ECB Bancorp, Inc. /MD/

Previous wording

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate loans, multifamily real estate loans, construction loans and home equity lines of credit and loans. At December 31, 2023, $410.1 million, or 39.1%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $287.4 million, or 27.4%, of our total loan portfolio was comprised of multifamily real estate loans, $196.4 million, or 18.7%, of our total loan portfolio was comprised of commercial real estate loans, $112.0 million, or 10.7%, of our total loan portfolio was comprised of construction loans, $33.4 million, or 3.2%, of our total loan portfolio was comprised of home equity lines of credit and loans and $9.2 million, or 0.9% of our total loan portfolio was comprised of commercial loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, individual retirement accounts, money market accounts, savings accounts and interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) to fund our operations and we had $234.0 million of FHLB advances outstanding at December 31, 2023. Additionally, in recent years, we have also accepted brokered deposits as a non-retail funding source to fund our operations. At December 31, 2023, we had $115.5 million of brokered deposits.

Current wording

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate loans, multifamily real estate loans, construction loans, home equity lines of credit and loans and commercial loans. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $344.0 million, or 30.0%, of our total loan portfolio was comprised of multifamily real estate loans, $229.0 million, or 20.0%, of our total loan portfolio was comprised of commercial real estate loans, $90.9 million, or 7.9%, of our total loan portfolio was comprised of construction loans, $45.2 million, or 4.0%, of our total loan portfolio was comprised of home equity lines of credit and loans and $13.8 million, or 1.2% of our total loan portfolio was comprised of commercial loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, individual retirement accounts, money market accounts, savings accounts and interest-bearing and noninterest-bearing checking accounts. In addition to customer deposits, in recent years, we have also accepted brokered deposits as a non-retail funding source to supplement our customer deposits and fund our operations. At December 31, 2024, we had $125.6 million of brokered deposits. We also have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) as an additional funding source to fund our operations and we had $234.0 million of FHLB advances outstanding at December 31, 2024.

Previous wording

For the years ended December 31, 2023 and 2022, we had net income of $4.5 million and $2.7 million, respectively. Our 2022 net income was affected by an after-tax charge of $2.3 million related to a charitable contribution to the Everett Co-operative Bank Charitable Foundation. Our current business strategy includes continuing to focus on originating and growing our commercial real estate, multifamily real estate and construction loan portfolios and the origination of one-to-four family residential real estate loans.

Current wording

For the years ended December 31, 2024 and 2023, we had net income of $4.0 million and $4.5 million, respectively. Our current business strategy includes continuing to focus on originating and growing our commercial real estate, multifamily real estate and construction loan portfolios as well as the origination of one-to-four family residential real estate loans and home equity lines of credit and loans. To a lesser extent, we also originate other commercial loans and consumer loans.

Previous wording

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees and service charges, gains on sales of loans and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, computer software and licensing fees, advertising, professional fees, FDIC deposit insurance, charitable contributions and other general and administrative expenses.

Current wording

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees and service charges, gains on sales of loans and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, computer software and licensing fees, advertising, professional fees, FDIC deposit insurance and other general and administrative expenses.

Previous wording

Continuing to focus on enhancing our commercial real estate and multifamily real estate lending. In order to increase the yield on our loan portfolio and reduce the term to maturity of our loan portfolio, we intend to continue our focus on growing the originations of commercial real estate loans and multifamily real estate loans while maintaining what we believe are prudent underwriting standards and we expect that these loan categories will comprise a greater percentage of our total loan portfolio. In order to execute on this strategy, in January 2022 we hired a new Chief Lending Officer as well as some additional commercial lending and credit analyst personnel throughout 2022 and 2023. The capital raised in the offering has and will continue to allow us to increase our commercial lending capacity by enabling us to originate and retain all or a greater portion of loans that we historically participated out to other local institutions. Given that our regulatory loans to one borrower limits have increased with our increase in capital, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to originate and hold in our portfolio. Our commercial real estate and multifamily real estate loan portfolios increased to $196.4 million and $287.4 million, respectively, at December 31, 2023 from $156.2 million and $242.0 million, respectively, at December 31, 2022.

Current wording

Continuing to focus on enhancing our commercial real estate and multifamily real estate lending. In order to increase the yield on our loan portfolio and reduce the term to maturity of our loan portfolio, we intend to continue our focus on growing the originations of commercial real estate loans and multifamily real estate loans while maintaining what we believe are prudent underwriting standards and we expect that these loan categories will comprise a greater percentage of our total loan portfolio. In order to execute on this strategy, in January 2022 we hired a new Chief Lending Officer as well as some additional commercial lending and credit analyst personnel throughout 2022 and 2023. The capital raised in the offering has and will continue to allow us to increase our commercial lending capacity by enabling us to originate and retain all or a greater portion of loans that we historically participated out to other local institutions. Given that our regulatory loans to one borrower limits have increased with our increase in capital, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to originate and hold in our portfolio. Our commercial real estate and multifamily real estate loan portfolios increased to $229.0 million and $344.0 million, respectively, at December 31, 2024 from $196.4 million and $287.4 million, respectively, at December 31, 2023.

Previous wording

Reduced emphasis on one-to-four family residential real estate lending. We have been, and will continue to be, a one-to-four family residential real estate lender for borrowers in our market area and such lending will remain a core focus, but we expect that our lending strategy will result in a decrease to one-to-four family residential loans as a percentage of our total loan portfolio as we increase our focus on commercial real estate and multifamily real estate lending. As of December 31, 2023, $410.1 million, or 39.1%, of our total loan portfolio, consisted of one-to-four family residential real estate loans and at that date an additional $33.4 million, or 3.2%, of our total loan portfolio, consisted of home equity lines of credit and loans. We expect that one-to-four family residential real estate lending will remain one of our primary lending activities.

Current wording

Reduced emphasis on one-to-four family residential real estate lending. We have been, and will continue to be, a one-to-four family residential real estate lender for borrowers in our market area and such lending will remain a core focus, but we expect that our lending strategy will result in a decrease to one-to-four family residential loans as a percentage of our total loan portfolio as we increase our focus on commercial real estate and multifamily real estate lending. As of December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio, consisted of one-to-four family residential real estate loans and at that date an additional $45.2 million, or 4.0%, of our total loan portfolio, consisted of home equity lines of credit and loans. We expect that one-to-four family residential real estate lending will remain one of our primary lending activities.

Previous wording

Maintaining our strong asset quality through prudent loan underwriting. As we seek to grow our loan portfolio, we intend to maintain prudent loan underwriting and credit monitoring processes. At December 31, 2023 and 2022, non-performing assets totaled $1.2 million and $656,000, respectively, which represented 0.09% and 0.06% of total assets at those dates, respectively.

Current wording

Maintaining our strong asset quality through prudent loan underwriting. As we seek to grow our loan portfolio, we intend to maintain prudent loan underwriting and credit monitoring processes. At December 31, 2024 and 2023, non-performing assets totaled $2.0 million and $1.2 million, respectively, which represented 0.14% and 0.09% of total assets at those dates, respectively.

Previous wording

Continuing to attract and retain customers in our market area and build our “core” deposits consisting of interest-bearing and noninterest-bearing checking, savings and money market accounts. Our strategy to enhance and grow our commercial real estate and multifamily real estate lending in a diligent and orderly manner is also designed to encourage relationship banking and increase our core deposits, including noninterest-bearing transaction accounts, and decrease our dependence on certificates of deposit. We plan to leverage our increased focus on commercial real estate and commercial lending efforts to also increase our opportunities to develop commercial business deposit relationships. Additionally, we believe the recent hire of our Senior Vice President of Retail Operations, who brings 36 years of banking experience to our retail sales and administrative team, will be invaluable to the implementation of the added product delivery channels and technological services such as additional electronic and mobile banking applications, which we believe will increase our core deposits.

Current wording

Continuing to attract and retain customers in our market area and build our “core” deposits consisting of interest-bearing and noninterest-bearing checking, savings and money market accounts. Our strategy to enhance and grow our commercial real estate and multifamily real estate lending in a diligent and orderly manner is also designed to encourage relationship banking and increase our core deposits, including noninterest-bearing transaction accounts, and decrease our dependence on certificates of deposit. We plan to leverage our increased focus on commercial real estate and commercial lending efforts to also increase our opportunities to develop commercial business deposit relationships. Additionally, we believe the recent hire of our Senior Vice President of Retail Operations, who brings 38 years of banking experience to our retail sales and administrative team, will be invaluable to the implementation of the added product delivery channels and technological services such as additional electronic and mobile banking applications and cash management services, which we believe will increase our core deposits.

Previous wording

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 U.S. GAAP. The preparation of these consolidated 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 significant 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.

Current wording

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 U.S. GAAP. The preparation of these consolidated 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 significant 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.

Previous wording

As noted above, we consider a number of variables in our evaluation of the adequacy of the allowance for credit losses, with one of the more significant variables being prepayment rates in the various segments of our loan portfolio. Based on our model, if all segments of our loan portfolio experienced a 50% decrease in estimated prepayment rates, our allowance for credit losses as of December 31, 2023 would have increased $1.4 million to $9.9 million, holding all other variables constant.

Current wording

As noted above, we consider a number of variables in our evaluation of the adequacy of the allowance for credit losses, with one of the more significant variables being prepayment rates in the various segments of our loan portfolio. Based on our model, if all segments of our loan portfolio experienced a 50% decrease in estimated prepayment rates and curtailment rates, our allowance for credit losses as of December 31, 2024 would have increased $2.4 million to $11.3 million, holding all other variables constant.

Previous wording

Total Assets. Total assets increased $215.9 million, or 20.3%, to $1.28 billion at December 31, 2023 from $1.06 billion at December 31, 2022. The increase was primarily the result of increases in loans and cash and cash equivalents.

Current wording

Total Assets. Total assets increased $137.8 million, or 10.8%, to $1.42 billion at December 31, 2024 from $1.28 billion at December 31, 2023. The increase was primarily the result of increases in loans and cash and cash equivalents.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $57.0 million, or 91.8%, to $119.0 million at December 31, 2023 from $62.1 million at December 31, 2022. Cash and cash equivalents increased primarily due to increases in deposits and borrowings that were greater than our loan growth as we have focused on maintaining strong levels of liquidity.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $38.6 million, or 32.4%, to $157.6 million at December 31, 2024 from $119.0 million at December 31, 2023. Cash and cash equivalents increased primarily due to increases in deposits that were greater than our loan growth as we have focused on maintaining strong levels of liquidity.

Previous wording

Multi-family real estate loans increased $45.4 million, to $287.4 million at December 31, 2023 from $242.0 million at December 31, 2022; and

Current wording

Multi-family real estate loans increased $56.6 million, or 19.7%, to $344.0 million at December 31, 2024, from $287.4 million at December 31, 2023.

Previous wording

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $9.9 million and $7.3 million at December 31, 2023 and 2022, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. Accordingly, the increase in the FHLB stock is due to increased borrowing.

Current wording

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $10.0 million and $9.9 million at December 31, 2024 and 2023, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets.

Previous wording

Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $405,000, or 2.9%, to $14.5 million at December 31, 2023 from $14.1 million at December 31, 2022. The increase was due to a $405,000 increase in cash surrender value of our bank-owned life insurance portfolio during the year ended December 31, 2023.

Current wording

Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $473,000, or 3.3%, to $14.9 million at December 31, 2024 from $14.5 million at December 31, 2023. The increase was due to an increase in cash surrender value of our bank-owned life insurance portfolio during the year ended December 31, 2024.

Previous wording

Deposits. Deposits increased $150.1 million, or 20.9%, to $868.2 million at December 31, 2023 from $718.1 million at December 31, 2022.

Current wording

Deposits. Deposits increased $130.3 million, or 15.0%, to $998.5 million at December 31, 2024 from $868.2 million at December 31, 2023.

Previous wording

Certificates of deposit increased $178.7 million, or 55.9%, to $498.5 million at December 31, 2023 from $319.8 million at December 31, 2022;

Current wording

Certificates of deposit increased $107.0 million, or 21.5%, to $605.5 million at December 31, 2024 from $498.5 million at December 31, 2023;

Previous wording

Money market deposit accounts decreased $4.7 million, or 3.5%, from $136.1 million at December 31, 2022 to $131.4 million at December 31, 2023.

Current wording

Money market deposit accounts increased $53.2 million, or 40.5%, to $184.6 million at December 31, 2024 from $131.4 million at December 31, 2023;

Previous wording

Demand deposit accounts decreased $6.6 million, or 7.7%, to $78.3 million at December 31, 2023 from $84.9 million at December 31, 2022; and

Current wording

Demand deposit accounts increased $6.6 million, or 8.4%, to $85.0 million at December 31, 2024 from $78.3 million at December 31, 2023;

Previous wording

Savings accounts decreased $10.5 million, or 7.1%, to $137.8 million at December 31, 2023 from $148.4 million at December 31, 2022;

Current wording

Savings accounts decreased $34.9 million, or 25.3%, to $102.9 million at December 31, 2024 from $137.8 million at December 31, 2023; and

Previous wording

Interest-bearing checking accounts decreased $6.8 million, or 23.4%, to $22.2 million at December 31, 2023 from $28.9 million at December 31, 2022;

Current wording

Interest-bearing checking accounts decreased $1.6 million, or 7.3%, to $20.5 million at December 31, 2024 from $22.2 million at December 31, 2023.

Previous wording

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank increased $60.0 million, or 34.5%, to $234.0 million at December 31, 2023 from $174.0 million at December 31, 2022. The increase in FHLB advances was utilized to support loan growth and enhance liquidity.

Current wording

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank remained the same at $234.0 million at December 31, 2024 and December 31, 2023.

Previous wording

Shareholders’ Equity. Total shareholders’ equity increased $2.2 million, or 1.3%, to $164.9 million at December 31, 2023 from $162.7 million at December 31, 2022. The increase was primarily due to net income of $4.5 million for the year ended December 31, 2023 partially offset by a $678,000 reduction in retained earnings related to adoption of CECL and a $2.2 million reduction in additional paid-in-capital related to share repurchases.

Current wording

Shareholders’ Equity. Total shareholders’ equity increased $3.4 million, or 2.0%, to $168.3 million at December 31, 2024 from $164.9 million at December 31, 2023. This increase is primarily the result of net income of $4.0 million and a $1.5 million increase in additional paid-in capital related to stock-based compensation. Partially offsetting this was a decrease in additional paid-in capital of $2.7 million related to shares repurchased under our share repurchase plan. The book value per share increased $0.75 to $18.50 at December 31, 2024 from $17.75 at December 31, 2023.

Previous wording

Net Income. Net income was $4.5 million for the year ended December 31, 2023, compared to net income of $2.7 million for the year ended December 31, 2022, an increase of $1.7 million, or 63.8%.

Current wording

Net Income. Net income was $4.0 million for the year ended December 31, 2024, compared to net income of $4.5 million for the year ended December 31, 2023, a decrease of $465,000, or 10.4%.

Previous wording

Interest and Dividend Income. Interest and dividend income increased $25.6 million, or 87.9%, to $54.8 million for the year ended December 31, 2023 from $29.2 million for the year ended December 31, 2022 due to a $21.4 million increase in interest and fees on loans, a $1.2 million increase in interest and dividends on securities and a $3.0 million increase in other interest income. The increase in interest and fees on loans was driven by an increase of $351.5 million in the average balance of the loan portfolio to $994.8 million for the year ended December 31, 2023 from $643.3 million for the year ended December 31, 2022, as well as an increase in the yield of 67 basis points to 4.86% during the year ended December 31, 2023 from 4.19% during the year ended December 31, 2022. The yield for the year ended December 31, 2023 benefited from new loans with higher rates as well as adjustable-rate loans repricing higher. Interest and dividends on securities increased $1.2 million, or 81.5%, to $2.7 million for the year ended December 31, 2023 from $1.5 million for the year ended December 31, 2022. This increase was driven by an increase in the yield of investment securities of 71 basis points to 2.56% for the year ended December 31, 2023, from 1.85% for the year ended December 31, 2022 resulting from the higher market interest rate environment, as well as an increase in the average balance of $6.3 million from $75.0 million during the year ended December 31, 2022 to $81.3 million during the year ended December 31, 2023. Other interest income increased $3.0 million, or 423.8% to $3.7 million for the year ended December 31, 2023 from $715,000 for the year ended December 31, 2022. This increase was due to the yield on short-term investments increasing by 3.5% to 5.21% for the year ended December 31, 2023 from 1.71% for the year ended December 31, 2022. The increase in yield was driven by increases in the rate paid on reserves at the Federal Reserve Bank.

Current wording

Interest and Dividend Income. Interest and dividend income increased $12.3 million, or 22.4%, to $67.0 million for the year ended December 31, 2024 from $54.8 million for the year ended December 31, 2023 due to a $9.5 million increase in interest and fees on loans, a $485,000 increase in interest and dividends on securities and a $2.3 million increase in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $109.5 million in the average balance of the loan portfolio to $1.10 billion for the year ended December 31, 2024 from $994.8 million for the year ended December 31, 2023, as well as an increase in the yield of 38 basis points to 5.24% during the year ended December 31, 2024 from 4.86% during the year ended December 31, 2023. The yield for the year ended December 31, 2024 benefited from new loans with higher rates as well as loans repricing higher. Interest and dividends on securities increased $485,000, or 18.0%, to $3.2 million for the year ended December 31, 2024 from $2.7 million for the year ended December 31, 2023. This increase was driven by an increase in the yield of investment securities of 39 basis points to 2.95% for the year ended December 31, 2024, from 2.56% for the year ended December 31, 2023 resulting from the higher market interest rate environment, partially offset by a decrease in the average balance of $1.2 million from $81.3 million during the year ended December 31, 2023 to $80.1 million during the year ended December 31, 2024. Interest on short term investments increased $2.3 million, or 60.4% to $6.0 million for the year ended December 31, 2024 from $3.7 million for the year ended December 31, 2023. This increase was driven by the average balance of short-term investments increasing $42.4 million to $114.3 million for the year ended December 31, 2024 from $71.9 million for the year ended December 31, 2023.

Previous wording

Average interest-earning assets increased $387.8 million to $1.15 billion for the year ended December 31, 2023 from $760.3 million for the year ended December 31, 2022. The yield on interest earning-assets increased 90 basis points to 4.72% for the year ended December 31, 2023 from 3.82% for the year ended December 31, 2022.

Current wording

Average interest-earning assets increased $150.6 million to $1.30 billion for the year ended December 31, 2024 from $1.15 billion for the year ended December 31, 2023. The yield on interest earning-assets increased 38 basis points to 5.10% for the year ended December 31, 2024 from 4.72% for the year ended December 31, 2023.

Previous wording

Interest Expense. Total interest expense increased $24.5 million, or 443.7%, to $30.0 million for the year ended December 31, 2023 from $5.5 million for the year ended December 31, 2022. Interest expense on deposit accounts increased $16.8 million, or 369.0%, to $21.4 million for the year ended December 31, 2023 from $4.6 million for the year ended December 31, 2022, due to an increase in the weighted average rate on interest-bearing deposits of 220 basis points to 3.05% for the year ended December 31, 2023 from 0.85% for the year ended December 31, 2022, as well as an increase in the average balance of interest-bearing deposits of $164.4 million, or 30.6%, to $702.5 million for the year ended December 31, 2023 from $538.1 million for the year ended December 31, 2022.

Current wording

Interest Expense. Total interest expense increased $12.1 million, or 40.3%, to $42.1 million for the year ended December 31, 2024 from $30.0 million for the year ended December 31, 2023. Interest expense on deposit accounts increased $12.0 million, or 56.1%, to $33.4 million for the year ended December 31, 2024 from $21.4 million for the year ended December 31, 2023, due to an increase in the average balance of interest-bearing deposits of $155.8 million, or 22.2%, to $858.4 million for the year ended December 31, 2024 from $702.5 million for the year ended December 31, 2023, as well as an increase in the weighted average rate on interest-bearing deposits of 85 basis points to 3.90% for the year ended December 31, 2024 from 3.05% for the year ended December 31, 2023.

Previous wording

Interest expense on Federal Home Loan Bank advances increased $7.6 million, or 804.3%, to $8.6 million for the year ended December 31, 2023 from $948,000 for the year ended December 31, 2022. The average balance of Federal Home Loan Bank advances increased $177.9 million, or 446.4%, to $217.8 million for the year ended December 31, 2023 from $39.9 million for the year ended December 31, 2022. The increase in FHLB advances was used to fund loan growth and for liquidity management. For the year ended December 31, 2023, the weighted average cost of Federal Home Loan Bank Advances was 3.94%, as compared to 2.38% for the year ended December 31, 2022.

Current wording

Interest expense on Federal Home Loan Bank advances increased $49,000, or 0.57%, to $8.62 million for the year ended December 31, 2024 from $8.57 million for the year ended December 31, 2023. The average balance of Federal Home Loan Bank advances decreased $684,000, or 0.3%, to $217.1 million for the year ended December 31, 2024 from $217.8 million for the year ended December 31, 2023. For the year ended December 31, 2024, the weighted average cost of Federal Home Loan Bank Advances was 3.97%, as compared to 3.94% for the year ended December 31, 2023.

Previous wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $803,000 was recorded for the year ended December 31, 2023 in accordance with the CECL standard, compared to a provision for credit losses of $2.9 million for the year ended December 31, 2022 in accordance with the incurred loss methodology standard. The $2.1 million, or 72.7%, decrease in the provision was driven by lower loan growth during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Current wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $174,000 was recorded for the year ended December 31, 2024 in accordance with the CECL standard, compared to a provision for credit losses of $803,000 for the year ended December 31, 2023. The $629,000, or 78.3%, decrease in the provision was driven by lower loan growth during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Previous wording

Noninterest Expense. Noninterest expense increased $447,000, or 2.4%, to $19.1 million for the year ended December 31, 2023 from $18.6 million for the year ended December 31, 2022. Significant changes are as follows:

Current wording

Noninterest Expense. Noninterest expense increased $1.6 million, or 8.5%, to $20.7 million for the year ended December 31, 2024 from $19.1 million for the year ended December 31, 2023. Significant changes are as follows:

Previous wording

Director compensation increased $152,000, or 35.4%, driven by $103,000 in stock-based compensation recorded in the year ended December 31, 2023, related to the 2023 Equity Incentive Plan. There were no stock-based compensation costs in 2022 related to this plan;

Current wording

Director compensation increased $253,000, or 43.5%, driven by $332,000 in stock-based compensation recorded in the year ended December 31, 2024, as compared to $103,000 in stock-based compensation costs recorded during the year ended December 31, 2023. The director stock awards were granted at the end of the third quarter of 2023; and

Previous wording

Income Tax Expense. Income tax expense increased $753,000, or 97.0%, to $1.5 million for the year ended December 31, 2023 from $776,000 for the year ended December 31, 2022. The effective tax rate was 25.5% and 22.2% for the years ended December 31, 2023 and 2022, respectively. The lower effective tax rate in 2022 was driven by non-taxable death benefits received on bank-owned life insurance.

Current wording

Income Tax Expense. Income tax expense decreased $149,000, or 9.7%, to $1.4 million for the year ended December 31, 2024 from $1.5 million for the year ended December 31, 2023. The effective tax rate was 25.7% and 25.5% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

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

Current wording

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Average balances are daily average balances. The Company has no tax-equivalent yield adjustments. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

Previous wording

Excludes interest and dividends on cost method investments of $622,000 and $101,000 for the years ended December 31, 2023 and December 31, 2022, respectively.

Current wording

Excludes interest and dividends on cost method investments of $823,000 and $622,000 for the years ended December 31, 2024 and 2023, respectively.

Previous wording

managing our utilization of wholesale funding with borrowings from the Federal Home Loan Bank and brokered deposits in a prudent manner; and

Current wording

managing our utilization of wholesale funding with borrowings from the Federal Home Loan Bank and brokered deposits in a prudent manner;

Previous wording

continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments.

Current wording

continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments; and

Previous wording

Historically we had not engaged in hedging activities, such as engaging in swaps, futures or options. Beginning in January of 2024 we have begun to utilize interest rate swaps to help manage our interest rate risk.

Current wording

beginning in January of 2024 we began to utilize interest rate swaps to help manage our interest rate risk.

Previous wording

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below.

Current wording

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income sensitivity model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below.

Previous wording

The tables above indicate that at December 31, 2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a decrease in net interest income of 1.8%, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 7.9% decrease in net interest income.

Current wording

The tables above indicate that at December 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a decrease in net interest income of 4.2%, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.2% decrease in net interest income.

Previous wording

The table above indicates that at December 31, 2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 53.6% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 16.9% increase in EVE.

Current wording

The table above indicates that at December 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience an 18.7% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 13.6% increase in EVE.

Previous wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston. At December 31, 2023, we had outstanding advances of $234.0 million from the Federal Home Loan Bank. At December 31, 2023, we had unused borrowing capacity of $200.8 million with the Federal Home Loan Bank and $10.0 million with the Atlantic Community Bankers Bank.

Current wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At December 31, 2024, we had outstanding advances of $234.0 million from the Federal Home Loan Bank. At December 31, 2024, we had unused borrowing capacity of $328.5 million with the Federal Home Loan Bank, $15.1 million with Federal Reserve Bank and $10.0 million with the Atlantic Community Bankers Bank.