First Seacoast Bancorp, Inc. 10-K

ITEM 5. 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. The payment of dividends by the Company and amount of any dividend payments is subject to statutory and regulatory limitations, and depends upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; and general economic conditions. 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. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. 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 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. ITEM 6. [Reserved] IT EM 7. 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. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. Certain prior year amounts have been reclassified to conform to the current year presentation. You should read the information in this section in conjunction with the other business and financial information provided in this annual report. Overview Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank, in one- to four-family residential real estate loans, commercial real estate and multi-family real estate loans, acquisition, development and land loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. In recent years, we have increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real estate and commercial and industrial loans. We conduct our operations from four full-service banking offices in Strafford County, New Hampshire and one full-service banking office in Rockingham County, New Hampshire. We consider our primary lending market area to be Strafford and Rockingham Counties in New Hampshire and York County in southern Maine. 31 Selected Financial Data 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 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. The information at and for the year ended December 31, 2021 is derived in part from audited consolidated financial statements that are not included in this annual report. At or For the Year Ended December 31, 2023 2022 2021 (In thousands, except per share data) Selected Financial Condition Data: Total assets $ 571,035 $ 537,424 $ 487,074 Total loans 430,031 402,505 376,641 Total deposits 404,798 382,363 393,243 Total borrowings 93,007 99,397 29,462 Total stockholders' equity 66,618 49,337 60,468 Book value per share (1) $ 13.12 $ 9.73 $ 11.81 Selected Operating Data: Interest and dividend income $ 20,590 $ 16,610 $ 15,495 Interest expense 9,080 1,747 1,235 Net interest and dividend income 11,510 14,863 14,260 Provision for credit losses 188 — 205 Net interest and dividend income after provision for credit losses 11,322 14,863 14,055 Non-interest (loss) income (2,007 ) 888 2,249 Non-interest expense 16,027 16,767 13,082 (Loss) income before income tax expense (benefit) (6,712 ) (1,016 ) 3,222 Income tax expense (benefit) 3,944 (451 ) 601 Net (loss) income $ (10,656 ) $ (565 ) $ 2,621 Share Data (1) : Average shares outstanding, basic 4,650,916 4,820,330 4,862,274 Average shares outstanding, diluted 4,650,916 4,820,330 4,862,274 Total shares outstanding 5,077,164 5,068,637 5,117,982 Basic (loss) earnings per share $ (2.29 ) $ (0.12 ) $ 0.54 Diluted (loss) earnings per share $ (2.29 ) $ (0.12 ) $ 0.54 (1) Adjusted for conversion of the former First Seacoast Bancorp, MHC. 32 At or For the Year Ended December 31, 2023 2022 2021 Performance Ratios: Return on average assets (1) (1.93 )% (0.11 )% 0.55 % Return on average equity (2) (15.10 )% (1.05 )% 4.38 % Interest rate spread (3) 1.59 % 2.86 % 2.94 % Net interest margin (4) 2.16 % 2.99 % 3.04 % Non-interest expenses as a percent of average assets 2.91 % 3.27 % 2.73 % Efficiency ratio (5) 168.65 % 106.45 % 79.24 % Average interest-earning assets as a percent of average interest-bearing liabilities 133.23 % 136.99 % 139.51 % Average equity as a percent of average assets (6) 12.81 % 10.47 % 12.48 % Capital Ratios (First Seacoast Bank Only): Total Capital (to risk-weighted assets) 15.32 % 15.53 % 17.87 % Tier 1 Capital (to risk-weighted assets) 14.27 % 14.45 % 16.63 % Common Equity Tier 1 (to risk-weighted assets) 14.27 % 14.45 % 16.63 % Tier 1 Capital (to average assets) 9.19 % 9.20 % 9.92 % Asset Quality Ratios: Allowance for credit losses on loans as a percent of total loans 0.79 % 0.89 % 0.95 % Allowance for credit losses on loans as a percent of non-performing loans 2,404.26 % 4,023.60 % 428.91 % Net recoveries as a percent of average outstanding loans during the year — — 0.01 % Non-performing loans as a percent of total loans 0.03 % 0.02 % 0.22 % Non-performing loans as a percent of total assets 0.02 % 0.02 % 0.17 % Non-performing assets as a percent of total assets 0.02 % 0.02 % 0.17 % Other Data: Number of offices 5 5 5 Number of full-time equivalent employees 76 80 81 (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. (4) Represents net interest income divided by average interest-earning assets. (5) Represents non-interest expense divided by the sum of net interest and dividend income and non-interest income. (6) Represents average equity divided by average total assets. 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. 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. Our current business strategy consists of the following: • Grow our balance sheet, leverage existing infrastructure and improve profitability and operating efficiency. Given our existing infrastructure and capabilities, we believe we are well-positioned to grow without a proportional increase in overhead expense or operating risk. In recent years, we have assembled an experienced management team and selectively hired lending, business development and support staff. Our operations benefit from established marketing, information technology and audit and compliance departments. Additionally, we have invested in Internet banking capabilities and a mobile banking application. • Grow our loan portfolio and increase commercial real estate and commercial and industrial lending. 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 33 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. Our increased legal lending limit has enabled us to originate larger loans for our portfolio to new and existing customers and reduced our need to participate with other lenders to originate larger loans. • Maintain strong asset quality and manage credit risk. Strong asset quality is key to the long-term financial success of any financial institution. We have been successful in maintaining strong asset quality in recent years. Our ratio of non-performing assets as a percent of total assets was 0.02%, 0.02% and 0.17%, at December 31, 2023, 2022 and 2021, respectively. We attribute this historical credit quality to a conservative credit culture and an effective credit risk management environment. We have an experienced team of credit professionals, well-defined and implemented credit policies and procedures, what we believe to be conservative loan underwriting criteria and active credit monitoring policies and procedures. • Increase core deposits and reduce reliance on higher cost borrowings. Deposits are our primary source of funds for lending and investment. Core deposits (which we define as all deposits except for time deposits), particularly non-interest-bearing demand deposits, represent a low-cost, stable source of funds. Core deposits were 77.5% of our total deposits at December 31, 2023. 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. • Grow organically and through opportunistic acquisitions or de novo branching. Our primary intention is to grow our balance sheet organically and use our capital to increase our lending and investment capacity. As a local independent bank, we believe we will have opportunities to gain market share from customer fallout resulting from the consolidation of competing financial institutions in our market area into larger, out-of-market acquirers. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities include establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices. We have no current plans or intentions regarding any such expansion plans. These strategies are unchanged from disclosed business strategies in previous annual reports. We intend to continue to pursue these business strategies, subject to changes necessitated by future market conditions, regulatory restrictions and other factors. 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. Critical Accounting Policies and Critical Accounting Estimates The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We 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. 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. 34 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. 35 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 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 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. Fair values, where quoted market prices are not available, are based on estimates using the present value of cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain of the Company's financial assets are measured at fair value on a recurring or non-recurring basis. 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. The valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants would use in estimating future income and that can be validated against available market data. These assumptions are inherently sensitive to change as these unobservable inputs are not based upon quoted prices in active markets or otherwise observable. We periodically review the assumptions underlying the valuation of our mortgage servicing rights. 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 36 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. 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. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. At December 31, 2023 and 2022, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. At December 31, 2023 and 2022, these factors have not materially impacted the estimated fair values of loans as compared to their carrying amounts. Emerging Growth Company Status 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). 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). 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. Such an election is irrevocable during the period a company is an emerging growth company. The extended transition period is generally one year, although it may vary for any particular accounting pronouncement. We have opted to take advantage of the benefits of this extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards. A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.235 billion or more (adjusted for inflation); (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933 (which will be December 31, 2024 for the Company); (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). Comparison of Financial Condition at December 31, 2023 and December 31, 2022 Total Assets. 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 increases in securities available-for-sale and net loans. Cash and Due From Banks. 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 $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 37 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. 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 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 $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. Multi-family real estate loans decreased $604,000, or 7.4%, to $7.6 million at December 31, 2023 from $8.2 million at December 31, 2022. 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. 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 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. Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, savings accounts, money market accounts and time deposits, for both individuals and businesses. 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 $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%. Time 38 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. Borrowings. 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 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. We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Interest received on non-accrual loans generally is applied against principal or applied to interest on a cash basis. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for at least six consecutive months and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Non-performing loans were $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, 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. 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 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 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. The weighted 39 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 $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 $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. The weighted average rate of borrowings increased to 4.70% for the year ended December 31, 2023 from 1.64% for the year ended December 31, 2022 due primarily to an increase in market interest rates. Net Interest and Dividend Income. 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 $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 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 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 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. 40 Average Balance Sheets The following tables set forth average balance sheets, average yields and costs and certain other information at the date and for the years indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of net deferred fee 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. The following tables include no out-of-period items or adjustments. For the Year Ended December 31, 2023 2022 Average Outstanding Balance Interest Average Yield/Rate Average Outstanding Balance Interest Average Yield/Rate (Dollars in thousands) Interest-earning assets: Loans (4) $ 414,601 $ 16,896 4.08 % $ 385,202 $ 14,092 3.66 % Taxable debt securities 52,622 1,521 2.89 % 52,736 995 1.89 % Non-taxable debt securities 56,928 1,735 3.05 % 49,782 1,316 2.64 % Interest-bearing deposits with other banks 5,872 201 3.42 % 6,571 89 1.35 % Federal Home Loan Bank stock 2,820 237 8.40 % 2,733 118 4.32 % Total interest-earning assets 532,843 20,590 3.86 % 497,024 16,610 3.34 % Non-interest-earning assets 18,485 15,832 Total assets $ 551,328 $ 512,856 Interest-bearing liabilities: NOW and demand deposits $ 101,947 $ 402 0.39 % $ 112,504 $ 139 0.12 % Money market deposits 74,045 1,830 2.47 % 66,936 151 0.23 % Savings deposits 65,802 1,004 1.53 % 62,471 82 0.13 % Time deposits 77,406 2,095 2.71 % 55,129 311 0.56 % Total interest-bearing deposits 319,200 5,331 1.67 % 297,040 683 0.23 % Borrowings 78,839 3,709 4.70 % 63,916 1,046 1.64 % Other 1,894 40 2.13 % 1,864 18 0.97 % Total interest-bearing liabilities 399,933 9,080 2.27 % 362,820 1,747 0.48 % Non-interest-bearing deposits 76,533 92,576 Other noninterest-bearing liabilities 4,299 3,782 Total liabilities 480,765 459,178 Total equity 70,563 53,678 Total liabilities and equity $ 551,328 $ 512,856 Net interest income $ 11,510 $ 14,863 Net interest rate spread (1) 1.59 % 2.86 % Net interest-earning assets (2) $ 132,910 $ 134,204 Net interest margin (3) 2.16 % 2.99 % Average interest-earning assets as a percent of interest-bearing liabilities 133.23 % 136.99 % (1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. (2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (3) Net interest margin represents net interest income divided by average total interest-earning assets. (4) Net deferred fee expense included in loan interest totaled $374,000 and $194,000 for the years ended December 31, 2023 and 2022, respectively. 41 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. Year Ended December 31, 2023 vs. 2022 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 1,125 $ 1,679 $ 2,804 Taxable debt securities (2 ) 528 526 Non-taxable debt securities 203 216 419 Interest-bearing deposits with other banks (10 ) 122 112 Federal Home Loan Bank stock 4 115 119 Total interest-earning assets 1,320 2,660 3,980 Interest-bearing liabilities: NOW and demand deposits (14 ) 277 263 Money market deposits 18 1,661 1,679 Savings deposits 5 917 922 Time deposits 172 1,612 1,784 Total interest-bearing deposits 181 4,467 4,648 Borrowings 295 2,368 2,663 Other — 22 22 Total interest-bearing liabilities 476 6,857 7,333 Change in net interest income $ 844 $ (4,197 ) $ (3,353 ) Management of Market Risk General. Most of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the board of directors established a management-level Asset/Liability Management Committee (the “ALCO”), which takes responsibility for overseeing the asset/liability management process and related procedures. The ALCO meets on at least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors. We manage our interest rate risk in an effort to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; promoting core deposit products; selling a portion of fixed-rate one- to four-family residential real estate loans; maintaining investments as available-for-sale; diversifying our loan portfolio; and strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates. Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100, 200, 300 and 400 basis points from current market rates. 42 The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of December 31, 2023 and 2022. As of December 31, 2023: Net Portfolio Value ("NPV") NPV as Percent of Portfolio Value of Assets Basis Point ("bp") Change in Interest Rates Dollar Amount Dollar Change Percent Change NPV Ratio Change (Dollars in thousands) 400 bp $ 38,063 $ (29,082 ) (43.3 )% 8.4 % $ (434 ) 300 bp 45,307 (21,838 ) (32.5 ) 9.6 (310 ) 200 bp 52,710 (14,435 ) (21.5 ) 10.8 (194 ) 100 bp 60,749 (6,396 ) (9.5 ) 11.9 (78 ) 0 67,145 — — 12.7 — (100) bp 72,043 4,898 7.3 13.2 45 (200) bp 74,730 7,585 11.3 13.2 49 (300) bp 74,371 7,226 10.8 12.7 4 (400) bp 67,366 221 0.3 11.3 (141 ) As of December 31, 2022: Net Portfolio Value ("NPV") NPV as Percent of Portfolio Value of Assets Basis Point ("bp") Change in Interest Rates Dollar Amount Dollar Change Percent Change NPV Ratio Change (Dollars in thousands) 400 bp $ 64,978 $ (31,915 ) (32.9 )% 15.3 % $ (401 ) 300 bp 72,904 (23,989 ) (24.8 ) 16.4 (284 ) 200 bp 80,715 (16,178 ) (16.7 ) 17.5 (180 ) 100 bp 89,144 (7,749 ) (8.0 ) 18.5 (78 ) 0 96,893 — — 19.3 — (100) bp 102,856 5,963 6.2 19.6 37 (200) bp 106,776 9,883 10.2 19.6 35 (300) bp 107,095 10,202 10.5 19.0 (29 ) (400) bp 99,984 3,091 3.2 17.3 (199 ) Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results. The percent changes to NPV in the +200, +300 and +400 bp changes in interest rates was -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. Like most financial institutions, our profitability depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds, adjusted for the value of off-balance sheet contracts. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate sensitive assets and liabilities in response to these movements. Factors such as inflation, recession, and instability in financial markets, among other factors beyond our control, may affect interest rates. 43 In a rising interest rate environment, we would expect that the rates on our deposits and borrowings would reprice upwards faster than the rates on our long-term loans and investments, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income. If interest rates rise, we expect that our economic value of equity 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, 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. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. Liquidity and Capital Resources Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. As of 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 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. Our most liquid assets are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. 44 Our cash flows are comprised of three primary classifications: cash flows from operating activities; investing activities and financing activities. 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 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 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 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, 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 For a discussion of the impact of recent accounting pronouncements, see Note 3 of the notes to our consolidated financial statements of this annual report. Impact of Inflation and Changing Prices The consolidated financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. ITEM 7A. 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.” 45 ITEM 8. Financial Statement s and Supplementary Data FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) 2023 2022 ASSETS Cash and due from banks $ 6,069 $ 8,250 Interest bearing time deposits with other banks — 747 Securities available-for-sale, at fair value 121,854 106,100 Federal Home Loan Bank stock 2,986 3,502 Total loans 430,031 402,505 Less allowance for credit losses on loans ( 3,390 ) ( 3,581 ) Net loans 426,641 398,924 Land, building and equipment, net 4,072 4,181 Bank-owned life insurance 4,663 4,561 Accrued interest receivable 2,294 1,988 Other assets 2,456 9,171 Total assets $ 571,035 $ 537,424 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing deposits $ 65,845 $ 92,757 Interest bearing deposits 338,953 289,606 Total deposits 404,798 382,363 Advances from Federal Home Loan Bank 73,007 99,397 Advances from Federal Reserve Bank 20,000 — Mortgagors’ tax escrow 640 938 Deferred compensation liability 2,071 1,830 Other liabilities 3,901 3,559 Total liabilities 504,417 488,087 Stockholders' Equity: Preferred Stock, $ .01 par value, 10,000,000 shares authorized, none issued — — Common Stock, $ .01 par value, 90,000,000 shares authorized; 5,192,612 issued and 5,077,164 outstanding at December 31, 2023; and 5,183,536 issued and 5,068,637 outstanding at December 31, 2022 (1) 52 62 Additional paid-in capital 52,642 26,768 Retained earnings 25,597 36,248 Accumulated other comprehensive loss ( 5,944 ) ( 9,727 ) Treasury stock, at cost: 115,448 and 114,899 shares outstanding as of December 31, 2023 and 2022 (1) , respectively ( 1,381 ) ( 1,377 ) Unearned stock compensation ( 4,348 ) ( 2,637 ) Total stockholders' equity 66,618 49,337 Total liabilities and stockholders' equity $ 571,035 $ 537,424 (1) Adjusted for conversion of the former First Seacoast Bancorp, MHC. The accompanying notes are an integral part of these consolidated financial statements. 46 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS Year Ended December 31, (Dollars in thousands, except per share data) 2023 2022 Interest and dividend income: Interest and fees on loans $ 16,896 $ 14,092 Interest on debt securities: Taxable 1,722 1,084 Non-taxable 1,735 1,316 Total interest on debt securities 3,457 2,400 Dividends 237 118 Total interest and dividend income 20,590 16,610 Interest expense: Interest on deposits 5,371 701 Interest on borrowings 3,709 1,046 Total interest expense 9,080 1,747 Net interest and dividend income 11,510 14,863 Provision for credit losses 188 — Net interest and dividend income after provision for credit losses 11,322 14,863 Non-interest income: Customer service fees 759 1,039 Gain on sale of loans 2 2 Securities losses, net ( 4,173 ) ( 747 ) Gain on termination of interest rate swaps 849 — Income from bank-owned life insurance 102 100 Loan servicing fee income 77 126 Investment services fees 332 328 Other income 45 40 Total non-interest (loss) income ( 2,007 ) 888 Non-interest expense: Salaries and employee benefits 9,659 10,673 Director compensation 343 324 Occupancy expense 758 732 Equipment expense 456 488 Marketing 530 598 Data processing 1,596 1,400 Deposit insurance fees 257 154 Professional fees and assessments 1,014 983 Debit card fees 191 184 Employee travel and education expenses 208 198 Other expense 1,015 1,033 Total non-interest expense 16,027 16,767 Loss before income tax expense (benefit) ( 6,712 ) ( 1,016 ) Income tax expense (benefit) 3,944 ( 451 ) Net loss $ ( 10,656 ) $ ( 565 ) Loss per share: Basic (1) $ ( 2.29 ) $ ( 0.12 ) Diluted (1) $ ( 2.29 ) $ ( 0.12 ) Weighted average shares: Basic (1) 4,650,916 4,820,330 Diluted (1), (2) 4,650,916 4,820,330 (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. 47 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, (Dollars in thousands) 2023 2022 Net loss $ ( 10,656 ) $ ( 565 ) Other comprehensive income (loss), net of income taxes (1) : 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 773 ( 12,283 ) 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 3,711 1,280 Total unrealized gain (loss) on securities available-for-sale 4,484 ( 11,003 ) Derivatives: Change in interest rate swaps, net of income taxes of $( 30 ) and $ 237 in 2023 and 2022, respectively ( 82 ) 639 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, respectively ( 619 ) ( 84 ) Total change in interest rate swaps ( 701 ) 555 Other comprehensive income (loss) 3,783 ( 10,448 ) Comprehensive loss $ ( 6,873 ) $ ( 11,013 ) (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. 48 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollars in thousands) Shares of Common Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Unearned Stock Compensation Total Stockholders' Equity Balance December 31, 2021 (1) 5,117,982 $ 62 $ 26,783 $ 36,813 $ 721 $ ( 748 ) $ ( 3,163 ) $ 60,468 Net loss — — — ( 565 ) — — — ( 565 ) Other comprehensive loss — — — — ( 10,448 ) — — ( 10,448 ) Treasury stock activity (1) ( 49,345 ) — — — — ( 629 ) — ( 629 ) Issuance of stock compensation — — — — — — 387 387 Amortization of unearned stock compensation — — ( 20 ) — — — 20 — ESOP shares earned - 9,967 shares (1) — — 5 — — — 119 124 Balance December 31, 2022 (1) 5,068,637 $ 62 $ 26,768 $ 36,248 $ ( 9,727 ) $ ( 1,377 ) $ ( 2,637 ) $ 49,337 Balance December 31, 2022 (1) 5,068,637 $ 62 $ 26,768 $ 36,248 $ ( 9,727 ) $ ( 1,377 ) $ ( 2,637 ) $ 49,337 Net loss — — — ( 10,656 ) — — — ( 10,656 ) Other comprehensive income — — — — 3,783 — — 3,783 Treasury stock activity ( 549 ) — — — — ( 4 ) — ( 4 ) Cumulative adjustment for change in accounting principle ( ASU 2016-13 ) — — — 5 — — — 5 Reorganization: Conversion of First Seacoast Bancorp, Inc. (net of costs of $ 2.4 million) 6,598 ( 10 ) 25,732 — — — — 25,722 Purchase of 224,400 shares of common stock by the ESOP — — — — — — ( 2,244 ) ( 2,244 ) Issuance of stock compensation 2,478 — 20 — — — ( 20 ) — Amortization of unearned stock compensation — — — — — — 399 399 Stock-based compensation expense — — 150 — — — — 150 ESOP shares earned - 15,354 shares — — ( 28 ) — — — 154 126 Balance December 31, 2023 5,077,164 $ 52 $ 52,642 $ 25,597 $ ( 5,944 ) $ ( 1,381 ) $ ( 4,348 ) $ 66,618 (1) Shares adjusted for conversion of the former First Seacoast Bancorp, MHC. The accompanying notes are an integral part of these consolidated financial statements. 49 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (Dollars in thousands) 2023 2022 Cash flows from operating activities: Net loss $ ( 10,656 ) $ ( 565 ) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Cumulative change in accounting principle (ASU 2016-13) 5 — ESOP expense 126 124 Stock based compensation 549 387 Loss on disposition of property and equipment 2 — Depreciation and amortization 486 522 Net amortization of bond premium 904 1,009 Provision for credit losses 188 — Gain on sale of loans ( 2 ) ( 2 ) Securities losses, net 4,173 747 Gain on termination of interest rate swaps ( 849 ) — Proceeds from loans sold 419 639 Origination of loans sold ( 417 ) ( 637 ) Increase in bank-owned life insurance ( 102 ) ( 100 ) Increase in deferred costs on loans ( 183 ) ( 799 ) Deferred tax expense (benefit) 3,861 ( 296 ) Increase in accrued interest receivable ( 306 ) ( 489 ) Decrease (increase) in other assets 440 ( 1,483 ) Increase in deferred compensation liability 241 101 (Decrease) increase in other liabilities ( 794 ) 1,815 Net cash (used) provided by operating activities ( 1,915 ) 973 Cash flows from investing activities: Proceeds from sales, maturities and principal payments received on securities available-for-sale 40,863 9,872 Purchase of securities available-for-sale ( 55,401 ) ( 41,452 ) Purchase of property and equipment ( 349 ) ( 103 ) Loan purchases ( 4,327 ) ( 3,673 ) Loan originations and principal collections, net ( 22,385 ) ( 21,401 ) Net redemption (purchase) of Federal Home Loan Bank stock 516 ( 1,814 ) Proceeds from sales and maturities of interest bearing time deposits with other banks 747 498 Proceeds from termination of interest rate swaps 849 — Net cash used by investing activities ( 39,487 ) ( 58,073 ) Cash flows from financing activities: Net decrease in NOW, demand deposits, money market and savings accounts ( 7,121 ) ( 14,293 ) Net increase in time deposits 29,556 3,413 (Decrease) increase in mortgagors’ escrow accounts ( 298 ) 286 Proceeds from sale of common stock, net 25,622 — Common stock purchased by ESOP ( 2,244 ) — Return of capital from conversion of former First Seacoast Bancorp, MHC 100 — Treasury stock activity ( 4 ) ( 629 ) Net (payments) proceeds from short-term FHLB advances ( 61,390 ) 71,729 Proceeds from long-term FHLB advances 50,000 468 Payments on long-term FHLB advances ( 15,000 ) ( 2,262 ) Proceeds from advances from Federal Reserve Bank 45,000 — Payments on advances from Federal Reserve Bank ( 25,000 ) — Net cash provided by financing activities 39,221 58,712 Net change in cash and cash equivalents ( 2,181 ) 1,612 Cash and cash equivalents at beginning of year 8,250 6,638 Cash and cash equivalents at end of year $ 6,069 $ 8,250 Supplemental disclosure of cash flow information: Cash activities: Cash paid for interest $ 8,794 $ 1,685 Cash paid for income taxes 56 47 Noncash activities: Effect of change in fair value of securities available-for-sale: Securities available-for-sale 6,167 ( 15,089 ) Deferred taxes ( 1,683 ) 4,086 Other comprehensive income (loss) 4,484 ( 11,003 ) Effect of change in fair value of interest rate swaps: Interest rate swaps ( 961 ) 761 Deferred taxes 260 ( 206 ) Other comprehensive (loss) income ( 701 ) 555 Cumulative fair value hedging adjustment - loans ( 632 ) — Cumulative fair value hedging adjustment - securities available-for-sale ( 126 ) — Effect of the adoption of ASU 2016-13: Allowance for credit losses on loans ( 295 ) NA Other liabilities 290 NA Effect of the adoption of ASU 2016-02: Other assets — 224 Other liabilities — 224 The accompanying notes are an integral part of these consolidated financial statements. 50 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES Notes to consolidated Financial Statements 1. The Company 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 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. The Bank focuses on four core services that center around customer needs. The core services include residential lending, commercial banking, personal banking and wealth management. The Bank offers a full range of commercial and consumer banking services through its network of five full-service branch locations. Investment management services are offered through FSB Wealth Management. FSB Wealth Management is a division of First Seacoast Bank. The division currently consists of two financial advisors who are located in Dover, New Hampshire. FSB Wealth Management provides access to non-FDIC insured products that include retirement planning, portfolio management, investment and insurance strategies, business retirement plans and college planning to individuals throughout our primary market area. These investments and services are offered through a third-party registered broker-dealer and investment advisor. FSB Wealth Management receives fees from advisory services and commissions on individual investment and insurance products purchased by clients. The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the Company’s consolidated balance sheets. The Bank is engaged principally in the business of attracting deposits from the public and investing those funds in various types of loans, including residential and commercial real estate loans, and a variety of commercial and consumer loans. The Bank also invests its deposits and borrowed funds in investment securities. Deposits at the Bank are insured by the Federal Deposit 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. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit. 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). 51 Use of Estimates In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 For the purpose of reporting cash flows, cash includes cash and due from banks with original maturities of 90 days or less. 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: U.S. 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 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 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. Premiums and discounts are recognized in interest income using the interest method. Discounts are recognized over the period to maturity. Premiums are recognized over the period to call, if applicable. Otherwise, premiums are recognized over the period to maturity. Interest Bearing Time Deposits With Other Banks 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 . 52 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 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 non-performing, if earlier. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual if collection of principal or interest is considered doubtful. All interest accrued but not collected for such loans is reversed against interest income. For payments received on such loans, the interest is accounted for on the cash-basis or recorded as a reduction to loan principal if recovery is not assured, until qualifying for return to accrual. 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 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. Loan Origination Fees and Costs Loan origination fees and certain direct loan origination costs are deferred and recognized in interest income as an adjustment to the loan yield over the life of the related loans. The unamortized net deferred fees and costs are included on the consolidated balance sheets with the related loan balances. The amount charged or credited to income is included with the related interest income. 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. 53 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: • 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. 54 • 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 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, 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 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 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. 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 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. If current 55 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; multifamily; commercial and industrial; acquisition, development and land; one to four family residential; home equity loans and lines of credit and consumer. 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; credit quality trends; portfolio growth trends and concentrations; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. 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. 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. 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 Land is stated at cost. Building and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets or the lease term for leasehold improvements unless renewal is reasonably assured. Maintenance and repair costs are included in operating expenses while major expenditures for improvements are capitalized and depreciated. The cost and related accumulated depreciation of assets sold, or otherwise disposed of, are removed from the related accounts and any gain or loss is included in earnings. Bank-owned Life Insurance 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 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. A life insurance policy with any individual carrier is limited to 15 % of Tier one capital, and the total cash surrender value of life insurance policies is limited to 25 % of Tier one capital at the time of purchase. Treasury Stock The Company records common stock purchased for treasury at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the first-in, first-out basis. Transfers and Servicing of Financial Assets Transfers of an entire financial asset, a group of entire financial assets or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets. 56 During the normal course of business, the Company may transfer whole loans or a portion of a financial asset, such as a participation loan or the government guaranteed portion of a loan. In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a participating interest. If it does not meet the criteria of a participating interest, the transfer will be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan. The Company services mortgage loans for others. 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 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. The client accounts purchased are recorded as a customer list intangible asset. Identifiable intangible assets that are subject to amortization will be reviewed for impairment, at least annually, based on their fair value. Any impairment will be recognized as a charge to earnings and the adjusted carrying amount of the intangible asset will become its new accounting basis. The remaining useful life of the intangible asset will also be evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company is amortizing the customer list intangible on a straight-line basis over a ten-year period. 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 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 57 product is purchased. Payment for such performance obligations is generally received in the month following the time the performance obligations are satisfied. Advertising Expense Advertising costs are expensed as incurred and recorded within marketing expense. 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. Defined Contribution Plan 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 made matching and profit-sharing contributions to eligible participants in accordance with plan provisions. 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 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. The Company will value share-based stock option awards as granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for its awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time. Defined Benefit 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 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 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 The Company maintains nonqualified supplemental executive benefit agreements with certain directors and its current and former Presidents and certain officers. The agreements provide supplemental retirement benefits payable in installments over a period of years upon retirement or death and for the crediting to a liability account a fixed amount of compensation, which earns interest at a rate determined in the agreement. 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. Leases All leases with an initial term greater than 12 months recognize: (1) a Right of Use ("ROU" asset), which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term; and (2) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, each measured on a discounted basis. The Company elected to not separate lease and non-lease components. 58 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. Operating lease expense represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term (see Note 14, Leases, for more information). Income Taxes Provisions for income taxes are based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. The Company has evaluated the positions taken on its tax returns filed and the potential impact on its tax status as of December 31, 2023. The Company has concluded that no uncertain tax positions exist at December 31, 2023. 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. 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. 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 loss per share. Derivative Instruments 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 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 (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. 59 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 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. 3. 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, 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 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. Public business entities within the scope of the Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage (that is, year of origination). This ASU becomes effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. 60 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. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. On October 16, 2019, the FASB approved a proposal to delay the implementation of this standard for smaller reporting companies to years beginning after December 15, 2022. Early adoption is permitted. 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. 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 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, 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. 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 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. 61 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) ASSETS Allowance for credit losses on loans: Commercial real estate (CRE) $ 788 $ 942 $ ( 154 ) Multifamily (MF) 55 54 1 Commercial and industrial (C+I) 273 184 89 Acquisition, development, and land (ADL) 120 138 ( 18 ) 1-4 family residential (RES) 1,847 2,048 ( 201 ) Home equity line of credit (HELOC) 88 81 7 Consumer (CON) 114 100 14 Unallocated 1 34 ( 33 ) Allowance for credit losses on loans $ 3,286 $ 3,581 ( 295 ) LIABILITIES Allowance for credit losses on OBS credit exposures $ 308 $ 18 $ 290 STOCKHOLDERS' EQUITY Retained earnings $ 36,253 $ 36,248 $ 5 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. 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 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. 62 4. Interest Bearing Time Deposits with Other Banks The Company’s $ 747,000 of time deposits outstanding at December 31, 2022 matured during 2023. 5. Securities Available-for-Sale The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses, are as follows as of December 31, 2023 and 2022: December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) U.S. Government-sponsored enterprises obligations $ 1,668 $ — $ ( 270 ) $ 1,398 U.S. Government agency small business administration pools guaranteed by SBA 16,410 36 ( 863 ) 15,583 Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 2,958 — ( 484 ) 2,474 Residential mortgage-backed securities 41,186 653 ( 3,618 ) 38,221 Municipal bonds 57,192 1,087 ( 3,587 ) 54,692 Corporate debt 500 — ( 8 ) 492 Corporate subordinated debt 10,074 3 ( 1,083 ) 8,994 $ 129,988 $ 1,779 $ ( 9,913 ) $ 121,854 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) U.S. Government-sponsored enterprises obligations $ 2,191 $ — $ ( 365 ) $ 1,826 U.S. Government agency small business administration pools guaranteed by SBA 9,475 — ( 1,116 ) 8,359 Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 6,922 8 ( 708 ) 6,222 Residential mortgage-backed securities 26,390 — ( 4,567 ) 21,823 Municipal bonds 69,373 172 ( 7,129 ) 62,416 Corporate debt 500 — ( 3 ) 497 Corporate subordinated debt 5,550 — ( 593 ) 4,957 $ 120,401 $ 180 $ ( 14,481 ) $ 106,100 63 The amortized cost and fair values of available-for-sale securities at December 31, 2023 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. December 31, 2023 Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 1,767 $ 1,764 Due after one year through five years 500 492 Due after five years through ten years 10,917 9,530 Due after ten years 56,250 53,790 Total U.S. Government-sponsored enterprises obligations, municipal bonds, corporate debt and corporate subordinated debt 69,434 65,576 U.S. Government agency small business pools guaranteed by SBA (1) 16,410 15,583 Collateralized mortgage obligations issued by the FHLMC, FNMA, and GNMA (1) 2,958 2,474 Residential mortgage-backed securities (1) 41,186 38,221 Total $ 129,988 $ 121,854 (1) Actual maturities for these debt securities are dependent upon the interest rate environment and prepayments on the underlying loans. Proceeds from sales, maturities, principal payments received and gross realized gains and losses on available-for-sale securities were as follows for the years ended December 31: December 31, 2023 2022 (Dollars in thousands) Proceeds from sales, maturities and principal payments received on securities available-for-sale $ 40,863 $ 9,872 Gross realized gains — 52 Gross realized losses ( 4,173 ) ( 799 ) Net realized losses $ ( 4,173 ) $ ( 747 ) 64 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. Less than 12 Months More than 12 Months Total Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) December 31, 2023 U.S. Government sponsored enterprises obligations — $ — $ — 3 $ 1,398 $ ( 270 ) $ 1,398 $ ( 270 ) U.S. Government agency small business administration pools guaranteed by SBA 8 8,432 ( 75 ) 5 3,899 ( 788 ) 12,331 ( 863 ) Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA — — — 4 2,474 ( 484 ) 2,474 ( 484 ) Residential mortgage backed securities 5 4,806 ( 53 ) 23 15,347 ( 3,565 ) 20,153 ( 3,618 ) Municipal bonds 1 1,941 ( 10 ) 49 30,729 ( 3,577 ) 32,670 ( 3,587 ) Corporate debt — — — 1 492 ( 8 ) 492 ( 8 ) Corporate subordinated debt 4 4,080 ( 82 ) 4 4,029 ( 1,001 ) 8,109 ( 1,083 ) 18 $ 19,259 $ ( 220 ) 89 $ 58,368 $ ( 9,693 ) $ 77,627 $ ( 9,913 ) December 31, 2022 U.S. Government sponsored enterprises obligations 1 $ 453 $ ( 43 ) 3 $ 1,373 $ ( 322 ) $ 1,826 $ ( 365 ) U.S. Government agency small business administration pools guaranteed by SBA 8 5,947 ( 602 ) 3 2,412 ( 514 ) 8,359 ( 1,116 ) Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 5 3,212 ( 209 ) 4 2,016 ( 499 ) 5,228 ( 708 ) Residential mortgage backed securities 8 4,239 ( 503 ) 23 16,649 ( 4,064 ) 20,888 ( 4,567 ) Municipal bonds 86 49,228 ( 5,900 ) 8 5,769 ( 1,229 ) 54,997 ( 7,129 ) Corporate debt 1 497 ( 3 ) — — — 497 ( 3 ) Corporate subordinated debt 4 4,457 ( 593 ) — — — 4,457 ( 593 ) 113 $ 68,033 $ ( 7,853 ) 41 $ 28,219 $ ( 6,628 ) $ 96,252 $ ( 14,481 ) 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. 65 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. 6. 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. The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’ geographic area and the general economy. Loans consisted of the following at December 31: 2023 2022 (Dollars in thousands) Commercial real estate (CRE) $ 86,566 $ 80,616 Multifamily (MF) 7,582 8,186 Commercial and industrial (C+I) 25,511 24,059 Acquisition, development, and land (ADL) 17,520 18,490 1-4 family residential (RES) 268,943 252,806 Home equity line of credit (HELOC) 14,093 10,161 Consumer (CON) 9,816 8,187 Total loans 430,031 402,505 Allowance for credit losses on loans ( 3,390 ) ( 3,581 ) Total loans, net $ 426,641 $ 398,924 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) CRE MF C+I ADL RES HELOC CON Unallocated Total Balance, December 31, 2022, Prior to Adoption of ASC 326 $ 942 $ 54 $ 184 $ 138 $ 2,048 $ 81 $ 100 $ 34 $ 3,581 Impact of adopting ASC 326 ( 154 ) 1 89 ( 18 ) ( 202 ) 7 14 ( 32 ) ( 295 ) Provision for credit losses on loans 42 21 ( 37 ) ( 15 ) ( 245 ) 68 244 27 105 Charge-offs — — — — — — ( 4 ) — ( 4 ) Recoveries — — — — — — 3 — 3 Balance, December 31, 2023 $ 830 $ 76 $ 236 $ 105 $ 1,601 $ 156 $ 357 $ 29 $ 3,390 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) CRE MF C+I ADL RES HELOC CON Unallocated Total Balance at December 31, 2021 $ 833 $ 80 $ 194 $ 178 $ 2,139 $ 63 $ 75 $ 28 $ 3,590 Provision for loan losses 109 ( 26 ) ( 14 ) ( 40 ) ( 91 ) 18 38 6 — Charge-offs — — — — — — ( 14 ) — ( 14 ) Recoveries — — 4 — — — 1 — 5 Balance at December 31, 2022 $ 942 $ 54 $ 184 $ 138 $ 2,048 $ 81 $ 100 $ 34 $ 3,581 66 As of December 31, 2022, information about loans and the ALL, by portfolio segment, are summarized below: (Dollars in thousands) CRE MF C+I ADL RES HELOC CON Unallocated Total December 31, 2022 Loan Balances Individually evaluated for impairment $ — $ — $ — $ — $ 273 $ — $ 5 $ — $ 278 Collectively evaluated for impairment 80,616 8,186 24,059 18,490 252,533 10,161 8,182 — 402,227 Total $ 80,616 $ 8,186 $ 24,059 $ 18,490 $ 252,806 $ 10,161 $ 8,187 $ — $ 402,505 ALL related to the loans Individually evaluated for impairment $ — $ — $ — $ — $ — $ — $ — $ — $ — Collectively evaluated for impairment 942 54 184 138 2,048 81 100 34 3,581 Total $ 942 $ 54 $ 184 $ 138 $ 2,048 $ 81 $ 100 $ 34 $ 3,581 The following is an aged analysis of past due loans by portfolio segment as of December 31, 2023: (Dollars in thousands) 30-59 Days 60-89 Days 90 + Days Total Past Due Current Total Loans Non-Accrual Loans CRE $ — $ — $ — $ — $ 86,566 $ 86,566 $ — MF — — — — 7,582 7,582 — C+I — — — — 25,511 25,511 — ADL — — — — 17,520 17,520 — RES — 131 — 131 268,812 268,943 127 HELOC — — 14 14 14,079 14,093 14 CON — — — — 9,816 9,816 — $ — $ 131 $ 14 $ 145 $ 429,886 $ 430,031 $ 141 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) 30-59 Days 60-89 Days 90 + Days Total Past Due Current Total Loans Non-Accrual Loans CRE $ — $ — $ — $ — $ 80,616 $ 80,616 $ — MF — — — — 8,186 8,186 — C+I — — — — 24,059 24,059 — ADL — — — — 18,490 18,490 — RES — 84 — 84 252,722 252,806 84 HELOC 5 — — 5 10,156 10,161 — CON 7 — — 7 8,180 8,187 5 $ 12 $ 84 $ — $ 96 $ 402,409 $ 402,505 $ 89 67 The following table provides information on impaired loans as of and for the year ended December 31, 2022: As of December 31, 2022 At December 31, 2022 (Dollars in thousands) Recorded Carrying Value Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: CRE $ — $ — $ — $ — $ — MF — — — — — C+I — — — — — ADL — — — — — RES 273 273 — 446 32 HELOC — — — 57 3 CON 5 5 — 2 — Total impaired loans $ 278 $ 278 $ — $ 505 $ 35 Credit Quality Information The Company utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition, development and land loans. Residential real estate, home equity 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 rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected. Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. 68 Loans rated 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted and should be charged off. On an annual basis, or more often if needed, the Company formally reviews the ratings on 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 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. 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) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total CRE: Risk rating: Pass $ 7,552 $ 10,849 $ 11,977 $ 2,268 $ 2,724 $ 18,713 $ 32,244 $ — $ 86,327 Special mention — — — — — 239 — — 239 Substandard — — — — — — — — — Total CRE 7,552 10,849 11,977 2,268 2,724 18,952 32,244 — 86,566 MF: Risk rating: Pass — 145 5,157 1,081 — 852 347 — 7,582 Special mention — — — — — — — — — Substandard — — — — — — — — — Total MF — 145 5,157 1,081 — 852 347 — 7,582 C+I: Risk rating: Pass 5,745 6,580 4,151 2,875 1,537 1,917 2,704 — 25,509 Special mention — — 2 — — — — — 2 Substandard — — — — — — — — — Total C+I 5,745 6,580 4,153 2,875 1,537 1,917 2,704 — 25,511 ADL: Risk rating: Pass 10,511 4,048 1,507 — 1,454 — — — 17,520 Special mention — — — — — — — — — Substandard — — — — — — — — — Total ADL 10,511 4,048 1,507 — 1,454 — — — 17,520 RES: Risk rating: Pass 19,533 43,517 64,226 50,675 20,021 70,844 — — 268,816 Special mention — — — — — — — — — Substandard — — — — — 127 — — 127 Total RES 19,533 43,517 64,226 50,675 20,021 70,971 — — 268,943 HELOC: Risk rating: Pass — — — — — — 14,079 — 14,079 Special mention — — — — — — — — — Substandard — — — — — — 14 — 14 Total HELOC — — — — — — 14,093 — 14,093 CON: Risk rating: Pass 2,902 3,145 1,966 1,512 215 76 — — 9,816 Special mention — — — — — — — — — Substandard — — — — — — — — — Total CON 2,902 3,145 1,966 1,512 215 76 — — 9,816 Total $ 46,243 $ 68,284 $ 88,986 $ 58,411 $ 25,951 $ 92,768 $ 49,388 $ — $ 430,031 69 The following presents the internal risk rating of loans by portfolio segment as of December 31, 2022: (Dollars in thousands) Pass Special Mention Substandard Total CRE $ 77,930 $ 2,686 $ — $ 80,616 MF 8,186 — — 8,186 C+I 24,059 — — 24,059 ADL 18,490 — — 18,490 RES 252,722 — 84 252,806 HELOC 10,161 — — 10,161 CON 8,182 — 5 8,187 Total $ 399,730 $ 2,686 $ 89 $ 402,505 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: December 31, (Dollars in thousands) 2023 2022 Loans outstanding – beginning of year $ 4,443 $ 4,849 Principal payments ( 552 ) ( 576 ) Advances 1,271 170 Loans outstanding – end of year $ 5,162 $ 4,443 7. Loan Servicing Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of such loans were $ 33.9 million and $ 36.0 million at December 31, 2023 and 2022, respectively. Substantially all of these loans were originated by the Bank and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see Note 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. The Company’s mortgage servicing activities include: collecting principal, interest and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Loan servicing 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 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. (Dollars in thousands) 2023 2022 Balance, beginning of year $ 357 $ 322 Additions 4 6 Payoffs ( 7 ) ( 28 ) Change in fair value due to change in assumptions ( 15 ) 57 Balance, end of year $ 339 $ 357 70 8. Land, Buildings and Equipment Land, buildings and equipment consisted of the following at December 31, 2023 and 2022: (Dollars in thousands) 2023 2022 Land $ 995 $ 995 Buildings 3,167 3,167 Building & leasehold improvements 3,831 3,831 Furniture, fixtures and equipment 4,360 4,529 12,353 12,522 Less accumulated depreciation ( 8,281 ) ( 8,341 ) $ 4,072 $ 4,181 9. Deposits Deposits consisted of the following at December 31, 2023 and 2022: (Dollars in thousands) 2023 2022 NOW and demand deposits $ 163,316 $ 204,739 Money market deposits 85,364 60,931 Savings deposits 64,823 54,954 Time deposits of $250,000 and greater 17,107 7,796 Time deposits less than $250,000 74,188 53,943 $ 404,798 $ 382,363 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) Total 2024 $ 73,022 2025 14,399 2026 3,077 2027 569 2028 228 $ 91,295 10. Borrowings Federal Home Loan Bank (“FHLB”) All borrowings from the FHLB are secured by a blanket security agreement on qualified collateral, principally residential mortgage loans and commercial real estate loans, discounted by a certain percentage, in an aggregate amount greater than or equal to outstanding advances. The Bank’s unused remaining available borrowing capacity at the FHLB was $ 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. 71 A summary of borrowings from the FHLB are as follows: December 31, 2023 Principal Amounts Maturity Dates Interest Rates (Dollars in thousands) $ 21,139 2024 0.00 % to 5.53 % – fixed 520 2025 0.00 % – fixed 50,000 2026 4.38 % to 4.48 % – fixed 718 2028 0.00 % – fixed 200 2030 0.00 % – fixed 430 2031 0.00 % – fixed $ 73,007 December 31, 2022 Principal Amounts Maturity Dates Interest Rates (Dollars in thousands) $ 96,729 2023 0.44 % to 4.38 % – fixed 800 2024 0.00 % – fixed 520 2025 0.00 % – fixed 718 2028 0.00 % – fixed 200 2030 0.00 % – fixed 430 2031 0.00 % – fixed $ 99,397 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. Additionally, the Bank had a total of $ 5.0 million of unsecured Fed Funds borrowing lines of credit with two correspondent banks. The entire balance of all these credit facilities was available at December 31, 2023 and 2022. 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. 11. Income Taxes 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 December 31, 2022 Federal State Total Federal State Total (Dollars in thousands) Current $ — $ 83 $ 83 $ ( 59 ) $ 109 $ 50 Deferred 3,382 479 3,861 ( 369 ) ( 132 ) ( 501 ) $ 3,382 $ 562 $ 3,944 $ ( 428 ) $ ( 23 ) $ ( 451 ) 72 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: December 31, 2023 December 31, 2022 Amount % of Pretax Loss Amount % of Pretax Loss (Dollars in thousands) Computed “expected” tax benefit $ ( 1,410 ) ( 21.0 )% $ ( 213 ) ( 21.0 )% State tax expense (benefit), net of federal tax expense (benefit) ( 471 ) ( 7.0 ) ( 18 ) ( 1.8 ) BOLI income ( 21 ) ( 0.3 ) ( 21 ) ( 2.1 ) Valuation allowance 6,050 90.1 62 6.1 Income on tax exempt securities ( 242 ) ( 3.6 ) ( 252 ) ( 24.8 ) Other 38 0.6 ( 8 ) ( 0.8 ) $ 3,944 58.8 % $ ( 451 ) ( 44.4 )% Components of deferred tax assets and liabilities at December 31, 2023 and 2022 are as follows: December 31, 2023 2022 (Dollars in thousands) Deferred tax assets: Allowance for credit losses $ 1,021 $ 977 Deferred compensation liabilities 558 494 Contribution carryforward 176 171 State tax credit carryforward 223 62 Depreciation 50 16 Securities available-for-sale 2,190 3,873 Net operating loss carryforward 2,566 707 Other 112 48 Subtotal 6,896 6,348 Less: valuation allowance ( 6,226 ) ( 171 ) Total deferred tax assets 670 6,177 Deferred tax liabilities: Interest rate swaps — ( 260 ) Prepaid expenses ( 37 ) ( 43 ) Net deferred loan costs ( 709 ) ( 661 ) Mortgage servicing rights ( 91 ) ( 96 ) Total deferred tax liabilities ( 837 ) ( 1,060 ) Net deferred tax (liabilities) assets, included in other (liabilities) assets $ ( 167 ) $ 5,117 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 increased. 73 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 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. 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. The Company records interest and penalties as part of income tax expense. 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. The years open to examination by state taxing authorities vary by jurisdiction; no years prior to 2020 are open. 12. Employee Benefits 401(k) Plan 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, 2023 and 2022 was $ 209,000 and $ 202,000 , respectively. 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 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 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 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. 74 Supplemental Executive Retirement Plans Salary Continuation Plan The Company maintains a nonqualified supplemental retirement plan for its current President and former President. The plan provides supplemental retirement benefits payable in installments over a period of years upon retirement or death. 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, 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, 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. The present value of these future payments is being accrued over the estimated period of service. 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, 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. On February 10, 2022, the Bank and the non-employee members of the board of directors of the Bank entered into amendments to the Supplemental Director Retirement Agreements (the “Agreements”) previously entered into by the Bank and the directors. The amendments eliminate the formula for determining the normal annual retirement benefit (previously “ 70 % of Final Base Fee”) and replaces it with a fixed annual benefit of $ 20,000 . The amendments also eliminate the formula for determining the benefit payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a fixed amount equal to the present value of $ 200,000 . The effect of the amendments is to eliminate the variable and increasing costs associated with the Agreements. Instead, since the normal annual retirement benefit will be a fixed amount, the future costs associated with the Agreements is now more predictable. It is the intention of the 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. 13. 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. 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, 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. 75 December 31, 2023 2022 (1) Shares held by the ESOP include the following: Allocated 39,864 29,898 Committed to be allocated 15,354 9,966 Unallocated 368,497 159,451 Total 423,715 199,315 (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 348,801 shares of common stock (adjusted for the second step conversion transaction). Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 249,144 shares (adjusted for the second step conversion transaction), and the maximum number of shares of common stock that may be issued as restricted stock awards or restricted stock units is 99,657 shares (adjusted for the second step conversion transaction). The exercise price of stock options may not be less than the fair market value on the date the stock option is granted. Further, stock options may not be granted with a term that is longer than 10 years. On May 25, 2023, 249,144 incentive and non-statutory stock options to purchase shares of common stock were granted 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 — $ — — $ — Granted 249,144 8.06 9.4 — Vested — — — — Forfeited — — — — Balance at end of year 249,144 $ 8.06 9.4 $ — 76 Date of grant 5/25/2023 Options granted 249,144 Exercise price $ 8.06 Vesting period (1) 3 years Expiration date 5/25/2033 Expected volatility 27.8 % Expected term 6.5 years Expected dividend yield 0 % Expected forfeiture rate 0 % Risk free interest rate 3.9 % Fair value per option $ 3.00 (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. 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, 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 Value Restricted stock: Non-vested at beginning of year (1) 64,785 $ 11.95 Granted 2,478 7.99 Vested ( 33,634 ) 11.80 Forfeited — — Non-vested at end of year 33,629 $ 11.80 December 31, 2022 (1) Number of Shares Weighted Average Grant Value Restricted stock: Non-vested at beginning of year 98,850 $ 11.95 Granted — — Vested ( 32,393 ) 11.95 Forfeited ( 1,672 ) 11.95 Non-vested at end of year 64,785 $ 11.95 (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, 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. 77 14. Leases The Company is obligated under various lease agreements for one of its branch offices and certain equipment. These agreements are accounted for as operating leases and their terms expire between 2024 and 2031 and, in some instances, contain options to renew for periods up to four years . 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, 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: December 31, 2023 Operating Leases Balance Sheet Location (Dollars in thousands) Right-of-use asset $ 587 Other Assets Net lease liability 587 Other Liabilities December 31, 2022 Operating Leases Balance Sheet Location (Dollars in thousands) Right-of-use asset $ 202 Other Assets Net lease liability 202 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: Year Ended December 31, (Dollars in thousands) 2023 2022 Operating lease cost $ 63 $ 54 Short-term lease cost — — Variable lease cost (cost excluded from lease payments) — — Sublease income — — Total operating lease cost 63 54 Other Information: Cash paid for amounts included in the measurement of lease liabilities - operating cash flows from operating leases 63 54 Operating lease - operating cash flows (liability reduction) $ — $ — Weighted average lease term remaining (in years) 5.85 4.37 Weighted average discount rate 4.79 % 3.29 % 78 The total minimum lease payments due in future periods for lease agreements in effect at December 31, 2023 were as follows: As of December 31, 2023 Future Minimum Lease Payments (Dollars in thousands) 2024 126 2025 122 2026 120 2027 307 Total minimum lease payments 675 Less: interest ( 88 ) Total lease liability $ 587 15. 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: Year Ended December 31, Reclassification Adjustment 2023 2022 Affected Line Item in Statements of Loss (Dollars in thousands) Losses on sale of securities available-for-sale $ 4,173 $ 747 Securities losses, net Tax effect ( 1,123 ) ( 202 ) Income tax expense (benefit) 3,050 545 Net loss Net amortization of bond premiums 904 1,009 Interest on debt securities Tax effect ( 243 ) ( 274 ) Income tax expense (benefit) 661 735 Net loss Gain on termination of interest rate swaps ( 849 ) — Gain on termination of interest rate swaps Tax effect 230 — Income tax expense (benefit) ( 619 ) — Net loss Net interest expense on swaps — ( 115 ) Interest expense on borrowings Tax effect — 31 Income tax expense (benefit) — ( 84 ) Net loss Total reclassification adjustments $ 3,092 $ 1,196 The following tables present the changes in each component of AOCI for the periods indicated: (Dollars in thousands) Net Unrealized (Losses) Gains on AFS Securities (1) Net Unrealized Gains (Losses) on Cash Flow Hedges (1) AOCI (1) Balance at December 31, 2021 $ 575 $ 146 $ 721 Other comprehensive (loss) income before reclassification ( 12,283 ) 639 ( 11,644 ) Amounts reclassified from AOCI 1,280 ( 84 ) 1,196 Other comprehensive (loss) income (1) ( 11,003 ) 555 ( 10,448 ) Balance at December 31, 2022 $ ( 10,428 ) $ 701 $ ( 9,727 ) Balance at December 31, 2022 $ ( 10,428 ) $ 701 $ ( 9,727 ) Other comprehensive income (loss) before reclassification 773 ( 82 ) 691 Amounts reclassified from AOCI 3,711 ( 619 ) 3,092 Other comprehensive income (loss) (1) 4,484 ( 701 ) 3,783 Balance at December 31, 2023 $ ( 5,944 ) $ — $ ( 5,944 ) (1) All amounts are net of income tax including a deferred tax valuation allowance equal to the net tax benefit. 79 16. Financial Instruments with Off-Balance Sheet Credit Exposures The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, unadvanced funds on loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The 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. Standby letters of credit are conditional commitments issued by the Bank to guarantee performance by a customer to a third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Notional amounts of financial instruments with off-balance sheet credit risk are approximately as follows as of December 31: 2023 2022 Unadvanced portions of loans $ 46,175 $ 44,929 Commitments to originate loans 34,074 16,134 Standby letters of credit 125 302 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 loss. 80 17. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). As of December 31, 2023, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank, as well capitalized under the regulatory framework, for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital amounts and ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes that, as of 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. Minimum Capital Minimum Capital Required to be Well Minimum Capital Required For Capital Adequacy Plus Capital Conservation Buffer Actual Requirement Capitalized Fully Phased-In (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023 Total Capital (to risk- weighted assets) $ 55,701 15.32 % $ 29,090 8.00 % $ 36,363 10.00 % $ 38,181 10.50 % Tier 1 Capital (to risk- weighted assets) 51,878 14.27 21,818 6.00 29,090 8.00 30,908 8.50 Tier 1 Capital (to average assets) 51,878 9.19 22,592 4.00 28,240 5.00 22,592 4.00 Common Equity Tier 1 (to risk-weighted assets) 51,878 14.27 16,363 4.50 23,636 6.50 25,454 7.00 As of December 31, 2022 Total Capital (to risk-weighted assets) $ 52,475 15.53 % $ 27,028 8.00 % $ 33,785 10.00 % $ 35,474 10.50 % Tier 1 Capital (to risk-weighted assets) 48,821 14.45 20,271 6.00 27,028 8.00 28,717 8.50 Tier 1 Capital (to average assets) 48,821 9.20 21,224 4.00 26,530 5.00 21,224 4.00 Common Equity Tier 1 (to risk-weighted assets) 48,821 14.45 15,203 4.50 21,960 6.50 23,649 7.00 18. Treasury Stock Common Stock Repurchases 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, 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 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, 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. 19. Derivatives and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. These derivative financial instruments are reported at fair value in other assets or other liabilities and are not reported on a net basis. 81 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 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 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 (Dollars in thousands) Start Date Maturity Date Rate Notional Other Assets Other Liabilities Debt Hedging Hedging Instruments: Interest Rate Swap 2020 4/13/2020 4/13/2025 0.68 % $ 5,000 $ 431 $ — Interest Rate Swap 2021 4/13/2021 4/13/2026 0.74 % $ 5,000 $ 530 $ — Total Hedging Instruments $ 10,000 $ 961 $ — Hedged Items: Variability in cash flows related to 90-day FHLB advances N/A $ — $ 10,000 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 2023 2022 (Dollars in thousands) Interest Income (Expense) Other Income (Expense) Interest Income (Expense) Other Income (Expense) The effect of cash flow hedge accounting: Amount reclassified from AOCI into expense $ — $ — $ 115 $ — 82 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. 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. 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) 2023 2022 2023 2022 Securities available-for-sale, at fair value $ 10,126 $ — $ 126 $ — Total loans 50,632 — 632 — Total $ 60,758 $ — $ 758 $ — 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. 83 The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet: Derivative Assets Derivative Liabilities Notional Amount Location Fair Value Notional Amount Location Fair Value (Dollars in thousands) December 31, 2023 Derivatives designated as hedging instruments: Interest rate contracts - fair value hedge $ 60,000 Other assets $ — $ — Other liabilities $ 758 Total derivatives designated as hedging instruments $ — $ 758 Derivatives not designated as hedging instruments: Customer loan swaps $ 4,766 Other assets $ 90 $ 4,766 Other liabilities $ 90 Total derivatives not designated as hedging instruments $ 90 $ 90 December 31, 2022 Derivatives designated as hedging instruments: Interest rate contracts - cash flow hedge $ 10,000 Other assets $ 961 $ — Other liabilities $ — Total derivatives designated as hedging instruments $ 961 $ — 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 2023 2022 (Dollars in thousands) Location of Gain Customer loan swaps Interest and fees on loans $ 83 $ — 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. 84 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) Net Amount December 31, 2023 Derivative Assets: Interest rate contracts(2) $ — $ — $ — $ — $ — $ — Customer loan swaps - dealer bank(3) 90 — 90 — 90 — Total $ 90 $ — $ 90 $ — $ 90 $ — Derivative Liabilities: Interest rate contracts(2) $ 758 $ — $ 758 $ — $ 758 $ — Customer loan swaps - commercial customer(3) 90 — 90 — — 90 Total $ 848 $ — $ 848 $ — $ 758 $ 90 December 31, 2022 Derivative Assets: Interest rate contracts(2) $ 961 $ — $ 961 $ — $ 535 $ 426 (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. 20. Fair Values of Assets and Liabilities Determination of Fair Value The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the observability and reliability of the assumptions used to determine fair value. Level 1 – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Level 3 inputs are unobservable inputs for the asset or liability. For assets and liabilities, fair value is based upon the lowest level of observable input that is significant to the fair value measurement. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent 85 with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented therein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value at December 31, 2023 and 2022. Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following: Securities Available-for-Sale : The Company’s investment in U.S. Government-sponsored entities bonds, U.S Government agency small business administration pools guaranteed by the SBA, collateralized mortgage obligations issued by the FHLMC, 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. For these securities, the Company obtains fair value measurements from independent pricing services or uses fair value measurements considering observable market data. 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 : Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (see Note 7 Loan Servicing, for more information). These assumptions are inherently sensitive to change as these unobservable inputs are not based on quoted prices in active markets or otherwise observable. Derivative Instruments and Hedges: The valuation of these instruments is determined using the discounted cash flow method on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Total Level 1 Level 2 Level 3 (Dollars in thousands) December 31, 2023 Securities available-for-sale: U.S. Government-sponsored enterprises obligations $ 1,398 $ — $ 1,398 $ — U.S Government agency small business administration pools guaranteed by the SBA 15,583 — 15,583 — Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 2,474 — 2,474 — Residential mortgage-backed-securities 38,221 — 38,221 — Municipal bonds 54,692 — 54,692 — Corporate debt 492 — 492 — Corporate subordinated debt 8,994 — 8,994 — Other assets: Mortgage servicing rights 339 — — 339 Derivatives 90 — 90 — Other liabilities: Derivatives 848 — 848 — 86 Total Level 1 Level 2 Level 3 (Dollars in thousands) December 31, 2022 Securities available-for-sale: U.S. Government-sponsored enterprises obligations $ 1,826 $ — $ 1,826 $ — U.S Government agency small business administration pools guaranteed by the SBA 8,359 — 8,359 — Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 6,222 — 6,222 — Residential mortgage-backed-securities 21,823 — 21,823 — Municipal bonds 62,416 — 62,416 — Corporate debt 497 — 497 — Corporate subordinated debt 4,957 — 4,957 — Other assets: Mortgage servicing rights $ 357 — — 357 Derivatives 961 — 961 — For the years ended December 31, 2023 and 2022, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows: (Dollars in thousands) Mortgage Servicing Rights (1) Balance as of January 1, 2023 $ 357 Included in net loss ( 18 ) Balance as of December 31, 2023 $ 339 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 $ 322 Included in net loss 35 Balance as of December 31, 2022 $ 357 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: December 31, 2023 (Dollars in thousands) Valuation Technique Description Range Weighted Average (1) Fair Value Mortgage Servicing Rights Discounted Cash Flow Prepayment Rate 5.35 % - 20.53 % 6.85 % $ 339 Discount Rate 9.375 % - 9.375 % 9.38 % Delinquency Rate 2.08 % - 2.60 % 2.17 % Default Rate 0.12 % - 0.14 % 0.14 % December 31, 2022 (Dollars in thousands) Valuation Technique Description Range Weighted Average (1) Fair Value Mortgage Servicing Rights Discounted Cash Flow Prepayment Rate 6.48 % - 23.49 % 7.78 % $ 357 Discount Rate 9.50 % - 9.50 % 9.50 % Delinquency Rate 2.13 % - 2.79 % 2.24 % Default Rate 0.14 % - 0.20 % 0.15 % (1) Unobservable inputs for mortgage servicing rights were weighted by loan amount. The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are the weighted-average prepayment rate, weighted-average discount rate, weighted average delinquency rate and weighted-average default rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions of each other. 87 The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Observable and unobservable inputs are entered into this model as prescribed by an independent third party to arrive at an estimated fair value. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis during the reported periods may include certain individually evaluated loans reported at the fair value of the underlying collateral. Fair value is measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace, and therefore, such valuations have been classified as Level 3. Financial assets measured at fair value on a non-recurring basis during the reported periods also include loans held for sale. Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. The fair values for loans held for sale are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and are included in Level 3. At December 31, 2023 and 2022, there were no assets measured at fair value on a nonrecurring basis. Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in other non-interest expense. There were no foreclosed assets at 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. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. At December 31, 2023 and 2022, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. 88 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) Carrying Amount Fair Value Level 1 Level 2 Level 3 December 31, 2023 Financial Assets: Cash and due from banks $ 6,069 $ 6,069 $ 6,069 $ — $ — Federal Home Loan Bank stock 2,986 2,986 — 2,986 — Bank-owned life insurance 4,663 4,663 — 4,663 — Loans, net 426,641 376,772 — — 376,772 Accrued interest receivable 2,294 2,294 2,294 — — Financial Liabilities: Deposits $ 404,798 $ 403,489 $ 313,503 $ 89,986 $ — Advances from Federal Home Loan Bank 73,007 73,162 — 73,162 — Advances from Federal Reserve Bank 20,000 20,020 — 20,020 — Mortgagors’ tax escrow 640 640 — 640 — Accrued interest payable 380 380 380 — — December 31, 2022 Financial Assets: Cash and due from banks $ 8,250 $ 8,250 $ 8,250 $ — $ — Interest-bearing time deposits with other banks 747 747 — 747 — Federal Home Loan Bank stock 3,502 3,502 — 3,502 — Bank-owned life insurance 4,561 4,561 — 4,561 — Loans, net 398,924 361,402 — — 361,402 Accrued interest receivable 1,988 1,988 1,988 — — Financial Liabilities: Deposits $ 382,363 $ 379,714 $ 320,624 $ 59,090 $ — Advances from Federal Home Loan Bank 99,397 97,675 — 97,675 — Mortgagors’ tax escrow 938 938 — 938 — Accrued interest payable 95 95 95 — — 21. Condensed Financial Statements of Parent Company Financial information pertaining to First Seacoast Bancorp, Inc. only is as follows: CONDENSED BALANCE SHEETS December 31, 2023 2022 (Dollars in thousands) ASSETS Cash held at First Seacoast Bank $ 20,396 $ 9,346 Investment in First Seacoast Bank 41,984 37,925 Loan to First Seacoast Bank ESOP 4,196 2,025 Other assets 41 41 Total assets 66,618 49,337 LIABILITIES Other liabilities — — Total liabilities — — STOCKHOLDERS’ EQUITY Stockholders’ equity 66,618 49,337 Total liabilities and stockholders’ equity $ 66,618 $ 49,337 89 CONDENSED STATEMENTS OF LOSS For the Year Ended December 31, 2023 2022 (Dollars in thousands) Income: Interest on ESOP loan $ 309 $ 110 Expense: Miscellaneous expense — 4 Income before income tax expense and equity in undistributed net loss of First Seacoast Bank 309 106 Income tax expense — 62 Net income before equity in undistributed net loss of First Seacoast Bank 309 44 Equity in undistributed net loss of First Seacoast Bank ( 10,965 ) ( 609 ) Net loss $ ( 10,656 ) $ ( 565 ) CONDENSED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2023 2022 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 10,656 ) $ ( 565 ) Adjustments to reconcile net loss to net cash provided by operating activities: Undistributed net loss of First Seacoast Bank 10,965 609 Deferred tax expense — 60 Decrease in other assets — 2 Decrease in other liabilities — ( 2 ) Net cash provided by operating activities 309 104 CASH FLOWS FROM INVESTING ACTIVITIES: Capital contribution to First Seacoast Bank ( 12,811 ) — ESOP loan ( 2,244 ) — Principal payments received on ESOP loan 78 80 Net cash (used) provided by investing activities ( 14,977 ) 80 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of common stock, net 25,622 — Return of capital from conversion of former First Seacoast Bancorp, MHC 100 — Treasury stock purchases ( 4 ) ( 623 ) Net cash provided (used) by financing activities 25,718 ( 623 ) Net change in cash 11,050 ( 439 ) Cash at beginning of year 9,346 9,785 Cash at end of year $ 20,396 $ 9,346 22. Subsequent Events 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. 90 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors First Seacoast Bancorp, Inc. Opinion on 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Baker Newman & Noyes LLC We have served as the Company’s auditor since 2011. Portsmouth, New Hampshire March 29, 2024 91 ITEM 9. 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.