ECB Bancorp, Inc. /MD/

Previous wording

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

Current wording

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

Previous wording

Management’s discussion and analysis of the financial condition at March 31, 2025 compared to December 31, 2024 and results of operations for the three months ended March 31, 2025 and 2024 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

Current wording

Management’s discussion and analysis of the financial condition at June 30, 2025 compared to December 31, 2024 and results of operations for the three and six months ended June 30, 2025 and 2024 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

Previous wording

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

Current wording

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

Previous wording

Total Assets. Total assets were $1.45 billion at March 31, 2025, as compared to $1.42 billion at December 31, 2024, or an increase of $34.0 million, or 2.4%.

Current wording

***Total Assets.***Total assets were $1.52 billion at June 30, 2025, as compared to $1.42 billion at December 31, 2024, or an increase of $96.9 million, or 6.8%.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents were $148.1 million at March 31, 2025, as compared to $157.6 million at December 31, 2024, or a decrease of $9.5 million, or 6.0%. The decrease in cash and cash equivalents was driven by growth in both loans and investments that in aggregate, was greater than our growth in deposits.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents decreased $59.0 million, or 37.4%, to $98.7 million at June 30, 2025 from $157.6 million at December 31, 2024. The decrease in cash and cash equivalents was driven by growth in both loans and investments that in aggregate, was greater than our growth in deposits and borrowings.

Previous wording

Investment Securities Available for Sale. Investments in securities available for sale were $14.0 million at March 31, 2025, as compared to $6.6 million at December 31, 2024, or an increase of $7.4 million, or 112.5%. This increase was due to purchases of securities.

Current wording

Investment Securities Available for Sale. Investments in securities available for sale were $20.0 million at June 30, 2025, as compared to $6.6 million at December 31, 2024, or an increase of $13.5 million, or 205.3%. This increase was due to purchases of new securities.

Previous wording

Investment Securities Held to Maturity. Investments in securities held to maturity were $68.1 million at March 31, 2025, as compared to $73.2 million at December 31, 2024, or a decrease of $5.1 million, or 7.0%. This decrease was due to maturities of securities.

Current wording

Investment Securities Held to Maturity. Investments in securities held to maturity were $66.8 million at June 30, 2025, as compared to $73.2 million at December 31, 2024, or a $6.4 million, or 8.7%, decrease. This decrease was due to maturities of securities.

Previous wording

Loans. Total gross loans were $1.19 billion at March 31, 2025, as compared to $1.15 billion at December 31, 2024, or an increase of $41.1 million, or 3.6%.

Current wording

Loans. Total gross loans were $1.29 billion at June 30, 2025, as compared to $1.15 billion at December 31, 2024, or an increase of $146.5 million, or 12.8%.

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 $10.0 million at March 31, 2025 and December 31, 2024.

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 $11.3 million and $10.0 million at June 30, 2025 and December 31, 2024, respectively. Accordingly, the increase in the FHLB stock is due to increased borrowings.

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 $116,000, or 0.8%, to $15.1 million at March 31, 2025 from $14.9 million at December 31, 2024. The increase was due to an increase of $116,000 in the cash surrender value of our bank-owned life insurance portfolio during the three months ended March 31, 2025.

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 $233,000, or 1.6%, to $15.2 million at June 30, 2025 from $14.9 million at December 31, 2024. The increase was due to an increase of $233,000 in the cash surrender value of our bank-owned life insurance portfolio during the six months ended June 30, 2025.

Previous wording

Deposits. Total deposits were $1.04 billion at March 31, 2025, as compared to $998.5 million at December 31, 2024, or an increase of $38.1 million, or 3.8%.

Current wording

Deposits. Total deposits were $1.07 billion at June 30, 2025, as compared to $998.5 million at December 31, 2024, or an increase of $68.9 million, or 6.9%.

Previous wording

Core deposits (defined as all deposits other than certificates of deposit) increased $6.7 million, or 1.7%, to $399.7 million at March 31, 2025 from $393.0 million at December 31, 2024.

Current wording

Core deposits (defined as all deposits other than certificates of deposit) increased $18.1 million, or 4.6%, to $411.1 million at June 30, 2025 from $393.0 million at December 31, 2024.

Previous wording

Shareholders' Equity. Total shareholders' equity increased $310,000, or 0.2%, to $168.6 million as of March 31, 2025 from $168.3 million as of December 31, 2024. This increase is primarily the result of earnings of $1.3 million. Partially offsetting the increase from earnings were decreases in additional paid-in capital ("APIC") and accumulated other comprehensive income ("AOCI") of $310,000 and $767,000, respectively. The decrease in APIC was driven by $672,000 in shares repurchased under our share repurchase plan, partially offset by an increase in APIC of $362,000 related to stock-based compensation and ESOP shares committed to be released. The decrease in AOCI was driven by a decrease in the fair value of cash flow hedges. Our book value per share increased by $0.13 to $18.63 at March 31, 2025 from $18.50 at December 31, 2024.

Current wording

Shareholders' Equity. Total shareholders' equity increased $9,000, or 0.01%, to $168.3 million as of June 30, 2025 from $168.3 million as of December 31, 2024. This increase is primarily the result of earnings of $2.7 million and $877,000 related to stock-based compensation and ESOP shares committed to being released. Substantially offsetting these increases were $1.5 million of other comprehensive losses and $2.1 million related to shares repurchased under our share repurchase plan. Our book value per share increased by $0.31 to $18.81 at June 30, 2025 from $18.50 at December 31, 2024.

Previous wording

Net Income. We recorded net income of $1.3 million for the three months ended March 31, 2025, compared to net income of $621,000 for the three months ended March 31, 2024, or an increase of $676,000, or 108.9% in net income.

Current wording

Net Income. We recorded net income of $1.4 million for the three months ended June 30, 2025, compared to net income of $791,000 for the three months ended June 30, 2024, or an increase of $649,000, or 82.0% in net income.

Previous wording

Interest and Dividend Income. Interest and dividend income increased $1.9 million, or 12.3%, to $17.6 million for the three months ended March 31, 2025 from $15.7 million for the three months ended March 31, 2024. This increase was due to a $1.7 million increase in interest and fees on loans, an $89,000 increase in interest and dividends on investment securities and a $141,000 increase in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $100.0 million in the average balance of the loan portfolio to $1.16 billion for the three months ended March 31, 2025 from $1.06 billion for the three months ended March 31, 2024, as well as an increase in the average yield of 19 basis points to 5.30% during the three months ended March 31, 2025 from 5.11% during the three months ended March 31, 2024. The yield for the three months ended March 31, 2025 benefited from new loans with higher rates. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 59 basis points to 3.37% during the three months ended March 31, 2025 from 2.78% during the three months ended March 31, 2024. The increase in interest on short term investments was driven by an increase of $39.3 million in the average balance of short term investments to $148.3 million for the three months ended March 31, 2025 from $109.0 million for the three months ended March 31, 2024, partially offset by a decrease in the yield of 103 basis points to 4.45% for three months ended March 31, 2025, from 5.48% for three months ended March 31, 2024.

Current wording

Interest and Dividend Income. Interest and dividend income increased $2.7 million, or 16.6%, to $19.1 million for the three months ended June 30, 2025 from $16.4 million for the three months ended June 30, 2024. This increase was due to a $2.7 million increase in interest and fees on loans and a $215,000 increase in interest and dividends on investment securities. The increase in interest and fees on loans was driven by an increase of $147.3 million in the average balance of the loan portfolio to $1.24 billion for the three months ended June 30, 2025 from $1.10 billion for the three months ended June 30, 2024, as well as an increase in the average yield of 23 basis points to 5.43% during the three months ended June 30, 2025 from 5.20% during the three months ended June 30, 2024. The yield for the three months ended June 30, 2025 benefited from new loans with higher rates. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 84 basis points to 3.70% during the three months ended June 30, 2025 from 2.86% during the three months ended June 30, 2024 as well as an increase of $8.5 million in the average balance of the investment portfolio to $88.0 million for the three months ended June 30, 2025 from $79.6 million for the three months ended June 30, 2024. The decrease in interest income on short term investments was driven by a decrease in the yield on short term investments of 106 basis points to 4.42% during the three months ended June 30, 2025 from 5.48% during the three months ended June 30, 2024, partially offset by an increase of $7.6 million in the average balance of short term investments to $112.8 million for the three months ended June 30, 2025 from $105.2 million for the three months ended June 30, 2024.

Previous wording

Interest Expense. Total interest expense increased $1.2 million, or 12.1%, to $11.0 million for the three months ended March 31, 2025 from $9.8 million for the three months ended March 31, 2024. Interest expense on deposit accounts increased $1.3 million, or 17.7%, to $8.9 million for the three months ended March 31, 2025 from $7.5 million for the three months ended March 31, 2024, primarily due to an increase in the average balance of interest-bearing deposits of $144.5 million, or 18.1%, to $944.4 million for the three months ended March 31, 2025 from $799.9 million for the three months ended March 31, 2024 as well as an increase in the cost of interest bearing deposits of 2 basis points to 3.80% for the three months ended March 31, 2025 from 3.78% for the three months ended March 31, 2024. Interest expense on FHLB advances decreased $153,000, or 6.7%, to $2.1 million for the three months ended March 31, 2025 from $2.3 million for the three months ended March 31, 2024, primarily due to a decrease in the average balance of FHLB advances of $10.1 million, or 4.4%, to $217.1 million for the three months ended March 31, 2025 from $227.2 million for the three months ended March 31, 2024 as well as a decrease in the cost of FHLB advances of 6 basis points to 3.95% for the three months ended March 31, 2025 from 4.01% for the three months ended March 31, 2024.

Current wording

Interest Expense. Total interest expense increased $1.1 million, or 10.3%, to $11.4 million for the three months ended June 30, 2025 from $10.4 million for the three months ended June 30, 2024. Interest expense on deposit accounts increased $963,000, or 11.8%, to $9.1 million for the three months ended June 30, 2025 from $8.2 million for the three months ended June 30, 2024, primarily due to an increase in the average balance of interest-bearing deposits of $140.5 million, or 16.7%, to $979.2 million for the three months ended June 30, 2025 from $838.7 million for the three months ended June 30, 2024, partially offset by a decrease in the cost of interest bearing deposits of 17 basis points to 3.74% for the three months ended June 30, 2025 from 3.91% for the three months ended June 30, 2024. Interest expense on FHLB advances increased $105,000, or 4.7%, to $2.3 million for the three months ended June 30, 2025 from $2.2 million for the three months ended June 30, 2024, primarily due to an increase in the average balance of FHLB advances of $13.0 million, or 5.8%, to $236.1 million for the three months ended June 30, 2025 from $223.1 million for the three months ended June 30, 2024, partially offset by a decrease in the cost of FHLB advances of 5 basis points to 3.94% for the three months ended June 30, 2025 from 3.99% for the three months ended June 30, 2024.

Previous wording

Net Interest and Dividend Income. Net interest and dividend income increased $745,000, or 12.6%, to $6.6 million for the three months ended March 31, 2025 from $5.9 million for the three months ended March 31, 2024, primarily due to a $5.2 million increase in the average balance of net interest-earning assets during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 as well as an increase in the interest rate spread of 11 basis points to 1.27% for three months ended March 31, 2025 from 1.16% for the three months ended March 31, 2024. The resulting net interest margin expanded by five basis points to 1.89% for the three months ended March 31, 2025 as compared to 1.84% for the three months ended March 31, 2024.

Current wording

Net Interest and Dividend Income. Net interest and dividend income increased $1.6 million, or 27.4%, to $7.7 million for the three months ended June 30, 2025 from $6.0 million for the three months ended June 30, 2024, primarily due to a $163.4 million increase in the average balance of interest-earning assets during the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 as well as an increase in the net interest margin of 26 basis points to 2.08% for three months ended June 30, 2025 from 1.82% for the three months ended June 30, 2024.

Previous wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the benefit for credit losses was $10,000 for the three months ended March 31, 2025 compared to provision expense of $147,000 for the three months ended March 31, 2024.

Current wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses was $1.1 million for the three months ended June 30, 2025, as compared to $292,000 for the three months ended June 30, 2024. The increase in the provision for credit losses was driven by greater loan growth during the three months ended June 30, 2025 than in the three months ended June 30, 2024.

Previous wording

Noninterest Income. Noninterest income was $271,000 for the three months ended March 31, 2025, as compared to $307,000 for the three months ended March 31, 2024, or a decrease of $36,000, or 11.7%. The decrease was primarily due to decreases in net gains on sales of loans as we did not sell any loans during the three months ended March 31, 2025. The table below sets forth our noninterest income for three months ended March 31, 2025 and 2024:

Current wording

Noninterest Income. Noninterest income was $355,000 for the three months ended June 30, 2025, as compared to $289,000 for the three months ended June 30, 2024, or an increase of $66,000, or 22.8%. The table below sets forth our noninterest income for three months ended June 30, 2025 and 2024:

Previous wording

Income Tax Expense. Income tax expense increased $213,000, or 100.9%, to $424,000 for the three months ended March 31, 2025 from $211,000 for the three months ended March 31, 2024. The effective tax rate was 24.6% and 25.4% for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Income Tax Expense. Income tax expense increased $203,000, or 74.6%, to $475,000 for the three months ended June 30, 2025 from $272,000 for the three months ended June 30, 2024. The effective tax rate was 24.8% and 25.6% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

(1) Excludes interest and dividends on cost method investments of $181,000 and $207,000 for the three months ended March 31, 2025 and 2024, respectively.

Current wording

(1) Excludes interest and dividends on cost method investments of $182,000 and $214,000 for the three months ended June 30, 2025 and 2024, respectively.

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, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At March 31, 2025, we had outstanding advances of $234.0 million from the Federal Home Loan Bank. At March 31, 2025, we had unused borrowing capacity of $328.3 million with the Federal Home Loan Bank, $16.8 million with the Federal Reserve 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 June 30, 2025, we had outstanding advances of $264.8 million from the Federal Home Loan Bank. At June 30, 2025, we had unused borrowing capacity of $316.7 million with the Federal Home Loan Bank, $16.8 million with the Federal Reserve Bank and $15.0 million with the Atlantic Community Bankers Bank.

Previous wording

At March 31, 2025, we had $31.0 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $89.0 million in unused lines of credit to borrowers and $52.4 million in unadvanced construction loans.

Current wording

At June 30, 2025, we had $18.5 million in loan commitments outstanding. In addition to commitments to originate loans, we had $87.3 million in unused lines of credit to borrowers and $60.1 million in unadvanced construction loans.

Previous wording

Non brokered certificates of deposit due within one year of March 31, 2025 totaled $383.9 million, or 37.0%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2026, or on our savings and money market accounts.

Current wording

Non brokered certificates of deposit due within one year of June 30, 2025 totaled $415.6 million, or 38.9%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2026, or on our savings and money market accounts.

Previous wording

Our primary investing activity is originating loans. During the three months ended March 31, 2025 and the year ended December 31, 2024, we originated and purchased $54.9 million and $160.4 million of loans, respectively.

Current wording

Our primary investing activity is originating loans. During the six months ended June 30, 2025 and the year ended December 31, 2024, we originated$179.7 million and $160.4 million of loans, respectively.

Previous wording

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $38.1 million and $130.3 million for the three months ended March 31, 2025 and the year ended December 31, 2024, respectively. At March 31, 2025 and December 31, 2024, the level of brokered time deposits was $133.9 million and $125.6 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. At March 31, 2025 and December 31, 2024, the level of FHLB advances was $234.0 million.

Current wording

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $68.9 million and $130.3 million for the six months ended June 30, 2025 and the year ended December 31, 2024, respectively. At June 30, 2025 and December 31, 2024, the level of brokered time deposits was $123.9 million and $125.6 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. At June 30, 2025 and December 31, 2024, the level of FHLB advances was $264.8 million and $234.0 million, respectively.

Previous wording

For additional information, see the consolidated statements of cash flows for the three months ended March 31, 2025 and 2024 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.

Current wording

For additional information, see the consolidated statements of cash flows for the six months ended June 30, 2025 and 2024 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.