 

 

 

 

Other liabilities

 

 

43

 

Total derivatives designated as hedging instruments

$

35,000

 

 

 

 

$

43

 

 

$

 

 

 

 

$

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer loan swaps

$

4,630

 

 

Other assets

 

$

71

 

 

$

4,630

 

 

Other liabilities

 

$

71

 

Credit-risk-related Contingent Features

By entering into derivative transactions, 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. The Company seeks to minimize counterparty credit risk through credit approvals, limits, and other monitoring procedures. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s board of directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. As of March 31, 2025 and December 31, 2024, the Company posted $784,000 and $781,000, respectively, of cash to the counterparties as collateral on its interest rate swap contracts and customer loan swaps, which was presented within cash and due from banks on the consolidated balance sheets.

Balance Sheet Offsetting

Certain financial instruments may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Company’s derivative transactions with institutional counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Generally, the Company does not offset such financial instruments for financial reporting purposes.

 

 

 

30


 

The following tables present the information about derivative positions that are eligible for offset in the consolidated balance sheets as of March 31, 2025 and December 31, 2024:

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

(Dollars in thousands)

 

Gross Amounts Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Recognized

 

 

Financial Instruments Pledged (Received)

 

 

Cash Collateral Pledged (Received) (1)

 

 

Net Amount

 

March 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate contract - fair value hedge(2)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 Interest rate contract - cash flow hedge(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Customer loan swap - dealer bank(3)

 

 

16

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

 

 

 

      Total

 

$

16

 

 

$

 

 

$

16

 

 

$

 

 

$

16

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate contract - fair value hedge(2)

 

$

30

 

 

$

 

 

$

30

 

 

$

 

 

$

30

 

 

$

 

 Interest rate contract - cash flow hedge(2)

 

 

64

 

 

 

 

 

 

64

 

 

 

 

 

 

64

 

 

 

 

 Customer loan swap - dealer bank(3)

 

 

16

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

      Total

 

$

110

 

 

$

 

 

$

110

 

 

$

 

 

$

94

 

 

$

16

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate contract - fair value hedge(2)

 

$

43

 

 

$

 

 

$

43

 

 

$

 

 

$

43

 

 

$

 

 Interest rate contract - cash flow hedge(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Customer loan swap - dealer bank(3)

 

 

71

 

 

 

 

 

 

71

 

 

 

 

 

 

71

 

 

 

 

      Total

 

$

114

 

 

$

 

 

$

114

 

 

$

 

 

$

114

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate contract - fair value hedge(2)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 Interest rate contract - cash flow hedge(2)

 

 

43

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

 

 

 

 Customer loan swap - dealer bank(3)

 

 

71

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

71

 

      Total

 

$

114

 

 

$

 

 

$

114

 

 

$

 

 

$

43

 

 

$

71

 

 

(1) The amount presented was the lesser of the amount pledged (received) or the net amount presented in the consolidated balance sheets.

(2) Interest rate swap contracts were completed with the same dealer bank. The Company maintains a master netting arrangement with the counterparty and settles collateral on a net basis for all contracts.

(3) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its commercial customers as part of its contract.

 

31


 

14.
Fair Values of Assets and Liabilities

Determination of Fair Value

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

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

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

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

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

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

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented therein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all the Company’s financial assets and financial liabilities carried at fair value at March 31, 2025 and December 31, 2024.

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

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

32


 

flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

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

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

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(Dollars in thousands)

 

March 31, 2025

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises obligations

 

$

1,418

 

 

$

 

 

$

1,418

 

 

$

 

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

 

 

12,621

 

 

 

 

 

 

12,621

 

 

 

 

Collateralized mortgage obligations issued by
   the FHLMC, FNMA and GNMA

 

 

20,711

 

 

 

 

 

 

20,711

 

 

 

 

Residential mortgage-backed-securities

 

 

51,904

 

 

 

 

 

 

51,904

 

 

 

 

Municipal bonds

 

 

28,493

 

 

 

 

 

 

28,493

 

 

 

 

Corporate debt

 

 

485

 

 

 

 

 

 

485

 

 

 

 

Corporate subordinated debt

 

 

7,865

 

 

 

 

 

 

7,865

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

292

 

 

 

 

 

 

 

 

 

292

 

Derivatives

 

 

16

 

 

 

 

 

 

16

 

 

 

 

Other Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

110

 

 

 

 

 

 

110

 

 

 

 

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(Dollars in thousands)

 

December 31, 2024

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises obligations

 

$

1,387

 

 

$

 

 

$

1,387

 

 

$

 

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

 

 

13,125

 

 

 

 

 

 

13,125

 

 

 

 

Collateralized mortgage obligations issued by
   the FHLMC, FNMA and GNMA

 

 

19,362

 

 

 

 

 

 

19,362

 

 

 

 

Residential mortgage-backed securities

 

 

48,462

 

 

 

 

 

 

48,462

 

 

 

 

Municipal bonds

 

 

29,532

 

 

 

 

 

 

29,532

 

 

 

 

Corporate debt

 

 

484

 

 

 

 

 

 

484

 

 

 

 

Corporate subordinated debt

 

 

7,865

 

 

 

 

 

 

7,865

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

305

 

 

 

 

 

 

 

 

 

305

 

Derivatives

 

 

114

 

 

 

 

 

 

114

 

 

 

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

114

 

 

 

 

 

 

114

 

 

 

 

 

33


 

For the three months ended March 31, 2025 and 2024, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:

 

(Dollars in thousands)

 

Mortgage Servicing Rights (1)

 

     Balance as of January 1, 2025

 

$

305

 

         Included in net (loss) income

 

 

(13

)

    Balance as of March 31, 2025

 

$

292

 

Total unrealized net gains (losses)
included in net (loss) income related to
assets still held as of March 31, 2025

 

$

 

 

 

 

 

     Balance as of January 1, 2024

 

$

339

 

         Included in net (loss) income

 

 

(10

)

     Balance as of March 31, 2024

 

$

329

 

Total unrealized net gains (losses)
included in net (loss) income related to
assets still held as of March 31, 2024

 

$

 

 

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

For Level 3 assets measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

March 31, 2025

 

(Dollars in thousands)

 

Valuation Technique

 

Description

 

Range

 

Weighted Average (1)

 

Fair Value

 

Mortgage Servicing Rights

 

Discounted Cash Flow

 

Prepayment Rate

 

4.00% - 30.39%

 

7.99%

 

$

292

 

 

 

 

 

Discount Rate

 

9.625% - 9.625%

 

9.63%

 

 

 

 

 

 

 

Delinquency Rate

 

2.17% - 2.67%

 

2.26%

 

 

 

 

 

 

 

Default Rate

 

0.16% - 0.18%

 

0.16%

 

 

 

 

 

 

December 31, 2024

 

(Dollars in thousands)

 

Valuation Technique

 

Description

 

Range

 

Weighted Average (1)

 

Fair Value

 

Mortgage Servicing Rights

 

Discounted Cash Flow

 

Prepayment Rate

 

4.54% - 18.71%

 

6.51%

 

$

305

 

 

 

 

 

Discount Rate

 

10.00% - 10.00%

 

10.00%

 

 

 

 

 

 

 

Delinquency Rate

 

2.17% - 2.64%

 

2.25%

 

 

 

 

 

 

 

Default Rate

 

0.14% - 0.24%

 

0.16%

 

 

 

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

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

The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Observable and unobservable inputs are entered into this model as prescribed by an independent third party to arrive at an estimated fair value.

34


 

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

Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Financial assets measured at fair value on a non-recurring basis during the reported periods also include loans held for sale. Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. The fair values for loans held for sale are estimated based on commitments in effect from investors or prevailing market prices for loans with similar terms to borrowers of similar credit quality and are included in Level 3. At March 31, 2025 and December 31, 2024, there were no assets or liabilities measured at fair value on a non-recurring basis.

Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in other non-interest expense. There were no foreclosed assets at March 31, 2025 or December 31, 2024.

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 March 31, 2025 and December 31, 2024, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

35


 

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

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments at March 31, 2025 and December 31, 2024 are as follows:

 

(Dollars in thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

6,180

 

 

$

6,180

 

 

$

6,180

 

 

$

 

 

$

 

Federal Home Loan Bank stock

 

 

2,707

 

 

 

2,707

 

 

 

 

 

 

2,707

 

 

 

 

Bank-owned life insurance

 

 

4,789

 

 

 

4,789

 

 

 

 

 

 

4,789

 

 

 

 

Loans, net

 

 

445,106

 

 

 

409,313

 

 

 

 

 

 

 

 

 

409,313

 

Accrued interest receivable

 

 

2,098

 

 

 

2,098

 

 

 

2,098

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

454,134

 

 

$

453,886

 

 

$

319,672

 

 

$

134,214

 

 

$

 

Advances from Federal Home Loan Bank

 

 

63,388

 

 

 

63,428

 

 

 

 

 

 

63,428

 

 

 

 

Mortgagors’ tax escrow

 

 

1,979

 

 

 

1,979

 

 

 

 

 

 

1,979

 

 

 

 

Accrued interest payable

 

 

470

 

 

 

470

 

 

 

470

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,100

 

 

$

7,100

 

 

$

7,100

 

 

$

 

 

$

 

Federal Home Loan Bank stock

 

 

2,498

 

 

 

2,498

 

 

 

 

 

 

2,498

 

 

 

 

Bank-owned life insurance

 

 

4,768

 

 

 

4,768

 

 

 

 

 

 

4,768

 

 

 

 

Loans, net

 

 

435,481

 

 

 

397,154

 

 

 

 

 

 

 

 

 

397,154

 

Accrued interest receivable

 

 

2,103

 

 

 

2,103

 

 

 

2,103

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

454,208

 

 

$

453,890

 

 

$

318,520

 

 

$

135,370

 

 

$

 

Advances from Federal Home Loan Bank

 

 

52,268

 

 

 

52,208

 

 

 

 

 

 

52,208

 

 

 

 

Mortgagors’ tax escrow

 

 

654

 

 

 

654

 

 

 

 

 

 

654

 

 

 

 

Accrued interest payable

 

 

475

 

 

 

475

 

 

 

475

 

 

 

 

 

 

 

15.
Subsequent Events

On April 29, 2025, the Company purchased $10.0 million of brokered deposits, for a term of three years, at an annual rate of 4.35% to support the Company's securities available-for-sale growth initiatives. The brokered deposits are callable, at the option of the Company, in whole, prior to the maturity date beginning on October 29, 2025 and monthly thereafter.

 

36


 

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

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the Company’s consolidated financial condition at March 31, 2025 and consolidated results of operations for the three months ended March 31, 2025 and 2024. It should be read in conjunction with our unaudited consolidated financial statements and accompanying notes presented elsewhere in this report and with the Company’s audited consolidated financial statements and accompanying notes presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed on March 21, 2025 with the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation.

Overview

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

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

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

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

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

general economic conditions, either nationally or in our market areas, that are worse than expected;
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 and capital requirements and insurance premiums;
changes in the quality or composition of our loan or investment portfolios;
technological changes that may be more difficult or expensive than expected;

37


 

the inability of third-party providers to perform as expected;
our ability to manage market risk, credit risk and operational risk in the current economic environment;
our ability to enter new markets successfully and capitalize on growth opportunities;
system failures or breaches of our network security;
electronic fraudulent activity within the financial services industry;
our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
our ability to retain key employees;
our compensation expense associated with equity allocated or awarded to our employees; and
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies and Use of Critical Accounting Estimates

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

Our critical accounting policies involve the calculation of the allowance for credit losses ("ACL") and the measurement of the fair value of financial instruments. A detailed description of these critical accounting policies can be found in Note 2 of the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Comparison of Financial Condition at March 31, 2025 (unaudited) and December 31, 2024

Total Assets. Total assets were $592.6 million as of March 31, 2025, an increase of $11.9 million, or 2.0%, compared to total assets of $580.8 million at December 31, 2024. The increase was due primarily to a $9.6 million increase in net loans and a $3.3 million increase in securities available-for-sale offset by a $920,000 decrease in cash and due from banks.

Cash and Due From Banks. Cash and due from banks decreased $920,000, or 13.0%, to $6.2 million at March 31, 2025 from $7.1 million at December 31, 2024. This decrease primarily resulted from a $9.6 million increase in net loans and a $3.3 million increase in securities available-for-sale offset by an $11.1 million increase in borrowings and a $1.3 million increase in mortgagors' tax escrow during the three months ended March 31, 2025.

Available-for-Sale Securities. Available-for-sale securities increased by $3.3 million, or 2.7%, to $123.5 million at March 31, 2025 from $120.2 million at December 31, 2024. This increase was due primarily to $6.9 million of investment purchases and a $124,000 decrease in net unrealized losses within the portfolio offset by proceeds from principal payments totaling $3.6 million during the three months ended March 31, 2025. Management believes that the unrealized losses within the portfolio are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore we recorded no allowance for credit losses on available-for-sale debt securities as of March 31, 2025.

 

 

 

38


 

The following table sets forth the amortized cost and average yield of our debt securities, by type and contractual maturity:

 

 

Maturity as of March 31, 2025

 

 

 

One Year or Less

 

 

After One Year but within Five Years

 

 

After Five Years but within Ten Years

 

 

After Ten Years

 

Total

 

 

 

Amortized Cost

 

 

Average Yield

 

 

Amortized Cost

 

 

Average Yield

 

 

Amortized Cost

 

 

Average Yield

 

 

Amortized Cost

 

 

Average Yield

 

Amortized Cost

 

 

Average Yield

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
   enterprises obligations

 

$

 

 

 

 

 

 

 

 

 

 

 

$

1,635

 

 

 

1.21

%

 

$

 

 

 

 

$

1,635

 

 

 

1.21

%

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,804

 

 

 

5.36

%

 

 

8,588

 

 

 

4.61

%

 

13,392

 

 

 

4.96

%

Collateralized mortgage
   obligations issued by
   the FHLMC, FNMA
   and GNMA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,751

 

 

 

3.35

%

 

 

19,420

 

 

 

5.57

%

 

21,171

 

 

 

5.32

%

Residential mortgage-backed securities

 

 

 

 

 

 

 

 

717

 

 

 

3.47

%

 

 

 

 

 

 

 

 

54,365

 

 

 

4.35

%

 

55,082

 

 

 

4.00

%

Municipal bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

953

 

 

 

2.86

%

 

 

31,907

 

 

 

0.08

%

 

32,860

 

 

 

3.18

%

Corporate debt

 

 

 

 

 

 

 

 

500

 

 

 

7.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

7.00

%

Corporate subordinated debt

 

 

 

 

 

 

 

 

3,823

 

 

 

9.92

%

 

 

4,507

 

 

 

4.02

%

 

 

 

 

 

 

 

8,330

 

 

 

6.03

%

 

 

 

 

 

 

 

$

5,040

 

 

 

8.71

%

 

$

13,650

 

 

 

3.99

%

 

$

114,280

 

 

 

3.38

%

$

132,970

 

 

 

4.21

%

Net Loans. Net loans increased $9.6 million, or 2.2%, to $445.1 million at March 31, 2025 from $435.5 million at December 31, 2024. During the three months ended March 31, 2025, we originated $7.8 million of loans, net of principal collections, and purchased $1.5 million of participation interests in commercial loans through our membership in a national community bank loan program and $433,000 of consumer loans secured by manufactured housing properties. As of March 31, 2025 and December 31, 2024, the portfolio of purchased loans had outstanding principal balances of $35.7 million and $34.3 million, respectively, and were performing in accordance with their original repayment terms.

One- to four-family residential mortgage loans increased $1.7 million, or 0.6%, to $277.0 million at March 31, 2025 from $275.2 million at December 31, 2024. Commercial real estate mortgage loans increased $3.5 million, or 4.1%, to $89.6 million at March 31, 2025 from $86.0 million at December 31, 2024. Multi-family loans decreased $90,000, or 1.6%, to $5.7 million at March 31, 2025 from $5.8 million at December 31, 2024. Commercial and industrial loans increased $854,000, or 3.6%, to $24.6 million at March 31, 2025 from $23.7 million at December 31, 2024. Acquisition, development, and land loans increased $2.5 million, or 16.5%, to $17.4 million at March 31, 2025 from $14.9 million at December 31, 2024. Home equity loans and lines of credit increased $1.1 million, or 5.2%, to $22.0 million at March 31, 2025 from $20.9 million at December 31, 2024. Consumer loans increased $82,000, or 0.7%, to $12.5 million at March 31, 2025 from $12.4 million at December 31, 2024.

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

Our ACL on loans was $3.5 million at March 31, 2025 and December 31, 2024 based upon ASU 2016-13 and its credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost, including loans, to be presented at the net amount expected to be collected, through an ACL that are expected to occur over the remaining life of the asset, rather than incurred losses. The ASU requires the measurement of all expected credit losses for loans held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, the ASU requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied at prior reporting dates are still permitted, though the inputs to those techniques have changed to reflect the full amount of expected credit losses. We have selected the Weighted Average Remaining Maturity Model (“WARM” or "CECL model"), for the loss calculation of each of our loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate an ACL. A loss rate is applied to pool balances over time.

39


 

Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, savings accounts, money market accounts and time deposits, for both individuals and businesses. As of March 31, 2025 and December 31, 2024, the aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, was estimated not to exceed $111.4 million, or 24.5% of total deposits, and $112.2 million, or 24.7% of total deposits, respectively.

For customers requiring full FDIC insurance on certificates of deposit in excess of $250,000, we began offering in late 2023 the CDARS® program, which allows us to place the certificates of deposit with other participating banks to maximize the customers’ FDIC insurance coverage. We receive a like amount of deposits from other participating financial institutions. In addition, we offer the ICS™ program, an insured deposit “sweep” program for demand deposits which is a product offered by IntraFi Network, LLC, which is also the provider of the CDARS® program. Similarly to the certificates of deposit’s discussed above, we receive a like amount of deposits from other financial institutions and all customer deposits are insured by the FDIC. These “reciprocal” CDARS® and ICS deposits are classified as “brokered” deposits in regulatory reports and "core" deposits in our consolidated balance sheet. At March 31, 2025 our “reciprocal” CDARS® and ICS deposits were $-0- and $5.5 million, respectively. At December 31, 2024, our “reciprocal” CDARS® and ICS deposits were $-0- and $6.0 million, respectively.

Deposits decreased $74,000 to $454.1 million at March 31, 2025 from $454.2 million at December 31, 2024 primarily as a result of a $1.8 million decrease in retail deposits offset by a $1.8 million increase in commercial deposits. Core deposits (defined as deposits other than time deposits, including CDARS® and ICS deposits) increased $1.1 million, or 0.4%, to $319.6 million at March 31, 2025 from $318.5 million at December 31, 2024. As of March 31, 2025, savings deposits decreased $840,000, money market deposits increased $351,000, NOW and demand deposits increased $1.6 million and time deposits decreased $1.2 million. There were $62.5 million and $63.1 million of brokered deposits included in time deposits at March 31, 2025 and December 31, 2024.

Additionally, there were $22.0 million and $22.1 million of brokered deposits included in savings deposits at March 31, 2025 and December 31, 2024, respectively. Deposits from related parties totaled $11.4 million and $11.6 million at March 31, 2025 and December 31, 2024, respectively.

Borrowings. Total borrowings from the FHLB increased $11.1 million, or 21.3%, to $63.4 million at March 31, 2025 from $52.3 million at December 31, 2024 in support of our investment and loan growth initiatives.

Total Stockholders’ Equity. Total stockholders’ equity decreased $824,000, or 1.3%, to $61.2 million at March 31, 2025 from $62.1 million at December 31, 2024. This decrease was due primarily to a net loss of $603,000 for the three months ended March 31, 2025 and $574,000 of common stock repurchases, partially offset by the recognition of $233,000 of previously unearned compensation.

Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status and real estate and other loan collateral acquired through foreclosure and repossession. Management determines that a loan is non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be non-performing, the measurement of the loan in the ACL is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for non-performance based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis.

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

Non-performing loans were $-0- at March 31, 2025 and December 31, 2024. At March 31, 2025 and December 31, 2024, we had no foreclosed assets.

Comparison of Operating Results for the Three Months Ended March 31, 2025 and March 31, 2024

Net Loss. Net loss was $603,000 for the three months ended March 31, 2025, compared to a net loss of $1.2 million for the three months ended March 31, 2024, a decrease of $549,000, or 47.7%. The decrease was due primarily to an increase in net interest and dividend income after provision (release) for credit losses of $268,000, an increase in total non-interest income of $54,000 and a decrease in income tax expense of $391,000, offset by an increase in total non-interest expense of $164,000, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

40


 

Interest and Dividend Income. Total interest and dividend income increased $362,000, or 6.0%, to $6.4 million for the three months ended March 31, 2025 compared to $6.1 million for the three months ended March 31, 2024. This increase was due to a $64,000 increase in interest and dividend income on investments and a $298,000 increase in interest and fees on loans.

Average interest-earning assets increased $11.9 million, to $571.0 million for the three months ended March 31, 2025 from $559.1 million for the three months ended March 31, 2024. The weighted average annualized yield on interest earning-assets increased to 4.51% for the three months ended March 31, 2025 from 4.34% for the three months ended March 31, 2024 primarily due to an increase in market interest rates. The weighted average annualized yield for the loan portfolio increased to 4.57% for the three months ended March 31, 2025 from 4.40% for the three months ended March 31, 2024 due primarily to an increase in market interest rates. The weighted average annualized yield for all other interest-earning assets increased to 4.28% for the three months ended March 31, 2025 from 4.17% for the three months ended March 31, 2024 due primarily to an increase in market interest rates.

Interest Expense. Total interest expense increased $74,000, or 2.3%, to $3.3 million for the three months ended March 31, 2025 from $3.2 million for the three months ended March 31, 2024. Interest expense on deposits increased $569,000, or 28.0%, to $2.6 million for the three months ended March 31, 2025 from $2.0 million for the three months ended March 31, 2024. The average balance of interest-bearing deposits increased $53.6 million, or 15.8%, to $392.4 million for the three months ended March 31, 2025 from $338.8 million for the three months ended March 31, 2024 primarily as a result of an increase in the average balances of savings deposits and time deposits offset by a decrease in the average balances of money market deposits. The weighted average annualized rate of interest-bearing deposits increased to 2.65% for the three months ended March 31, 2025 from 2.39% for the three months ended March 31, 2024 primarily as a result of an increase in market interest rates.

Interest expense on borrowings decreased $495,000, or 43.1%, to $654,000 for the three months ended March 31, 2025 from $1.1 million for the three months ended March 31, 2024 primarily due to the use of brokered deposits to fund our investment and loan growth initiatives. The average balance of borrowings decreased $40.4 million, or 41.5%, to $57.0 million for the three months ended March 31, 2025 from $97.4 million for the three months ended March 31, 2024. The weighted average annualized rate of borrowings decreased to 4.59% for the three months ended March 31, 2025 from 4.72% for the three months ended March 31, 2024 as a result of a decrease in market interest rates.

Net Interest and Dividend Income. Net interest and dividend income increased $288,000, or 10.0%, to $3.2 million for the three months ended March 31, 2025 from $2.9 million for the three months ended March 31, 2024. This increase was due to an increase of $11.9 million, or 2.1%, in the average balance of interest-earning assets, consisting primarily of an increase in the average balance of interest-earning loans, during the three months ended March 31, 2025 offset by a $13.3 million, or 3.0%, increase in the average balance of interest-bearing liabilities, consisting primarily of increases in the average balances of interest-bearing deposits offset by decreases in the average balances of borrowings. Annualized net interest margin increased to 2.23% for the three months ended March 31, 2025 from 2.07% for the three months ended March 31, 2024 due primarily to an increase in net interest income and an increase in the average yield on interest-earning assets.

Provision (Release) for Credit Losses. Based on management’s analysis of the ACL, a $-0- provision for credit losses was recorded for the three months ended March 31, 2025, compared to a $(20,000) release of credit losses for the three months ended March 31, 2024. The provision for credit losses for the three months ended March 31, 2025 consisted of $-0- for the provision for credit losses on available-for-sale securities, a $30,000 provision for credit losses on loans and a $(30,000) release of credit losses on off-balance sheet credit exposures. The release of credit losses for the three months ended March 31, 2024 consisted of $-0- for the provision for credit losses on available-for-sale securities, a $30,000 for the provision for credit losses on loans and a $(50,000) release of credit losses on off-balance sheet credit exposures.

Non-Interest Income. Non-interest income increased $54,000, or 18.2%, to $351,000 for the three months ended March 31, 2025 compared to $297,000 for the three months ended March 31, 2024. The increase in non-interest income during the three months ended March 31, 2025 was due primarily to an increase in investment and customer service fees.

Non-Interest Expense. Non-interest expense increased $164,000, or 4.1%, to $4.2 million for the three months ended March 31, 2025 from $4.0 million for the three months ended March 31, 2024. The increase was primarily due to a $118,000 increase in salaries and employee benefits, a $133,000 increase in occupancy expense and a $53,000 increase in data processing, offset by a $52,000 decrease in professional fees and assessments and a $33,000 decrease in equipment expense. The increase in salaries and employee benefits was due to normal salary increases and an increase in compensation expense associated with incentive and non-statutory stock options granted in December 2024. The increase in occupancy expense was due primarily to the increase in lease expense associated with the sale-leaseback transaction completed on June 11, 2024.

Income Taxes. Income tax expense decreased $391,000 to an income tax benefit of ($29,000) for the three months ended March 31, 2025 from an income tax expense of $362,000 for the three months ended March 31, 2024. The effective tax rate was 4.6% and 45.8% for the three months ended March 31, 2025 and 2024, respectively. Loss before income tax (benefit) expense was $(632,000) for the three months ended March 31, 2025 as compared to $(790,000) for the three months ended March 31, 2024. The income tax benefit and effective tax rate for the three months ended March 31, 2025 was less than statutory federal and state

41


 

rates due primarily to a $120,000 increase in the deferred tax asset valuation allowance during the three months ended March 31, 2025. The income tax expense and effective tax rate for the three months ended March 31, 2024 was greater than statutory federal and state rates due primarily to a $645,000 increase in the deferred tax asset valuation allowance during the three months ended March 31, 2024. Net deferred tax assets of $7.0 million and $6.7 million as of March 31, 2025 and 2024, respectively, were reduced by a 100% valuation allowance because management believes that it is more likely than not that the benefit of these deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income. The valuation allowance for these net deferred tax assets may be adjusted in the future if estimates of taxable income during the carryforward period are increased.

 

 

42


 

Average Balance Sheets

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2025

 

 

2024

 

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

 

Average
Outstanding
 Balance

 

 

Interest

 

 

Average
Yield/Rate

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (4)

 

$

437,919

 

 

$

5,008

 

 

 

4.57

%

 

$

428,537

 

 

$

4,710

 

 

 

4.40

%

Taxable debt securities

 

 

96,693

 

 

 

1,127

 

 

 

4.66

%

 

 

71,083

 

 

 

812

 

 

 

4.57

%

Non-taxable debt securities

 

 

27,506

 

 

 

198

 

 

 

2.88

%

 

 

51,614

 

 

 

440

 

 

 

3.41

%

Interest-bearing deposits with other banks

 

 

6,333

 

 

 

49

 

 

 

3.10

%

 

 

4,668

 

 

 

40

 

 

 

3.43

%

Federal Home Loan Bank stock

 

 

2,577

 

 

 

50

 

 

 

7.76

%

 

 

3,180

 

 

 

68

 

 

 

8.55

%

Total interest-earning assets

 

 

571,028

 

 

 

6,432

 

 

 

4.51

%

 

 

559,082

 

 

 

6,070

 

 

 

4.34

%

Non-interest-earning assets

 

 

15,884

 

 

 

 

 

 

 

 

 

12,472

 

 

 

 

 

 

 

Total assets

 

$

586,912

 

 

 

 

 

 

 

 

$

571,554

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

$

96,149

 

 

$

134

 

 

 

0.56

%

 

$

95,101

 

 

$

130

 

 

 

0.55

%

Money market deposits

 

 

70,668

 

 

 

492

 

 

 

2.77

%

 

 

85,908

 

 

 

729

 

 

 

3.39

%

Savings deposits

 

 

85,798

 

 

 

553

 

 

 

2.57

%

 

 

64,947

 

 

 

332

 

 

 

2.04

%

Time deposits

 

 

139,788

 

 

 

1,418

 

 

 

4.06

%

 

 

92,809

 

 

 

837

 

 

 

3.61

%

Total interest-bearing deposits

 

 

392,403

 

 

 

2,597

 

 

 

2.65

%

 

 

338,765

 

 

 

2,028

 

 

 

2.39

%

Borrowings

 

 

57,008

 

 

 

654

 

 

 

4.59

%

 

 

97,405

 

 

 

1,149

 

 

 

4.72

%

Other

 

 

1,461

 

 

 

2

 

 

 

0.55

%

 

 

1,431

 

 

 

2

 

 

 

0.56

%

Total interest-bearing liabilities

 

 

450,872

 

 

 

3,253

 

 

 

2.89

%

 

 

437,601

 

 

 

3,179

 

 

 

2.91

%

Non-interest-bearing deposits

 

 

61,699

 

 

 

 

 

 

 

 

 

63,443

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

11,963

 

 

 

 

 

 

 

 

 

4,529

 

 

 

 

 

 

 

Total liabilities

 

 

524,534

 

 

 

 

 

 

 

 

 

505,573

 

 

 

 

 

 

 

Total stockholders' equity

 

 

62,378

 

 

 

 

 

 

 

 

 

65,981

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

586,912

 

 

 

 

 

 

 

 

$

571,554

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

3,179

 

 

 

 

 

 

 

 

$

2,891

 

 

 

 

Net interest rate spread (1)

 

 

 

 

 

 

 

 

1.62

%

 

 

 

 

 

 

 

 

1.43

%

Net interest-earning assets (2)

 

$

120,156

 

 

 

 

 

 

 

 

$

121,481

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

 

2.23

%

 

 

 

 

 

 

 

 

2.07

%

Average interest-earning assets to interest-bearing liabilities

 

 

126.65

%

 

 

 

 

 

 

 

 

127.76

%

 

 

 

 

 

 

 

(1)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by average total interest-earning assets.

(4) Net deferred fee expense included in loan interest totaled $(141,000) and $(81,000) for the three months ended March 31, 2025 and 2024, respectively.

43


 

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

 

 

 

Three Months Ended March 31, 2025 vs. 2024

 

 

 

Increase (Decrease) Due to

 

 

Total Increase

 

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

(In thousands)

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

106

 

 

$

192

 

 

$

298

 

Taxable debt securities

 

 

299

 

 

 

16

 

 

 

315

 

Non-taxable debt securities

 

 

(182

)

 

 

(60

)

 

 

(242

)

Interest-bearing deposits with other banks

 

 

13

 

 

 

(4

)

 

 

9

 

Federal Home Loan Bank stock

 

 

(12

)

 

 

(6

)

 

 

(18

)

Total interest-earning assets

 

 

224

 

 

 

138

 

 

 

362

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

NOW and demand deposits

 

 

2

 

 

 

2

 

 

 

4

 

Money market deposits

 

 

(119

)

 

 

(118

)

 

 

(237

)

Savings deposits

 

 

122

 

 

 

99

 

 

 

221

 

Time deposits

 

 

467

 

 

 

114

 

 

 

581

 

Total interest-bearing deposits

 

 

472

 

 

 

97

 

 

 

569

 

Borrowings

 

 

(464

)

 

 

(31

)

 

 

(495

)

Total interest-bearing liabilities

 

 

8

 

 

 

66

 

 

 

74

 

Change in net interest income

 

$

216

 

 

$

72

 

 

$

288

 

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. As of March 31, 2025 and December 31, 2024, the aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, was an estimated value not exceeding $111.4 million, or 24.5% of total deposits, and $112.2 million, or 24.7% of total deposits, respectively. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans and proceeds from sales and maturities of securities. We also rely on borrowings from the FHLB and FRB as supplemental sources of funds. At March 31, 2025 and December 31, 2024, we had $63.4 million and $52.3 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $88.8 million and $94.0 million, respectively.

At March 31, 2025 and December 31, 2024, the Bank had an overnight line of credit with the FHLB for up to $3.0 million. The Bank has a secured credit facility with the FRB – BIC Program. The Bank’s unused available borrowing capacity at the FRB was $38.5 million and $-0- at March 31, 2025 and December 31, 2024, respectively. Additionally, at March 31, 2025 and December 31, 2024, the Bank had a $2.0 million unsecured Fed Funds borrowing line of credit with a correspondent bank. At March 31, 2025 and December 31, 2024, there were no outstanding balances under any of these additional credit facilities.

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

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided (used) by operating activities was $573,000 and $(70,000) for the three months ended March 31, 2025 and 2024, respectively. Net cash used by investing activities, which consists primarily of disbursements for loan originations and purchases of securities available-for-sale offset by principal collections on loans and proceeds from the sale, maturity and principal payments on securities available-for-sale, was $13.3 million and $6.9 million for the three months ended March 31, 2025 and 2024, respectively. Net cash provided by financing activities, consisting primarily of activity in deposit accounts and FHLB advances offset by treasury stock purchases, was $11.8 million and $7.6 million for the three months ended March 31, 2025 and 2024, respectively.

44


 

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. We have no material commitments for capital expenditures as of March 31, 2025. Our current strategy is to increase core deposits and utilize FHLB advances, as well as brokered deposits, to fund loan growth.

First Seacoast Bancorp, Inc. is a separate legal entity from First Seacoast Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations and to fund repurchases of shares of common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At March 31, 2025, the Company (on an unconsolidated basis) had liquid assets of $16.5 million.

At March 31, 2025, First Seacoast Bank exceeded all its regulatory capital requirements. See Note 12 of the unaudited consolidated financial statements appearing under Item 1 of this quarterly report. Management is not aware of any conditions or events that would change First Seacoast Bank’s categorization as well-capitalized.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of March 31, 2025 and December 31, 2024:

As of March 31, 2025:

 

 

Net Portfolio Value ("NPV")

 

 

NPV as Percent of
Portfolio Value of
Assets

 

Basis Point ("bp") Change in Interest Rates

 

Dollar
Amount

 

 

Dollar
Change

 

 

Percent
Change

 

 

NPV
Ratio

 

 

Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

400 bp

 

$

41,748

 

 

$

(32,208

)

 

 

(43.5

)%

 

 

8.6

%

 

$

(462

)

300 bp

 

 

50,450

 

 

 

(23,506

)

 

 

(31.8

)

 

 

10.0

 

 

 

(320

)

200 bp

 

 

58,494

 

 

 

(15,462

)

 

 

(20.9

)

 

 

11.2

 

 

 

(200

)

100 bp

 

 

67,012

 

 

 

(6,944

)

 

 

(9.4

)

 

 

12.4

 

 

 

(82

)

0

 

 

73,956

 

 

 

 

 

 

 

 

 

13.2

 

 

 

 

(100) bp

 

 

78,767

 

 

 

4,811

 

 

 

6.5

 

 

 

13.6

 

 

 

42

 

(200) bp

 

 

80,796

 

 

 

6,840

 

 

 

9.2

 

 

 

13.6

 

 

 

38

 

(300) bp

 

 

80,267

 

 

 

6,311

 

 

 

8.5

 

 

 

13.1

 

 

 

(5

)

(400) bp

 

 

73,850

 

 

 

(106

)

 

 

(0.1

)

 

 

11.9

 

 

 

(132

)

 

45


 

As of December 31, 2024:

 

 

Net Portfolio Value ("NPV")

 

 

NPV as Percent of
Portfolio Value of
Assets

 

Basis Point ("bp") Change in Interest Rates

 

Dollar
Amount

 

 

Dollar
Change

 

 

Percent
Change

 

 

NPV
Ratio

 

 

Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

400 bp

 

$

41,552

 

 

$

(32,138

)

 

 

(43.6

)%

 

 

8.9

%

 

$

(477

)

300 bp

 

 

50,126

 

 

 

(23,564

)

 

 

(32.0

)

 

 

10.3

 

 

 

(332

)

200 bp

 

 

58,086

 

 

 

(15,604

)

 

 

(21.2

)

 

 

11.6

 

 

 

(210

)

100 bp

 

 

66,471

 

 

 

(7,219

)

 

 

(9.8

)

 

 

12.7

 

 

 

(90

)

0

 

 

73,690

 

 

 

 

 

 

 

 

 

13.6

 

 

 

 

(100) bp

 

 

79,465

 

 

 

5,775

 

 

 

7.8

 

 

 

14.2

 

 

 

59

 

(200) bp

 

 

82,581

 

 

 

8,891

 

 

 

12.1

 

 

 

14.4

 

 

 

72

 

(300) bp

 

 

83,028

 

 

 

9,338

 

 

 

12.7

 

 

 

14.1

 

 

 

41

 

(400) bp

 

 

79,737

 

 

 

6,047

 

 

 

8.2

 

 

 

13.2

 

 

 

(45

)

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

The percent changes to NPV in the +200, +300 and +400 bp changes in interest rates was -20.9%, -31.8% and -43.5%, respectively, at March 31, 2025 versus policy limits of -20.0%, -30.0% and -40.0%, respectively. These percent changes were due primarily to the continued migration of deposits during the three months ended March 31, 2025 from less interest-sensitive products such as NOW and demand deposits to products with greater interest rate sensitivity, i.e., money market and time deposits. The percent changes to NPV in the +200, +300 and +400 bp changes in interest rates was -21.2%, -32.0% and -43.6%, respectively, at December 31, 2024 versus policy limits of -20.0%, -30.0% and -40.0%, respectively. These percent changes were due primarily to the migration of deposits during 2024 from less interest-sensitive products such as NOW and demand deposits to products with greater interest rate sensitivity, i.e., money market and time deposits. We monitor our exposure to movements in interest rates regularly and discuss the implementation of strategies we believe will mitigate the negative impact of such movements.

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

In a rising interest rate environment, we would expect that the rates on our deposits and borrowings would reprice upwards faster than the rates on our long-term loans and investments, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income. If interest rates rise, we expect that our economic value of equity would decrease. Economic value of equity represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The Company’s economic value of equity analysis as of March 31, 2025 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Company would experience a 20.9% decrease in economic value of equity which was above the policy limit of 20%. At the same date, our analysis estimated that, in the event of an instantaneous 200 basis point decrease in interest rates, the Company would experience a 9.2% increase in the economic value of equity.

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

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Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. As of March 31, 2025, the Company conducted an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in SEC rules and forms.

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

Changes in Internal Controls over Financial Reporting. During the quarter ended March 31, 2025, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At March 31, 2025, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

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

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

The following table summarizes the Company’s repurchases of its outstanding shares of common stock during the quarter ended March 31, 2025:

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2025 - January 31, 2025

 

 

13,257

 

 

$

10.00

 

 

 

13,257

 

 

 

320,097

 

February 1, 2025 - February 28, 2025

 

 

30,838

 

 

 

10.65

 

 

 

30,838

 

 

 

289,259

 

March 1, 2025 - March 31, 2025

 

 

10,721

 

 

 

10.99

 

 

 

10,721

 

 

 

278,538

 

       Total

 

 

54,816

 

 

 

 

 

 

54,816

 

 

 

 

On April 11, 2024, the board of directors of the Company authorized a stock repurchase program for the repurchase of up to 507,707 shares of common stock, representing approximately 10% of shares then outstanding, which became effective on May 14, 2024. On December 12, 2024, the board of directors of the Company authorized additional stock repurchases, up to 228,858 shares of common stock, under this stock repurchase program. The additional repurchase authorization represents approximately 5% of pro forma outstanding shares assuming the repurchase of the remaining shares subject to the original authorization. The Company conducts repurchases through open market purchases, including by means of a trading plan adopted under SEC Rule 10b5-1, or in privately negotiated transactions, subject to market conditions and other factors. There is no guarantee as to the number of shares that the Company may ultimately repurchase. The program will expire 12 months after the effective date, regardless of whether all shares will have been repurchased. On February 7, 2025, the expiration date of the program was extended to December 3, 2025. The Company may suspend or discontinue the program at any time. The Company holds repurchased shares in its treasury. As of March 31, 2025, the Company has repurchased 458,027 shares under this stock repurchase program.

There were no sales of unregistered securities during the quarter ended March 31, 2025.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended March 31, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).

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Item 6. Exhibits

 

Exhibit

Number

 

Description

 

  31.1

 

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

 

 

  31.2

 

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

 

 

 

  32.1

 

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

 

 

  32.2

 

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

 

 

 

101

 

The following materials for the quarter ended March 31, 2025, formatted in Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Loss, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

104

 

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

 

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SIGNATURES

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

 

 

 

FIRST SEACOAST BANCORP, INC.

 

 

 

 

 

 

Date: May 9, 2025

 

/s/ James R. Brannen

 

 

James R. Brannen

 

 

President and Chief Executive Officer

 

 

 

 

 

 

Date: May 9, 2025

 

/s/ Richard M. Donovan

 

 

Richard M. Donovan

 

 

Executive Vice President and Chief Financial Officer

 

50