What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-29 compared with 2023-03-24 · 1038 added, 814 removed, 1122 unchanged (62% of the section changed)

Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities.

The Company's common stock has been listed on The Nasdaq Capital Market under the symbol “FSEA”

since January 20, 2023.

Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities.

The Company's common stock has been listed on The Nasdaq Capital Market under the symbol “FSEA” since January 20, 2023.

As of March 22, 2024, we had 342 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 5,077,164 shares of common stock outstanding.

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The Federal Reserve Board has issued a policy statement providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition.

Regulatory guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition.

In addition, First Seacoast Bank's ability to pay dividends will be limited if it does not have the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to stockholders.

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Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Federal Deposit Insurance Corporation, may be paid in addition to, or in lieu of, regular cash dividends.

On September 30, 2020, the board of directors of First Seacoast Bancorp (a federal corporation), predecessor to the Company, authorized the repurchase of up to 136,879 shares of common stock of First Seacoast Bancorp (a federal corporation).

As of December 31, 2022, First Seacoast Bancorp (a federal corporation) had repurchased 136,879 shares of its common stock.

During the quarter ended December 31, 2022, First Seacoast Bancorp (a federal Corporation) did not repurchase any shares of its common stock.

On September 23, 2020, the board of directors of First Seacoast Bancorp (a federal corporation), predecessor to the Company, authorized the repurchase of up to 114,403 shares of common stock (adjusted for conversion of First Seacoast Bancorp, Inc.) of First Seacoast Bancorp (a federal corporation).

As of December 31, 2022, First Seacoast Bancorp (a federal corporation) had repurchased 114,403 shares of its common stock (adjusted for conversion of First Seacoast Bancorp, Inc.).

The repurchase program of First Seacoast Bancorp (a federal corporation) was terminated effective January 19, 2023, in connection with the consummation of the conversion of First Seacoast Bancorp, MHC from mutual to stock form.

The Company did not repurchase any shares of its common stock during the quarter ended December 31, 2023.

There were no sales of unregistered securities during the year ended December 31, 2023.

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

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations.

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The following tables set forth selected historical financial and other data for the Company at the dates and for the periods indicated.

The following information is only a summary and should be read in conjunction with our consolidated financial statements and the notes thereto beginning on page 42 of this annual report.

The following information is only a summary and should be read in conjunction with our consolidated financial statements and the notes thereto of this annual report.

The information at and for the years ended December 31, 2023 and 2022 is derived in part from the audited consolidated financial statements included in this annual report.

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Net interest and dividend income

Provision for loan losses

Net interest and dividend income after provision for loan losses

Non-interest income

Provision for credit losses

Net interest and dividend income after provision for credit losses

Non-interest (loss) income

Non-interest expense

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense

(Loss) income before income tax expense (benefit)

Income tax expense (benefit)

Net (loss) income

Share Data (1) :

Average shares outstanding, basic

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Diluted (loss) earnings per share

(1) Adjusted for conversion of the former First Seacoast Bancorp, MHC.

At or For the Year Ended December 31,

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Asset Quality Ratios:

Allowance for loan losses as a percent of total loans

Allowance for loan losses as a percent of

Allowance for credit losses on loans as a percent of total loans

Allowance for credit losses on loans as a percent of

non-performing loans

Net recoveries (charge-offs) as a percent of average

Net recoveries as a percent of average

outstanding loans during the year

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Number of full-time equivalent employees

(1) Represents net income divided by average total assets.

(2) Represents net income divided by average equity.

(1) Represents net loss divided by average total assets.

(2) Represents net loss divided by average equity.

(3) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.

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(6) Represents average equity divided by average total assets.

COVID-19 Pandemic

On March 11, 2020, the world health organization declared the outbreak of COVID-19 a global pandemic.

Since then, the COVID-19 pandemic has continued to evolve and mutate, including through its variants, and has adversely affected, and may continue to adversely affect, local, national and global economic activity.

Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, localized quarantines and government-mandated closures of certain businesses.

While certain of these restrictions have been loosened, the same or new restrictions may be implemented again.

Although vaccines for COVID-19 have largely been made available in the U.S., the ultimate efficacy of the vaccines will depend on various factors including, the number of people who receive the vaccines as well as the vaccines’

effectiveness against contracting and spreading COVID-19 and any of its existing or new variants.

While management has taken measures to mitigate the impact of the pandemic on the Company, such as temporary branch closures, transitioning to a more remote work environment and participation in government stimulus programs, the long-term impact to the Company remains uncertain.

We continue to monitor the impact of COVID-19 closely;

however, the extent to which the COVID-19 pandemic will impact our operations and financial results is uncertain.

Business Strategy

We believe we enjoy a strong, positive reputation among our customers and in our market area.

We believe our name change to “First Seacoast Bank”

in 2019 enhanced our brand and market visibility and associates us by name with the market area and communities we serve.

We believe our name change to “First Seacoast Bank” in 2019 enhanced our brand and market visibility and associates us by name with the market area and communities we serve.

As a community-oriented financial institution, we focus on serving the financial needs of local individuals and businesses by executing a safe and sound, service-oriented business strategy that seeks to produce earnings that increase over time and can be reinvested in our business and communities.

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Historically, our principal business activity has been the origination of one- to four-family residential mortgage loans.

In recent years, we have sought to supplement these originations by focusing on originating higher yielding commercial real estate loans (including owner-occupied and non-owner-occupied commercial real estate and multi-family real estate loans), construction loans, commercial and industrial loans and home equity loans and lines of credit.

In recent years, we have sought to supplement these originations by focusing on originating higher

yielding commercial real estate loans (including owner-occupied and non-owner-occupied commercial real estate and multi-family real estate loans), construction loans, commercial and industrial loans and home equity loans and lines of credit.

We intend to remain as a residential mortgage lender in our market area while continuing to increase our focus on originating commercial real estate and commercial and industrial loans.

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Core deposits were 77.5% of our total deposits at December 31, 2023.

We also rely on higher cost Federal Home Loan Bank borrowings as a supplemental funding source.

At December 31, 2022, our ratio of net loans to deposits was 104.3% and our Federal Home Loan Bank borrowings totaled $99.4 million.

We also rely on higher cost Federal Home Loan Bank and Federal Reserve Bank borrowings as supplemental funding sources.

At December 31, 2023, our ratio of net loans to deposits was 105.4% and our borrowings from these supplemental funding sources totaled $93.0 million.

We continue to focus on expanding core deposits by leveraging our business development officers and commercial lending and retail relationships.

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We intend to continue to pursue these business strategies, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

COVID-19 has impacted economic conditions, customer behaviors, credit and asset quality and liquidity.

While we are committed to the business strategies noted above, we recognize the challenges and uncertainties of the current environment and plan to execute these strategies as market conditions allow.

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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 believe the following estimates are both important to the presentation of our consolidated financial condition and results of operations and require subjective or complex judgments and, therefore, we consider the accounting policies and estimates discussed below to be critical.

We believe the calculation of the ACL and the measurement of the fair value of financial instruments are both important to the presentation of our consolidated financial condition and results of operations and require subjective or complex judgments and, therefore, we consider the accounting policies and estimates discussed below to be critical.

The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Our critical accounting policies involve the calculation of the allowance for loan losses and the measurement of the fair value of financial instruments.

The allowance for loan losses is established as losses that are estimated to have occurred through a provision for loan losses charged to earnings.

The allowance for loan losses is evaluated on a regular basis by management.

This evaluation focuses on many factors, including, but not limited to:

evaluation of facts and circumstances related to specific loans, ongoing review and grading of the asset quality of loan segments, consideration of historical loan loss and delinquency experience by loan segment, trends in past due and nonaccrual loans, the level of classified loans, the risk characteristics of the various loan segments, changes in the size of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions which could impact the loan portfolio, the fair value of the underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses.

The primary quantitative consideration for assessing the adequacy of the allowance for loan losses is our average historical incurred loss experience for the preceding three years.

Since we have not experienced significant historical incurred losses, the evaluation of the adequacy of the allowance for loan losses is determined primarily by the consideration of the qualitative factors noted above.

Credit risks are inherently different for each segment of the loan portfolio such that the applicability of certain qualitative factors to a particular loan segment is determined by the various risk characteristics of the loan segment.

Assessing these factors involves significant judgment.

Because each of the criteria used in the evaluation is susceptible to significant revision as current economic trends and conditions change, the established allowance for loan losses may not be indicative of potential credit losses.

Therefore, management considers the calculation of the allowance for loan losses a critical accounting estimate.

The allowance for loan losses consists of general, allocated and unallocated components.

The general component is based primarily on our average historical loss rates for the preceding three years adjusted for qualitative factors stratified by our loan segments.

As noted above, effective January 1, 2023, the Company adopted the new accounting standard for credit losses.

The estimation of the ACL is in accordance with the CECL methodology utilizing the WARM modeling approach as performed in a third-party software application.

The adequacy of the ACL is evaluated on a quarterly basis by management.

This assessment includes procedures to estimate the ACL and test the adequacy and appropriateness of the resulting balance.

The level of the ACL is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.

The level of the ACL maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date.

The ACL is increased through provision for credit losses on loans and decreased by charge-offs, net of recoveries of amounts previously charged-off.

The ACL is measured on a collective basis for pools of loans with similar risk characteristics.

Management has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property.

For such loans, repayment is largely dependent upon the operation of the borrower's business.

Non-owner occupied commercial real estate and multi-family real estate loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and multi-family residential housing.

Repayment is primarily dependent on lease income generated from the underlying collateral.

Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by one- to four-family residential properties, including home equity loans and lines of credit.

Repayment is primarily dependent on the personal cash flow of the borrower.

Acquisition, Development and land loans – Acquisition, development and land loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project.

Acquisition, development and land loans include one- to four-family construction projects and commercial construction or rehabilitation endeavors such as warehouses, apartments, office and retail space and land acquisition and development.

Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.

These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

Consumer and other loans - Consumer and other loans include all loans issued to individuals, primarily pre-existing First Seacoast Bank customers, not included in the consumer real estate mortgage classification and purchased loans secured by manufactured housing properties.

Examples of consumer and other loans are automobile loans and other installment loans extended directly to the borrower.

Consumer loans may be unsecured.

Repayment is primarily dependent on the personal cash flow of the borrower.

The WARM method uses an approach that begins with a quarterly loss rate and applies that rate to the loan pools of financial assets with similar risk characteristics noted above on a periodic basis over time for the remaining life expectation of each loan pool.

Due to the Company’s limited loss experience, management has chosen to use peer group loss data in the calculation of the quarterly loss rate.

A peer group was selected within the third-party software application which includes all banks between $300 million and $1 billion in asset size located in the northeastern United States.

The historical loss component segmented by loan pool serves as the core of the ACL adequacy methodology.

The remaining life calculation for each pool is calculated by the third-party software application using an attrition calculator that performs quarterly cohort-based attrition measurements using the actual historical experience of each loan pool.

The estimated credit losses for all loan pools are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period.

The data for each measurement may be obtained from internal or external sources.

The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios.

These adjustments are based upon quarterly trend assessments in portfolio concentrations, policy exceptions, associate retention, independent loan review results, competition and peer group credit quality trends.

The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Additional qualitative considerations are made for any identified risk which did not exist within our portfolio historically and therefore may not be adequately addressed through evaluation of such risk factor based on historical portfolio trends as previously discussed.

Our ACL as a percent of total loans decreased from 0.89% at December 31, 2022 to 0.79% at December 31, 2023, which primarily reflects the impact of ASC 326 adoption, calculated loss rates based upon remaining life measurements and our consideration of the current economic conditions that affect the qualitative adjustments used in the determination of the ACL as they have evolved over the year from the impact of inflationary pressures and geopolitical concerns, among other considerations.

While we consider a number of variables in our evaluation of the adequacy of the ACL, one of the more significant variables is the use of a reasonable and supportable forecast period in the calculation of a historical loss rate.

As noted above, the Company has chosen a forecast period of one year 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.

This time period was one of relatively stagnant expansion in the U.S.

with GDP growth rates in the 1.6% - 2.6% range.

Economic indicators during this period were mixed and appear similar to the current economy.

Additionally, because historical loss experience may not fully reflect our expectations about the future, management has adjusted the historical loss rate through a qualitative adjustment to reflect current economic conditions not already reflected in the historical loss information.

If a pre-recessionary period such as the period between March 2007 and September 2009 was chosen as the reasonable and supportable forecast period with a similar qualitative adjustment consideration, the ACL would increase by $289,000 to $3.7 million.

Alternatively, if the qualitative adjustment to reflect current economic conditions not already reflected in the historical loss information were removed from the chosen forecast period used in the calculation of the ACL, the ACL would decrease by $941,000 to $2.4 million.

While policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to (loss) income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal auditors, they are necessarily approximate and imprecise.

There are factors beyond our control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

Therefore, management considers the calculation of the ACL a critical accounting estimate.

Prior to the adoption of the new accounting standard for credit losses, the ALL consisted of general, allocated and unallocated components.

The general component was based primarily on our average historical loss rates for the preceding three years adjusted for qualitative factors stratified by our loan segments.

The reported amount of this component may be impacted by portfolio growth trends and concentrations, levels and trends of delinquencies and local and National economic trends and conditions.

The allocated component relates to loans that are classified as impaired.

The allocated component related to loans that are classified as impaired.

Generally, our impaired loans are collateral-dependent and impairment is measured through the collateral method.

When the measurement of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through the allowance for loan losses.

At December 31, 2022 and 2021, the collateral values of collateral-dependent impaired loans was sufficient and no impairment charge was necessary.

The unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.

The unallocated component of the allowance for loan losses reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

There were no changes to the policies or methodologies pertaining to the components of allowance for loan losses during the years ended December 31, 2022 and 2021.

Our allowance for loan losses as a percent of total loans decreased from 0.95% at December 31, 2021 to 0.89% at December 31, 2022, which primarily reflects the impact of our consideration of the current economic conditions that affect the qualitative factors used in the determination of the allowance for loan losses as they have evolved over these periods from the impact of the COVID-19 pandemic to inflationary pressures and geopolitical concerns, among other considerations.

When the measurement of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through the ALL.

At December 31, 2022, the collateral values of collateral-dependent impaired loans was sufficient and no impairment charge was necessary.

The unallocated component was maintained to cover uncertainties that could affect management’s estimate of probable losses.

The unallocated component of the ALL reflected the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Our ALL as a percent of total loans decreased from 0.95% at December 31, 2021 to 0.89% at December 31, 2022, which primarily reflected the impact of our consideration of the then current economic conditions that affect the qualitative factors used in the determination of the ALL as they have evolved over these periods from the impact of the COVID-19 pandemic to inflationary pressures and geopolitical concerns, among other considerations.

The Company's measurement of the fair value of its financial instruments is subject to uncertainty primarily due to the lack of quoted market prices for a portion of its various assets and liabilities.

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The Company's primary financial asset measured at fair value on a recurring basis is its securities available-for-sale.

For these securities, we obtain fair value measurements from independent pricing services which consider observable data that may include reported trades, dealer quotes, the instrument’s terms and conditions, as well as other market data.

These fair value measurements are significantly impacted by changes in market interest rates and current economic conditions as compared to the coupon rates for the financial assets.

We obtain a monthly market rate volatility report to confirm that the overall price volatility of the portfolio is within prescribed policy limits.

Fair value of the Company’s mortgage servicing rights is also measured on a recurring basis based upon a valuation model that calculates the present value of estimated future net servicing income.

We rely on an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of our mortgage servicing rights.

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While we believe the values produced by the discounted cash flow model are indicative of the fair value of our mortgage servicing rights portfolio, these values can change significantly depending upon factors such as the then current interest rate environment, estimated prepayments speeds of the underlying mortgage loans being serviced, and other economic conditions.

Fair value of the Company’s derivatives is measured on a recurring basis 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.

These fair value measurements are significantly impacted by changes in market interest rates and current economic conditions as compared to the coupon rates for the derivatives.

These fair value measurements are significantly impacted by changes in market interest rates and current economic conditions as compared to

the coupon rates for the derivatives.

We obtain a monthly interest rate volatility report to monitor the volatility of our derivatives portfolio.

At December 31, 2023 and 2022, there were no financial assets or liabilities 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 (i.e., where there is evidence of impairment).

This may include certain impaired loans reported at the fair value of the underlying collateral.

that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.

This may include certain individually evaluated loans reported at the fair value of the underlying collateral.

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring or non-recurring basis.

ASC Topic 825, “Financial Instruments,”

also requires disclosure of the fair value of financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

ASC Topic 825, “Financial Instruments,” also requires disclosure of the fair value of financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

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Emerging Growth Company Status

Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion (adjusted for inflation) during its most recently completed fiscal year qualifies as an “emerging growth company.”

The Company qualifies as an emerging growth company under the JOBS Act.

An “emerging growth company”

may choose not to hold non-binding advisory stockholder votes on annual executive compensation (more frequently referred to as “say-on-pay”

votes) or on executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute”

An emerging growth company is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting and can provide scaled disclosure regarding executive compensation;

however, the Company will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company”

under SEC regulations (generally less than $250 million of voting and non-voting equity held by non-affiliates).

Under the JOBS Act, a company with total annual gross revenues of less than $1.235 billion (adjusted for inflation) during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as an emerging growth company under the JOBS Act.

An “emerging growth company” may choose not to hold non-binding advisory stockholder votes on annual executive compensation (more frequently referred to as “say-on-pay” votes) or on executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes).

however, the Company will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under SEC regulations (generally less than $250 million of voting and non-voting equity held by non-affiliates).

Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company but must make such election when the company is first required to file a registration statement.

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(iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;

or (iv) the date on which such company is deemed to be a “large accelerated filer”

under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

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Total assets were $571.0 million as of December 31, 2023, an increase of $33.6 million, or 6.3%, when compared to total assets of $537.4 million at December 31, 2022.

The increase was due primarily to an increase in securities available-for-sale and net loans.

The increase was due primarily to increases in securities available-for-sale and net loans.

Cash and Due From Banks.

Cash and due from banks increased $1.7 million, or 24.3%, to $8.3 million at December 31, 2022 from $6.6 million at December 31, 2021.

This increase primarily resulted from a $69.9 million increase in borrowings offset by a $10.9 million decrease in total deposits, a $25.9 million increase in net loans and a $14.7 million increase in securities available-for-sale ($29.8 million net of increase in net unrealized losses) during the year ended December 31, 2022.

Cash and due from banks decreased $2.2 million, or 26.4%, to $6.1 million at December 31, 2023 from $8.3 million at December 31, 2022.

The decrease was due primarily to a $15.8 million increase in securities available-for-sale, a $27.7 million increase in net loans and a $6.4 million decrease in borrowings, offset by $25.6 million of net proceeds from the stock offering in connection with the conversion of the former First Seacoast Bancorp, MHC and a $22.4 million increase in total deposits during the year ended December 31, 2023.

Available-for-Sale Securities.

Available-for-sale securities increased by $15.8 million, or 14.9%, to $121.9 million at December 31, 2023 from $106.1 million at December 31, 2022.

This increase was due to investment purchases totaling $41.5 million, offset by proceeds from principal repayments, calls and sales totaling $9.9 million and a $15.1 million increase in net unrealized losses within the portfolio.

This increase was due to investment purchases totaling $55.4 million and a $6.2 million decrease in net unrealized losses within the portfolio, offset by proceeds from sales, maturities and principal repayments totaling $40.9 million, realized losses of $4.2 million and $904,000 of net amortization of bond premiums.

As noted above, on November 28, 2023, we executed a balance sheet repositioning strategy related to our available-for-sale investment securities portfolio where we sold $40.6 million in book value of lower-yielding investment

securities for an after-tax realized loss of $3.1 million and purchased $40.6 million of higher-yielding investment securities which were classified as available-for-sale upon purchase.

Net loans increased $27.7 million, or 6.9%, to $426.6 million at December 31, 2023 from $398.9 million at December 31, 2022.

During the year ended December 31, 2023, we originated $81.7 million of loans.

During 2022, we also purchased $1.3 million of one- to four-family residential mortgages and $2.4 million of consumer loans secured by manufactured housing properties.

As of December 31, 2022 and 2021, the portfolios of purchased loans had outstanding principal balances of $30.5 million and $29.7 million, respectively, and were performing in accordance with their original repayment terms.

Net deferred loan costs increased $799,000, or 48.4%, to $2.4 million at December 31, 2022 from $1.7 million at December 31, 2021 due primarily to the increase in deferred costs on one- to four-family residential mortgage loans, consumer loans and commercial loan fees and costs.

SBA fee and interest income recognized during the years ended December 31, 2022 and 2021 was approximately $233,000 and $1.1 million, respectively, and is included in interest and fees on loans.

During 2023, we also purchased $2.0 million of participation interests in commercial and industrial loans, $780,000 of one- to four-family residential mortgages and $1.5 million of consumer loans secured by manufactured housing properties.

As of December 31, 2023 and 2022, the portfolios of purchased loans had outstanding principal balances of $33.3 million and $30.5, respectively, and were performing in accordance with their original repayment terms.

Net deferred loan costs increased $183,000, or 7.5%, to $2.6 million at December 31, 2023 from $2.4 million at December 31, 2022 due primarily to the increase in deferred costs on consumer loans.

SBA fee and interest income, related to loans originated under the Paycheck Protection Program ("PPP"), recognized during the years ended December 31, 2023 and 2022 was $-0- and $233,000, respectively, and is included in interest and fees on loans.

One- to four-family residential mortgage loans increased $16.1 million, or 6.4%, to $268.9 million at December 31, 2023 from $252.8 million at December 31, 2022.

Commercial real estate mortgage loans increased $6.0 million, or 7.4%, to $86.6 million at December 31, 2023 from $80.6 million at December 31, 2022.

Acquisition, development and land loans decreased $2.9 million, or 13.5%, to $18.5 million at December 31, 2022 from $21.4 million at December 31, 2021.

Commercial and industrial loans decreased $2.8 million, or 10.4%, to $24.1 million at December 31, 2022 from $26.9 million at December 31, 2021.

Acquisition, development and land loans decreased $970,000, or 5.2%, to $17.5 million at December 31, 2023 from $18.5 million at December 31, 2022.

Commercial and industrial loans increased $1.5 million, or 6.0%, to $25.5 million at December 31, 2023 from $24.1 million at December 31, 2022.

Home equity loans and lines of credit increased $3.9 million, or 38.7%, to $14.1 million at December 31, 2023 from $10.2 million at December 31, 2022.

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Consumer loans increased by $1.6 million, or 19.9%, to $9.8 million at December 31, 2023 from $8.2 million at December 31, 2022.

The decrease in our commercial and industrial loan portfolio was due primarily to $5.5 million of PPP loan forgiveness during 2022.

Excluding the impact of PPP loans, commercial and industrial loans increased by $2.7 million during 2022.

Our strategy to grow the balance sheet continues to be through originations of one- to four-family residential mortgage loans, while also diversifying into higher yielding commercial and multi-family real estate loans and commercial and industrial loans to improve net margins and manage interest rate risk.

We also continue to sell selected, conforming 15-year and 30-year fixed rate mortgage loans to the secondary market on a servicing retained basis, providing us a recurring source of revenue from loan servicing income and gains on the sale of such loans.

Our allowance for loan losses was $3.6 million at December 31, 2022 and 2021.

The Company measures and records its allowance for loan losses based upon an incurred loss model.

Under this approach, loan loss is recognized when it is probable that a loss event was incurred.

This approach also considers qualitative adjustments to the quantitative baseline determined by the model.

The Company considers the impact of current environmental factors at the measurement date that did not exist over the period from which historical experience was used.

Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies and the level of criticized loans.

The Company made relevant adjustments to its qualitative factors in the measurement of its allowance for loan losses at December 31, 2022 and 2021 that balanced the need to consider the recognition of a provision during the year while adhering to an incurred loss recognition and measurement principle which prohibits the recognition of future or lifetime losses.

The Company has limited or no direct exposure to industries that have been hardest hit by the COVID-19 pandemic, including oil and gas/energy, credit cards, airlines, cruise ships, arts/entertainment/recreation, casinos and shopping malls.

Our exposure to the transportation and hospitality/restaurant industries amounted to less than 5% of our total loan portfolio at December 31, 2022 and 2021.

We also continue to consider selling selected, conforming 15-year and 30-year 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 decreased $191,000 to $3.4 million at December 31, 2023 from $3.6 million at December 31, 2022, due primarily to the adoption of ASU 2016-13 and its new credit impairment standard for financial assets measured at amortized cost.

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 for losses 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.

The Bank has selected the Weighted Average Remaining Maturity Model (“WARM” or "CECL model"), for the loss calculation of each of the Bank’s 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 effect of implementing this ASU was recorded as a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which was January 1, 2023.

The adoption of the new standard resulted in a $295,000 decrease to the ACL on loans which was offset by a $290,000 increase in the allowance for off-balance sheet commitments that are not unconditionally cancelable.

The decrease in ACL on loans was due to a reduced emphasis on qualitative factors under the CECL model as the underlying historical loss data of the selected peer group is more robust with broader time horizons as compared to our actual historical loss data used under the incurred loss methodology.

Under the CECL model, subsequent changes in the ACL are recorded through a charge to the provision for credit losses in the statement of loss as the amounts expected to be collected change.

Our deposits are generated primarily from residents within our primary market area.

We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, savings accounts, money market accounts and time deposits, for both individuals and businesses.

Deposits decreased $10.9 million, or 2.8%, to $382.4 million at December 31, 2022 from $393.2 million at December 31, 2021 primarily as a result of a decrease in core deposits offset by an increase in time deposits.

Deposits increased $22.4 million, or 5.9%, to $404.8 million at December 31, 2023 from $382.4 million at December 31, 2022 primarily as a result of an increase in time deposits, offset by a decrease in core deposits.

Core deposits (defined as all deposits other than time deposits) decreased $7.1 million, or 2.2%, to $313.5 million at December 31, 2023 from $320.6 million at December 31, 2022.

The decrease in core deposits was due to a $5.9 million, or 5.9%, decrease in non-interest bearing accounts, a decrease in money market deposits of $10.4 million, or 14.6%, and a decrease in savings deposits of $2.4 million, or 4.2%, partially offset by a $4.4 million, or 4.1%, increase in NOW accounts and demand deposits.

Time deposits increased $3.4 million, or 5.9%, to $61.7 million at December 31, 2022 from $58.3 million at December 31, 2021.

At December 31, 2022 and 2021, there were $18.1 million of brokered deposits included in time deposits.

The decrease in core deposits was due to a $26.9 million, or 29.0%, decrease in non-interest bearing accounts and a decrease in NOW accounts and demand deposits of $14.5 million, or 13.0%, offset by an increase in money market deposits of $24.4 million, or 40.1%, and an increase in savings deposits of $9.9 million, or 18.0%.

deposits increased $29.6 million, or 47.9%, to $91.3 million at December 31, 2023 from $61.7 million at December 31, 2022.

At December 31, 2023 and 2022, there were $23.6 million and $18.1 million of brokered deposits included in time deposits, respectively, and $20.9 million and $-0- of brokered deposits included in savings deposits, respectively.

The purchase of brokered deposits offered a lower cost alternative to advances from the Federal Home Loan Bank of a similar duration.

Total borrowings increased $69.9 million, or 237.4%, to $99.4 million at December 31, 2022 from $29.5 million at December 31, 2021 in support of the Company’s investment and loan growth initiatives.

Total Stockholders’

Total stockholders’

equity decreased $11.1 million, or 18.4%, to $49.3 million at December 31, 2022 from $60.5 million at December 31, 2021.

This decrease was due primarily to an other comprehensive loss of $10.4 million related to net changes in unrealized holding losses in the available-for-sale securities portfolio and changes in the fair value of interest rate swap derivatives, as a result of an increase in market interest rates during the year ended December 31, 2022, net loss of $565,000, and treasury stock purchases of $629,000, partially offset by the recognition of $511,000 of previously unearned compensation for the year ended December 31, 2022.

Total borrowings decreased $6.4 million, or 6.4%, to $93.0 million at December 31, 2023 from $99.4 million at December 31, 2022 due to a decrease of $26.4 million in FHLB advances offset by $20.0 million of FRB advances.

Advances from FHLB decreased $26.4 million, or 26.6%, to $73.0 million at December 31, 2023 from $99.4 million at December 31, 2022 due primarily to the net repayment of advances from the receipt of $25.6 million of net proceeds from the stock offering in connection with the conversion of the former First Seacoast Bancorp, MHC.

Advances from FRB increased to $20.0 million at December 31, 2023 from $-0- at December 31, 2022 due to net advances from the Bank Term Funding Program.

Total Stockholders’ Equity.

Total stockholders’ equity increased $17.3 million, or 35.0%, to $66.6 million at December 31, 2023 from $49.3 million at December 31, 2022.

This increase was due primarily to $25.6 million of net proceeds received from the conversion of the former First Seacoast Bancorp, MHC and $3.8 million of other comprehensive income related primarily to net changes in unrealized holding losses in the available-for-sale securities portfolio adjusted for realized securities losses offset by a net loss of $10.7 million and the purchase of $2.2 million of common stock by the ESOP during the year ended December 31, 2023.

Non-performing Assets.

Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including TDRs on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession.

TDRs include loans for which either a portion of interest or principal has been forgiven or loans modified at interest rates materially less than current market rates.

Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral-dependent.

When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

Non-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 on loans 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.

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Non-performing loans were $141,000, or 0.03% of total loans, at December 31, 2023, compared to $89,000, or 0.02% of total loans, at December 31, 2022.

At December 31, 2022, non-performing loans consist primarily of a residential mortgage loan to a deceased borrower which had an outstanding balance of $84,000.

The property has an estimated market value of $420,000.

At December 31, 2021, non-performing loans consisted primarily of a residential mortgage loan and HELOC to deceased borrowers and a $195,000 non-performing residential mortgage loan that was repurchased from Freddie Mac and restructured in 2021.

The property securing both the residential mortgage loan and HELOC was sold in July 2022 and all outstanding loan balances were paid.

The non-performing residential mortgage loan that was repurchased from Freddie Mac and restructured in 2021 was returned to performing status during June 2022.

The outstanding balance of this now accruing TDR was $189,000 and $195,000 at December 31, 2022 and 2021, respectively.

At December 31, 2023, non-performing loans consist of a residential mortgage loan and an associated home equity loan which had outstanding balances totaling $141,000.

The property has an estimated market value of approximately $216,000.

At December 31, 2022, non-performing loans consisted primarily of a residential mortgage loan to a deceased borrower which had an outstanding balance of $84,000.

The property was sold in April 2023 and the outstanding loan balance was paid in full.

At December 31, 2023 and 2022, we had no foreclosed assets.

Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

Net loss was $565,000 for the year ended December 31, 2022, compared to net income of $2.6 million for the year ended December 31, 2021, a decrease of $3.2 million, or 121.6%.

The decrease was related primarily to a $3.7 million, or 28.2%, increase in non-interest expense and a $1.4 million, or 60.5%, decrease in non-interest income offset by a $808,000, or 5.7%, increase in net interest and dividend income after provision for loan losses and a $1.1 million decrease in provision for income taxes during the year ended December 31, 2022.

Net loss was $10.7 million for the year ended December 31, 2023, compared to a net loss of $565,000 for the year ended December 31, 2022, an increase of $10.1 million.

This increase was due to a $3.5 million, or 23.8%, decrease in net interest and dividend income after provision for credit losses, a $2.9 million, or 326.0%, decrease in non-interest income and a $4.4 million increase in income tax expense, offset by a $740,000, or 4.4%, decrease in non-interest expense during the year ended December 31, 2023.

Interest and Dividend Income.

Interest and dividend income increased $4.0 million, or 24.0%, to $20.6 million for the year ended December 31, 2023 from $16.6 million for the year ended December 31, 2022.

This increase was due primarily to an increase in interest and dividend income on investments.

Interest and fees on loans for the years ended December 31, 2022 and 2021 included $233,000 and $1.1 million of interest and fees earned on PPP loans, respectively.

This increase was due to a $2.8 million, or 19.9%, increase in interest and fees on loans and a $1.2 million, or 46.7%, increase in interest and dividend income on investments.

Interest and fees on loans for the years ended December 31, 2023 and 2022 included $-0- and $233,000 of interest and fees earned on PPP loans, respectively.

Average interest-earning assets increased $35.8 million, or 7.2%, to $532.8 million for the year ended December 31, 2023 from $497.0 million for the year ended December 31, 2022.

The weighted average yield on interest-earning assets increased 52 basis points to 3.86% for the year ended December 31, 2023 from 3.34% for the year ended December 31, 2022.

The weighted average yield for the loan portfolio decreased 13 basis points to 3.66% for the year ended December 31, 2022 from 3.79% for the year ended December 31, 2021 due primarily to the decrease in interest and fees earned on PPP loans.

The weighted average yield for all other interest-earning assets increased to 2.25% for the year ended December 31, 2022 from 1.42% for the year ended December 31, 2021 due primarily to the investment in higher-yielding taxable and non-taxable debt securities.

The weighted average yield for the loan portfolio increased 42 basis points to 4.08% for the year ended December 31, 2023 from 3.66% for the year ended December 31, 2022 due primarily to an increase in market interest rates.

average yield for all other interest-earning assets increased to 3.12% for the year ended December 31, 2023 from 2.25% for the year ended December 31, 2022 due primarily to an increase in market interest rates.

Interest Expense.

Total interest expense increased $512,000, or 41.5%, to $1.7 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021.

Interest expense on deposits increased $97,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The average balance of interest-bearing deposits increased $4.7 million, or 1.6%, to $297.0 million for the year ended December 31, 2022 from $292.4 million for the year ended December 31, 2021 primarily as a result of an increase in the average balance of NOW and demand and savings deposits offset by a decrease in the average balances of money market and time deposits.

The weighted average rate of interest-bearing deposits increased to 0.23% for the year ended December 31, 2022 from 0.20% for the year ended December 31, 2021 due primarily to an increase in market interest rates.

Total interest expense increased $7.3 million, or 419.8%, to $9.1 million for the year ended December 31, 2023 from $1.7 million for the year ended December 31, 2022.

Interest expense on deposits increased $4.7 million, or 666.2%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The average balance of interest-bearing deposits increased $22.2 million, or 7.5%, to $319.2 million for the year ended December 31, 2023 from $297.0 million for the year ended December 31, 2022 primarily as a result of an increase in the average balance of money market, savings and time deposits offset by a decrease in the average balances of NOW and demand deposits.

The weighted average rate of interest-bearing deposits increased to 1.67% for the year ended December 31, 2023 from 0.23% for the year ended December 31, 2022 due primarily to an increase in market interest rates and to respond to deposit pricing by competitors.

Interest expense on borrowings consists of interest on advances from the Federal Home Loan Bank and the Federal Reserve Bank.

Interest expense on borrowings increased $397,000, or 61.2%, to $1.0 million for the year ended December 31, 2022 from $649,000 for the year ended December 31, 2021 primarily due to an increase in the average balance of borrowings and market interest rates partially offset by the retirement of $20.0 million of long-term borrowings from the FHLB in advance of their scheduled maturities in late 2021.

Interest expense on borrowings increased $2.7 million, or 254.6%, to $3.7 million for the year ended December 31, 2023 from $1.0 million for the year ended December 31, 2022 primarily due to an increase in the average balance of borrowings and an increase in market interest rates.

The average balance of borrowings increased $14.9 million, or 23.3%, to $78.8 million for the year ended December 31, 2023 from $63.9 million for the year ended December 31, 2022.

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Net Interest and Dividend Income.

Net interest and dividend income increased $603,000, or 4.2%, to $14.9 million for the year ended December 31, 2022 from $14.3 million for the year ended December 31, 2021.

This increase was due to a $28.6 million, or 6.1%, increase in the balance of average interest-earning assets, consisting primarily of increases in the average balances of loans and debt securities, offset by an increase of $27.1 million, or 8.1%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of borrowings, during the year ended December 31, 2022.

Net interest margin decreased to 2.99% for the year ended December 31, 2022 from 3.04% for the year ended December 31, 2021 due primarily to an increase in the weighted average rate of interest-bearing liabilities offset partially by an increase in the weighted average yield on debt securities.

Provision for Loan Losses.

Based upon management’s analysis of the allowance for loan losses, no provision for loan losses was recorded for the year ended December 31, 2022 compared to $205,000 for the year ended December 31, 2021.

Net interest and dividend income decreased $3.4 million, or 22.6%, to $11.5 million for the year ended December 31, 2023 from $14.9 million for the year ended December 31, 2022.

This decrease was due to an increase of $37.1 million, or 10.2%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of borrowings and time deposits, during the year ended December 31, 2023 offset by a $35.8 million, or 7.2%, increase in the average balance of interest-earning assets, consisting primarily of increases in the average balances of loans and non-taxable debt securities.

Net interest margin decreased to 2.16% for the year ended December 31, 2023 from 2.99% for the year ended December 31, 2022 due primarily to an increase in the average rate of borrowings and interest-bearing deposits offset by an increase in the average yield on interest-earning assets.

Provision for Credit Losses.

Based upon management’s analysis of the ACL, a $188,000 provision for credit losses expense was recorded for the year ended December 31, 2023 compared to $-0- for the year ended December 31, 2022.

The provision for credit losses expense for the year ended December 31, 2023 consisted of a $105,000 provision for credit losses on loans and a $83,000 provision for credit losses on off-balance sheet credit exposures.

Non-Interest Income.

Non-interest income decreased $1.4 million, or 60.5%, to $888,000 for the year ended December 31, 2022 compared to $2.2 million for the year ended December 31, 2021.

The decrease in non-interest income during the year ended December 31, 2022 was due primarily to $747,000 of losses realized on the sale of securities and a decrease of $128,000, or 98.5%, in gain on sale of loans offset by a $81,000, or 32.8%, increase in investment service fees.

Non-interest income decreased $2.9 million, or 326.0%, to $(2.0) million for the year ended December 31, 2023 compared to $888,000 for the year ended December 31, 2022.

The decrease in non-interest income during the year ended December 31, 2023 was due primarily to a $3.4 million, or 458.6%, increase in losses realized on the sale of securities, a decrease of $280,000, or 27.0%, in customer service fees and a decrease of $49,000, or 38.9%, in loan servicing fee income offset by an $849,000 gain on termination of interest rate swaps.

Non-Interest Expense.

Non-interest expense increased $3.7 million, or 28.2%, to $16.8 million for the year ended December 31, 2022 from $13.1 million for the year ended December 31, 2021.

The increase in non-interest expense was due primarily to a $2.8 million, or 36.3%, increase in salaries and employee benefits, a $237,000, or 65.7%, increase in marketing, and a $149,000, or 17.9%, increase in professional fees and assessments during the year ended December 31, 2021.

The increase in salaries and benefits during the year ended December 31, 2022 was due primarily to a $1.5 million charge to withdraw from the Pentegra DB Plan, to filling certain open positions and associated recruitment fees, normal salary increases and the recognition of previously unearned compensation associated with the restricted stock awards granted in 2021.

The increase in marketing during the year ended December 31, 2022 included a $150,000 donation to the First Seacoast Community Foundation, Inc.

Non-interest expense decreased $740,000, or 4.4%, to $16.0 million for the year ended December 31, 2023 from $16.8 million for the year ended December 31, 2022.

The decrease in non-interest expense was due primarily to a $1.0 million, or 9.5%, decrease in salaries and employee benefits, a $68,000, or 11.4%, decrease in marketing, and a $32,000, or 6.6%, decrease in equipment expense offset by a $196,000, or 14.0%, increase in data processing and a $103,000, or 66.9%, increase in deposit insurance fees during the year ended December 31, 2023.

The decrease in salaries and benefits during the year ended December 31, 2023 was due primarily to a non-recurring $1.5 million charge incurred in 2022 to withdraw from the Pentegra DB Plan offset by the recognition of previously unearned compensation associated with restricted stock awards granted in 2021 and compensation expense associated with incentive and non-statutory stock options granted in May 2023.

Included in marketing for the year ended December 31, 2022 was a one-time $150,000 donation to the First Seacoast Community Foundation, Inc.

Income Taxes.

Income tax benefit was $451,000 for the year ended December 31, 2022 compared to an income tax expense of $601,000 for the year ended December 31, 2021.

Income tax expense (benefit) increased $4.4 million to a $3.9 million income tax expense for the year ended December 31, 2023 compared to an income tax benefit of $451,000 for the year ended December 31, 2022.

The effective tax rate was 58.8% and (44.4)% for the years ended December 31, 2023 and 2022, respectively.

Loss before income tax benefit was $1.0 million for the year ended December 31, 2022 as compared to $3.2 million of income before income tax expense for the year ended December 31, 2021.

The decrease in the effective tax rate for 2022 as compared to 2021 was primarily due to the loss before income tax benefit and the amount of non-taxable income as a percentage of loss before income tax benefit in the current year as compared to the prior year offset in part by an increase in the valuation allowance.

Loss before income tax expense (benefit) was $6.7 million for the year ended December 31, 2023 as compared to $1.0 million for the year ended December 31, 2022.

The increase in the effective tax rate for 2023 as compared to 2022 was due primarily to the establishment of a 100% valuation allowance for all deferred tax assets.

Average Balance Sheets

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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.

The yields set forth below include the effect of net deferred fee expense, discounts and premiums that are amortized or accreted to interest income or interest expense.

Average loan balances exclude loans held for sale, if applicable.

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

(4) Net deferred fee (expense) income included in loan interest totaled $(194,000) and $587,000 for the years ended December 31, 2022 and 2021, respectively.

(4) Net deferred fee expense included in loan interest totaled $374,000 and $194,000 for the years ended December 31, 2023 and 2022, respectively.

Rate/Volume Analysis

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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.

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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.

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(Dollars in thousands)

The percent change to NPV in the -100 bp change in interest rates scenario was -14.7% at December 31, 2021 versus a policy limit of -10.0%.

An extremely low interest rate environment may artificially reduce the calculated inherent value of the Bank’s non-maturity deposits, which can inordinately impact the sensitivity of the NPV resulting in a mathematical aberration.

All other categories of percent change to NPV were within policy limits.

All categories of percent change to NPV were within policy limits at December 31, 2022.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.

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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 -21.5%, -32.5% and -43.3%, respectively, at December 31, 2023 versus policy limits of -20.0%, -30.0% and -40.0%, respectively.

These percent changes were due primarily to the migration of deposits during 2023 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.

All categories of percent change to NPV were within board of directors - approved policy limits at December 31, 2022.

Economic Value of Equity.

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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.

If interest rates rise, we expect that our economic value of equity will decrease.

Economic value of equity represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities.

The Bank’s economic value of equity analysis as of December 31, 2022 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 16.7% decrease in economic value of equity.

The Bank’s economic value of equity analysis as of December 31, 2023 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 21.5% 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 Bank would experience a 11.3% increase in the economic value of equity.

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Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures.

As of December 31, 2023 and 2022, the aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, had an estimated value not exceeding $102.5 million, or 25.3% of total deposits, and $82.0 million, or 21.4% 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 the Bank to place the certificates of deposit with other participating banks to maximize the customers’ FDIC insurance.

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, the Bank receives 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.

The Bank considers these deposits to be “core” in nature.

At December 31, 2023, our “reciprocal” CDARS® and ICS deposits were $-0- and $1.1 million, 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 Federal Home Loan Bank as supplemental sources of funds.

At December 31, 2022, we had $99.4 million outstanding in advances from the Federal Home Loan Bank and the ability to borrow an additional $36.5 million.

Additionally, at December 31, 2022, we had an overnight line of credit with the Federal Home Loan Bank for up to $3.0 million and unsecured Fed Funds borrowing lines of credit with two correspondent banks for up to $5.0 million.

At December 31, 2022, there were no outstanding balances under any of these additional credit facilities.

We also rely on borrowings from the FHLB as supplemental sources of funds.

At December 31, 2023 and 2022, we had $73.0 million and $99.4 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $71.8 million and $36.5 million, respectively.

Additionally, at December 31, 2023 and 2022, we had an overnight line of credit with the FHLB for up to $3.0 million and unsecured Fed Funds borrowing lines of credit with two correspondent banks for up to $5.0 million.

At December 31, 2023 and 2022, there were no outstanding balances under any of these additional credit facilities.

The Bank has established two secured credit facilities with the FRB – Bank Term Funding Program (“BTFP”) and Borrower-In-Custody of Collateral Program (“BIC”).

At December 31, 2023 and 2022, we had $20.0 million and $-0-outstanding in advances from the FRB, respectively, and the ability to borrow an additional $3.5 million under the BTFP and is based upon eligible collateral, principally government-sponsored enterprise obligations, mortgage-backed securities and collateralized mortgage obligations issued by various U.S.

Government agencies, owned as of March 12, 2023 and December 31, 2023.

Advances can be requested under the BTFP until March 11, 2024.

The interest rate for term advances under the BTFP will be the one-year overnight index swap rate plus 10 basis points and fixed for the term of the advance – up to one year - on the day the advance is made.

At December 31, 2023, the Bank’s borrowing capacity is $50.6 million under the BIC and is based upon eligible collateral -principally general obligation municipal bonds.

The entire balance of this credit facility was available at December 31, 2023.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

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investing activities and financing activities.

Net cash provided by operating activities was $973,000 and $2.4 million for the years ended December 31, 2022 and 2021, respectively.

Net cash (used) provided by operating activities was $(1.9) million and $973,000 for the years ended December 31, 2023 and 2022, respectively.

Net cash used by investing activities, which consists primarily of disbursements for loan originations and loan purchases and the purchase of securities available-for-sale, offset by principal collections on loans, proceeds from sales, maturities and principal payments received on securities available-for-sale, was $39.5 million and $58.1 million for the years ended December 31, 2023 and 2022, respectively.

Net cash provided by financing activities, consisting primarily of activity in deposit accounts, Federal Home Loan Bank and Federal Reserve Bank advances, was $58.7 million and $41.7 million for the years ended December 31, 2022 and 2021, respectively.

Net cash provided by financing activities, consisting primarily of proceeds from the sale of common stock, activity in deposit accounts, FHLB and FRB advances, was $39.2 million and $58.7 million for the years ended December 31, 2023 and 2022, respectively.

We are committed to maintaining a strong liquidity position.

We monitor our liquidity position on a daily basis.

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 December 31, 2023.

Our current strategy is to increase core deposits and utilize FHLB advances and brokered deposits to fund loan growth.

Our current strategy is to increase core deposits and utilize FHLB and FRB 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 December 31, 2022, First Seacoast Bancorp (a federal corporation) (on an unconsolidated basis) had liquid assets of $9.3 million.

As of December 31, 2022, First Seacoast Bancorp (a federal corporation) had repurchased 136,879 shares of its common stock at a weighted average price of $10.01 per share.

At December 31, 2023, the Company (on an unconsolidated basis) had liquid assets of $20.4 million.

At December 31, 2023, First Seacoast Bank exceeded all of its regulatory capital requirements.

See Note 17 of the notes to our consolidated financial statements of this annual report.

Management is not aware of any conditions or events that would change First Seacoast Bank’s categorization as well-capitalized.

Recent Accounting Developments

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Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.

As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation.

As a result, interest rates generally have a more significant impact on a financial institution’s performance than does inflation.

Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Quantitative and Qualita tive Disclosures About Market Risk

The information regarding this Item is contained in Item 7 under the heading “Management of Market Risk.”

Financial Statement s and Supplementary Data

FIRST SEACOAST BANCORP AND SUBSIDIARIES

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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Federal Home Loan Bank stock

Less allowance for loan losses

Less allowance for credit losses on loans

Land, building and equipment, net

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Advances from Federal Home Loan Bank

Mortgagors’

Advances from Federal Reserve Bank

Mortgagors’ tax escrow

Deferred compensation liability

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5,192,612 issued and 5,077,164 outstanding at December 31, 2023;

and 6,201,770

issued and 6,123,337 outstanding as of December 31, 2021

and 5,183,536 issued and 5,068,637 outstanding at December 31, 2022 (1)

Additional paid-in capital

Retained earnings

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Treasury stock, at cost:

137,472 and 78,433 shares as of

December 31, 2022 and 2021, respectively

115,448 and 114,899 shares outstanding as of December 31, 2023 and 2022 (1) , respectively

Unearned stock compensation

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Total liabilities and stockholders' equity

(1) Adjusted for conversion of the former First Seacoast Bancorp, MHC.

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

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

Year Ended December 31,

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS

(Dollars in thousands, except per share data)

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Net interest and dividend income

Provision for loan losses

Net interest and dividend income after provision for loan losses

Provision for credit losses

Net interest and dividend income after provision for credit losses

Non-interest income:

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Gain on sale of loans

Securities (losses) gains, net

Securities losses, net

Gain on termination of interest rate swaps

Income from bank-owned life insurance

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Investment services fees

Total non-interest income

Total non-interest (loss) income

Non-interest expense:

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Total non-interest expense

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense

Net (loss) income

(Loss) earnings per share:

Loss before income tax expense (benefit)

Income tax expense (benefit)

Loss per share:

Weighted average shares:

Diluted (1), (2)

(1) Adjusted for conversion of the former First Seacoast Bancorp, MHC.

(2) Not adjusted for potentially dilutive shares for years where a net loss is recognized.

The years ended December 31, 2023 and 2022 exclude 64,786 and 32,393 , respectively, of stock-based awards that could potentially dilute basic 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 years presented.

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

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Year Ended December 31,

(Dollars in thousands)

Net (loss) income

Other comprehensive loss, net of income taxes:

Other comprehensive income (loss), net of income taxes (1) :

Securities available-for-sale:

Unrealized holding losses on securities available-for-sale

Unrealized holding gains (losses) on securities available-for-sale

arising during the year, net of income taxes of $ 315 and $( 4,562 )

in 2023 and 2022, respectively

Reclassification adjustment for securities (losses) gains, net and net amortization

of bond premiums included in net (loss) income, net of income taxes of

Reclassification adjustment for securities losses, net and net amortization

of bond premiums included in net loss, net of income taxes of

$ 1,367 and $ 476 in 2023 and 2022, respectively

Total unrealized loss on securities available-for-sale

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

Change in interest rate swaps, net of income taxes of $( 30 ) and

$ 237 in 2023 and 2022, respectively

Reclassification adjustment for net interest expense on swaps included in

net income, net of income taxes of $ 31 and $( 13 ) in 2022 and 2021,

Reclassification adjustment for gains and net interest expense on swaps included in

net loss, net of income taxes of $( 230 ) and $ 31 in 2023 and 2022,

Total change in interest rate swaps

Other comprehensive loss

Comprehensive (loss) income

Other comprehensive income (loss)

Comprehensive loss

(1) Includes a deferred tax valuation allowance equal to the net tax benefit.

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

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

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Comprehensive

(Loss) Income

Unearned Stock

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Balance December 31, 2021 (1)

Other comprehensive income

Other comprehensive loss

Treasury stock activity (1)

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Balance December 31, 2022 (1)

Other comprehensive loss

Other comprehensive income

Treasury stock activity

Cumulative adjustment for change in accounting principle

( ASU 2016-13 )

Reorganization:

Conversion of First Seacoast Bancorp, Inc.

(net of costs of $ 2.4 million)

Purchase of 224,400 shares of common stock by the ESOP

Issuance of stock compensation

Amortization of unearned stock compensation

Forfeited stock compensation

Stock-based compensation expense

ESOP shares earned - 15,354 shares

Balance December 31, 2023

(1) Shares adjusted for conversion of the former First Seacoast Bancorp, MHC.

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

FIRST SEACOAST BANCORP AND SUBSIDIARIES

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

(Dollars in thousands)

Cash flows from operating activities:

Net (loss) income

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

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

Cumulative change in accounting principle (ASU 2016-13)

Stock based compensation

Loss on disposition of property and equipment

Depreciation and amortization

Net amortization of bond premium

Provision for loan losses

Provision for credit losses

Gain on sale of loans

Securities losses (gains), net

Securities losses, net

Gain on termination of interest rate swaps

Proceeds from loans sold

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Increase in bank-owned life insurance

Increase in deferred loan costs

Deferred tax (benefit) expense

Increase in deferred costs on loans

Deferred tax expense (benefit)

Increase in accrued interest receivable

Increase in other assets

Decrease (increase) in other assets

Increase in deferred compensation liability

Increase in other liabilities

Net cash provided by operating activities

(Decrease) increase in other liabilities

Net cash (used) provided by operating activities

Cash flows from investing activities:

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

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

Purchase of securities available-for-sale

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Loan originations and principal collections, net

Net loan (charge offs) recoveries

Net (purchase) redemption of Federal Home Loan Bank stock

Net redemption (purchase) of Federal Home Loan Bank stock

Proceeds from sales and maturities of interest bearing time deposits with other banks

Proceeds from termination of interest rate swaps

Net cash used by investing activities

Cash flows from financing activities:

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

Net increase in certificates of deposit

Increase (decrease) in mortgagors’

tax escrow accounts

Treasury stock purchases

Net proceeds (payments) from short-term FHLB advances

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

Net increase in time deposits

(Decrease) increase in mortgagors’ escrow accounts

Proceeds from sale of common stock, net

Common stock purchased by ESOP

Return of capital from conversion of former First Seacoast Bancorp, MHC

Treasury stock activity

Net (payments) proceeds from short-term FHLB advances

Proceeds from long-term FHLB advances

Payments on long-term FHLB advances

Payments on short-term FRB advances

Proceeds from advances from Federal Reserve Bank

Payments on advances from Federal Reserve Bank

Net cash provided by financing activities

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Deferred taxes

Other comprehensive loss

Other comprehensive income (loss)

Effect of change in fair value of interest rate swaps:

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Deferred taxes

Other comprehensive income

Other comprehensive (loss) income

Cumulative fair value hedging adjustment - loans

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

Effect of the adoption of ASU 2016-13:

Allowance for credit losses on loans

Other liabilities

Effect of the adoption of ASU 2016-02:

Other liabilities

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

FIRST SEACOAST BANCORP

FIRST SEACOAST BANCORP, INC.

AND SUBSIDIARIES

Notes to consolidated Financial Statements

The accompanying consolidated financial statements include the accounts of First Seacoast Bancorp (the “Company”), its wholly-owned subsidiary, First Seacoast Bank (the “Bank”) and the Bank’s wholly-owned subsidiary, FSB Service Corporation, Inc.

The accompanying 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.

Corporate Structure

The Company is the federally-chartered holding company for the Bank (formerly named Federal Savings Bank).

Effective July 16, 2019, pursuant to a Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock Issuance Plan, the Bank reorganized into the mutual holding company structure, and the Company completed a concurrent stock offering.

On August 11, 2022, First Seacoast Bancorp, MHC, the parent mutual holding company of the Company, adopted a Plan of Conversion and Reorganization (the “Plan”) pursuant to which First Seacoast Bancorp, MHC undertook a “second-step”

conversion and the Bank, the wholly-owned subsidiary of the Company, reorganized from the two-tier mutual holding company structure to the fully-public stock holding company structure.

On January 19, 2023, the conversion and reorganization was completed As a result, First Seacoast Bancorp, Inc.

became the new stock holding company for First Seacoast Bank and both First Seacoast Bancorp, MHC and First Seacoast Bancorp ceased to exist.

First Seacoast Bancorp, Inc.’s common stock began trading on the Nasdaq Capital Market under the trading symbol “FSEA”

on January 20, 2023 (see Note 22 Subsequent Events for more information).

On January 19, 2023, the conversion of First Seacoast Bancorp, MHC from mutual to stock form and the related stock offering by First Seacoast Bancorp, Inc., the new holding company for First Seacoast Bank, was completed.

As a result, both First Seacoast Bancorp, MHC and First Seacoast Bancorp (a federal corporation) ceased to exist.

First Seacoast Bancorp, Inc.’s common stock began trading on the Nasdaq Capital Market under the trading symbol “FSEA” on January 20, 2023.

As a result of the subscription offering, the community offering and the syndicated community offering, First Seacoast Bancorp, Inc.

sold a total of 2,805,000 shares of its common stock at a price of $ 10.00 per share, which includes 224,400 shares sold to First Seacoast Bank’s Employee Stock Ownership Plan.

As part of the conversion transaction, each outstanding share of First

Seacoast Bancorp (a federal corporation) common stock owned by the public stockholders of First Seacoast Bancorp (a federal corporation) (stockholders other than First Seacoast Bancorp, MHC) as of the closing date was converted into shares of First Seacoast Bancorp, Inc.

common stock based on an exchange ratio of 0.8358 shares of First Seacoast Bancorp, Inc.

common stock for each share of First Seacoast Bancorp (a federal corporation) common stock.

The Bank offers a full range of banking and wealth management services to its customers.

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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 and 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.

Deposits at the Bank are insured by the Federal Deposit and 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.

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The financial statements have been prepared in conformity with U.S.

generally accepted accounting principles (“GAAP”).

Use of Estimates

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Actual results could differ from those estimates.

Significant estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

Significant estimates that are particularly susceptible to change relate to the determination of the allowance for credit losses and the valuation of deferred tax assets.

Consolidated Statements of Cash Flows

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Reclassifications

Certain amounts in the prior year’s financial statements may have been reclassified to conform with the current year’s presentation.

Securities Available-for-Sale

The Company classifies the available-for-sale securities portfolio into the following major security types:

Government-sponsored enterprise obligations, U.S.

Government agency small business administration pools guaranteed by SBA, collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA, residential mortgage-backed securities, municipal bonds, corporate debt and corporate subordinated debt.

Nearly all of the mortgage-backed securities held by the Company are issued by the U.S.

government and its entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies and have a history of no credit losses.

The remainder of the residential mortgage-backed securities are non-agency collateralized mortgage obligations which currently carry investment-grade bond ratings.

At December 31, 2023, municipal bonds are highly-rated and are issued by state and local governments with minimal credit risk.

Available-for-sale securities consist of debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity.

These assets are carried at fair value.

Unrealized holding gains and losses for these assets, net of related deferred income taxes, are recorded in and reported as accumulated other comprehensive income within stockholders’

For debt securities in an unrealized loss position, the Company considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer.

Unrealized holding gains and losses for these assets, net of related deferred income taxes adjusted for valuation allowances, are recorded in and reported as accumulated other comprehensive loss within stockholders’ equity.

For debt securities in an unrealized loss position, the Company considers the extent of the unrealized loss and the financial condition and near-term prospects of the issuer.

The Company also determines whether it has the intent to sell the debt security or whether it is more likely than not it 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 are considered other-than-temporarily impaired and do not meet either condition, the credit loss portion of impairment will be recognized in earnings as realized losses.

The other-than-temporary impairment related to all other factors will be recorded in accumulated other comprehensive income.

If either condition is met, the Company will write-down to fair value through a charge to earnings.

For all other debt securities, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to this security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount the fair value is less than the amortized cost basis.

Losses related to non-credit- related factors will be recorded in other comprehensive loss.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Debt securities are placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent.

Interest accrued but not received for a security placed on non-accrual is reversed against interest income.

Gains and losses on the sale of available-for-sale securities are determined using the specific identification method.

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Interest Bearing Time Deposits With Other Banks

The Company maintains time deposits with other banks and credit unions, which are fully insured by the FDIC or National Credit Union Administration (“NCUA”).

Balances are carried at cost and the time deposits carry terms of up to four years .

The Company maintained time deposits with other banks and credit unions, which were fully insured by the FDIC or National Credit Union Administration (“NCUA”).

Balances were carried at cost and the time deposits carried terms of up to four years .

Federal Home Loan Bank Stock

Federal Home Loan Bank (“FHLB”) stock is carried at cost and can only be sold to the FHLB based on its current redemption policies.

The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.

Based on the most recent analysis of the FHLB, as of December 31, 2023, management deems its investment in FHLB stock to not be impaired.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, net deferred loan origination fees/costs on originated loans or unamortized premiums or discounts on purchased loans.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for credit losses, net deferred loan origination fees/costs on originated loans or unamortized premiums or discounts on purchased loans.

Interest income is accrued on the unpaid principal balance on a simple interest basis.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due or determined to be impaired, if earlier.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due or determined to be non-performing, if earlier.

Past due status is based on contractual terms of the loan.

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Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Cash receipts of interest income on impaired loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan.

Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible.

When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate.

Cash receipts of interest income on non-performing loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan.

Some or all of the cash receipts of interest income on non-performing loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible.

When recognition of interest income on a non-performing loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate.

Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered.

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The amount charged or credited to income is included with the related interest income.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of general, allocated and unallocated components, as further described below.

General Component:

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments:

Allowance for Credit Losses ("ACL")

Effective January 1, 2023 , the Company adopted the new accounting standard for credit losses, ASU No.

2016-13, " Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, as amended ("ASU 2016-13" or “ASC 326”)." This new accounting standard, commonly referred to as "CECL," significantly changed the methodology for accounting for reserves on loans and unfunded off-balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees.

ASU 2016-13 replaced the "incurred loss" methodology used to establish an allowance on loans and off-balance sheet credit exposures, with an "expected loss" approach.

Under CECL, the ACL at each reporting period serves as a best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date.

Upon adoption of CECL, the Company made the following elections regarding accrued interest receivable:

(i) present accrued interest receivable balances separately on the balance sheet on the consolidated statements of condition;

(ii) exclude accrued interest from the measurement of the ACL, including investments and loans;

and (iii) continue to write-off accrued interest receivable by reversing interest income.

The Company has a policy in place to write-off accrued interest when a loan is placed on non-accrual.

Accrued interest is written-off by reversing previously recorded interest income.

For loans, write-off typically occurs when a loan has been in default for 90 days or more.

An immaterial amount of accrued interest on non-accrual loans was written off during the year ended December 31, 2023, by reversing interest income.

Historically, the Company has not experienced uncollectible accrued interest receivable on its securities available-for-sale.

The ACL is the sum of various components including the following:

(a) historical loss experience, (b) a reasonable and supportable forecast, (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 the Bank’s 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.

CECL may create more volatility in the ACL, specifically the ACL on loans and ACL on off-balance sheet credit exposures.

Under CECL, the ACL may increase or decrease 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 December 31, 2023 using the CECL 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 the Company 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, the Company will likely use a shorter forecast period, 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, the Company 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.

At December 31, 2023, the Company has chosen a forecast period of four 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:

As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses.

The Company continues to consider 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.

The ACL is measured on a collective basis for pools of loans with similar risk characteristics.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

For such loans, repayment is largely dependent upon the operation of the borrower's business.

Repayment is primarily dependent on lease income generated from the underlying collateral.

Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by one- to four-family residential properties, including home equity loans and lines of credit.

Repayment is primarily dependent on the personal cash flow of the borrower.

Acquisition, development and land loans - Acquisition, development and land loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project.

Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.

These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

Consumer and other loans - Consumer and other loans include all loans issued to individuals, primarily pre-existing Bank customers, not included in the consumer real estate mortgage classification and purchased loans secured by manufactured housing properties.

Examples of consumer and other loans are automobile loans and other installment loans extended directly to the borrower.

Consumer loans may be unsecured.

Repayment is primarily dependent on the personal cash flow of the borrower.

Due to the Company’s limited loss experience, the Company has chosen to use peer group loss data in the calculation of the quarterly loss rate.

A peer group was selected within the third-party software application which includes all banks between $ 300 million and $ 1 billion in asset size located in the northeastern United States.

The historical loss component segmented by loan pool serves as the core of the ACL adequacy methodology.

The estimated credit losses for all loan pools are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by the Company but measured by objective measurements period over period.

The data for each measurement may be obtained from internal or external sources.

The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios.

The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Additional qualitative considerations are made for any identified risk which did not exist within the portfolio historically and therefore may not be adequately addressed through evaluation of such risk factor based on historical portfolio trends as previously discussed.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

the Company has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

During the year ended December 31, 2023 , the Company adopted ASU 2022-02 , "Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures ," which eliminated the accounting guidance for troubled debt restructurings (TDRs) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The allowance for credit losses on off-balance sheet commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit.

However, a liability is not recognized for commitments unconditionally cancellable by the Company.

The allowance for credit losses on off-balance sheet commitments is recognized as a liability (other liabilities in the consolidated balance sheet), with adjustments to the allowance recognized in the provision for credit losses in the consolidated statements of loss.

The allowance for credit losses on off-balance sheet commitments is determined by estimating future draws and applying the expected loss

rates on those draws.

Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken).

To estimate future draws on unfunded balances, current utilization rates are compared to historical utilization rates.

utilization rates are below historical utilization rates, the rate difference is applied to the committed balance to estimate the future draw.

Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses general reserves.

While policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to loss, are considered adequate by the Company, they are necessarily approximate and imprecise.

There are factors beyond the Company's control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

Prior to the adoption of the new accounting standard for credit losses, the allowance for loan losses ("ALL") consisted of general, allocated and unallocated components.

The general component of the ALL was based on historical loss experience adjusted for qualitative factors stratified by the following loan segments:

commercial real estate;

commercial and industrial;

development and land;

acquisition, development and land;

one to four family residential;

home equity loans and lines of credit and consumer.

Management uses a rolling average of historical losses based on a timeframe appropriate to capture relevant loss data for each loan segment.

This historical loss factor is adjusted for the following qualitative factors:

The Company used a rolling average of historical losses based on a timeframe appropriate to capture relevant loss data for each loan segment.

This historical loss factor was adjusted for the following qualitative factors:

levels/trends in delinquencies;

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and national and local economic trends and conditions.

There were no changes in the policies or methodology pertaining to the general component of the allowance for loan losses during both of the years ended December 31, 2022 and 2021.

The qualitative factors are determined based on the various risk characteristics of each loan segment.

Risk characteristics relevant to each portfolio segment are as follows:

Commercial Real Estate loans –

Loans in this segment are primarily income-producing properties throughout the Bank’s market area.

The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.

Management generally obtains rent rolls annually and continually monitors the cash flows of these borrowers.

Multi-family Real Estate loans –

Loans in this segment are primarily income-producing properties throughout the Bank’s market area.

A weakened economy, and resultant decreased consumer and business spending, will have an effect on the credit quality in this segment.

Commercial and Industrial loans –

Loans in this segment are made to businesses and are generally secured by assets of the business or real estate.

Repayment is expected from the cash flows of the business.

A weakened economy, and resultant decreased consumer and business spending, will have an effect on the credit quality in this segment.

Acquisition, Development and Land loans –

Loans in this segment primarily include speculative real estate development loans for which payment is derived from sale and/or lease up of the property.

Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

One- to Four-Family Residential Real Estate loans –

The Bank generally does not originate or purchase loans with a loan-to-value ratio greater than 80 % and does not originate subprime loans, which are those loans to borrowers with a Fair Isaac Corporation (FICO) credit score of less than 660.

Loans in this segment are generally collateralized by owner-occupied residential real estate and repayment is primarily dependent on the credit quality of the individual borrower and secondarily, liquidation of the collateral.

The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Home Equity Loans and Lines of Credit –

All loans in this segment are typically collateralized by a subordinate lien position on owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.

The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Consumer –

Loans in this segment include secured and unsecured consumer loans including passbook loans, consumer lines of credit, overdraft protection, manufactured housing loans and consumer unsecured loans.

Repayment is dependent on the credit quality and the cash flow of the individual borrower.

Allocated Component:

The allocated component relates to loans that are classified as impaired.

The Bank assesses non-accrual loans and certain loans rated substandard or worse for impairment.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

The Bank periodically may agree to modify the contractual terms of loans.

When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).

All TDRs are classified as impaired and therefore are subject to a specific review for impairment.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate at the time of impairment or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.

Generally, impairment on TDRs is measured using the discounted cash flow method by discounting expected cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification.

Loans that have been classified as TDRs, and which subsequently default, are reviewed to determine if the loan should be deemed collateral-dependent.

In such an instance, any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell.

Generally, all other impaired loans are collateral-dependent and impairment is measured through the collateral method.

All loans on non-accrual status are considered to be impaired.

When the measurement of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through the allowance for loan losses.

The Bank charges off the amount of any confirmed loan loss in the period when the loans, or portion of loans, are deemed uncollectible.

Unallocated Component:

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

In the ordinary course of business, the Bank enters into commitments to extend credit, commercial letters of credit and standby letters of credit.

Such financial instruments are recorded in the financial statements when they are funded or become payable.

The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

The reserve for off-balance sheet commitments is included in other liabilities in the balance sheet.

At both December 31, 2022 and 2021, the reserve for unfunded loan commitments was $ 18,000 .

The related provision for off-balance sheet credit losses is included in non-interest expense in the consolidated statements of (loss) income.

Under previous accounting guidance, the allocated component related to loans which were classified as impaired.

The Company assessed non-accrual loans and certain loans rated substandard or worse for impairment.

Generally, impaired loans were collateral-dependent and impairment was measured through the collateral method.

When the measurement of the impaired loan was less than the recorded investment in the loan, the impairment was recorded through the ALL.

At December 31, 2022, the collateral values of collateral-dependent impaired loans was sufficient and no impairment charge was necessary.

The unallocated component was maintained to cover uncertainties that could affect the Company's estimate of probable losses.

Prior to January 1, 2023, when a loan was modified and a concession was made to a borrower experiencing financial difficulty, the modification was considered a TDR.

An allowance for loan losses for loans that have been modified in a TDR is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.

Management exercised significant judgment in developing these estimates.

Land, Building and Equipment

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Bank-owned life insurance policies are reflected on the consolidated balance sheets at cash surrender value.

Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of income and are generally not subject to income taxes.

Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of loss and are generally not subject to income taxes.

The Company reviews the financial strength of the insurance carriers prior to the purchase of life insurance policies and no less than annually thereafter.

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The Company services mortgage loans for others.

Loan servicing fee income is reported in the consolidated statements of (loss) income as loan servicing fee income.

Loan servicing fee income is reported in the consolidated statements of loss as loan servicing fee income.

The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned.

Late fees and ancillary fees related to loan servicing are not material.

Mortgage servicing rights (“MSR”) are initially recorded as an asset and measured at fair value when loans are sold to third parties with servicing rights retained.

MSR are initially recorded at fair value by using a discounted cash flow model to calculate the present value of estimated future net servicing income.

The Company’s MSR accounted for under the fair value method are carried on the balance sheet at fair value with changes in fair value recorded in loan servicing fee income in the period in which the change occurs.

Changes in the fair value of MSR are primarily due to changes in valuation inputs, assumptions and the collection and realization of expected cash flows.

Customer List Intangible

On August 17, 2021, the Bank entered into a definitive agreement with an investment advisory and wealth management firm (the “seller”) to purchase certain of its client accounts and client relationships for a purchase price of $ 347,000 (included in other assets at December 31, 2022), of which $ 172,000 was paid at closing.

Each client account has been assigned a value, and as each client transfers to the Bank, 85 % of this value will be paid to the seller.

By June 30, 2023, or upon mutual agreement that the transition of client accounts is complete, whichever is earlier, the balance of the purchase price will be paid to the seller.

On August 17, 2021, the Bank entered into a definitive agreement with an investment advisory and wealth management firm (the “seller”) to purchase certain of its client accounts and client relationships for a final adjusted purchase price of $ 324,000 (included in other assets at December 31, 2023 and 2022), of which $ 172,000 was paid at closing.

Each client account was assigned a value, and as each client transferred to the Bank, 85 % of this value was paid to the seller.

Once it was determined that the transition of client accounts was completed, the final purchase price was adjusted and a final payment made to the seller.

As of December 31, 2023 and 2022, approximately $ 25.7 million and $ 23.0 million of purchased client accounts are included in total assets under management, respectively.

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The Company is amortizing the customer list intangible on a straight-line basis over a ten-year period.

During the year ended December 31, 2022 and 2021, $ 34,000 and $ 13,000 of amortization expense was recorded in other expense, respectively.

During the years ended December 31, 2023 and 2022, $ 30,000 and $ 34,000 of amortization expense was recorded in other expense, respectively.

Revenue Recognition

Accounting Standards Codification (“ASC”) section 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.

The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit and investments securities, as well as revenue related to our mortgage servicing activities and bank owned life insurance, as these activities are subject to other GAAP discussed elsewhere within our disclosures.

Descriptions of our revenue-generating activities that are within the scope of ASC 606 and which are presented in our income statements as components of noninterest income are as follows:

Customer service fees—these represent general service fees for monthly account maintenance and activity- or transaction- based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue.

Descriptions of our revenue-generating activities that are within the scope of ASC 606 and which are presented in our income statements as components of non-interest income are as follows:

• Customer service fees—these represent general service fees for monthly account maintenance and activity- or transaction- based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue.

Revenue is recognized when our performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer, debit card transaction or ATM withdrawal).

Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

Investment service fees—these represent fees for investment advisory services, which are generally based on the market values of assets under management, and commissions earned on individual investment and insurance products purchased by clients of FSB Wealth Management.

Revenue is recognized when a performance obligation is completed, which is generally monthly for investment advisory services or when an investment product is purchased.

• Investment service fees—these represent fees for investment advisory services, which are generally based on the market values of assets under management, and commissions earned on individual investment and insurance products purchased by clients of FSB Wealth Management.

Revenue is recognized when a performance obligation is completed, which is generally monthly for investment advisory services or when an investment

product is purchased.

Payment for such performance obligations is generally received in the month following the time the performance obligations are satisfied.

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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 common stock.

The ESOP is a tax-qualified retirement plan for the benefit of company employees.

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Stock Based Compensation

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 or the granting of shares of restricted stock awards and restricted stock units.

The 2021 Plan authorizes the issuance or delivery to participants of up to 417,327 shares of common stock.

Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 298,091 shares, and the maximum number of shares of common stock that may be issued as restricted stock awards or restricted stock units is 119,236 shares.

The 2021 Plan authorizes the issuance or delivery to participants of up to 348,801 converted 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 Company recognizes stock-based compensation based on the grant-date fair value of the award adjusted for actual forfeitures.

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Defined Benefit Plan

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (The Pentegra DB Plan), a tax-qualified defined benefit pension plan.

The Company participated in the Pentegra Defined Benefit Plan for Financial Institutions (The Pentegra DB Plan), a tax-qualified defined benefit pension plan.

The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.

There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

There were no collective bargaining agreements in place that required contributions to the Pentegra DB Plan.

On May 26, 2022, the board of directors approved a resolution authorizing the Company to give notice of its intent to withdraw from the Pentegra DB Plan as of September 30, 2022.

On September 30, 2022, the Company proceeded with its notification to withdraw from the Pentegra DB Plan as of September 30, 2022 (see Note 12 Employee Benefits for more information).

The Company’s funding policy is to make an annual contribution determined by the Pentegra DB Plan actuaries that will not be less than the minimum required contribution nor greater than the maximum federal income tax deductible limit.

Contributions are based on the individual employer’s experience.

The Company’s funding policy was to make an annual contribution determined by the Pentegra DB Plan actuaries that will not be less than the minimum required contribution nor greater than the maximum federal income tax deductible limit.

Contributions were based on the individual employer’s experience.

Supplemental Executive Retirement Plans

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The Company recognizes the cost of providing these benefits over the time period the individuals render service through the retirement date.

At each measurement date, the aggregate amount accrued equals the then present value of the benefits expected to be provided to the individual in exchange for the individual’s service to that date.

All leases with an initial term greater than 12 months recognize:

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The Company elected to not separate lease and non-lease components.

As a lessee, the majority of the operating lease portfolio consists of a real estate lease for one branch location and leases for certain office equipment.

The operating leases have remaining lease terms of one year to five years , and in some instances include options to renew for periods up to four years .

As a lessee, the majority of the operating lease portfolio consists of a real estate lease for one branch location and leases for certain equipment.

The operating leases have remaining lease terms of one year to eight years , and in some instances include options to renew for periods up to four years .

ROU assets and lease liabilities are not recognized for leases with an initial term of 12 months or less.

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not”

threshold, based upon the technical merits of the position.

Estimated interest and penalties, if applicable, related to uncertain tax positions are included as a component of provision for income taxes.

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The Company has concluded that no uncertain tax positions exist at December 31, 2023.

Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets.

Judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets.

The process involves summarizing temporary differences resulting from the different treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheets.

Management then assesses the likelihood that deferred tax assets will be recovered from future taxable income and, to the extent our management believes recovery is not likely, a valuation allowance is established.

To the extent that we establish or adjust a valuation allowance in a period, an expense or benefit is recorded within the tax provision in the consolidated statements of income.

Comprehensive (Loss) Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

Although certain changes in assets and liabilities, such as unrealized gains and losses on securities available-for-sale, are reported as a separate component of the stockholders’

equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive (loss) income.

The Company also records changes in the fair value of interest rate derivatives used in its cash flow hedging activities, net of deferred income tax, in comprehensive (loss) income.

(Loss) Earnings Per Share

Basic (loss) earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Securities that could potentially dilute basic earnings per common share in the future (i.e.

unvested restricted stock) were not included in the computation of diluted earnings per common share because to do so would have been antidilutive for 2022 and 2021.

All unvested stock based compensation awards exclude the right to receive non-forfeitable dividends and are considered nonparticipating securities and exclude the right to participate with common stock in undistributed earnings for purposes of computing earnings per share.

The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income and, to the extent the Company believes recovery is not likely, a valuation allowance is established.

To the extent that the Company establishes or adjusts a valuation allowance in a period, an expense or benefit is recorded within the tax provision in the consolidated statements of loss.

Comprehensive Loss

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net loss.

Although certain changes in assets and liabilities, such as unrealized gains and losses on securities available-for-sale, are reported as a separate component of the stockholders’ equity section of the consolidated balance sheets, such items, along with net loss, are components of comprehensive loss.

The Company also records changes in the fair value of interest rate derivatives used in its cash flow hedging activities, net of deferred income tax, in comprehensive loss.

Loss Per Share

Basic loss per share represents loss allocable to common stockholders divided by the weighted-average number of common shares outstanding during the period.

Diluted loss per share is computed in a manner similar to that of basic loss per share since the weighted-average number of common shares outstanding is not adjusted to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period in periods where a net loss was recognized.

Unallocated ESOP shares are not deemed outstanding for loss per share calculations.

Securities that could potentially dilute basic earnings per common share in the future (i.e., unvested restricted stock) were not included in the computation of diluted earnings per common share because to do so would have been antidilutive for 2023 and 2022.

Derivative Instruments and Hedging Activities

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The accounting for changes in the fair value of such derivatives depends on the intended use of the derivative and resulting designation.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is reported in other comprehensive income (loss) and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

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.

Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

The Company formally assesses the effectiveness of each hedging transaction at inception, and on an on- going basis.

When it is determined that the contract is no longer highly effective, the Company discontinues hedge accounting prospectively.

This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income.

When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.

When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings.

The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position.

The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.

All the contracts to which the Company is a party settle monthly or quarterly.

Risks and Uncertainties

The Bank and the Bank’s defined benefit pension plan invest in various investment securities.

Investment securities are exposed to various risks, such as interest rate, market and credit risks.

Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated balance sheet or statement of income.

On March 11, 2020, the world health organization declared the outbreak of COVID-19 a global pandemic.

Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, localized quarantines, and government-mandated closures of certain businesses.

While certain of these restrictions have been loosened, the same or new restrictions may be implemented again.

effectiveness against contracting and spreading COVID-19 and any of its existing or new variants.

Despite the many government stimulus programs introduced during the pandemic, the extent of any prolonged impact to the economy could adversely affect the ability of the Company’s borrowers to satisfy their obligations, decrease the demand for loans, disrupt banking operations, impact liquidity or cause a decline in collateral values.

While management has taken measures to mitigate the impact of the pandemic, such as temporary branch closures, transitioning to a more remote work environment and participation in government stimulus programs, the long-term impact to the Company remains uncertain.

Most of the Company’s business activity is with customers located within the New Hampshire and southern Maine Seacoast region.

The Company has limited or no direct exposure to industries expected to be hardest hit by the COVID-19 pandemic, including oil and gas/energy, credit cards, airlines, cruise ships, arts/entertainment/recreation, casinos and shopping malls.

The Company’s exposure to the transportation and hospitality/restaurant industries amounted to less than 5 % of the gross loan portfolio at December 31, 2022.

Most of the Company’s business activity is with customers located within the New Hampshire and southern Maine Seacoast region.

The Company's commercial real estate loans are secured by a variety of properties in its primary market area, including retail spaces, distribution centers, office buildings, manufacturing and warehouse properties, convenience stores and other local businesses, without any material concentrations in property type.

The Company has limited exposure to non-owner occupied office space.

Multi-family real estate loans are secured by properties consisting of five or more rental units in the Company's market area, including apartment buildings and student housing.

Also, the Company’s exposure to the transportation and hospitality/restaurant industries amounted to less than 5 % of the gross loan portfolio at December 31, 2023 and 2022.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

As an “emerging growth company,”

as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards without an extended transition period.

As of December 31, 2021 , there was no significant difference in the comparability of the Company’s consolidated financial statements as a result of this extended transition period except for the accounting treatment for measuring and recording the Company’s allowance for loan losses.

The Company measures and records an allowance for loan losses based upon the incurred loss model while other public companies may be required to calculate their allowance for loan losses based upon the current expected credit loss (“CECL”) model.

The CECL approach requires an estimate of the loan loss expected over the life of the loan, while the incurred loss approach delays the recognition of a loan loss until it is probable a loss event has incurred.

The Company’s status as an “emerging growth company”

will end on the earlier of:

As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

As of December 31, 2023 , there was no significant difference in the comparability of the Company’s consolidated financial statements as a result of this extended transition period.

The Company’s status as an “emerging growth company” will end on the earlier of:

(i) the last day of the fiscal year of the Company during which it had total annual gross revenues of $1.07 billion (as adjusted for inflation) or more;

(ii) the last day of the fiscal year of the Company following the fifth anniversary of the effective date of the Company’s initial public offering (which will be December 31, 2024 for the Company);

(iii) the date on which the Company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;

or (iv) the date on which the Company is deemed to be a “large accelerated filer”

under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

In December 2022, the FASB issued ASU No.

2022-06, “

Reference Rate Reform (Topic 848), ”

which defers the sunset date of Topic 848 from December 2022 to December 2024 after which entities will no longer be permitted to apply the relief in Topic 848.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12,“Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.”

This ASU simplifies accounting for income taxes by removing specific technical exceptions.

The guidance removes the need for companies to analyze whether (1) the exception to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses apply in a given period.

The amendments in this ASU are effective for smaller reporting companies for fiscal years beginning after December 15, 2021.

Early adoption was permitted.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).”

Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

In particular, this guidance requires a lessee of operating or finance leases to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term.

However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities.

Under previous U.S.

GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the statement of condition.

Initially, the FASB approved a proposal to delay the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2020.

On June 30, 2020, the FASB further delayed the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2021.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,”

which clarifies ASU 2016-02 with respect to certain aspects of the update and ASU 2018-11,“Targeted Improvements,”

to allow an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements.

Using the optional transition method discussed above, the Company adopted the new lease guidance on January 1, 2022 and recorded a right-of- use asset in other assets and a corresponding net lease liability in other liabilities at March 31, 2022 (see Note 14, Leases, for more information).

Recent Accounting Pronouncements Yet To Be Adopted

The Company considers the applicability and impact of all ASUs.

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

In March 2022, the FASB issued ASU 2022-2, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,”

which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted Topic 326, “Financial Instruments –

Credit Losses.”

All other creditors must continue to apply the TDR accounting model until they adopt ASU 2016-13, “Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.”

Due to the removal of the TDR accounting model, all loan modifications now will be accounted for under the general loan modification guidance in Subtopic 310-20.

or (iv) the date on which the Company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

In March 2022, the FASB issued ASU 2022-2, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted Topic 326, “Financial Instruments – Credit Losses.” All other creditors must continue to apply the TDR accounting model until they adopt ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” Due to the removal of the TDR accounting model, all loan modifications now will be accounted for under the general loan modification guidance in Subtopic 310-20.

In addition, on a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty.

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This ASU becomes effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

While the adoption of this ASU on January 1 2023 may result in new disclosures, it is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU 2021-1, “

Reference Rate Reform (Topic 848) (Scope), ”

which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transition.

This ASU was to become effective immediately for all entities on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued.

The effective date was extended by the issuance of ASU No.

2022-06, “

Reference Rate Reform (Topic 848), ”

which, as noted above, defers the sunset date of Topic 848 from December 2022 to December 2024.

The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, “

Reference Rate Reform (Topic 848), ”

which provides optional guidance to ease the potential burden in accounting due to reference rate reform.

The guidance in this update provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

These amendments are effective immediately and may be applied prospectively to contract modifications made, and hedging relationships entered into, on or before December 31, 2022.

The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

In February 2020, the FASB issued ASU 2020-2, “Financial Instruments –

Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) .”

This ASU adds an SEC paragraph pursuant to the issuance of SEC SAB Topic No.

119 to the FASB Codification Topic 326 and updates the SEC section of the Codification for the change in the effective dates of Topic 842.

This ASU primarily details guidance on what SEC staff would expect a registrant to perform and document when measuring and recording its allowance for credit losses for financial assets recorded at amortized cost.

In November 2019, the FASB issued ASU 2019-11, “

Codification Improvements to Topic 326, Financial Instruments –

Credit Losses,”

to increase stakeholder awareness of the improvements made to the various amendments to Topic 326 and to clarify certain areas of guidance as companies transition to the new standard.

Also during November 2019, the FASB issued ASU 2019-10, “

Financial Instruments –

Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates ,”

finalizing various effective date deferrals for private companies, not-for-profit organizations and certain smaller reporting companies applying the credit losses (CECL), leases and hedging standards.

The effective date for ASU 2016-13, “Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,”

is deferred to years beginning after December 15, 2022.

The effective dates for ASU 2016-02, “

Leases (Topic 842)”

was deferred to fiscal years beginning after December 15, 2021.

to increase stakeholders’

awareness of the amendments and to expedite improvements to the Codification.

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses, Topic 326.”

This ASU addresses certain stakeholders’

concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU 2019-11, “ Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” to increase stakeholder awareness of the improvements made to the various amendments to Topic 326 and to clarify certain areas of guidance as companies transition to the new standard.

Also during November 2019, the FASB issued ASU 2019-10, “ Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates ,” finalizing various effective date deferrals for private companies, not-for-profit organizations and certain smaller reporting companies applying the credit losses (CECL), leases and hedging standards.

The effective date for ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” is deferred to years beginning after December 15, 2022.

The effective dates for ASU 2016-02, “ Leases (Topic 842)” was deferred to fiscal years beginning after December 15, 2021.

The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification.

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses, Topic 326.” This ASU addresses certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets.

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See the next paragraph for further discussion regarding the implementation of this standard.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,”

which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities.

In June 2016, the FASB issued ASU 2016-13 ,“Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities.

The ASU requires financial assets measured at amortized cost (including loans and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses.

The ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down.

The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change.

The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of loss as the amounts expected to be collected change.

The ASU was originally to be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,”

extending the implementation date by one year for smaller reporting companies and clarifying that operating lease receivables are outside the scope of Accounting.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” extending the implementation date by one year for smaller reporting companies and clarifying that operating lease receivables are outside the scope of Accounting.

In November, 2019, the FASB issued ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13 becoming effective in the first quarter of 2023 for the Company.

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Accordingly, the ASU requires the use of forward-looking information to form credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses.

The Company has selected a loss estimation methodology, utilizing a third-party model, and is refining the remaining facets of its CECL model, as well as finalizing internal controls.

The Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

The Company estimates the adoption of the new standard will result in a decrease to its allowance for loan losses (“ALL”).

This decrease, though, is expected to be offset by an increase in the allowance for non-cancelable off-balance sheet commitments.

The estimated decrease in ALL is due to a reduced emphasis on qualitative factors under the CECL model as the underlying historical loss data of the selected peer group is much more robust with broader time horizons as compared to the Company's actual historical loss data used under an incurred loss methodology.

As the Company completes its final evaluation, the adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

Many of the loss estimation techniques applied today are still permitted, though the inputs to those techniques have changed to reflect the full lifetime amount of expected credit losses.

The Company has selected a loss estimation methodology which utilizes a third-party software application.

The Company has recorded the effect of implementing this ASU using a modified-retrospective approach through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU was effective, which was January 1, 2023 .

The adoption of the new standard resulted in a decrease to its allowance for credit losses on loans (“ACL”).

This decrease, though, was offset by an increase in the allowance for credit losses on off-balance sheet ("OBS") commitments that are not unconditionally cancelable.

The decrease in ACL was due to a reduced emphasis on qualitative factors under the CECL model as the underlying historical loss data of the selected peer group is much more robust with broader time horizons as compared to the Company's actual historical loss data used under an incurred loss methodology.

The adoption of this ASU did not have a material impact on the Company's consolidated financial statements (see below and Note 6, Loans, for more information).

January 1, 2023 CECL Transition (Day 1) Impact

The CECL methodology reflects the Company's view of the state of the economy and forecasted macroeconomic conditions and their impact on the Company's loan portfolio as of the adoption date.

The following table illustrates the impact of the adoption of ASU 2016-13:

January 1, 2023

As reported under ASC 326

Pre-ASC 326 Adoption

Impact of ASC 326 Adoption

(Dollars in thousands)

Allowance for credit losses on loans:

Commercial real estate (CRE)

Multifamily (MF)

Commercial and industrial (C+I)

Acquisition, development, and land (ADL)

1-4 family residential (RES)

Home equity line of credit (HELOC)

Consumer (CON)

Allowance for credit losses on loans

Allowance for credit losses on OBS credit exposures

STOCKHOLDERS' EQUITY

Retained earnings

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 2023, the FASB issued ASU No.

2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures," which provides updated guidance for segment reporting.

The updated guidance requires enhanced disclosures for significant expenses by reportable operating segment.

Significant expense categories and amounts are those regularly provided to the chief operating decision maker ("CODM") and included in the measure of a segment’s profit or loss.

The updated guidance will also require the Company to disclose the title and position of its CODM, including an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The Company plans to adopt this ASU for the annual reporting period beginning January 1, 2024, and for interim periods beginning January 1, 2025.

The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” effective January 1, 2025, with early adoption permitted, updating accounting guidance.

The updated guidance requires additional disclosure and disaggregated information in the income tax rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items.

The updated guidance also requires disclosure of the amount of income taxes paid (net of refunds received) disaggregated by jurisdictional categories (federal (national), state and foreign).

The adoption of the ASU is not expected to have a material impact on the Company's consolidated financial statements.

In January 2021, the FASB issued ASU 2021-1, “ Reference Rate Reform (Topic 848) (Scope), ” which clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transition.

The effective date was extended by the issuance of ASU No.

2022-06, “ Reference Rate Reform (Topic 848), ” which defers the sunset date of Topic 848 from December 2022 to December 2024.

The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

Interest Bearing Time Deposits with Other Banks

At December 31, 2022, the Company’s $ 747,000 of time deposits are scheduled to mature during 2023.

The Company’s $ 747,000 of time deposits outstanding at December 31, 2022 matured during 2023.

Securities Available-for-Sale

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Municipal bonds

Corporate debt

Corporate subordinated debt

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Government-sponsored enterprises obligations,

municipal bonds and corporate subordinated debt

municipal bonds, corporate debt and corporate subordinated debt

Government agency small business pools guaranteed

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Gross realized losses

Net realized (losses) gains

Net realized losses

The following is a summary of gross unrealized losses and fair value for those investments with unrealized losses, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022.

28 unchanged sentences

Municipal bonds

In evaluating whether investments have suffered an other-than-temporary decline, management evaluated the amount of the decline compared to cost, the length of time and extent to which fair value has been less than cost, the underlying creditworthiness of the issuer, the fair values exhibited during the year and estimated future fair values.

In general, management concluded the declines are due to coupon rates compared to market rates and current economic conditions.

The Company does not intend to sell investments with unrealized losses, and it is more likely than not that the Company will not be required to sell these investments before recovery of their amortized cost basis.

Based on evaluations of the underlying issuers’

financial condition, current trends and economic conditions, management does not believe any securities suffered an other-than-temporary decline in value as of December 31, 2022.

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

The Bank’s lending activities are primarily conducted in and around Dover, New Hampshire and in the areas surrounding its branches.

The Bank originates commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land loans, one- to four-family residential loans, home equity loans and lines of credit and consumer loans.

Most loans originated by the Bank are collateralized by real estate.

The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’

geographic area and the general economy.

In response to the COVID-19 pandemic, the Small Business Administration (“SBA”) established the Paycheck Protection Program (“PPP”), which was designed to aid small- and medium-sized businesses through federally guaranteed SBA loans (“PPP loans”) distributed through banks.

PPP loans are fully guaranteed as to principal and interest by the SBA.

During the years ended December 31, 2022 and 2021, the Bank originated - 0 - and 134 PPP loans, respectively, with aggregate outstanding principal balances of $- 0 - and $ 13.1 million, respectively.

As of December 31, 2022 and 2021, total PPP loan principal balances were $- 0 - and $ 5.5 million, respectively, and are included in commercial and industrial loans (C+I).

Corporate debt

Corporate subordinated debt

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 December 31, 2023, 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 December 31, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore the Company carried no allowance for credit losses on securities available-for-sale as of December 31, 2023.

There was no accrued interest reversed against interest income for the years ended December 31, 2023 and 2022.

Accrued interest receivable on available-for-sale securities totaled $ 1.1 million at December 31, 2023, and is excluded from the estimate of credit losses.

At December 31, 2023, $ 74.1 million of securities available-for-sale were pledged as collateral for the Company's Bank Term Funding Program and Borrower-In-Custody secured credit facilities (see Note 10 Borrowings for more information).

As of December 31, 2023 and 2022, there were no holdings of securities of any issuer, other than the SBA, FHLMC, GNMA and FNMA, whose aggregate carrying value exceeded 10% of stockholders’ equity.

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 originates commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land loans, one- to four-family residential loans, home equity loans and lines of credit and consumer loans.

Most loans originated by the Company are collateralized by real estate.

Loans consisted of the following at December 31:

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1-4 family residential (RES)

Home equity loans and lines of credit (HELOC)

Home equity line of credit (HELOC)

Consumer (CON)

Net deferred loan costs

Allowance for loan losses

Transactions in the Allowance for loan losses (“ALL”) for the years ended December 31, 2022 and 2021 by portfolio segment, are summarized as follows:

Allowance for credit losses on loans

Total loans, net

The Company elected to include deferred loan originations costs, net from and exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote.

As of December 31, 2023 and 2022, accrued interest receivable for loans totaled $ 1.2 million and $ 989,000 , respectively, and is included in the “accrued interest receivable” line item on the Company’s consolidated balance sheets.

Changes in the ACL for the year ended December 31, 2023, under the CECL model, by portfolio segment, are summarized as follows:

(Dollars in thousands)

Balance, December 31, 2022, Prior to Adoption of ASC 326

Impact of adopting ASC 326

Provision for credit losses on loans

Balance, December 31, 2023

Provision for loan losses

Changes in the ALL for the year ended December 31, 2022, under the incurred loss model, by portfolio segment, are summarized as follows:

(Dollars in thousands)

Balance at December 31, 2021

Balance, December 31, 2021

Provision for loan losses

Balance at December 31, 2022

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

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

(Dollars in thousands)

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Collectively evaluated for impairment

December 31, 2021 Loan Balances

Individually evaluated for impairment

Collectively evaluated for impairment

ALL related to the loans

Individually evaluated for impairment

Collectively evaluated for impairment

The following is an aged analysis of past due loans by portfolio segment as of December 31, 2023:

(Dollars in thousands)

Total Past Due

The Company's collateral-dependent non-accrual RES and HELOC loans with one borrower had an amortized cost basis of $ 141,000 at December 31, 2023 and was secured by real estate with an appraised value of $ 216,000 .

There was no significant change in the extent to which the collateral secures the loan.

Interest income recognized on non-accrual loans during the year ended December 31, 2023 was $- 0 -.

There were no loans past due over 90 days still accruing interest at December 31, 2023.

There were no loans collateralized by residential real estate property in the process of foreclosure at December 31, 2023 and 2022.

There were no loans modified for borrowers experiencing financial difficulty during the year ended December 31, 2023.

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.

There were no loans modified and determined to be a troubled debt restructuring during the year ended December 31, 2022.

The following is an aged analysis of past due loans by portfolio segment as of December 31, 2022:

(Dollars in thousands)

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

The following table provides information on impaired loans as of and for the years ended December 31, 2022 and 2021:

Total Past Due

The following table provides information on impaired loans as of and for the year ended December 31, 2022:

As of December 31, 2022

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Total impaired loans

As of December 31, 2021

At December 31, 2021

With no related allowance recorded:

Total impaired loans

There were no loans modified and determined to be a TDR during the year ended December 31, 2022.

During 2021, one residential mortgage loan was modified and determined to be a TDR as it did not meet the qualifications of Section 4013 of the CARES Act.

At December 31, 2022 and 2021, this loan had a recorded investment of $ 189,000 and $ 195,000 , respectively.

The modification agreement defers delinquent interest and escrow payments to the end of the loan.

The loan was returned to performing status during June 2022.

The allowance for loan losses includes a specific reserve for this TDR of $- 0 - as of December 31, 2022 and 2021, which was determined through a calculation of the present value of estimated cash flows.

There have been no defaults within twelve months of the modification.

There are no commitments to extend additional credit to these borrowers.

Credit Quality Information

The Bank utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition, development and land loans.

Residential real estate, home equity loans and line of credit and consumer loans are considered “pass”

rated loans until they become delinquent.

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 loans and 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 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 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.

Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged.

There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected.

Loans rated 9:

Loans in this category are considered “doubtful.”

Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

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

Loans rated 10:

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

On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial and industrial, commercial real estate, acquisition, development and land loans and multifamily loans.

On a periodic basis, the Bank engages an independent third party to review a significant portion of loans within these segments and to assess the credit risk management practices of its commercial lending department.

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 all commercial and industrial, commercial real estate, acquisition, development and land loans and multifamily 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 and overall credit risk administration.

On a quarterly basis, the Bank formally reviews the ratings on all residential real estate and home equity loans if they have become delinquent.

On a quarterly basis, the Company formally reviews the ratings on all residential real estate and home equity loans if they have become delinquent.

Criteria used to determine ratings consist of loan-to-value ratios and days delinquent.

The following presents the internal risk rating of loans by portfolio segment as of December 31, 2022:

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 December 31, 2023:

(Dollars in thousands)

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term

Special mention

The following presents the internal risk rating of loans by portfolio segment as of December 31, 2022:

(Dollars in thousands)

Certain directors and executive officers of the Bank and companies in which they have significant ownership interests were customers of the Bank during 2022 and 2021.

Certain directors and executive officers of the Company and entities in which they have significant ownership interests were customers of the Bank during 2023 and 2022.

For the years ended December 31, 2023 and 2022, activity in these loans was as follows:

(Dollars in thousands)

Loans outstanding –

beginning of year

Loans outstanding – beginning of year

Principal payments

Loans outstanding –

Loans outstanding – end of year

Loan Servicing

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These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see Note 20 Fair Value of Assets and Liabilities for more information).

Changes to the balance of mortgage servicing rights are recorded in loan servicing fee income in the Company’s consolidated statements of (loss) income.

The Bank’s mortgage servicing activities include:

Changes to the balance of mortgage servicing rights are recorded in loan servicing fee income in the Company’s consolidated statements of loss.

The Company’s mortgage servicing activities include:

collecting principal, interest and escrow payments from borrowers;

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Loan servicing fee income, including late and ancillary fees, was $ 77,000 and $ 126,000 for the years ended December 31, 2023 and 2022, respectively.

Servicing fee income is recorded in loan servicing fee income in the Company’s consolidated statements of income.

The Bank’s residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in the Bank’s market areas.

Servicing fee income is recorded in loan servicing fee income in the Company’s consolidated statements of loss.

The Company’s residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in the Company’s market areas.

The following summarizes activity in mortgage servicing rights for the years ended December 31, 2023 and 2022.

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Time deposits less than $250,000

There were $ 23.6 million and $ 18.1 million of brokered time deposits which were bifurcated into amounts below the FDIC insurance limit at December 31, 2023 and 2022, respectively.

Additionally, there were $ 20.9 million and $- 0 - of brokered deposits included in savings deposits at December 31, 2023 and 2022, respectively.

Reciprocal deposits were $ 1.1 million and $- 0 - at December 31, 2023 and 2022, respectively.

Deposits from related parties totaled approximately $ 10.7 million and $ 7.1 million at of December 31, 2023 and 2022, respectively.

At December 31, 2023, the scheduled maturities of time deposits were as follows:

(Dollars in thousands)

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

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 $ 71.8 million and $ 36.5 million at December 31, 2023 and 2022, respectively.

At December 31, 2023 and 2022, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program.

A summary of borrowings from the FHLB are as follows:

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(Dollars in thousands)

0.44 % to 4.38 % –

0.00 % –

0.00 % to 5.53 % – fixed

0.00 % – fixed

4.38 % to 4.48 % – fixed

0.00 % – fixed

December 31, 2022

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(Dollars in thousands)

0.00 % to 0.31 % –

0.44 % to 0.45 % –

0.00 % –

The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $ 36.5 million and $ 109.7 million at December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program.

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

0.44 % to 4.38 % – fixed

0.00 % – fixed

Included in the above borrowings from the FHLB at December 31, 2023 is a $ 25.0 million long-term advance, with an interest rate of 4.48 %, which is callable by the FHLB on May 2, 2024 and quarterly thereafter, and 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 December 31, 2023 and 2022 borrowings from the FHLB also include $ 2.7 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 December 31, 2023 and 2022, the Bank had an overnight line of credit with the FHLB that may be drawn up to $ 3.0 million.

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The entire balance of all these credit facilities was available at December 31, 2023 and 2022.

The current and deferred components of income tax (benefit) expense consisted of the following for the years ended December 31, 2022 and 2021:

Federal Reserve Bank of Boston (“FRB”)

The Bank has established two secured credit facilities with the FRB – Bank Term Funding Program (“BTFP”) and Borrower-In-Custody of Collateral Program (“BIC”).

As of December 31, 2023, a $ 20.0 million BTFP advance is outstanding and collateralized by eligible collateral consisting primarily of government-sponsored enterprise obligations, mortgage-backed securities and collateralized mortgage obligations issued by various U.S.

Government agencies, owned as of March 12, 2023.

The advance matures on December 13, 2024 at a fixed annual rate of 4.89 %.

The interest rate for term advances under the BTFP are based upon the one-year overnight index swap rate plus 10 basis points and fixed for the term of the advance – up to one year - on the day the advance is made.

At December 31, 2023, the Bank’s remaining borrowing capacity is $ 3.5 million under the BTFP.

Advances under the BIC would be collateralized by eligible collateral - principally general obligation municipal bonds.

The entire $ 50.6 million borrowing capacity of the BIC was available at December 31, 2023.

The current and deferred components of income tax expense (benefit) consisted of the following for the years ended December 31, 2023 and 2022:

December 31, 2023

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(Dollars in thousands)

Total income tax (benefit) expense is different from the amounts computed by applying the U.S.

Federal income tax rates in effect to income before income taxes.

Total income tax expense (benefit) is different from the amounts computed by applying the U.S.

Federal income tax rates in effect to loss before income taxes.

The reasons for these differences are as follows for the years ended December 31, 2023 and 2022:

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(Dollars in thousands)

Computed “expected”

tax (benefit) expense

State tax (benefit) expense, net of federal tax benefit

Computed “expected” tax benefit

State tax expense (benefit), net of federal tax expense (benefit)

Valuation allowance

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Deferred tax assets:

Allowance for loan losses

Allowance for credit losses

Deferred compensation liabilities

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Interest rate swaps

Securities available-for-sale

Prepaid expenses

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Total deferred tax liabilities

Net deferred tax assets, included in other assets

The calculation of the Company’s charitable contribution carryforward deferred tax asset is based upon a carryforward of approximately $ 633,000 and $ 443,000 of charitable contributions at December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, it has been determined that it is more likely than not that a portion of the benefit from this charitable contribution carryforward will not be realized prior to expiration.

Net deferred tax (liabilities) assets, included in other (liabilities) assets

The calculation of the Company’s charitable contribution carryforward deferred tax asset is based upon a carryforward of approximately $ 654,000 and $ 633,000 of charitable contributions at December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, it has been determined that it is more likely than not that the benefit from this charitable contribution carryforward will not be realized prior to expiration.

As a result, a valuation allowance of $ 176,000 and $ 171,000 has been provided on this deferred tax asset for the years ended December 31, 2023 and 2022, respectively.

The ultimate realization of this deferred tax asset is dependent upon the generation of future taxable income.

The Internal Revenue Federal Tax Code (the “Code”) limits the charitable contribution deduction in any one year to 10 % of taxable income, computed without regard to charitable contributions, certain special deductions, net operating loss carry backs and capital loss carry backs.

However, the Code allows a corporation to carry forward the excess charitable contributions to each of the five immediately succeeding years, subject to a 10% limitation in each of those years.

Thus, the Company would have six years in which to utilize the December 31, 2019 charitable contribution carryforward.

The valuation allowance for this net deferred tax asset may be adjusted in the future if estimates of taxable income during the carryforward period are reduced or increased.

All other deferred tax assets as of December 31, 2022 and 2021 have not been reduced by a valuation allowance because management believes that it is more likely than not that the full amount of these deferred tax assets will be realized.

The valuation allowance for this net deferred tax asset may be adjusted in the future if estimates of taxable income during the carryforward period are increased.

As of December 31, 2023, the Company has a Federal and New Hampshire net operating loss carryforward of $ 9.8 million and $ 8.4 million, respectively.

The Federal net operating loss carryforward can be carried forward indefinitely but is limited to 80 % of each subsequent year’s taxable income.

The New Hampshire net operating loss carryforward expires in 2032 and is also limited to 80 % of each subsequent year’s taxable income.

The Federal net operating loss carryforward can be carried forward indefinitely but is limited to 80 % of each subsequent year’s taxable income.

The New Hampshire net operating loss carryforward expires in 2032 and 2033 and is also limited to 80 % of each subsequent year’s taxable income.

Additionally, as of December 31, 2023, the Company has a New Hampshire Business Enterprise Tax credit carry forward of $ 223,000 that expires in 2029 through 2033.

The tax reserve for loan losses at the Company’s base year amounted to approximately $ 2.3 million.

If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150 % of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year in which used.

As the Company intends to use the reserve to only absorb loan losses, a deferred tax liability of approximately $ 623,000 has not been provided.

As of December 31, 2023, it has been determined that it is more likely than not that the benefit from these net operating loss and state tax credit carryforwards will not be realized.

As a result, a valuation allowance of $ 2.1 million for the Federal net operating loss carryforward, $ 501,000 for the New Hampshire net operating loss carryforward and $ 223,000 for the New Hampshire Business Enterprise Tax credit carry forward has been provided on these deferred tax assets for the year ended December 31, 2023.

All other deferred tax assets as of December 31, 2023 have also been reduced by a valuation allowance of $ 3.3 million 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.

The tax reserve for credit losses at the Company’s base year amounted to approximately $ 2.3 million.

If any portion of the reserve is used for purposes other than to absorb credit losses, approximately 150 % of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year in which used.

As the Company intends to use the reserve to only absorb credit losses, a deferred tax liability of approximately $ 620,000 has not been provided.

The Company does not have any uncertain tax positions at December 31, 2023 or 2022 which require accrual or disclosure.

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No interest or penalties were recorded for the years ended December 31, 2023 and 2022.

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities.

The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2020 through 2023.

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Employee Benefits

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 Company uses the principal and interest method to determine the release of shares amount.

The number of shares committed to be released per year through 2038 is 11,924 .

The ESOP funded its purchase of 238,473 shares through a loan from the Company equal to 100 % of the aggregate purchase price of the common stock.

The ESOP trustee is repaying the loan principally through the Bank’s contributions to the ESOP over the remaining loan term of 16.5 years.

At December 31, 2022 and 2021, the remaining principal balance on the ESOP debt was $ 2.0 million and $ 2.1 million, respectively.

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 years ended December 31, 2022 and 2021, was $ 124,000 and $ 115,000 , respectively.

At December 31, 2022 and 2021, total unearned compensation for the ESOP was $ 1.9 million and $ 2.0 million, respectively.

Shares held by the ESOP include the following:

Committed to be allocated

The fair value of unallocated shares was approximately $ 1.8 million and $ 2.2 million at December 31, 2022 and 2021, respectively.

During the years ended December 31, 2023 and 2022, the Company sponsored 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 also makes matching and profit-sharing contributions to eligible participants in accordance with plan provisions.

The Company’s contributions for the years ended December 31, 2022 and 2021 was $ 202,000 and $ 189,000 , respectively.

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (The Pentegra DB Plan), a tax-qualified defined benefit pension plan.

The Pentegra DB Plan's Employer Identification Number is 13-5645888 and the Plan Number is 333.

The Company’s contributions for the years ended December 31, 2023 and 2022 was $ 209,000 and $ 202,000 , respectively.

The Company participated in the Pentegra Defined Benefit Plan for Financial Institutions (The Pentegra DB Plan), a tax-qualified defined benefit pension plan.

The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.

There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

There were no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413 (c) and, as a result, all of the assets stand behind all of the liabilities.

Accordingly, under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

The funded status (fair value of plan assets divided by funding target) per the 2022 valuation report as of July 1, 2022 was 96.24 %.

The fair value of plan assets reflects any contributions received through June 30, 2022.

The funded status (fair value of plan assets divided by funding target) per the 2021 valuation report as of July 1, 2021 was 104.99 %.

The fair value of plan assets reflects any contributions received through June 30, 2021.

Based upon the funded status of the Pentegra DB Plan as of July 1, 2022, no funding improvement plan or rehabilitation plan has been implemented or is pending as of December 31, 2022.

The Bank’s contributions to the Pentegra DB Plan during the year ended December 31, 2022 totaled $ 200,000 and were not more than 5 % of the total contributions to the Pentegra DB Plan for the plan year ending June 30, 2021.

Total pension plan expense for the years ended December 31, 2022 and 2021 was $ 1.5 million and $ 200,000 , respectively, and is included in salaries and employee benefits in the accompanying consolidated statements of income.

The Company did not pay a surcharge to the Pentegra DB Plan during the years ended December 31, 2022 or 2021.

The Company enacted a “hard freeze”

for the Pentegra DB Plan as of December 31, 2018, eliminating all future service-related accruals for participants.

Prior to this enactment the Company maintained a “soft freeze”

status that continued service-related accruals for its active participants with no new participants permitted into the Pentegra DB Plan.

The Company enacted a “hard freeze” for the Pentegra DB Plan as of December 31, 2018, eliminating all future service-related accruals for participants.

Prior to this enactment the Company maintained a “soft freeze” status that continued service-related accruals for its active participants with no new participants permitted into the Pentegra DB Plan.

On May 26, 2022, the board of directors approved a resolution authorizing the Company to give notice of its intent to withdraw from the Pentegra DB Plan as of September 30, 2022.

On September 30, 2022, the Company proceeded with its notification to withdraw from the Pentegra DB Plan as of September 30, 2022.

As a result, a contribution amount that achieves a funded status of 100 % - market value of plan assets equal to the final withdrawal liability - is due.

The final withdrawal liability amounted to $ 1.5 million of which $ 200,000 was paid prior to December 31, 2022.

At December 31, 2022, $ 1.3 million of pension expense was accrued and subsequently paid in January 2023.

As a result, a contribution amount that achieved a funded status of 100 % - market value of plan assets equal to the final withdrawal liability - was due.

The final withdrawal liability amounted to $ 1.5 million of which $ 200,000 was paid prior to December 31, 2022 and $ 1.3 million of pension expense was accrued at December 31, 2022 and subsequently paid in January 2023.

A final settlement credit was received in June 2023.

Total pension plan (credit) expense for the years ended December 31, 2023 and 2022 was $( 14,000 ) and $ 1.5 million, respectively, and is included in salaries and employee benefits in the accompanying consolidated statements of loss.

Supplemental Executive Retirement Plans

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The recorded liability at December 31, 2023 and 2022 relating to this supplemental retirement plan was $ 735,000 and $ 660,000 , respectively.

The discount rate used to determine the Company’s obligation was 5.00 % during the years ended December 31, 2022 and 2021.

The discount rate used to determine the Company’s obligation was 5.00 % during the years ended December 31, 2023 and 2022.

The projected rate of salary increase for its current President was 3 % for the years ended December 31, 2023 and 2022.

For the years ended December 31, 2022 and 2021, the expense of this salary retirement plan was $ 82,000 .

Executive Supplemental Retirement Plan

The recorded liability at December 31, 2022 and 2021 relating to the supplemental retirement plan for the Company’s former President was $ 47,000 and $ 90,000 , respectively.

The discount rate used to determine the Company’s obligation was 6.25 % during the years ended December 31, 2022 and 2021.

For the years ended December 31, 2022 and 2021, the expense of this supplemental plan was $ 3,000 and $ 6,000 , respectively.

Endorsement Method Split Dollar Plan

The Company has an endorsement method split dollar plan for a former President.

The recorded liability at December 31, 2022 and 2021 relating to this supplemental executive benefit agreement was $ 34,000 and $ 35,000 , respectively.

For the years ended December 31, 2022 and 2021, the expense of this supplemental plan was $- 0 - and $ 1,000 , respectively.

Directors’

Deferred Supplemental Retirement Plan

For the years ended December 31, 2023 and 2022, the expense of this salary retirement plan was $ 131,000 and $ 82,000 , 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.

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The estimated liability at December 31, 2023 and 2022 relating to this plan was $ 581,000 and $ 537,000 , respectively.

The discount rate used to determine the Company’s obligation was 6.25 % during the years ended December 31, 2022 and 2021.

For the years ended December 31, 2022 and 2021 the expense of the supplemental retirement plan was $ 75,000 and $ 63,000 , 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 discount rate used to determine the Company’s obligation was 6.25 % during the years ended December 31, 2023 and 2022.

For the years ended December 31, 2023 and 2022 the expense of the supplemental retirement plan was $ 75,000 .

The Company enacted a “hard freeze” for this supplemental retirement plan as of January 1, 2022.

The amendments eliminate the formula for determining the normal annual retirement benefit (previously “ 70 % of Final Base Fee”) and replaces it with a fixed annual benefit of $ 20,000 .

The amendments also eliminate the formula for determining the benefit payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a fixed amount equal to the present value of $ 200,000 .

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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 directors’

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 December 31, 2022 and 2021, the total deferred directors’

fees amounted to $ 553,000 and $ 420,000 , respectively.

It is the intention of the Company that no new directors of the Company would enter into similar agreements.

Additionally, the Company has a deferred directors’ 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 December 31, 2023 and 2022, the total deferred directors’ fees amounted to $ 718,000 and $ 553,000 , respectively.

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 Company uses the principal and interest method to determine the release of shares amount.

The number of shares committed to be released per year through 2047 is 15,354 .

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 December 31, 2023 and 2022, the remaining principal balance on the ESOP debt was $ 4.2 million and $ 2.0 million, respectively.

Total compensation expense recognized in connection with the ESOP for the years ended December 31, 2023 and 2022, was $ 126,000 and $ 124,000 , respectively.

At December 31, 2023 and 2022, total unearned compensation for the ESOP was $ 4.0 million and $ 1.9 million, respectively.

Shares held by the ESOP include the following:

Committed to be allocated

(1) Adjusted for conversion of the former First Seacoast Bancorp, MHC.

The fair value of unallocated shares was approximately $ 2.8 million and $ 1.8 million at December 31, 2023 and 2022, 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 417,327 shares of common stock.

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).

The exercise price of stock options may not be less than the fair market value on the date the stock option is granted.

Further, stock options may not be granted with a term that is longer than 10 years.

As of December 31, 2022, no stock options have been granted.

On November 18, 2021, 118,270 restricted stock awards were granted to directors and certain members of management at $ 9.99 per share.

On May 25, 2023, 249,144 incentive and non-statutory stock options to purchase shares of common stock were granted to directors for their services on the board of directors and certain members of management.

As of December 31, 2022, no stock options had been granted.

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 recognized for this equity incentive plan was $ 150,000 and $- 0 -, for the years ended December 31, 2023 and 2022, respectively, which provided a tax benefit of $ 40,000 and $- 0 -, respectively.

At December 31, 2023, total unrecognized compensation expense for this equity incentive plan was $ 598,000 with a 2.4 year weighted average future recognition period.

A summary of stock options outstanding as of December 31, 2023, and changes during the year ended December 31, 2023 is presented below:

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (in Years)

Aggregate Intrinsic Value

Stock options:

(In Thousands)

Balance at beginning of year

Balance at end of year

Date of grant

Options granted

Exercise price

Vesting period (1)

Expiration date

Expected volatility

Expected term

Expected dividend yield

Expected forfeiture rate

Risk free interest rate

Fair value per option

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

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 (adjusted for the second step conversion transaction) were granted to directors for their services on the board of 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 grant was $ 1.2 million.

Restricted stock awards time-vest over a three year period and have been fair valued as of the date of grant.

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.

A summary of non-vested restricted shares outstanding as of December 31, 2022 and 2021, and changes during the year ended is presented below:

A summary of non-vested restricted shares outstanding as of December 31, 2023 and 2022, and changes during the years ended December 31, 2023 and 2022 is presented below:

December 31, 2023

Number of Shares

Weighted Average Grant Date Fair Value

Weighted Average Grant Value

Restricted stock:

Non-vested at beginning of year (1)

Non-vested at end of year

December 31, 2022 (1)

Number of Shares

Weighted Average Grant Date Fair Value

Weighted Average Grant Value

Restricted stock:

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Non-vested at end of year

(1) Adjusted for conversion of the former First Seacoast Bancorp, MHC.

For the years ended December 31, 2023 and 2022, the expense recognized for this equity incentive plan was $ 399,000 and $ 387,000 , respectively, which provided a tax benefit of $ 108,000 and $ 105,000 , respectively.

At December 31, 2022 and 2021, total unrecognized compensation expense for this equity incentive plan was $ 729,000 and $ 1.1 million, respectively, with a 1.9 and 2.9 year weighted average future recognition period, respectively.

At December 31, 2023 and 2022, total unrecognized compensation expense for this equity incentive plan was $ 350,000 and $ 729,000 , respectively, with a 0.9 year and 1.9 year weighted average future recognition period, respectively.

The Company is obligated under various lease agreements for one of its branch offices and certain equipment.

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The Company has no financing leases.

The Company adopted ASU 2016-02 –Leases (Topic 842)–

effective January 1, 2022 and began recognizing its operating leases on its consolidated balance sheet by recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a ROU asset, representing the Company’s legal right to use the leased assets.

The Company adopted ASU 2016-02 –Leases (Topic 842)– effective January 1, 2022 and began recognizing its operating leases on its consolidated balance sheet by recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a ROU asset, representing the Company’s legal right to use the leased assets.

The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise.

The Company does not have any sub-lease agreements.

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

At December 31, 2022

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

December 31, 2023

Operating Leases

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Other Liabilities

December 31, 2022

Operating Leases

Balance Sheet Location

(Dollars in thousands)

Right-of-use asset

Net lease liability

Other Liabilities

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.

During 2023, the Company completed a conversion of all of its branch ATMs from owned equipment to leased equipment and recognized a $ 2,000 loss on the disposition of all ATM-related equipment.

The Company's obligation under the operating lease related to these ATMs expires in August 2030 and has future lease payments of $ 509,000 as of December 31, 2023.

Total lease expense was $ 26,000 and $- 0 - for the years ended December 31, 2023 and 2022, respectively.

The Company's obligation under the operating lease related to one of its branches expires in August 2027 and has future lease payments of $ 151,000 as of December 31, 2023.

Total lease expense was $ 37,000 and $ 33,000 for the years ended December 31, 2023 and 2022, respectively.

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

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Operating lease - operating cash flows (liability reduction)

Weighted average lease term - years

Weighted average lease term remaining (in years)

Weighted average discount rate

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Total lease liability

The Company's obligation under the operating lease related to one of its branches expires in August 2027 and has future lease payments of $ 188,000 as of December 31, 2022.

As of December 31, 2021, this lease was scheduled to expire in June 2022 and had future lease payments of $ 16,000 .

Total lease expense was $ 33,000 and $ 32,000 for the years ended December 31, 2022 and 2021.

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.

Other Comprehensive (Loss) Income

The Company reports certain items as “other comprehensive income”

and reflects total accumulated other comprehensive (loss) income (“AOCI”) in the consolidated financial statements for all years containing elements of other comprehensive income or loss.

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 years 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:

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Affected Line Item

in Statements of (Loss) Income

in Statements of Loss

(Dollars in thousands)

Losses (gains) on sale of securities

available-for-sale

Securities losses (gains), net

Income tax (benefit) expense

Net (loss) income

Losses on sale of securities available-for-sale

Securities losses, net

Income tax expense (benefit)

Net amortization of bond premiums

Interest on debt securities

Income tax (benefit) expense

Net (loss) income

Net interest (income) expense on swaps

Income tax expense (benefit)

Gain on termination of interest rate swaps

Income tax expense (benefit)

Net interest expense on swaps

Interest expense on borrowings

Income tax (benefit) expense

Net (loss) income

Income tax expense (benefit)

Total reclassification adjustments

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Balance at December 31, 2022

Other comprehensive (loss) income before

Other comprehensive income (loss) before

reclassification

Amounts reclassified from AOCI

Other comprehensive (loss) income

Other comprehensive income (loss) (1)

Balance at December 31, 2023

(1) All amounts are net of tax

Financial Instruments with Off-Balance Sheet Risk, Commitments and Contingencies

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

(1) All amounts are net of income tax including a deferred tax valuation allowance equal to the net tax benefit.

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 Bank has in particular classes of financial instruments.

The Bank’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 Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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.

Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract.

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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 Bank evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

Collateral held varies, but generally includes secured interests in mortgages.

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Standby letters of credit

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 December 31, 2023 and 2022, the ACL for off-balance sheet credit exposures totaled $ 391,000 and $ 18,000 , respectively, and was included in other liabilities on the Company’s consolidated balance sheets.

The provision for credit losses for off-balance sheet credit exposures for the years ended December 31, 2023 and 2022 was $ 83,000 and $- 0 -, respectively.

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 income.

Regulatory Matters

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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 December 31, 2023 and 2022, 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 December 31, 2023 and 2022 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.

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Common Stock Repurchases

On September 23, 2020, the board of directors of First Seacoast Bancorp (a federal corporation) authorized the repurchase of up to 136,879 shares of First Seacoast Bancorp's (a federal corporation) outstanding common stock, which equals approximately 2.2 % of all shares then outstanding and approximately 5.0 % of the then outstanding shares owned by stockholders other than First Seacoast Bancorp, MHC.

On September 23, 2020, the board of directors of First Seacoast Bancorp (a federal corporation) authorized the repurchase of up to 114,403 shares of First Seacoast Bancorp's (a federal corporation) outstanding common stock (adjusted for the second step conversion transaction), which equals approximately 2.2 % of all shares then outstanding and approximately 5.0 % of the then outstanding shares owned by stockholders other than First Seacoast Bancorp, MHC.

The Company holds repurchased shares in its treasury.

As of December 31, 2022 and 2021, First Seacoast Bancorp (a federal corporation) had repurchased 136,879 and 78,433 shares of its common stock, respectively.

As of December 31, 2022, First Seacoast Bancorp (a federal corporation) had repurchased all 114,403 shares authorized (adjusted for the second step conversion transaction).

Equity Incentive Plan

A certain member of management elected to surrender 593 shares of a vested restricted stock award on November 18, 2022 in lieu of a cash payment for the tax liabilities associated with the time-vestng of their award.

A certain member of management elected to surrender 549 and 496 (adjusted for the second step conversion transaction) shares of a vested restricted stock award on November 18, 2023 and 2022, respectively, in lieu of a cash payment for the tax liabilities associated with the time-vesting of their award.

The Company holds these shares in its treasury.

As of December 31, 2022 and 2021, the Company held a total of 137,472 and 78,433 shares in its treasury, respectively.

As of December 31, 2023 and 2022, the Company held a total of 115,448 and 114,899 (adjusted for the second step conversion transaction) shares in its treasury, respectively.

Derivatives and Hedging Activities

Derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.

The Company utilizes interest rate swap agreements as part of its asset liability management strategy.

Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal.

These derivative instruments are designated as cash flow hedges with changes in the fair value of the derivative recorded in accumulated other comprehensive income and recognized in earnings when the hedged transaction affects earnings.

The hedges were determined to be effective and the Company expects the hedges to remain effective during the remaining terms of the swaps.

The Company entered into two $ 5 million notional interest rate swaps that have been designated as cash flow hedges on 90-day advances from FHLB.

The purpose of these cash flow hedges is to reduce potential interest rate risk by swapping a variable rate borrowing to a fixed rate.

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.

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.

The Company entered into two $ 5 million notional interest rate swaps that were designated as cash flow hedges on 90-day advances from FHLB.

The purpose of these cash flow hedges was to reduce potential interest rate risk by swapping a variable rate borrowing to a fixed rate.

Management deemed it prudent to limit the variability of these interest payments by entering into these interest rate swap agreements.

These agreements provide for the Company to receive payments at a variable rate determined by a specific index (three-month LIBOR) in exchange for making payments at a fixed rate.

These agreements provided for the Company to receive payments at a variable rate determined by a specific index (three-month LIBOR) in exchange for making payments at a fixed rate.

Publication of LIBOR is expected to cease in December of 2024.

The swap agreements allow for substitution of an alternative reference rate such as the secured overnight financing rate (“SOFR”) at that time.

The changes in the fair value of interest rate swaps are reported in other comprehensive income and are subsequently reclassified into interest expense in the period that the hedged transactions affect earnings.

For the years ended December 31, 2022 and 2021, the change in fair value for these derivative instruments was $ 761,000 and $3 37,000 , respectively.

At December 31, 2022 and 2021, the fair value of interest rate swap derivatives resulted in an asset of $ 961,000 and $ 200,000 , respectively, and is recorded in other assets.

These interest rate swaps were unwound during January 2023 at a gain of $ 849,000 (see Note 22 Subsequent Events for more information).

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

The swap agreements allowed for substitution of an alternative reference rate such as the secured overnight financing rate (“SOFR”) at that time.

On January 17, 2023, the Company terminated both of its interest rate swap derivative instruments at a gain of $ 849,000 .

The Company recognized the change in fair value of these hedging instruments, previously accumulated in AOCI, as a gain on termination of interest rate swaps in its consolidated statement of loss for the year ended December 31, 2023 as it was determined that it was probable that the hedged forecasted transaction - the variability in cash flows related to 90-day advances from the FHLB - would not occur by the end of the original maturity dates of the hedging instruments.

The use of derivatives for debt hedging as part of the Company's overall interest rate risk management strategy has been infrequent as the Company has utilized other interest rate risk management activities to achieve similar business purposes.

Also, $ 536,000 of cash posted to the counterparty as collateral on these interest rate swaps contracts was returned to the Company.

The changes in the fair value of interest rate swaps were reported in other comprehensive income (loss) and were subsequently reclassified into interest expense or income in the period that the hedged transactions affected earnings.

The change in fair value for these derivative instruments for the year ended December 31, 2023 and 2022, was $( 112,000 ) and $ 761,000 for the years ended December 31, 2023 and 2022, respectively.

At December 31, 2022, the fair value of interest rate swap derivatives resulted in an asset of $ 961,000 and is recorded in other assets.

The following table summarizes the Company's cash flow hedges associated with its interest rate risk management activities:

December 31, 2022

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related to 90-day FHLB

December 31, 2021

The following table summarizes the effect of cash flow hedge accounting on the consolidated statements of loss for the years ended December 31, 2023 and 2022:

Location and Amount of Loss Recognized in

Consolidated Statements of Loss

(Dollars in thousands)

Maturity Date

The effect of cash flow hedge accounting:

Amount reclassified from AOCI into expense

Fair Value Hedges of Interest Rate Risk

During 2023, the Company entered into interest rate contracts that were designated as fair value hedges utilizing a pay fixed interest rate swap to hedge portions of the residential mortgage loan portfolio's change in fair value attributable to the movement in the one-month SOFR.

Additionally, the Company entered into an 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.

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.

As of December 31, 2023, 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)

Securities available-for-sale, at fair value

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 December 31, 2023, the amortized cost basis of the closed portfolios of fixed-rate residential loans used in the hedging relationship was approximately $ 62.2 million;

the cumulative basis adjustments associated with this hedging relationship was $ 632,000 ;

and the notional amount of the designated hedged item was $ 50.0 million.

Under the "portfolio layer" approach, the Company designated a $ 50.0 million 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 carrying amount of the hedged asset located in “securities available-for-sale, at fair value” includes the principal amount of municipal bonds 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 December 31, 2023, the fair value of the principal amount of municipal bonds used in this hedging relationship was approximately $ 19.3 million;

the cumulative basis adjustments associated with these hedging relationships was $ 126,000 ;

and the notional amount of the designated hedged items were $ 10.0 million.

Under the "portfolio layer" approach, the Company designated a $ 10.0 million 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 December 31, 2023, the Company’s fair value hedges had a remaining maturity of 2.73 years, an average pay fixed rate of 4.29 % and an average received rate of 5.32 %.

The Company had no fair value hedges at December 31, 2022.

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.

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

(Dollars in thousands)

December 31, 2023

Derivatives designated as

hedging instruments:

Interest rate contracts - fair value hedge

Other liabilities

Total derivatives designated as

hedging instruments

Interest Rate Swap 2020

Interest Rate Swap 2021

Total Hedging Instruments

Hedged Items:

Variability in cash flows

related to 90-day FHLB

The following table summarizes the effect of cash flow hedge accounting on the consolidated statements of income for the years ended December 31, 2022 and 2021:

Location and Amount of Income (Loss) Recognized in

Statements of (Loss) Income

Derivatives not designated as

hedging instruments:

Customer loan swaps

Other liabilities

Total derivatives not designated as

hedging instruments

December 31, 2022

Derivatives designated as

hedging instruments:

Interest rate contracts - cash flow hedge

Other liabilities

Total derivatives designated as

hedging instruments

The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of loss for years ended December 31, 2023 and 2022:

Amount of Gain Recognized in Income

(Dollars in thousands)

The effect of cash flow hedging accounting:

Amount reclassified from AOCI into expense

The credit risk associated with these interest rate swaps is the risk of default by the counterparty.

To minimize this risk, the Company only enters into interest rate swaps agreements with highly rated counterparties that management believes to be creditworthy.

The notional amounts of these agreements do not represent amounts exchanged by the parties and, therefore, are not a measure of the potential loss exposure.

Risk management results for the years ended December 31, 2022 and 2021, related to the balance sheet hedging of $ 10.0 million of 90-day FHLB advances, included in borrowings, indicate that the hedge was 100% effective, and there was no component of the derivative instruments’

unrealized gain or loss which was excluded from the assessment of hedge effectiveness.

As of December 31, 2022 and 2021, the Company posted $ 535,000 and $ 526,000 , respectively, of cash to the counterparty as collateral on its interest rate swap contracts, which was presented within cash and due from banks on the consolidated balance sheets.

Location of Gain

Customer loan swaps

Interest and fees on loans

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 December 31, 2023 and 2022, the Company posted $ 1.6 million and $ 535,000 , 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.

The following tables present the information about derivative positions that are eligible for offset in the consolidated balance sheets as of December 31, 2023 and 2022:

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)

December 31, 2023

Derivative Assets:

Interest rate contracts(2)

Customer loan swaps - dealer bank(3)

Derivative Liabilities:

Interest rate contracts(2)

Customer loan swaps - commercial customer(3)

December 31, 2022

Derivative Assets:

Interest rate contracts(2)

(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.

At December 31, 2023 and 2022, there were no derivatives in a net liability position related to these agreements.

Fair Values of Assets and Liabilities

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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.

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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.

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.

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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.

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.

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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value at December 31, 2022 and 2021.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value at December 31, 2023 and 2022.

Financial Assets and Financial Liabilities:

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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, FNMA, and GNMA residential mortgage-backed securities, other municipal bonds, corporate debt and corporate subordinated debt is generally classified within Level 2 of the fair value hierarchy.

1 unchanged sentence

The fair value measurements consider observable data that may include reported trades, dealer quotes, market spreads, cash flows, the U.S.

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

Mortgage Servicing Rights :

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The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

December 31, 2022

(Dollars in thousands)

December 31, 2023

Securities available-for-sale:

Government-sponsored enterprises obligations

Government agency small business

administration pools guaranteed by the SBA

Collateralized mortgage obligations issued by the

FHLMC, FNMA and GNMA

U.S Government agency small business administration

pools guaranteed by the SBA

Collateralized mortgage obligations issued by

the FHLMC, FNMA and GNMA

Residential mortgage-backed-securities

4 unchanged sentences

Mortgage servicing rights

December 31, 2021

Other liabilities:

(Dollars in thousands)

December 31, 2022

Securities available-for-sale:

Government-sponsored enterprises obligations

Government agency small business

administration pools guaranteed by the SBA

Collateralized mortgage obligations issued by the

FHLMC, FNMA and GNMA

U.S Government agency small business administration

pools guaranteed by the SBA

Collateralized mortgage obligations issued by

the FHLMC, FNMA and GNMA

Residential mortgage-backed-securities

Municipal bonds

Corporate debt

Corporate subordinated debt

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(Dollars in thousands)

Mortgage Servicing Rights (1)

Balance as of January 1, 2023

Included in net income

Included in net loss

Balance as of December 31, 2023

Total unrealized net gains (losses) included in net income

related to assets still held as of December 31, 2022

Total unrealized net gains (losses)

included in net income related to

assets still held as of December 31, 2023

Balance as of January 1, 2022

Included in net income

Included in net loss

Balance as of December 31, 2022

Total unrealized net gains (losses) included in net income

related to assets still held as of December 31, 2021

(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.

Total unrealized net gains (losses)

included in net income related to

assets still held as of December 31, 2022

(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.

For Level 3 assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, the significant unobservable inputs used in the fair value measurements were as follows:

2 unchanged sentences

Valuation Technique

Mortgage Servicing

Weighted Average (1)

Mortgage Servicing Rights

Discounted Cash Flow

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Valuation Technique

Mortgage Servicing

Weighted Average (1)

Mortgage Servicing Rights

Discounted Cash Flow

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(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.

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that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Financial assets measured at fair value on a non-recurring basis during the reported periods may include certain impaired loans reported at the fair value of the underlying collateral.

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.

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The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis.

Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in other non-interest expense.

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 December 31, 2023 or 2022.

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.

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.

3 unchanged sentences

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 not carried at fair value at December 31 are as follows:

(Dollars in thousands)

2 unchanged sentences

Cash and due from banks

Interest-bearing time deposits with other banks

Federal Home Loan Bank stock

3 unchanged sentences

Advances from Federal Home Loan Bank

Mortgagors’

Advances from Federal Reserve Bank

Mortgagors’ tax escrow

Accrued interest payable

8 unchanged sentences

Advances from Federal Home Loan Bank

Mortgagors’

Mortgagors’ tax escrow

Accrued interest payable

Condensed Financial Statements of Parent Company

Financial information pertaining to First Seacoast Bancorp only is as follows:

Financial information pertaining to First Seacoast Bancorp, Inc.

only is as follows:

CONDENSED BALANCE SHEETS

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Loan to First Seacoast Bank ESOP

Deferred tax asset

Other liabilities

Total liabilities

STOCKHOLDERS’

Stockholders’

Total liabilities and stockholders’

CONDENSED STATEMENTS OF (LOSS) INCOME

STOCKHOLDERS’ EQUITY

Stockholders’ equity

Total liabilities and stockholders’ equity

CONDENSED STATEMENTS OF LOSS

For the Year Ended

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Income before income tax expense and equity in

undistributed net (loss) income of First Seacoast Bank

undistributed net loss of First Seacoast Bank

Income tax expense

Net income before equity in undistributed net

(loss) income of First Seacoast Bank

Equity in undistributed net (loss) income of

loss of First Seacoast Bank

Equity in undistributed net loss of

First Seacoast Bank

Net (loss) income

CONDENSED STATEMENTS OF CASH FLOWS

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net (loss) income to net

Adjustments to reconcile net loss to net

cash provided by operating activities:

Undistributed net loss (income) of First Seacoast Bank

Undistributed net loss of First Seacoast Bank

Deferred tax expense

Decrease (increase) in other assets

Decrease in other assets

Decrease in other liabilities

1 unchanged sentence

CASH FLOWS FROM INVESTING ACTIVITIES:

Principal payments received on ESOP

Net cash provided by investing activities

Capital contribution to First Seacoast Bank

Principal payments received on ESOP loan

Net cash (used) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the sale of common stock, net

Return of capital from conversion of former First Seacoast Bancorp, MHC

Treasury stock purchases

Net cash used by financing activities

Net cash provided (used) by financing activities

Net change in cash

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Subsequent Events

On January 17, 2023, the Company terminated both of its interest rate swap derivative instruments at a gain of $ 849,000 .

Also, $ 536,000 of cash posted to the counterparty as collateral on these interest rate swaps contracts was returned to the Company.

First Seacoast Bancorp, Inc.’s common stock began trading on the Nasdaq Capital Market under the trading symbol “FSEA”

on January 20, 2023.

As a result of the subscription offering, the community offering and the syndicated community offering, First Seacoast Bancorp, Inc.

sold a total of 2,805,000 shares of its common stock at a price of $ 10.00 per share, which includes 224,400 shares sold to First Seacoast Bank’s Employee Stock Ownership Plan.

As part of the conversion transaction, each outstanding share of First Seacoast Bancorp (a federal corporation) common stock owned by the public stockholders of First Seacoast Bancorp (a federal corporation) (stockholders other than First Seacoast Bancorp, MHC) as of the closing date was converted into shares of First Seacoast Bancorp, Inc.

common stock based on an exchange ratio of 0.8358 shares of First Seacoast Bancorp, Inc.

common stock for each share of First Seacoast Bancorp (a federal corporation) common stock.

Cash was issued in lieu of a fractional share of First Seacoast Bancorp, Inc.

common stock based on the offering price of $ 10.00 per share.

Upon the completion of the conversion transaction, First Seacoast Bancorp, Inc.

has approximately 5,077,492 shares of common stock outstanding.

On March 22, 2024, the Bank signed a letter of intent for the sale and leaseback of its five properties owned and operated by the Bank, which consists of its main office and branch, a building annex used primarily by its FSB Wealth Management division and three standalone branches.

Each of the sold branches include an adjacent drive thru.

All of the sold properties include an adjacent parking lot.

Subject to the results of its due diligence, the Bank intends to enter into a purchase and sale agreement for these properties for an aggregate cash purchase price of $ 7.9 million.

The Bank will concurrently enter into absolute net lease agreements with the purchaser under which the Bank will lease each of the properties under an initial term of 15 years.

We will not close any branches or exit any markets as a result of the sale-leaseback transaction.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

First Seacoast Bancorp

First Seacoast Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Seacoast Bancorp and Subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of (loss) income, comprehensive (loss) income, changes in stockholders’

equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

We have audited the accompanying consolidated balance sheets of First Seacoast Bancorp, Inc.

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of loss, comprehensive loss, changes in stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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/s/ Baker Newman & Noyes LLC

We have served as the Company’s auditor since 2011.

Portland, Maine

We have served as the Company’s auditor since 2011.

Portsmouth, New Hampshire

March 29, 2024

Changes In and Disagreements With Acco untants on Accounting and Financial Disclosure

The information contained under the section "Business Items to be Voted on by Stockholders - Item 3 - Ratification of Appointment of Independent Registered Public Accounting Firm - Change in Independent Registered Public Accounting Firm;

Disagreement with Independent Registered Public Accounting Firm on Accounting and Financial Disclosure" in the Proxy Statement is incorporated herein by reference.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity