First Seacoast Bancorp, Inc. 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File No. 001-41597 First Seacoast Bancorp, Inc. (Exact Name of Registrant as Specified in Its Charter) Maryland 92-0334805 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 633 Central Avenue , Dover , New Hampshire 03820 (Address of Principal Executive Offices) (Zip Code) ( 603 ) 742-4680 (Registrant’s Telephone Number, Including Area Code) Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, $0.01 par value per share FSEA The Nasdaq Stock Market, LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 2, 2024, there were 4,780,764 outstanding shares of the Registrant's common stock. Table of Contents Page PART I. FINANCIAL INFORMATION 2 Item 1. Consolidated Financial Statements 2 Consolidated Balance Sheets at June 30, 2024 (unaudited) and December 31, 2023 2 Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited) 3 Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited) 4 Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited) 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited) 6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 3. Quantitative and Qualitative Disclosures About Market Risk 49 Item 4. Controls and Procedures 52 PART II. OTHER INFORMATION 53 Item 1. Legal Proceedings 53 Item 1A. Risk Factors 53 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities 53 Item 3. Defaults Upon Senior Securities 53 Item 4. Mine Safety Disclosures 53 Item 5. Other Information 53 Item 6. Exhibits 54 Signatures 55 1 PART I—FINANCI AL INFORMATION Item 1. Financi al Statements. FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED B alance Sheets (Dollars in thousands) (Unaudited) June 30, 2024 December 31, 2023 ASSETS Cash and due from banks $ 25,374 $ 6,069 Securities available-for-sale, at fair value 125,943 121,854 Federal Home Loan Bank stock 2,498 2,986 Total loans 435,561 430,031 Less allowance for credit losses on loans ( 3,451 ) ( 3,390 ) Net loans 432,110 426,641 Land, building and equipment, net 716 4,072 Bank-owned life insurance 4,704 4,663 Accrued interest receivable 2,503 2,294 Other assets 7,889 2,456 Total assets $ 601,737 $ 571,035 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing deposits $ 72,453 $ 65,845 Interest bearing deposits 379,240 338,953 Total deposits 451,693 404,798 Advances from Federal Home Loan Bank 52,268 73,007 Advances from Federal Reserve Bank 20,000 20,000 Mortgagors’ tax escrow 654 640 Deferred compensation liability 2,273 2,071 Lease liabilities 7,325 587 Other liabilities 3,024 3,314 Total liabilities 537,237 504,417 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 4,841,445 outstanding at June 30, 2024; and 5,192,612 issued and 5,077,164 outstanding at December 31, 2023 52 52 Additional paid-in capital 52,757 52,642 Retained earnings 26,448 25,597 Accumulated other comprehensive loss ( 7,153 ) ( 5,944 ) Treasury stock, at cost: 351,167 shares outstanding as of June 30, 2024 and 115,448 shares outstanding as of December 31, 2023 ( 3,537 ) ( 1,381 ) Unearned stock compensation ( 4,067 ) ( 4,348 ) Total stockholders' equity 64,500 66,618 Total liabilities and stockholders' equity $ 601,737 $ 571,035 The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Interest and dividend income: Interest and fees on loans $ 4,835 $ 4,126 $ 9,545 $ 7,934 Interest on debt securities: Taxable 939 360 1,791 702 Non-taxable 441 440 881 862 Total interest on debt securities 1,380 800 2,672 1,564 Dividends 63 67 131 131 Total interest and dividend income 6,278 4,993 12,348 9,629 Interest expense: Interest on deposits 2,191 1,200 4,221 1,786 Interest on borrowings 1,063 811 2,212 1,665 Total interest expense 3,254 2,011 6,433 3,451 Net interest and dividend income 3,024 2,982 5,915 6,178 (Release) provision for credit losses ( 16 ) 20 ( 36 ) 50 Net interest and dividend income after (release) provision for credit losses 3,040 2,962 5,951 6,128 Non-interest income: Customer service fees 194 209 362 405 Gain on sale of loans 8 — 8 — Gain on sale of land and buildings 2,522 — 2,522 — Gain on termination of interest rate swaps — — — 849 Income from bank-owned life insurance 21 20 41 40 Loan servicing fee income 13 23 24 38 Investment services fees 124 84 213 155 Other income 11 10 20 20 Total non-interest income 2,893 346 3,190 1,507 Non-interest expense: Salaries and employee benefits 2,263 2,478 4,577 4,842 Director compensation 76 88 181 188 Occupancy expense 193 193 372 379 Equipment expense 97 118 202 227 Marketing 105 115 186 204 Data processing 360 397 695 788 Deposit insurance fees 122 73 220 132 Professional fees and assessments 263 318 652 530 Debit card fees 29 50 59 99 Employee travel and education expenses 46 51 78 94 Other expense 274 247 604 468 Total non-interest expense 3,828 4,128 7,826 7,951 Income (loss) before income tax expense (benefit) 2,105 ( 820 ) 1,315 ( 316 ) Income tax expense (benefit) 102 ( 280 ) 464 ( 240 ) Net income (loss) $ 2,003 $ ( 540 ) $ 851 $ ( 76 ) Income (loss) per share: Basic $ 0.44 $ ( 0.12 ) $ 0.18 $ ( 0.02 ) Diluted (1) $ 0.42 $ ( 0.12 ) $ 0.18 $ ( 0.02 ) Weighted Average Shares: Basic 4,530,623 4,634,386 4,622,277 4,653,950 Diluted (1) 4,767,134 4,634,386 4,858,215 4,653,950 (1) Not adjusted for potentially dilutive shares for periods where a net loss was recognized. The three and six months ended June 30, 2023 excludes 32,393 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 periods presented. The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED Statements of COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Net income (loss) $ 2,003 $ ( 540 ) $ 851 $ ( 76 ) Other comprehensive loss, net of income taxes: Securities available-for-sale: Unrealized holding (losses) gains on securities available-for-sale arising during the period, net of income taxes of $( 141 ), $( 438 ), $( 522 ) and $ 85 , respectively ( 384 ) ( 1,186 ) ( 1,417 ) 148 Reclassification adjustment for net amortization of bond premiums included in net income (loss), net of income taxes of $ 37 , $ 68 , $ 77 and $ 132 , respectively 98 183 208 358 Total unrealized (loss) gain on securities available-for-sale ( 286 ) ( 1,003 ) ( 1,209 ) 506 Derivatives: Change in interest rate swaps, net of income taxes of $- 0 -, $- 0 -, $- 0 - and $( 30 ), respectively — — — ( 82 ) Reclassification adjustment for gains and net interest expense on swaps included in net income (loss), net of income taxes of $- 0 -, $- 0 -, $- 0 - and $( 230 ), respectively — — — ( 619 ) Total change in interest rate swaps — — — ( 701 ) Other comprehensive loss ( 286 ) ( 1,003 ) ( 1,209 ) ( 195 ) Comprehensive income (loss) $ 1,717 $ ( 1,543 ) $ ( 358 ) $ ( 271 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED Statements of Change s in STOCKHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands) Shares of Common Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Unearned Stock Compensation Total Stockholders' Equity Balance March 31, 2024 5,077,164 $ 52 $ 52,698 $ 24,445 $ ( 6,867 ) $ ( 1,381 ) $ ( 4,208 ) $ 64,739 Net income — — — 2,003 — — — 2,003 Other comprehensive loss — — — — ( 286 ) — — ( 286 ) Treasury stock activity ( 235,719 ) — — — — ( 2,156 ) — ( 2,156 ) Amortization of unearned stock compensation — — 62 — — — 102 164 ESOP shares earned - 3,839 shares — — ( 3 ) — — — 39 36 Balance June 30, 2024 4,841,445 $ 52 $ 52,757 $ 26,448 $ ( 7,153 ) $ ( 3,537 ) $ ( 4,067 ) $ 64,500 Balance December 31, 2023 5,077,164 $ 52 $ 52,642 $ 25,597 $ ( 5,944 ) $ ( 1,381 ) $ ( 4,348 ) $ 66,618 Net income — — — 851 — — — 851 Other comprehensive loss — — — — ( 1,209 ) — — ( 1,209 ) Treasury stock activity ( 235,719 ) — — — — ( 2,156 ) — ( 2,156 ) Amortization of unearned stock compensation — — 124 — — — 204 328 ESOP shares earned - 7,678 shares — — ( 9 ) — — — 77 68 Balance June 30, 2024 4,841,445 $ 52 $ 52,757 $ 26,448 $ ( 7,153 ) $ ( 3,537 ) $ ( 4,067 ) $ 64,500 Balance March 31, 2023 5,075,138 $ 52 $ 52,500 $ 36,717 $ ( 8,919 ) $ ( 1,377 ) $ ( 4,746 ) $ 74,227 Net loss — — — ( 540 ) — — ( 540 ) Other comprehensive loss — — — — ( 1,003 ) — ( 1,003 ) Issuance of stock compensation 2,478 — 20 — — — ( 20 ) — Amortization of unearned stock compensation — — 21 — — — 99 120 ESOP shares earned - 3,839 shares — — ( 7 ) — — 39 32 Balance June 30, 2023 5,077,616 $ 52 $ 52,534 $ 36,177 $ ( 9,922 ) $ ( 1,377 ) $ ( 4,628 ) $ 72,836 Balance December 31, 2022 (1) 5,068,540 $ 62 $ 26,768 $ 36,248 $ ( 9,727 ) $ ( 1,377 ) $ ( 2,637 ) $ 49,337 Net loss — — — ( 76 ) — — — ( 76 ) Other comprehensive loss — — — — ( 195 ) — — ( 195 ) 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 — — 21 — — — 195 216 ESOP shares earned - 7,678 shares — — ( 7 ) — — — 78 71 Balance June 30, 2023 5,077,616 $ 52 $ 52,534 $ 36,177 $ ( 9,922 ) $ ( 1,377 ) $ ( 4,628 ) $ 72,836 (1) Adjusted for conversion of First Seacoast Bancorp, Inc. The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEME NTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, (Dollars in thousands) 2024 2023 Cash flows from operating activities: Net income (loss) $ 851 $ ( 76 ) Adjustments to reconcile net income (loss) to net cash used by operating activities: Cumulative change in accounting principle (ASU 2016-13) — 5 ESOP expense 68 71 Stock based compensation 328 216 Depreciation and amortization 218 242 Net amortization of bond premium 285 490 (Release) provision for credit losses ( 36 ) 50 Gain on sale of loans ( 8 ) — Gain on sale of land and buildings ( 2,522 ) — Gain on termination of interest rate swaps — ( 849 ) Proceeds from loans sold 394 — Origination of loans sold ( 386 ) — Increase in bank-owned life insurance ( 41 ) ( 40 ) Decrease (increase) in deferred costs on loans 4 ( 98 ) Deferred tax expense (benefit) 444 ( 269 ) Increase in accrued interest receivable ( 209 ) ( 13 ) (Increase) decrease in other assets ( 5,216 ) 777 Increase in deferred compensation liability 202 140 Increase (decrease) in lease liabilities 5,202 ( 23 ) Decrease in other liabilities ( 1,049 ) ( 1,347 ) Net cash used by operating activities ( 1,471 ) ( 724 ) Cash flows from investing activities: Proceeds from sales, maturities and principal payments received on securities available-for-sale 2,703 2,211 Purchase of securities available-for-sale ( 8,903 ) ( 5,774 ) Purchase of property and equipment ( 179 ) ( 249 ) Loan purchases ( 774 ) ( 802 ) Loan originations and principal collections, net ( 5,505 ) ( 13,932 ) Net loan recoveries (charge offs) 1 ( 2 ) Net redemption (purchase) of Federal Home Loan Bank stock 488 ( 113 ) Proceeds from sales of interest bearing time deposits with other banks — 747 Proceeds from sale of land and buildings 7,395 — Proceeds from termination of interest rate swaps — 849 Net cash used by investing activities ( 4,774 ) ( 17,065 ) Cash flows from financing activities: Net increase (decrease) in NOW, demand deposits, money market and savings accounts 10,240 ( 4,729 ) Net increase in time deposits 36,655 11,307 Increase (decrease) in mortgagors’ escrow accounts 14 ( 74 ) Proceeds of finance lease 1,539 — Principal payments on finance lease ( 3 ) — Proceeds from sale of common stock, net — 25,622 Common stock purchased by ESOP — ( 2,244 ) Return of capital from conversion of First Seacoast Bancorp, Inc. — 100 Treasury stock purchases ( 2,156 ) — Net proceeds from short-term FHLB advances — 1,200 Proceeds from long-term FHLB advances 25,401 — Net payments on short-term FHLB advances ( 20,340 ) — Payments on long-term FHLB advances ( 25,800 ) ( 15,000 ) Net cash provided by financing activities 25,550 16,182 Net change in cash and cash equivalents 19,305 ( 1,607 ) Cash and cash equivalents at beginning of period 6,069 8,250 Cash and cash equivalents at end of period $ 25,374 $ 6,643 Supplemental disclosure of cash flow information: Cash activities: Cash paid for interest $ 5,809 $ 3,319 Cash (received) paid for income taxes ( 101 ) 21 Noncash activities: Effect of change in fair value of securities available-for-sale: Securities available-for-sale ( 1,654 ) 723 Deferred taxes 445 ( 217 ) Other comprehensive (loss) income ( 1,209 ) 506 Effect of change in fair value of interest rate swaps: Interest rate swaps — ( 961 ) Deferred taxes — 260 Other comprehensive loss — ( 701 ) Cumulative fair value hedging adjustment - loans ( 803 ) 278 Cumulative fair value hedging adjustment - securities available-for-sale ( 172 ) — Effect of the adoption of ASU 2016-13: Allowance for credit losses on loans — ( 295 ) Other liabilities — 290 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 FIRST SEACOAST BANCORP, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements include the accounts of First Seacoast Bancorp, Inc. (the “Company”), its wholly-owned subsidiary, First Seacoast Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, FSB Service Corporation, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim consolidated financial information, general practices within the banking industry and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all the information or footnotes required by U.S. GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of these consolidated financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 , as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2024. 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 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. The Bank is engaged principally in the business of attracting deposits from the public and investing those funds in various types of loans, including residential and commercial real estate loans, and a variety of commercial and consumer loans. The Bank also invests its deposits and borrowed funds in investment securities. Deposits at the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) for the maximum amount permitted by law. The Company has one reportable segment, “Banking Services.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and other borrowings and manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit. 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. 7 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 . 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 three months ended June 30, 2024 and 2023, $ 8,000 and $ 5,000 of amortization expense was recorded in other expense, respectively. During the six months ended June 30, 2024 and 2023, $ 16,000 and $ 14,000 of amortization expense was recorded in other expense, respectively. Customer list intangible balances included in other assets are $ 231,000 and $ 247,000 as of June 30, 2024 and December 31, 2023, respectively. Recent Accounting Pronouncements Yet To Be Adopted 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 June 30, 2024 , 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 $1.235 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). The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs"). ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated financial statements. In March 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-02, “Codification Improvements,” which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to have a material impact on the Company's consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, " Income Taxes- Improvements to Income Tax Disclosures" , which will require enhancements and further transparency to various income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 becomes effective for annual periods beginning after December 15, 2024 on a prospective basis. Retrospective application for all periods presented is permitted. Early adoption is also permitted. We are currently evaluating the effect this standard will have on our disclosures. 8 2. Securities Available-for-Sale The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses for which an allowance for credit losses has not been recorded, are as follows as of June 30, 2024 and December 31, 2023: June 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) U.S. Government-sponsored enterprises ("GSE") obligations $ 1,655 $ — $ ( 276 ) $ 1,379 U.S. Government agency small business administration pools guaranteed by the SBA 15,273 — ( 976 ) 14,297 Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 9,559 36 ( 532 ) 9,063 Residential mortgage-backed GSE securities 41,842 430 ( 4,004 ) 38,268 Municipal bonds 56,786 614 ( 4,200 ) 53,200 Corporate debt 500 — ( 4 ) 496 Corporate subordinated debt 10,116 68 ( 944 ) 9,240 $ 135,731 $ 1,148 $ ( 10,936 ) $ 125,943 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) U.S. Government-sponsored enterprises ("GSE") obligations $ 1,668 $ — $ ( 270 ) $ 1,398 U.S. Government agency small business administration pools guaranteed by the 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 GSE 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 The amortized cost and fair values of securities available-for-sale at June 30, 2024 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. June 30, 2024 Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 1,800 $ 1,800 Due after one year through five years 500 496 Due after five years through ten years 10,917 9,676 Due after ten years 55,840 52,343 Total U.S. Government-sponsored enterprises obligations ("GSE"), municipal bonds, corporate debt and corporate subordinated debt 69,057 64,315 U.S. Government agency small business pools guaranteed by the SBA (1) 15,273 14,297 Collateralized mortgage obligations issued by the FHLMC, FNMA, and GNMA (1) 9,559 9,063 Residential mortgage-backed GSE securities (1) 41,842 38,268 Total $ 135,731 $ 125,943 (1) Actual maturities for these debt securities are dependent upon the interest rate environment and prepayments on the underlying loans. 9 The following is a summary of gross unrealized losses and fair value for those investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at June 30, 2024 and December 31, 2023. 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) June 30, 2024 U.S. Government sponsored enterprises ("GSE") obligations — $ — $ — 3 $ 1,379 $ ( 276 ) $ 1,379 $ ( 276 ) U.S. Government agency small business administration pools guaranteed by the SBA 10 9,606 ( 147 ) 5 3,765 ( 829 ) 13,371 ( 976 ) Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 2 2,958 ( 24 ) 4 2,349 ( 508 ) 5,307 ( 532 ) Residential mortgage- backed GSE securities 9 8,547 ( 71 ) 24 15,211 ( 3,933 ) 23,758 ( 4,004 ) Municipal bonds 5 3,597 ( 108 ) 50 30,206 ( 4,092 ) 33,803 ( 4,200 ) Corporate debt — — — 1 496 ( 4 ) 496 ( 4 ) Corporate subordinated debt — — — 5 4,577 ( 944 ) 4,577 ( 944 ) 26 $ 24,708 $ ( 350 ) 92 $ 57,983 $ ( 10,586 ) $ 82,691 $ ( 10,936 ) December 31, 2023 U.S. Government sponsored enterprises ("GSE") obligations — $ — $ — 3 $ 1,398 $ ( 270 ) $ 1,398 $ ( 270 ) U.S. Government agency small business administration pools guaranteed by the 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 GSE 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 ) 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 June 30, 2024, the Company had 118 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 June 30, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore the Company carried no allowance for credit losses on securities available-for-sale as of June 30, 2024. 10 Proceeds from sales, maturities, principal payments received and gross realized gains and losses on securities available-for-sale were as follows for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands) Proceeds from sales, maturities and principal payments received on securities available-for-sale $ 1,445 $ 1,173 $ 2,703 $ 2,211 Gross realized gains — — — — Gross realized losses — — — — Net realized gains $ — $ — $ — $ — At June 30, 2024 and December 31, 2023, $ 72.3 million and $ 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, respectively (see Note 6 Borrowings for more information). As of June 30, 2024 and December 31, 2023 , 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. 3. Loans and Allowance for Credit Losses on Loans The Company's lending activities are primarily conducted in and around Dover, New Hampshire, and in the areas surrounding its branches. The Company grants commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land loans, 1–4 family residential loans, home equity line of credit loans and consumer loans. Most loans are collateralized by real estate. The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’ geographic area and the general economy. Loans consisted of the following at June 30, 2024 and December 31, 2023: 2024 2023 (Dollars in thousands) Commercial real estate (CRE) $ 86,033 $ 86,566 Multifamily (MF) 10,261 7,582 Commercial and industrial (C+I) 23,531 25,511 Acquisition, development, and land (ADL) 13,296 17,520 1-4 family residential (RES) 274,652 268,943 Home equity line of credit (HELOC) 16,452 14,093 Consumer (CON) 11,336 9,816 Total loans 435,561 430,031 Allowance for credit losses on loans ( 3,451 ) ( 3,390 ) Total loans, net $ 432,110 $ 426,641 Allowance for Credit Losses on Loans ("ACL") Effective January 1, 2023 , the Company adopted the new accounting standard for credit losses, ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended ("ASU 2016-13"). This new accounting standard, commonly referred to as "CECL," significantly changed the methodology for accounting for reserves on loans and unfunded off-balance sheet ("OBS") 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 three and six months ended June 30, 2024 and 2023, by reversing interest income. Historically, the Company has not experienced uncollectible accrued interest receivable on its securities available-for-sale. 11 The ACL is the sum of various components including the following: (a) historical loss experience, (b) a reasonable and supportable forecast, (c) loans evaluated individually, and (d) changes in relevant environmental factors. The historical loss component is segmented by loan type and serves as the core of the ACL adequacy methodology. The Company has selected the Weighted Average Remaining Maturity Model (“WARM”), for the loss calculation of each of the Bank’s loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate an ACL. A loss rate is applied to pool balances over time. CECL may create more volatility in the ACL, specifically the ACL on loans and ACL on off-balance sheet credit exposures. Under CECL, the ACL may increase or decrease period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative factors outlined in ASU 2016-13. The significant key assumptions used with the ACL calculation at June 30, 2024 and 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 management believes to be reasonable and supportable will be set annually and validated through an assessment of economic leading indicators. In periods of greater volatility and uncertainty, such as the current interest rate environment, management will likely use a shorter forecast period, whereas when markets, economies, interest rate environment, political matters, and other factors are considered to be more stable and certain, a longer forecast period may be used. Also, in times of greater uncertainty, management may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, the forecasted period is expected to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. "reversion speed"), factors such as, historical credit loss experience over previous economic cycles, as well as where the Company believes it is within the current economic cycle, will be considered. The Company has chosen a forecast period of 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. 12 January 1, 2023 CECL Transition (Day 1) Impact The CECL methodology reflects the Company's view of the state of the economy and forecasted macroeconomic conditions and their impact on the Company's loan portfolio as of the adoption date. The following table illustrates the impact of the adoption of ASU 2016-13: January 1, 2023 As reported under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption (Dollars in thousands) 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 Changes in the ACL for the three and six months ended June 30, 2024 and 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, March 31, 2024 $ 745 $ 75 $ 251 $ 80 $ 1,600 $ 169 $ 372 $ 128 $ 3,420 (Release) provision for credit losses on loans — 32 ( 17 ) ( 10 ) 8 2 69 ( 54 ) 30 Charge-offs — — — — — — — — — Recoveries — — — — — — 1 — 1 Balance, June 30, 2024 $ 745 $ 107 $ 234 $ 70 $ 1,608 $ 171 $ 442 $ 74 $ 3,451 Balance, December 31, 2023 $ 830 $ 76 $ 236 $ 105 $ 1,601 $ 156 $ 357 $ 29 $ 3,390 (Release) provision for credit losses on loans ( 85 ) 31 ( 2 ) ( 35 ) 7 15 84 45 60 Charge-offs — — — — — — — — — Recoveries — — — — — — 1 — 1 Balance, June 30, 2024 $ 745 $ 107 $ 234 $ 70 $ 1,608 $ 171 $ 442 $ 74 $ 3,451 Balance, March 31, 2023 $ 725 $ 49 $ 281 $ 96 $ 1,904 $ 88 $ 119 $ 25 $ 3,287 (Release) provision for credit losses on loans 81 — ( 4 ) ( 26 ) 6 ( 3 ) ( 7 ) ( 12 ) 35 Charge-offs — — — — — — ( 4 ) — ( 4 ) Recoveries — — — — — — 1 — 1 Balance, June 30, 2023 $ 806 $ 49 $ 277 $ 70 $ 1,910 $ 85 $ 109 $ 13 $ 3,319 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 ) ( 201 ) 7 14 ( 33 ) ( 295 ) (Release) provision for credit losses on loans 18 ( 6 ) 4 ( 50 ) 63 ( 3 ) ( 3 ) 12 35 Charge-offs — — — — — — ( 4 ) — ( 4 ) Recoveries — — — — — — 2 — 2 Balance, June 30, 2023 $ 806 $ 49 $ 277 $ 70 $ 1,910 $ 85 $ 109 $ 13 $ 3,319 13 Changes in the ACL for the three months ended June 30, 2024 consisted of a $( 16,000 ) release of credit losses compared to a $ 20,000 provision for credit losses expense for the three months ended June 30, 2023 . The release of credit losses for the three months ended June 30, 2024 consisted of a $ 30,000 provision for credit losses on loans and a $( 46,000 ) release of credit losses for off-balance sheet credit exposures. The provision for credit losses expense for the three months ended June 30, 2023 consisted of a $ 35,000 provision for credit losses on loans and a $( 15,000 ) release of credit losses for off-balance sheet credit exposures. Changes in the ACL for the six months ended June 30, 2024 consisted of a $( 36,000 ) release of credit losses compared to a $ 50,000 provision for credit losses expense for the six months ended June 30, 2023 . The release of credit losses for the six months ended June 30, 2024 consisted of a $ 60,000 provision for credit losses on loans and a $( 96,000 ) release of credit losses for off-balance sheet credit exposures. The provision for credit losses expense for the six months ended June 30, 2023 consisted of a $ 35,000 provision for credit losses on loans and a $ 15,000 provision for credit losses for off-balance sheet credit exposures. The following is an aging analysis of past due loans by portfolio segment as of June 30, 2024 and December 31, 2023, including non-accrual loans without an ACL: June 30, 2024: (Dollars in thousands) 30-59 Days 60-89 Days 90 + Days Total Past Due Current Total Loans Non-Accrual Loans CRE $ 233 $ — $ — $ 233 $ 85,800 $ 86,033 $ — MF — — — — 10,261 10,261 — C+I — — — — 23,531 23,531 — ADL — — — — 13,296 13,296 — RES — — 127 127 274,525 274,652 127 HELOC 440 — 14 454 15,998 16,452 14 CON — 14 — 14 11,322 11,336 — $ 673 $ 14 $ 141 $ 828 $ 434,733 $ 435,561 $ 141 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 June 30, 2024 and December 31, 2023, and was secured by real estate with an appraised value of $ 216,000 . The property was sold on July 19, 2024 and all outstanding balances were repaid. There was no significant change in the extent to which the collateral secures the loan. Interest income recognized on non-accrual loans during three and six months ended June 30, 2024 and 2023 was $- 0 -. There were no loans past due over 90 days still accruing interest at June 30, 2024 and December 31, 2023. There were no loans collateralized by residential real estate property in the process of foreclosure at June 30, 2024 and December 31, 2023. There were no loans modified for borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 and 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. Credit Quality Information The Company utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition, development, and land loans. Residential real estate, home equity line of credit and consumer loans are considered “pass” rated loans until they become delinquent. Once delinquent, loans can be rated an 8, 9 or 10 as applicable. Loans rated 1 through 6: Loans in these categories are considered “pass” rated loans with low to average risk. Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. 14 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. Loans rated 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted and should be charged off. On an annual basis, or more often if needed, the Company formally reviews the ratings on its commercial and industrial, commercial real estate, 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, adequacy of the ACL on loans and overall credit risk administration. Also, to reduce the level of credit administration on small commercial loan relationships, the Company has established a reduced credit administration process for commercial relationships less than $ 500,000 with a risk rating of 5 or better. These relationships are monitored based upon performance standards by the assigned lending officer. On a quarterly basis, the Company formally reviews the ratings on its applicable residential real estate and home equity loans if they have become classified as non-accrual. Criteria used to determine ratings consist of loan-to-value ratios and days delinquent. 15 Based upon the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of June 30, 2024 and December 31, 2023: June 30, 2024: (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total CRE: Risk rating: Pass $ 3,612 $ 7,020 $ 13,176 $ 10,555 $ 1,984 $ 18,430 $ 31,022 $ — $ 85,799 Special mention — — — — — 234 — — 234 Substandard — — — — — — — — — Total CRE 3,612 7,020 13,176 10,555 1,984 18,664 31,022 — 86,033 MF: Risk rating: Pass — 1,850 138 5,070 1,057 1,825 321 — 10,261 Special mention — — — — — — — — — Substandard — — — — — — — — — Total MF — 1,850 138 5,070 1,057 1,825 321 — 10,261 C+I: Risk rating: Pass 2,299 5,303 5,737 2,024 2,634 2,962 2,572 — 23,531 Special mention — — — — — — — — — Substandard — — — — — — — — — Total C+I 2,299 5,303 5,737 2,024 2,634 2,962 2,572 — 23,531 ADL: Risk rating: Pass 2,007 9,476 316 1,497 — — — — 13,296 Special mention — — — — — — — — — Substandard — — — — — — — — — Total ADL 2,007 9,476 316 1,497 — — — — 13,296 RES: Risk rating: Pass 7,071 23,597 43,295 66,041 48,165 86,356 — — 274,525 Special mention — — — — — — — — — Substandard — — — — — 127 — — 127 Total RES 7,071 23,597 43,295 66,041 48,165 86,483 — — 274,652 HELOC: Risk rating: Pass — — — — — — 16,438 — 16,438 Special mention — — — — — — — — — Substandard — — — — — — 14 — 14 Total HELOC — — — — — — 16,452 — 16,452 CON: Risk rating: Pass 2,199 2,711 2,887 1,897 1,398 244 — — 11,336 Special mention — — — — — — — — — Substandard — — — — — — — — — Total CON 2,199 2,711 2,887 1,897 1,398 244 — — 11,336 Total $ 17,188 $ 49,957 $ 65,549 $ 87,084 $ 55,238 $ 110,178 $ 50,367 $ — $ 435,561 16 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 Certain directors and executive officers of the Company and entities in which they have significant ownership interests are customers of the Bank. Loans outstanding to these persons and entities at June 30, 2024 and December 31, 2023 were $ 4.8 million and $ 5.2 million, respectively. 4. Loan Servicing Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of such loans were $ 32.2 million and $ 33.9 million at June 30, 2024 and December 31, 2023, 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 15, 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 income (loss). The Company’s mortgage servicing activities include: collecting principal, interest and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Loan servicing income, including late and ancillary fees, was $ 13,000 and $ 23,000 for the three months ended June 30, 2024 and 2023 , respectively, and $ 24,000 and $ 38,000 for the six months ended June 30, 2024 and 2023, respectively. The Company's residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in the Company’s market areas. 17 The following summarizes activity in mortgage servicing rights for the three and six months ended June 30, 2024 and 2023: (Dollars in thousands) 2024 2023 Balance, March 31, $ 329 $ 349 Additions — — Payoffs ( 6 ) — Change in fair value due to change in assumptions ( 2 ) 1 Balance, June 30, 321 350 Balance, January 1, 339 357 Additions — — Payoffs ( 7 ) ( 3 ) Change in fair value due to change in assumptions ( 11 ) ( 4 ) Balance, June 30, $ 321 $ 350 5. Deposits Deposits consisted of the following at June 30, 2024 and December 31, 2023: (Dollars in thousands) June 30, 2024 December 31, 2023 NOW and demand deposits $ 168,566 $ 163,316 Money market deposits 76,327 85,364 Savings deposits 78,850 64,823 Time deposits of greater than $250,000 18,404 17,107 Time deposits less than $250,000 109,546 74,188 $ 451,693 $ 404,798 At June 30, 2024, the scheduled maturities of time deposits were as follows: (Dollars in thousands) Total 2024 $ 47,160 2025 43,150 2026 36,728 2027 593 2028 224 2029 95 $ 127,950 There were $ 56.7 million and $ 23.6 million of brokered time deposits which were bifurcated into amounts below the FDIC insurance limit at June 30, 2024 and December 31, 2023, respectively. Additionally, there were $ 21.5 million and $ 20.9 million of brokered deposits included in savings deposits at June 30, 2024 and December 31, 2023, respectively. Reciprocal deposits were $ 729,000 and $ 1.1 million at June 30, 2024 and December 31, 2023, respectively. Deposits from related parties totaled $ 11.4 million and $ 10.7 million at of June 30, 2024 and December 31, 2023, respectively. 6. Borrowings Federal Home Loan Bank (“FHLB” ) All borrowings from the FHLB are secured by a blanket security agreement on qualified collateral, principally residential mortgage loans and certain U.S. government sponsored mortgage-backed securities, in an aggregate amount equal to outstanding advances. The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $ 93.1 million and $ 71.8 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 and December 31, 2023, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program. 18 A summary of borrowings from the FHLB is as follows: June 30, 2024 Principal Amounts Maturity Dates Interest Rates (Dollars in thousands) $ 520 2025 0.00 % – fixed 50,000 2026 4.38 % to 4.75 % – fixed 718 2028 0.00 % – fixed 400 2029 0.00 % – fixed 200 2030 0.00 % – fixed 430 2031 0.00 % – fixed $ 52,268 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 Included in the above borrowings from the FHLB at June 30, 2024 is a $ 25.0 million long-term advance, with an interest rate of 4.75 %, which is callable by the FHLB on October 29, 2024 and quarterly thereafter. Included in the above borrowings from the FHLB at June 30, 2024 and December 31, 2023 is a $ 25.0 million long-term advance, with an interest rate of 4.38 %, which is callable by the FHLB on December 8, 2025 and quarterly thereafter. As of June 30, 2024 and December 31, 2023 borrowings from the FHLB also include $ 2.3 million and $ 2.7 million, respectively, of advances through the FHLB’s Jobs for New England program where certain qualifying small business loans that create or preserve jobs, expand woman-, minority- or veteran-owned businesses, or otherwise stimulate the economy in New England communities are offered at an interest rate of 0 %. At June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023. 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 June 30, 2024 and 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, December 31, 2023, and June 30, 2024. 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. Advances under the BIC would be collateralized by eligible collateral - principally general obligation municipal bonds. The entire $ 49.5 million borrowing capacity of the BIC was available at June 30, 2024. No further advances can be requested under the BTFP after March 11, 2024. 7. Financial Instruments with Off-Balance Sheet Credit Exposures The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, unadvanced funds on loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Bank 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. 19 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. In the ordinary course of business, the Company may be subject to various legal proceedings. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings will not be material to the consolidated balance sheet or consolidated statements of income (loss). Notional amounts of financial instruments with off-balance sheet credit risk are as follows as of June 30, 2024 and December 31, 2023 : June 30, 2024 December 31, 2023 Unadvanced portions of loans $ 40,310 $ 46,175 Commitments to originate loans 27,933 34,074 Standby letters of credit 125 125 The Company records an ACL for off-balance sheet credit exposures that are not unconditionally cancelable through a charge to the (release) provision for credit losses on the Company’s consolidated statements of income (loss). At June 30, 2024 and December 31, 2023 the ACL for off-balance sheet credit exposures totaled $ 295,000 and $ 391,000 , respectively, and was included in other liabilities on the Company’s consolidated balance sheets. The release of credit losses for off-balance sheet credit exposures for the three and six months ended June 30, 2024 was $( 46,000 ) and $( 96,000 ), respectively. The (release) provision for credit losses for off-balance sheet credit exposures for the three and six months ended June 30, 2023 was $( 15,000 ) and $ 15,000 , respectively. 8. Employee Benefits 401(k) Plan The Company sponsors a 401(k) defined contribution plan for substantially all employees pursuant to which employees of the Company could elect to make contributions to the plan subject to Internal Revenue Service limits. The Company makes matching and profit-sharing contributions to eligible participants in accordance with plan provisions. The Company’s contributions for the three months ended June 30, 2024 and 2023 were $ 53,000 and $ 48,000 , respectively, and $ 113,000 and $ 104,000 for the six months ended June 30, 2024 and 2023, respectively. Supplemental Executive Retirement Plans Salary Continuation Plan The Company maintains a nonqualified supplemental retirement plan for its current President and its former President. The plan provides supplemental retirement benefits payable in installments over a period of years upon retirement or death. The recorded liability at June 30, 2024 and December 31, 2023 relating to this supplemental retirement plan was $ 781,000 and $ 735,000 , respectively. The discount rate used to determine the Company’s obligation was 5.00 %. The projected rate of salary increase for its current President was 3 %. The expense of this salary retirement plan was $ 36,000 and $ 33,000 for the three months ended June 30, 2024 and 2023 , respectively, and $ 73,000 and $ 66,000 for each of the six months ended June 30, 2024 and 2023, 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 June 30, 2024 and December 31, 2023 relating to this plan was $ 581,000 . The discount rate used to determine the Company’s obligation was 6.25 % at June 30, 2024 and December 31, 2023 . Total supplemental retirement plan expense amounted to $ 15,000 and $ 19,000 for the three months ended June 30, 2024 and 2023 , respectively, and $ 30,000 and $ 38,000 for the six months ended June 30, 2024 and 2023, respectively. The Company enacted a “hard freeze” for this supplemental retirement plan as of January 1, 2022. On February 10, 2022, the Bank and the non-employee members of the board of directors of the Bank entered into amendments to the Supplemental Director Retirement Agreements (the “Agreements”) previously entered into by the Bank and the directors. The amendments eliminate the formula for determining the normal annual retirement benefit (previously “ 70 % of Final Base Fee”) and replaces it with a fixed annual benefit of $ 20,000 . The amendments also eliminate the formula for determining the benefit payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a fixed amount equal to the present value of $ 200,000 . The effect of the amendments is to eliminate the variable and increasing costs associated with the Agreements. Instead, since the normal annual retirement benefit will be a fixed amount, the future costs associated with the Agreements is now more predictable. It is the intention of the Bank that no new directors of the Bank would enter into similar agreements. 20 Additionally, the Company has a deferred director’s fee plan, which allows members of the board of directors to defer the receipt of fees that otherwise would be paid to them in cash. At June 30, 2024 and December 31, 2023 , the total deferred directors' fees amounted to $ 874,000 and $ 718,000 , respectively. 9. Stock Based Compensation Employee Stock Ownership Plan The Company maintains the First Seacoast Bank Employee Stock Ownership Plan (“ESOP”) to provide eligible employees of the Company the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year through 2047 is 15,354 . The Company uses the principal and interest method to determine the release of shares amount. The ESOP funded its purchase of 423,715 shares through a loan from the Company equal to 100 % of the aggregate purchase price of the common stock. The ESOP trustee is repaying the loan principally through the Bank’s contributions to the ESOP over the remaining loan term that matures on December 31, 2047. At June 30, 2024 and December 31, 2023, the remaining principal balance on the ESOP debt was $ 4.2 million. Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants’ accounts under the plan. Total compensation expense recognized in connection with the ESOP for the three months ended June 30, 2024 and 2023 was $ 36,000 and $ 32,000 , respectively, and $ 68,000 and $ 70,000 for the six months ended June 30, 2024 and 2023, respectively. At June 30, 2024 and December 31, 2023, total unearned compensation for the ESOP was $ 3.9 million and $ 4.0 million, respectively. June 30, 2024 December 31, 2023 Shares held by the ESOP include the following: Allocated 55,218 39,864 Committed to be allocated 7,678 15,354 Unallocated 360,819 368,497 Total 423,715 423,715 The fair value of unallocated shares was approximately $ 3.2 million and $ 2.8 million at June 30, 2024 and December 31, 2023, respectively. Equity Incentive Plan Effective May 27, 2021, the Company adopted the First Seacoast Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The Company’s stockholders approved the 2021 plan on that date. 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 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 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. 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 $ 63,000 and $ 21,000 for the three months ended June 30, 2024 and 2023, respectively, which provided a tax benefit of $ 18,000 and $ 6,000 , respectively. The expense recognized for this equity incentive plan was $ 125,000 and $ 21,000 21 for the six months ended June 30, 2024 and 2023, respectively, which provided a tax benefit of $ 36,000 and $ 6,000 , respectively. At June 30, 2024 and December 31, 2023, total unrecognized compensation expense for this equity incentive plan was $ 473,000 and $ 598,000 , respectively, with a 1.9 and 2.4 year weighted average future recognition period, respectively. A summary of non-vested stock options outstanding as of June 30, 2024 and December 31, 2023 and changes during the periods then ended is presented below: Three and Six Months Ended June 30, 2024 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value Stock options: (In Thousands) Non-vested at beginning of period 249,144 $ 8.06 9.4 $ — Granted — — — — Vested ( 83,048 ) 8.06 — — Forfeited — — — — Non-vested at end of period 166,096 $ 8.06 8.9 $ 234 Year Ended December 31, 2023 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value Stock options: (In Thousands) Non-vested at beginning of period — $ — — $ — Granted 249,144 8.06 9.4 — Vested — — — — Forfeited — — — — Non-vested at end of period 249,144 $ 8.06 9.4 $ — 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 were granted to directors and certain members of management at $ 11.95 per share (adjusted for the second step conversion transaction). The total fair value related to the November 18, 2021 grant was $ 1.2 million. These restricted stock awards time-vest over a three year period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting rights when granted and dividend rights when vested. 22 A summary of non-vested restricted shares outstanding as of June 30, 2024 and December 31, 2023 and changes during the periods then ended is presented below: Three and Six Months Ended June 30, 2024 Number of Shares Weighted Average Grant Value Restricted stock: Non-vested at beginning of period 33,629 $ 11.80 Granted — — Vested — — Forfeited — — Non-vested at end of period 33,629 $ 11.80 Year Ended December 31, 2023 Restricted stock: Non-vested at beginning of year 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 The expense recognized for this equity incentive plan was $ 102,000 and $ 99,000 , for the three months ended June 30, 2024 and 2023, respectively, and $ 204,000 and $ 195,000 , for the six months ended June 30, 2024 and 2023, respectively, which provided a tax benefit of $ 27,000 and $ 26,000 , for the three months ended June 30, 2024 and 2023, respectively, and $ 54,000 and $ 51,000 for the six months ended June 30, 2024 and 2023, respectively. At June 30, 2024 and December 31, 2023, total unrecognized compensation expense for this equity incentive plan was $ 146,000 and $ 350,000 , respectively, with a 0.4 and 0.9 year weighted average future recognition period, respectively. 10. Leases The Company’s lease arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate and equipment leases with remaining lease terms of up to 15 years. The Company adopted ASU 2016-02 – Leases (Topic 842) – on 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 Right-Of-Use (“ROU”) asset, representing the Company’s legal right to use the leased assets. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. The Company does not have any sub-lease agreements. The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The discount rate is either implicit in the lease or, when a rate cannot be readily determined, the Company’s incremental borrowing rate is used. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. On June 11, 2024, the Bank entered into and closed on an agreement for the purchase and sale of four properties formerly owned and operated by the Bank, which included four branches ( three with an adjacent drive thru) and a parking lot, each adjacent to a sold branch, to a single purchaser, for an aggregate cash purchase price of $ 7.5 million. Concurrently with the sale-leaseback transaction, the Bank entered into an absolute net lease agreement with the purchaser under which the Bank will lease the properties for an initial term of 15 years with one renewal option of 15 years. The lease agreement includes a 2.5 % annual rent escalation during the initial term and during the renewal term, if exercised. The sale-leaseback transaction resulted in a pre-tax gain of $ 2.5 million for the three and six months ended June 30, 2024, included in non-interest income in the accompanying consolidated statements of income (loss). The Company recorded an operating lease ROU asset and corresponding operating lease liability of $ 5.3 million, which primarily drove the increase in ROU assets and lease liabilities at June 30, 2024 (included in other assets and other liabilities), compared to December 31, 2023. Additionally, the Company recorded a $ 1.5 million finance lease liability related to this agreement representing the portion of the gain not eligible for immediate recognition. The Company's obligation under this operating lease expires in June 2039 and has future lease payments of $ 9.4 million as of June 30, 2024. Total lease expense for this operating lease was $ 29,000 and $- 0 - for the three and six months ended June 30, 2024 and 2023, respectively. 23 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 $ 471,000 as of June 30, 2024. Total lease expense under the operating lease related to these ATMs was $ 19,000 and $- 0 - for the three months ended June 30, 2024 and 2023, respectively, and $ 38,000 and $- 0 - for the six months ended June 30, 2024 and 2023, respectively. The Company's obligation under an operating lease related to a branch not included in the sale-leaseback transaction expires in August 2027 and has future lease payments of $ 132,000 as of June 30, 2024. Total lease expense for this obligation was $ 10,000 and $ 9,000 for the three months ended June 30, 2024 and 2023, respectively, and $ 19,000 and $ 18,000 for the six months ended June 30, 2024 and 2023, 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 following tables summarize information related to the Company’s lease portfolio and other supplemental lease information as of and for the periods ended: June 30, 2024 December 31, 2023 Operating Finance Operating Finance (Dollars in thousands) (Dollars in thousands) ROU assets $ 5,789 $ — $ 587 $ — Lease liabilities 5,789 1,536 587 — Lease Term and Discount Rate: Weighted-average remaining lease term (years) 14.11 15.00 5.85 — Weighted-average discount rate (1) 7.80 % 8.12 % 4.79 % — (1) A lease implicit rate or incremental borrowing rate is used based on information available at commencement date of lease. The three months ended June 30, (Dollars in thousands) 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 36 $ 12 Operating cash flows from finance lease 3 — Financing cash flows from finance lease 1,539 — ROU assets obtained in exchange for lease obligations: Operating leases 5,263 — Net operating lease cost 36 12 Finance lease cost: Amortization of right-of-use assets 3 — Interest on lease liabilities 6 — Total lease cost $ 45 $ 12 The six months ended June 30, (Dollars in thousands) 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 61 $ 23 Operating cash flows from finance lease 3 — Financing cash flows from finance lease 1,539 — ROU assets obtained in exchange for lease obligations: Operating leases 5,263 — Net operating lease cost 61 23 Finance lease cost: Amortization of right-of-use assets 3 — Interest on lease liabilities 6 — Total lease cost $ 70 $ 23 24 The total minimum lease payments due in future periods for lease agreements in effect at June 30, 2024 were as follows: As of June 30, 2024 Future Minimum Lease Payments (Dollars in thousands) Operating Finance Remainder of 2024 $ 323 $ 154 2025 654 158 2026 666 162 2027 666 166 2028 651 170 Thereafter 7,038 1,936 Total minimum lease payments 9,998 2,746 Less: interest ( 4,209 ) ( 1,210 ) Total lease liability $ 5,789 $ 1,536 11. Other Comprehensive Income (Loss) The Company reports certain items as “other comprehensive income or loss” and reflects total accumulated other comprehensive loss (“AOCI”) in the consolidated financial statements for all periods containing elements of other comprehensive income or loss. The following table presents a reconciliation of the changes in the components of other comprehensive income or loss for the dates indicated, including the amount of income tax expense or benefit allocated to each component of other comprehensive income or loss: Three Months Ended June 30, Reclassification Adjustments 2024 2023 Affected Line Item in Consolidated Statements of Income (Loss) (Dollars in thousands) Net amortization of bond premiums $ 135 $ 251 Interest on debt securities Tax effect ( 37 ) ( 68 ) Income tax expense (benefit) Total reclassification adjustments $ 98 $ 183 Net income (loss) Six Months Ended June 30, Reclassification Adjustments 2024 2023 Affected Line Item in Consolidated Statements of Income (Loss) (Dollars in thousands) Net amortization of bond premiums $ 285 $ 490 Interest on debt securities Tax effect ( 77 ) ( 132 ) Income tax expense (benefit) 208 358 Net income (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 income (loss) Total reclassification adjustments $ 208 $ ( 261 ) 25 The following tables present the changes in each component of AOCI for the periods indicated: (Dollars in thousands) Net Unrealized (Losses) Income on AFS Securities (1) Net Unrealized Losses on Cash Flow Hedges (1) AOCI (1) Balance at March 31, 2024 $ ( 6,867 ) $ — $ ( 6,867 ) Other comprehensive loss before reclassification ( 384 ) — ( 384 ) Amounts reclassified from AOCI 98 — 98 Other comprehensive loss ( 286 ) — ( 286 ) Balance at June 30, 2024 $ ( 7,153 ) $ — $ ( 7,153 ) Balance at March 31, 2023 $ ( 8,919 ) $ — $ ( 8,919 ) Other comprehensive loss before reclassification ( 1,186 ) — ( 1,186 ) Amounts reclassified from AOCI 183 — 183 Other comprehensive loss ( 1,003 ) — ( 1,003 ) Balance at June 30, 2023 $ ( 9,922 ) $ — $ ( 9,922 ) Balance at December 31, 2023 $ ( 5,944 ) $ — $ ( 5,944 ) Other comprehensive loss before reclassification ( 1,417 ) — ( 1,417 ) Amounts reclassified from AOCI 208 — 208 Other comprehensive loss ( 1,209 ) — ( 1,209 ) Balance at June 30, 2024 $ ( 7,153 ) $ — $ ( 7,153 ) Balance at December 31, 2022 $ ( 10,428 ) $ 701 $ ( 9,727 ) Other comprehensive income (loss) before reclassification 148 ( 82 ) 66 Amounts reclassified from AOCI 358 ( 619 ) ( 261 ) Other comprehensive income (loss) 506 ( 701 ) ( 195 ) Balance at June 30, 2023 $ ( 9,922 ) $ — $ ( 9,922 ) (1) All amounts are net of tax. 26 12. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). As of June 30, 2024, 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023 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 June 30, 2024 Total Capital (to risk-weighted assets) $ 56,955 15.54 % $ 29,316 8.00 % $ 36,645 10.00 % $ 38,477 10.50 % Tier 1 Capital (to risk-weighted assets) 53,155 14.51 % 21,987 6.00 29,316 8.00 31,148 8.50 Tier 1 Capital (to average assets) 53,155 9.21 % 23,094 4.00 28,867 5.00 23,094 4.00 Common Equity Tier 1 (to risk-weighted assets) 53,155 14.51 % 16,490 4.50 23,819 6.50 25,652 7.00 Minimum Capital Minimum Capital Required to be Well Minimum Capital Required For Capital Adequacy Plus Capital Conservation Buffer Actual Requirement Capitalized Fully Phased-In (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio December 31, 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 27 13. Treasury Stock Common Stock Repurchases On April 11, 2024, the board of directors of the Company authorized a stock repurchase program for the repurchase of up to 507,707 shares of common stock, representing approximately 10 % of shares currently outstanding, which became effective on May 14, 2024. The Company holds repurchased shares in its treasury. As of June 30, 2024, First Seacoast Bancorp, Inc. has repurchased 235,719 shares under this stock repurchase program. As of June 30, 2024 and December 31, 2023, the Company held a total of 351,167 and 115,448 shares in its treasury, respectively. 14. 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. 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 this objective, 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 income (loss) for the three and six months ended June 30, 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 three months ended June 30, 2024 and 2023, was $- 0 -, and $- 0 - and $( 112,000 ) for the six months ended June 30, 2024 and 2023, respectively. 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. 28 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 June 30, 2024 and 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) June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Securities available-for-sale, at fair value $ 9,954 $ 10,126 $ ( 46 ) $ 126 Total loans 49,829 50,632 ( 171 ) 632 Total $ 59,783 $ 60,758 $ ( 217 ) $ 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 June 30, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios of fixed-rate residential loans used in the hedging relationship was $ 58.0 million and $ 62.2 million, respectively; the cumulative basis adjustments associated with this hedging relationship was $( 171,000 ) and $ 632,000 , respectively; 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 June 30, 2024 and December 31, 2023, the par value of the municipal bonds used in this hedging relationship was $ 19.3 million; the cumulative basis adjustments associated with these hedging relationships was $( 46,000 ) and $ 126,000 , respectively; 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 June 30, 2024 and December 31, 2023, the Company’s fair value hedges had a remaining maturity of 2.22 and 2.73 years, respectively, an average pay fixed rate of 4.29 % and an average received rate of 5.32 %. Derivatives not Designated as Hedging Instruments Customer Loan Swaps Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain commercial banking customers. On May 19, 2023, the Company entered into an interest rate swap with a commercial loan borrower. The Company executes interest rate swaps with customers to facilitate their respective risk management strategies. The interest rate swap contract with the commercial loan borrower allows them to convert floating-rate loan payments based on SOFR to fixed-rate loan payments. This interest rate swap is simultaneously hedged by an offsetting derivative that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivative and the offsetting derivative are recognized directly in earnings. 29 The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets: Derivative Assets Derivative Liabilities Notional Amount Location Fair Value Notional Amount Location Fair Value (Dollars in thousands) June 30, 2024 Derivatives designated as hedging instruments: Interest rate contracts - fair value hedge $ 60,000 Other assets $ 217 $ — Other liabilities $ — Derivatives not designated as hedging instruments: Customer loan swaps $ 4,699 Other assets $ 50 $ 4,699 Other liabilities $ 50 December 31, 2023 Derivatives designated as hedging instruments: Interest rate contracts - fair value hedge $ — Other assets $ — $ 60,000 Other liabilities $ 758 Derivatives not designated as hedging instruments: Customer loan swaps $ 4,766 Other assets $ 90 $ 4,766 Other liabilities $ 90 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 income (loss) for the periods presented: Amount of Gain Recognized in Income Three Months Ended Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 (Dollars in thousands) Location of Gain Customer loan swaps Interest and fees on loans $ — $ 95 $ — $ 95 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 June 30, 2024 and December 31, 2023, the Company posted $ 1.8 million and $ 1.6 million, respectively, of cash to the counterparties as collateral on its interest rate swap contracts and customer loan swaps, which was presented within cash and due from banks on the consolidated balance sheets. Balance Sheet Offsetting Certain financial instruments may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Company’s derivative transactions with institutional counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Generally, the Company does not offset such financial instruments for financial reporting purposes. 30 The following tables present the information about derivative positions that are eligible for offset in the consolidated balance sheets as of June 30, 2024 and December 31, 2023: 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 June 30, 2024 Derivative Assets: Interest rate contracts (2) $ 217 $ — $ 217 $ — $ 217 $ — Customer loan swaps - commercial customer (3) 50 — 50 — — 50 Total $ 267 $ — $ 267 $ — $ 217 $ 50 Derivative Liabilities: Interest rate contracts (2) $ — $ — $ — $ — $ — $ — Customer loan swaps - dealer bank (3) 50 — 50 — — 50 Total $ 50 $ — $ 50 $ — $ — $ 50 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 (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. 15. 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. 31 For assets and liabilities, fair value is based upon the lowest level of observable input that is significant to the fair value measurement. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented therein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all the Company’s financial assets and financial liabilities carried at fair value at June 30, 2024 and December 31, 2023. 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 enterprise obligations, 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 GSE 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. 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 4, Loan Servicing, for more information). These assumptions are inherently sensitive to change as these unobservable inputs are not based on quoted prices in active markets or otherwise observable. Derivative Instruments and Hedges: The valuation of these instruments is determined using the discounted cash flow method on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, 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) June 30, 2024 Securities available-for-sale: U.S. Government-sponsored enterprises ("GSE") obligations $ 1,379 $ — $ 1,379 $ — U.S. Government agency small business administration pools guaranteed by the SBA 14,297 — 14,297 — Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA 9,063 — 9,063 — Residential mortgage-backed GSE securities 38,268 — 38,268 — Municipal bonds 53,200 — 53,200 — Corporate debt 496 — 496 — Corporate subordinated debt 9,240 — 9,240 — Other assets: Mortgage servicing rights 321 — — 321 Derivatives 267 — 267 — Other liabilities: Derivatives 50 — 50 — 32 Total Level 1 Level 2 Level 3 (Dollars in thousands) December 31, 2023 Securities available-for-sale: U.S. Government-sponsored enterprises ("GSE") 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 GSE 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 — 33 For the six months ended June 30, 2024 and 2023, 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, 2024 $ 339 Included in net income (loss) ( 18 ) Balance as of June 30, 2024 $ 321 Total unrealized net gains (losses) included in net income related to assets still held as of June 30, 2024 $ — Balance as of January 1, 2023 $ 357 Included in net (loss) income ( 7 ) Balance as of June 30, 2023 $ 350 Total unrealized net gains (losses) included in net income related to assets still held as of June 30, 2023 $ — (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 income (loss). For Level 3 assets measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows: June 30, 2024 (Dollars in thousands) Valuation Technique Description Range Weighted Average (1) Fair Value Mortgage Servicing Rights Discounted Cash Flow Prepayment Rate 4.67 % - 13.59 % 6.17 % $ 321 Discount Rate 9.875 % - 9.875 % 9.88 % Delinquency Rate 1.95 % - 2.50 % 2.05 % Default Rate 0.14 % - 0.14 % 0.14 % 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 % (1) Unobservable inputs for mortgage servicing rights were weighted by loan amount. The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are the weighted-average prepayment rate, weighted-average discount rate, weighted average delinquency rate and weighted-average default rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions of each other. The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Observable and unobservable inputs are entered into this model as prescribed by an independent third party to arrive at an estimated fair value. 34 Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis during the reported periods may include certain individually evaluated loans reported at the fair value of the underlying collateral. Fair value is measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related non-recurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. Financial assets measured at fair value on a non-recurring basis during the reported periods also include loans held for sale. Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. The fair values for loans held for sale are estimated based on commitments in effect from investors or prevailing market prices for loans with similar terms to borrowers of similar credit quality and are included in Level 3. At June 30, 2024 and December 31, 2023 , there were no assets or liabilities measured at fair value on a non-recurring basis. Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in other non-interest expense. There were no foreclosed assets at June 30, 2024 or December 31, 2023. 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. ASC Topic 825 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 June 30, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. 35 Summary of Fair Values of Financial Instruments not Carried at Fair Value The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments at June 30, 2024 and December 31, 2023 are as follows: (Dollars in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 June 30, 2024 Financial Assets: Cash and due from banks $ 25,374 $ 25,374 $ 25,374 $ — $ — Federal Home Loan Bank stock 2,498 2,498 — 2,498 — Bank-owned life insurance 4,704 4,704 — 4,704 — Loans, net 432,110 386,826 — — 386,826 Accrued interest receivable 2,503 2,503 2,503 — — Financial Liabilities: Deposits $ 451,693 $ 450,868 $ 323,744 $ 127,124 $ — Advances from Federal Home Loan Bank 52,268 51,802 — 51,802 — Advances from Federal Reserve Bank 20,000 19,967 — 19,967 — Mortgagors’ tax escrow 654 654 — 654 — Accrued interest payable 1,005 1,005 1,005 — — 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 — — 36 16. Earnings Per Share The following represents a reconciliation between basic and diluted earnings per share: Three months ended June 30, Six months ended June 30, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Earnings (loss) per common share - basic: Numerator: Net income (loss) applicable to common shareholders $ 2,003 $ ( 540 ) $ 851 $ ( 76 ) Denominator: Weighted average common shares outstanding 4,530,623 4,634,386 4,622,277 4,653,950 Earnings (loss) per common share - basic $ 0.44 $ ( 0.12 ) $ 0.18 $ ( 0.02 ) Earnings (loss) per common share - diluted: Numerator: Net income (loss) applicable to common shareholders $ 2,003 $ ( 540 ) $ 851 $ ( 76 ) Denominator: Weighted average common shares outstanding 4,530,623 4,634,386 4,622,277 4,653,950 Dilutive effect of common stock equivalents (1) 236,511 — 235,938 — Weighted average diluted common shares outstanding 4,767,134 4,634,386 4,858,215 4,653,950 Earnings (loss) per common share - diluted $ 0.42 $ ( 0.12 ) $ 0.18 $ ( 0.02 ) (1) Not adjusted for potentially dilutive shares for periods where a net loss was recognized. The three and six months ended June 30, 2023 excludes 32,393 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 periods presented. 17. Subsequent Events On July 12, 2024, the Company entered into a two-year interest rate contract that was designated as fair value hedge utilizing a pay fixed interest rate swap to hedge a portion of its index-based brokered deposits included in savings deposits and its change in fair value attributable to the movement in the one-month SOFR. The carrying amount of the hedged liability located in “savings deposits" includes the savings account balance used to designate hedging relationships in which the hedged items are the stated amount of liabilities anticipated to be outstanding for the designated hedged period. The carrying amount of the savings deposit used in hedged relationship was $ 21.2 million. Under the "portfolio layer" approach, the Company designated a $ 10.0 million notional amount of portfolio liabilities that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows of the designated hedged layer. At inception, this fair value hedge has a pay fixed rate of 4.33 % and a received rate of 5.32 %. 37 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations General Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the Company’s consolidated financial condition at June 30, 2024 and consolidated results of operations for the three and six months ended June 30, 2024 and 2023. It should be read in conjunction with our unaudited consolidated financial statements and accompanying notes presented elsewhere in this report and with the Company’s audited consolidated financial statements and accompanying notes presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 29, 2024 with the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation. Overview Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the FHLB, in one- to four-family residential real estate loans, commercial real estate and multi-family loans, acquisition, development and land loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. In recent years, we have increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real estate and commercial and industrial loans. We conduct our operations from four full-service banking offices in Strafford County, New Hampshire and one full-service banking office in Rockingham County, New Hampshire. We consider our primary lending market area to be Strafford and Rockingham Counties in New Hampshire and York County in Southern Maine. Cautionary Note Regarding Forward-Looking Statements This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to: • statements of our goals, intentions and expectations; • statements regarding our business plans, prospects, growth and operating strategies; • statements regarding the quality of our loan and investment portfolios; and • estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: • general economic conditions, either nationally or in our market areas, that are worse than expected; • changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; • our ability to access cost-effective funding; • fluctuations in real estate values and both residential and commercial real estate market conditions; • demand for loans and deposits in our market area; • our ability to implement and change our business strategies; • competition among depository and other financial institutions; • inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations or increase the level of defaults, losses and prepayments on loans we have made and make; • adverse changes in the securities or secondary mortgage markets; • changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements and insurance premiums; • changes in the quality or composition of our loan or investment portfolios; • technological changes that may be more difficult or expensive than expected; 38 • the inability of third-party providers to perform as expected; • our ability to manage market risk, credit risk and operational risk in the current economic environment; • our ability to enter new markets successfully and capitalize on growth opportunities; • system failures or breaches of our network security; • electronic fraudulent activity within the financial services industry; • our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; • changes in consumer spending, borrowing and savings habits; • changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; • our ability to retain key employees; • our compensation expense associated with equity allocated or awarded to our employees; and • changes in the financial condition, results of operations or future prospects of issuers of securities that we own. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events. Critical Accounting Policies and Use of Critical Accounting Estimates The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. Our critical accounting policies involve the calculation of the allowance for credit losses ("ACL") and the measurement of the fair value of financial instruments. A detailed description of these critical accounting policies can be found in Note 2 of the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Comparison of Financial Condition at June 30, 2024 (unaudited) and December 31, 2023 Total Assets. Total assets were $601.7 million as of June 30, 2024, an increase of $30.7 million, or 5.4%, compared to total assets of $571.0 million at December 31, 2023. The increase was due primarily to a $19.3 million increase in cash and due from banks, a $5.5 million increase in net loans, a $4.1 million increase in securities available-for-sale, and a $5.4 million increase in other assets offset by a $3.4 million decrease in land, building and equipment, net. The increase in other assets and decrease in land, building and equipment, net was due primarily to accounting for the sale-leaseback transaction encompassing the Bank's main office and branches which was completed on June 11, 2024. Cash and Due From Banks. Cash and due from banks increased $19.3 million, or 318.1%, to $25.4 million at June 30, 2024 from $6.1 million at December 31, 2023. This increase primarily resulted from a $46.9 million increase in total deposits and $7.4 million of net proceeds from the sale of land and building, offset by a $20.7 million decrease in borrowings, a $5.5 million increase in net loans, a $4.1 million increase in securities available-for-sale, and $2.2 million of common stock repurchases during the six months ended June 30, 2024. Available-for-Sale Securities. Available-for-sale securities increased by $4.1 million, or 3.4%, to $125.9 million at June 30, 2024 from $121.9 million at December 31, 2023. This increase was primarily due to investment purchases totaling $8.9 million, offset by $2.7 million of proceeds from principal payments and a $1.7 million increase in net unrealized losses within the portfolio during the six months ended June 30, 2024. The unrealized losses within the portfolio are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore we recorded no allowance for credit losses on available-for-sale debt securities as of June 30, 2024. 39 The following table sets forth the amortized cost and average yield of our debt securities, by type and contractual maturity: Maturity as of June 30, 2024 One Year or Less After One Year but within Five Years After Five Years but within Ten Years After Ten Years Total Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield (Dollars in thousands) U.S. Government sponsored enterprises ("GSE") obligations $ — — $ — — $ 1,655 1.21 % $ — 0.00 % $ 1,655 1.21 % U.S. Government agency small business administration pools guaranteed by the SBA — — — — 5,637 5.50 % 9,636 4.71 % 15,273 5.00 % Collateralized mortgage obligations issued by the FHLMC, FNMA and GNMA — — — — 1,749 3.39 % 7,810 5.01 % 9,559 4.70 % Residential mortgage- backed GSE securities — — 791 3.47 % — 0.00 % 41,051 4.06 % 41,842 4.05 % Municipal bonds — — — — 946 2.86 % 55,840 3.18 % 56,786 3.17 % Corporate debt — — 500 7.00 % — 0.00 % — 0.00 % 500 7.00 % Corporate subordinated debt 1,800 7.70 % — — 8,316 6.02 % — 0.00 % 10,116 6.32 % 1,800 7.70 % $ 1,291 4.84 % $ 18,303 5.01 % $ 114,337 3.75 % $ 135,731 3.98 % Net Loans. Net loans increased $5.5 million, or 1.3%, to $432.1 million at June 30, 2024 from $426.6 million at December 31, 2023. During the six months ended June 30, 2024, we originated $5.5 million of loans, net of principal collections, and purchased a $774,000 participation interest in a commercial and industrial loan through our membership in a national community bank loan program. As of June 30, 2024 and December 31, 2023, the portfolio of purchased loans had outstanding principal balances of $33.8 million and $33.3 million, respectively, and were performing in accordance with their original repayment terms. One- to four-family residential mortgage loans increased $5.7 million, or 2.1%, to $274.7 million at June 30, 2024 from $268.9 million at December 31, 2023. Commercial real estate mortgage loans decreased $533,000, or 0.6%, to $86.0 million at June 30, 2024 from $86.6 million at December 31, 2023. Multi-family loans increased $2.7 million, or 35.3%, to $10.3 million at June 30, 2024 from $7.6 million at December 31, 2023. Commercial and industrial loans decreased $2.0 million, or 7.8%, to $23.5 million at June 30, 2024 from $25.5 million at December 31, 2023. Acquisition, development, and land loans decreased $4.2 million, or 24.1%, to $13.3 million at June 30, 2024 from $17.5 million at December 31, 2023. Home equity loans and lines of credit increased $2.4 million, or 16.7%, to $16.5 million at June 30, 2024 from $14.1 million at December 31, 2023. Consumer loans increased $1.5 million, or 15.5%, to $11.3 million at June 30, 2024 from $9.8 million at December 31, 2023. Our strategy to grow the balance sheet continues to be through originations and, to a lesser extent, purchases of one- to four-family residential mortgage loans and consumer loans secured by manufactured housing properties, while also diversifying into higher yielding commercial real estate mortgage loans and commercial and industrial loans to improve net margins and manage interest rate risk. We also continue to consider selling selected, conforming 15-year and 30-year residential fixed rate mortgage loans to the secondary market on a servicing retained basis as market conditions allow, providing us a recurring source of revenue from loan servicing income and gains on the sale of such loans. Our ACL on loans increased $61,000 to $3.5 million at June 30, 2024 from $3.4 million at December 31, 2023. The Company measures and records it ACL based upon ASC Topic 326 and its credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. ASC Topic 326 requires financial assets measured at amortized cost, including loans, to be presented at the net amount expected to be collected, through an ACL that are expected to occur over the remaining life of the asset, rather than incurred losses. ASC Topic 326 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, ASC Topic 326 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 40 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 ASC Topic 326 was recorded as a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which ASC Topic 326 is effective, which was January 1, 2023. The adoption of the new standard resulted in a $295,000 decrease to the ACL which was partially offset by a $290,000 increase in the allowance for off-balance sheet 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 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 income 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. As of June 30, 2024 and December 31, 2023, the aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, was estimated not to exceed $120.0 million, or 26.6% of total deposits, and $102.5 million, or 25.3% of total deposits, respectively. For customers requiring full FDIC insurance on certificates of deposit in excess of $250,000, we began offering in late 2023 the CDARS® program, which allows us to place the certificates of deposit with other participating banks to maximize the customers’ FDIC insurance. We receive a like amount of deposits from other participating financial institutions. In addition, we offer the ICS™ program, an insured deposit “sweep” program for demand deposits which is a product offered by IntraFi Network, LLC, which is also the provider of the CDARS® program. Similarly to the certificates of deposit’s discussed above, we receive a like amount of deposits from other financial institutions and all customer deposits are insured by the FDIC. These “reciprocal” CDARS® and ICS deposits are classified as “brokered” deposits in regulatory reports and "core" deposits in our consolidated balance sheet. At June 30, 2024 our “reciprocal” CDARS® and ICS deposits were $-0- and $729,000, respectively. At December 31, 2023, our “reciprocal” CDARS® and ICS deposits were $-0- and $1.1 million, respectively. Deposits increased $46.9 million, or 11.6%, to $451.7 million at June 30, 2024 from $404.8 million at December 31, 2023 primarily as a result of an $16.7 million increase in commercial deposits and a $28.0 million increase in retail deposits. Core deposits (defined as deposits other than time deposits) increased $10.2 million, or 3.3%, to $323.7 million at June 30, 2024 from $313.5 million at December 31, 2023. As of June 30, 2024, savings deposits increased $14.0 million, money market deposits decreased $9.0 million, NOW and demand deposit accounts increased $5.3 million and time deposits increased $36.7 million. There were $56.7 million and $23.6 million of brokered deposits included in time deposits at June 30, 2024 and December 31, 2023, respectively. Additionally, there were $21.5 million and $20.9 million of brokered deposits included in savings deposits at June 30, 2024 and December 31, 2023, respectively. Deposits from related parties totaled $11.4 million and $10.7 million at of June 30, 2024 and December 31, 2023, respectively. Borrowings. Total borrowings decreased $20.7 million, or 22.3%, to $72.3 million at June 30, 2024 from $93.0 million at December 31, 2023. Advances from FHLB decreased $20.7 million, or 28.4%, to $52.3 million at June 30, 2024 from $73.0 million at December 31, 2023 due primarily to a $46.9 million increase in total deposits offset by borrowings required in support of the Company’s investment and loan growth initiatives. Total Stockholders’ Equity. Total stockholders’ equity decreased $2.1 million, or 3.2%, to $64.5 million at June 30, 2024 from $66.6 million at December 31, 2023. This decrease was due primarily to an other comprehensive loss of $1.2 million related to net changes in unrealized holding losses in the available-for-sale securities portfolio as a result of changes in market interest rates during the six months ended June 30, 2024 and $2.2 million of common stock repurchases offset by net income of $851,000 for the six months ended June 30, 2024 and the recognition of $281,000 of previously unearned compensation. Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status and real estate and other loan collateral acquired through foreclosure and repossession. Management determines that a loan is non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be non-performing, the measurement of the loan in the ACL is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for non-performance based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Interest received on non-accrual loans generally is applied against principal or applied to interest on a cash basis. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual 41 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 at June 30, 2024 and December 31, 2023. At June 30, 2024 and December 31, 2023, non-performing loans consist of a residential mortgage loan and an associated home equity loan with outstanding balances totaling $141,000 and an estimated market value of $216,000. The property was sold on July 19, 2024 and all outstanding balances were repaid. At June 30, 2024 and December 31, 2023, we had no foreclosed assets. Comparison of Operating Results for the Three Months Ended June 30, 2024 and June 30, 2023 Net Income (Loss). Net income was $2.0 million for the three months ended June 30, 2024, compared to a net loss of $540,000 for the three months ended June 30, 2023, an increase of $2.5 million, or 470.9%. The increase was due primarily to an increase in non-interest income of $2.5 million, as a result of the one-time recognized gain on the sale of land and buildings, and a decrease in non-interest expenses of $300,000 offset by an increase in income tax expense of $382,000 during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest and Dividend Income. Total interest and dividend income increased $1.3 million, or 25.7%, to $6.3 million for the three months ended June 30, 2024 compared to $5.0 million for the three months ended June 30, 2023. This increase was due to a $576,000 increase in interest and dividend income on investments and a $709,000 increase in interest and fees on loans. Average interest-earning assets increased $34.9 million, to $564.4 million for the three months ended June 30, 2024 from $529.4 million for the three months ended June 30, 2023. The weighted average annualized yield on interest earning-assets increased to 4.45% for the three months ended June 30, 2024 from 3.77% for the three months ended June 30, 2023 primarily due to an increase in market interest rates. The weighted average annualized yield for the loan portfolio increased to 4.48% for the three months ended June 30, 2024 from 4.02% for the three months ended June 30, 2023 due primarily to an increase in market interest rates. The weighted average annualized yield for all other interest-earning assets increased to 4.35% for the three months ended June 30, 2024 from 2.91% for the three months ended June 30, 2023 due primarily to an increase in market interest rates. Interest Expense. Total interest expense increased $1.2 million, or 61.8%, to $3.3 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023. Interest expense on deposits increased $991,000, or 82.6%, to $2.2 million for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023. The average balance of interest-bearing deposits increased $34.3 million, or 10.9%, to $347.7 million for the three months ended June 30, 2024 from $313.5 million for the three months ended June 30, 2023 primarily as a result of an increase in the average balance of money market and time deposits offset by a decrease in the average balances of savings and NOW and demand deposits. The weighted average annualized rate of interest-bearing deposits increased to 2.52% for the three months ended June 30, 2024 from 1.51% for the three months ended June 30, 2023 primarily as a result of an increase in market interest rates. Interest expense on borrowings increased $252,000 to $1.1 million, or 31.1%, for the three months ended June 30, 2024 from $811,000 for the three months ended June 30, 2023 primarily due to an increase in the average balance of borrowings and an increase in market interest rates. The average balance of borrowings increased $19.5 million, or 27.8%, to $89.7 million for the three months ended June 30, 2024 from $70.2 million for the three months ended June 30, 2023. The weighted average annualized rate of borrowings increased to 4.74% for the three months ended June 30, 2024 from 4.62% for the three months ended June 30, 2023 due to an increase in market interest rates. Net Interest and Dividend Income. Net interest and dividend income increased $42,000, or 1.4%, to $3.0 million for the three months ended June 30, 2024 and June 30, 2023. This increase was due to an increase of $34.9 million, or 6.6%, in the average balance of interest-earning assets, consisting primarily of increases in the average balances of loans and taxable debt securities offset by a decrease in the average balances of non-taxable debt securities, during the three months ended June 30, 2024, offset by a $53.6 million, or 13.9%, increase in the average balance of interest-bearing liabilities, consisting primarily of increases in the average balances of borrowings and money market and time deposits, offset by decreases in the average balances of savings and NOW and demand deposits. Annualized net interest margin decreased to 2.14% for the three months ended June 30, 2024 from 2.25% for the three months ended June 30, 2023 due primarily to an increase in the average rate of interest-bearing deposits and borrowings offset by an increase in the average yield on interest-earning assets. (Release) Provision for Credit Losses. Based on management’s analysis of the ACL, a $(16,000) release of credit losses was recorded for the three months ended June 30, 2024, compared to a $20,000 provision for credit losses expense for the three months ended June 30, 2023. The release of credit losses for the three months ended June 30, 2024 consisted of a $30,000 provision for credit losses on loans and a $(46,000) release of credit losses for off-balance sheet credit exposures. The provision for credit losses expense for the three months ended June 30, 2023 consisted of a $35,000 provision for credit losses on loans and a $(15,000) release of credit losses for off-balance sheet credit exposures. Non-Interest Income. Non-interest income increased $2.5 million, or 736.1%, to $2.9 million for the three months ended June 30, 2024 compared to $346,000 for the three months ended June 30, 2023. The increase in non-interest income during the three 42 months ended June 30, 2024 was due to a one-time $2.5 million gain on the sale of land and buildings recognized during the three months ended June 30, 2024. Non-Interest Expense. Non-interest expense decreased $300,000, or 7.3%, to $3.8 million for the three months ended June 30, 2024 from $4.1 million for the three months ended June 30, 2023. The decrease was primarily due to a $215,000, or 8.7%, decrease in salaries and employee benefits, a $55,000, or 17.3%, decrease in professional fees and assessments and a $37,000, or 9.3%, decrease in data processing. The decrease in salaries and employee benefits during the three months ended June 30, 2024 was due to the adjustment of staffing levels in late 2023 reflecting the expected reduction in 2024 residential mortgage and commercial lending activity offset by normal salary increases. Income Taxes. Income tax expense increased $382,000, or 136.4%, to an expense of $102,000 for the three months ended June 30, 2024 from a benefit of $280,000 for the three months ended June 30, 2023. The effective tax rate was 4.8% and (34.1)% for the three months ended June 30, 2024 and 2023, respectively. The increase in income tax expense and the effective tax rate for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was due primarily to a $2.9 million increase in income before income tax expense (benefit) for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The income tax expense and effective tax rate for the three months ended June 30, 2024 was less than statutory federal and state rates due primarily to the utilization of certain Federal and New Hampshire net operating loss carryforward deferred tax assets and the release of the associated valuation allowances established at December 31, 2023 for these deferred tax assets. 43 Average Balance Sheets The following table sets forth average balance sheets, average yields and costs and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average loan balances exclude loans held for sale, if applicable. The following table includes no out-of-period items or adjustments. For the Three Months Ended June 30, 2024 2023 Average Outstanding Balance Interest Average Yield/Rate Average Outstanding Balance Interest Average Yield/Rate (Dollars in thousands) Interest-earning assets: Loans (4) $ 431,601 $ 4,835 4.48 % $ 410,200 $ 4,126 4.02 % Taxable debt securities 73,190 870 4.76 % 49,862 292 2.34 % Non-taxable debt securities 50,256 441 3.51 % 59,585 440 2.95 % Interest-bearing deposits with other banks 6,323 69 4.33 % 6,694 68 4.06 % Federal Home Loan Bank stock 3,009 63 8.38 % 3,103 67 8.64 % Total interest-earning assets 564,379 6,278 4.45 % 529,444 4,993 3.77 % Non-interest-earning assets 10,992 17,849 Total assets $ 575,371 $ 547,293 Interest-bearing liabilities: NOW and demand deposits $ 96,201 $ 121 0.50 % $ 102,738 $ 93 0.36 % Money market deposits 76,577 639 3.33 % 66,846 376 2.25 % Savings deposits 67,460 392 2.32 % 71,144 293 1.65 % Time deposits 107,511 1,035 3.85 % 72,749 418 2.30 % Total interest-bearing deposits 347,749 2,187 2.52 % 313,477 1,180 1.51 % Borrowings 89,749 1,063 4.74 % 70,239 811 4.62 % Other 1,855 4 0.56 % 2,066 20 3.87 % Total interest-bearing liabilities 439,353 3,254 2.96 % 385,782 2,011 2.09 % Non-interest-bearing deposits 69,185 83,703 Other non-interest-bearing liabilities 2,989 4,084 Total liabilities 511,527 473,569 Total stockholders' equity 63,844 73,724 Total liabilities and stockholders' equity $ 575,371 $ 547,293 Net interest income $ 3,024 $ 2,982 Net interest rate spread (1) 1.49 % 1.68 % Net interest-earning assets (2) $ 125,026 $ 143,662 Net interest margin (3) 2.14 % 2.25 % Average interest-earning assets to interest-bearing liabilities 128.46 % 137.24 % (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 $120,000 and $87,000 for the three months ended June 30, 2024 and 2023, respectively. 44 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. Three Months Ended June 30, 2024 vs. 2023 Increase (Decrease) Due to Change in Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans $ 223 $ 486 $ 709 Taxable debt securities 180 398 578 Non-taxable debt securities (75 ) 76 1 Interest-bearing deposits with other banks (4 ) 5 1 Federal Home Loan Bank stock (2 ) (2 ) (4 ) Total interest-earning assets 322 963 1,285 Interest-bearing liabilities: NOW and demand deposits (6 ) 34 28 Money market deposits 61 202 263 Savings accounts (16 ) 115 99 Time deposits 256 361 617 Total interest-bearing deposits 295 712 1,007 Borrowings 231 21 252 Other (2 ) (14 ) (16 ) Total interest-bearing liabilities 524 719 1,243 Change in net interest income $ (202 ) $ 244 $ 42 Comparison of Operating Results for the Six Months Ended June 30, 2024 and June 30, 2023 Net Income (Loss). Net income was $851,000 for the six months ended June 30, 2024, compared to net loss of $76,000 for the six months ended June 30, 2023, an increase of $927,000. The increase was due primarily to an increase in non-interest income of $1.7 million and a decrease in non-interest expenses of $125,000 offset by a decrease in net interest and dividend income after (release) provision for credit losses of $177,000 and an increase in income tax expense of $704,000 during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Interest and Dividend Income. Total interest and dividend income increased $2.7 million, or 28.2%, to $12.3 million for the six months ended June 30, 2024 compared to $9.6 million for the six months ended June 30, 2023. This increase was due to a $1.1 million increase in interest and dividend income on investments and a $1.6 million increase in interest and fees on loans. Average interest-earning assets increased $37.3 million, to $561.7 million for the six months ended June 30, 2024 from $524.4 million for the six months ended June 30, 2023. The weighted average annualized yield on interest earning-assets increased to 4.40% for the six months ended June 30, 2024 from 3.67% for the six months ended June 30, 2023 primarily due to an increase in market interest rates. The weighted average annualized yield for the loan portfolio increased to 4.44% for the six months ended June 30, 2024 from 3.91% for the six months ended June 30, 2023 due primarily to an increase in market interest rates. The weighted average annualized yield for all other interest-earning assets increased to 4.26% for the six months ended June 30, 2024 from 2.86% for the six months ended June 30, 2023 due primarily to an increase in market interest rates. Interest Expense. Total interest expense increased $3.0 million, or 86.4%, to $6.4 million for the six months ended June 30, 2024 from $3.5 million for the six months ended June 30, 2023. Interest expense on deposits increased $2.5 million, or 140.4%, to $4.2 million for the six months ended June 30, 2024 from $1.8 million for the six months ended June 30, 2023. The average balance of interest-bearing deposits increased $41.1 million, or 13.6%, to $343.3 million for the six months ended June 30, 2024 from $302.2 million for the six months ended June 30, 2023 primarily as a result of an increase in the average balance of money market and time deposits offset by a decrease in the average balances of NOW and demand deposits. The weighted average annualized rate of interest-bearing deposits increased to 2.46% for the six months ended June 30, 2024 from 1.16% for the six months ended June 30, 2023 primarily as a result of an increase in market interest rates. 45 Interest expense on borrowings increased $547,000, or 32.9%, to $2.2 million for the six months ended June 30, 2024 from $1.7 million for the six months ended June 30, 2023 primarily due to an increase in the average balance of borrowings and an increase in market interest rates. The average balance of borrowings increased $14.4 million, or 18.1%, to $93.6 million for the six months ended June 30, 2024 from $79.2 million for the six months ended June 30, 2023. The weighted average annualized rate of borrowings increased to 4.73% for the six months ended June 30, 2024 from 4.20% for the six months ended June 30, 2023 due to an increase in market interest rates. Net Interest and Dividend Income. Net interest and dividend income decreased $263,000, or 4.3%, to $5.9 million for the six months ended June 30, 2024 from $6.2 million for the six months ended June 30, 2023. This decrease was due to an increase of $55.3 million, or 14.4%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of borrowings and time deposits, during the six months ended June 30, 2024 offset by a $37.3 million, or 7.1%, increase in the average balance of interest-earning assets, consisting primarily of increases in the average balances of loans and taxable debt securities. Annualized net interest margin decreased to 2.11% for the six months ended June 30, 2024 from 2.36% for the six months ended June 30, 2023 due primarily to an increase in the average rate of interest-bearing deposits and borrowings offset by an increase in the average yield on interest-earning assets. (Release) Provision for Credit Losses. Based on management’s analysis of the ACL, a $(36,000) release of credit losses was recorded for the six months ended June 30, 2024, compared to a $50,000 provision for credit losses expense for the six months ended June 30, 2023. The release of credit losses for the six months ended June 30, 2024 consisted of a $60,000 provision for credit losses on loans and a $(96,000) release of credit losses for off-balance sheet credit exposures. The provision for credit losses expense for the six months ended June 30, 2023 consisted of a $35,000 provision for credit losses on loans and a $15,000 provision for credit losses for off-balance sheet credit exposures. Non-Interest Income. Non-interest income increased $1.7 million, or 111.7%, to $3.2 million for the six months ended June 30, 2024 compared to $1.5 million for the six months ended June 30, 2023. The increase in non-interest income during the six months ended June 30, 2024 was due primarily to a one-time $2.5 million gain on the sale of land and buildings recognized during the six months ended June 30, 2024 as compared to an $849,000 gain on termination of interest rate swaps recognized during the six months ended June 30, 2023. Non-Interest Expense. Non-interest expense decreased $125,000, or 1.6%, to $7.8 million for the six months ended June 30, 2024 from $8.0 million for the six months ended June 30, 2023. The decrease was primarily due to a $265,000, or 5.5%, decrease in salaries and employee benefits and a $93,000, or 11.8%, decrease in data processing offset by a $88,000, or 66.7%, increase in deposit insurance fees and a $122,000, or 23.0%, increase in professional fees and assessments. The decrease in salaries and employee benefits during the six months ended June 30, 2024 was due to the adjustment of staffing levels in late 2023 reflecting the expected reduction in 2024 residential mortgage and commercial lending activity offset by normal salary increases. Income Taxes. Income tax expense increased $704,000, or 293.3%, to an expense of $464,000 for the six months ended June 30, 2024 from a benefit of $240,000 for the six months ended June 30, 2023. The effective tax rate was 35.3% and (75.9)% for the six months ended June 30, 2024 and 2023, respectively. The increase in income tax expense and the effective tax rate for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was due primarily to a $1.6 million increase in income before income tax expense (benefit) for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. 46 Average Balance Sheets The following table sets forth average balance sheets, average yields and costs and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average loan balances exclude loans held for sale, if applicable. The following table includes no out-of-period items or adjustments. For the Six Months Ended June 30, 2024 2023 Average Outstanding Balance Interest Average Yield/Rate Average Outstanding Balance Interest Average Yield/Rate (Dollars in thousands) Interest-earning assets: Loans (4) $ 430,069 $ 9,545 4.44 % $ 406,056 $ 7,934 3.91 % Taxable debt securities 72,137 1,682 4.66 % 49,789 583 2.34 % Non-taxable debt securities 50,935 881 3.46 % 58,465 862 2.95 % Interest-bearing deposits with other banks 5,495 109 3.96 % 6,922 119 3.44 % Federal Home Loan Bank stock 3,095 131 8.47 % 3,170 131 8.26 % Total interest-earning assets 561,731 12,348 4.40 % 524,402 9,629 3.67 % Non-interest-earning assets 13,751 17,428 Total assets $ 575,482 $ 541,830 Interest-bearing liabilities: NOW and demand deposits $ 95,651 $ 251 0.53 % $ 104,766 $ 148 0.28 % Money market deposits 81,242 1,368 3.37 % 63,764 552 1.73 % Savings deposits 66,204 724 2.19 % 64,587 354 1.10 % Time deposits 100,160 1,872 3.74 % 69,043 699 2.02 % Total interest-bearing deposits 343,257 4,215 2.46 % 302,160 1,753 1.16 % Borrowings 93,577 2,212 4.73 % 79,218 1,665 4.20 % Other 1,643 6 0.72 % 1,827 33 3.61 % Total interest-bearing liabilities 438,477 6,433 2.93 % 383,205 3,451 1.80 % Non-interest-bearing deposits 66,319 83,395 Other non-interest-bearing liabilities 5,778 3,802 Total liabilities 510,574 470,402 Total stockholders' equity 64,908 71,428 Total liabilities and stockholders' equity $ 575,482 $ 541,830 Net interest income $ 5,915 $ 6,178 Net interest rate spread (1) 1.47 % 1.87 % Net interest-earning assets (2) $ 123,254 $ 141,197 Net interest margin (3) 2.11 % 2.36 % Average interest-earning assets to interest-bearing liabilities 128.11 % 136.85 % (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 $201,000 and $173,000 for the six months ended June 30, 2024 and 2023, respectively. 47 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. Six Months Ended June 30, 2024 vs. 2023 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 489 $ 1,122 $ 1,611 Taxable debt securities 342 757 1,099 Non-taxable debt securities (119 ) 138 19 Interest-bearing deposits with other banks (27 ) 17 (10 ) Federal Home Loan Bank stock (3 ) 3 — Total interest-earning assets 682 2,037 2,719 Interest-bearing liabilities: NOW and demand deposits (14 ) 117 103 Money market deposits 183 633 816 Savings deposits 9 361 370 Time deposits 407 766 1,173 Total interest-bearing deposits 585 1,877 2,462 Borrowings 323 224 547 Other — (27 ) (27 ) Total interest-bearing liabilities 908 2,074 2,982 Change in net interest income $ (226 ) $ (37 ) $ (263 ) 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 June 30, 2024 and December 31, 2023, 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 $120.0 million, or 26.6% of total deposits, and $102.5 million, or 25.3% of total deposits, respectively. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans and proceeds from sales and maturities of securities. We also rely on borrowings from the FHLB and FRB as supplemental sources of funds. At June 30, 2024 and December 31, 2023, we had $52.3 million and $73.0 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $93.1 million and $71.8 million, respectively. Additionally, at June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, 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”). The BTFP ceased extending new loans on March 11, 2024. At June 30, 2024 and December 31, 2023, we had $20.0 million outstanding in advances from the FRB secured by government-sponsored enterprise obligations, mortgage-backed securities and collateralized mortgage obligations issued by various U.S. Government agencies, owned as of March 12, 2023, December 31, 2023 and June 30, 2024. The interest rate is 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. The advance matures on December 13, 2024 at a fixed annual interest rate of 4.89%. At June 30, 2024 and December 31, 2023, the Bank’s borrowing capacity is $49.5 million and $50.6 million, respectively, under the BIC and is based upon eligible collateral -principally general obligation municipal bonds. The entire balance of this credit facility was available at June 30, 2024 and December 31, 2023. No further advances can be requested under the BTFP after March 11, 2024. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions and competition. Our most liquid assets are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. 48 Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash used by operating activities was $1.5 million and $724,000 for the six months ended June 30, 2024 and 2023, respectively. Net cash used by investing activities, which consists primarily of disbursements for loan originations and purchases, and the purchase of securities available-for-sale, offset by proceeds from the sale of land and building and unwinding of interest rate swaps, principal collections on loans and proceeds from the sale, maturity and principal payments on securities available-for-sale, was $4.8 million and $17.1 million for the six months ended June 30, 2024 and 2023, respectively. Net cash provided by financing activities, consisting primarily of proceeds from the sale of common stock, treasury stock purchases, activity in deposit accounts and FHLB advances, was $25.6 million and $16.2 million for the six months ended June 30, 2024 and 2023, 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 June 30, 2024. Our current strategy is to increase core deposits and utilize FHLB advances, as well as brokered deposits, to fund loan growth. First Seacoast Bancorp, Inc. is a separate legal entity from First Seacoast Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations and to fund repurchases of shares of common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At June 30, 2024, the Company (on an unconsolidated basis) had liquid assets of $18.2 million. At June 30, 2024, First Seacoast Bank exceeded all its regulatory capital requirements. See Note 12 of the unaudited consolidated financial statements appearing under Item 1 of this quarterly report. Management is not aware of any conditions or events that would change First Seacoast Bank’s categorization as well-capitalized. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk General. Most of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the board of directors established a management-level Asset/Liability Management Committee (the “ALCO”), which takes responsibility for overseeing the asset/liability management process and related procedures. The ALCO meets on at least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors. We manage our interest rate risk in an effort to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; promoting core deposit products; selling a portion of fixed-rate one- to four-family residential real estate loans; maintaining investments as available-for-sale; diversifying our loan portfolio; utilizing interest rate swaps; and strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates. Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology, while the NPV ratio reflects that value as a form of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100, 200, 300 and 400 basis points from current market rates. 49 The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of June 30, 2024 and December 31, 2023: As of June 30, 2024: Net Portfolio Value ("NPV") NPV as Percent of Portfolio Value of Assets Basis Point ("bp") Change in Interest Rates Dollar Amount Dollar Change Percent Change NPV Ratio Change (Dollars in thousands) 400 bp $ 40,627 $ (27,720 ) (40.6 )% 8.4 % $ (389 ) 300 bp 47,675 (20,672 ) (30.2 ) 9.6 (277 ) 200 bp 54,887 (13,460 ) (19.7 ) 10.6 (170 ) 100 bp 62,493 (5,854 ) (8.6 ) 11.7 (66 ) 0 68,347 — — 12.3 — (100) bp 73,011 4,664 6.8 12.7 41 (200) bp 75,165 6,818 10.0 12.7 39 (300) bp 74,272 5,925 8.7 12.2 (11 ) (400) bp 69,813 1,466 2.1 11.2 (112 ) 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 ) Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the way actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results. The percent changes to NPV in the +300 and +400 bp changes in interest rates was -30.2% and -40.6%, respectively, at June 30, 2024 versus policy limits of -30.0% and -40.0%, respectively. These percent changes were due primarily to the continued migration of deposits during the six months ended June 30, 2024 from less interest-sensitive products such as NOW and demand deposits to products with greater interest rate sensitivity, i.e., money market and time deposits. 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. 50 Economic Value of Equity. Like most financial institutions, our profitability depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities adjusted for the value of off-balance sheet contracts, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate sensitive assets and liabilities in response to these movements. Factors such as inflation and instability in financial markets, among other factors beyond our control, may affect interest rates. In a rising interest rate environment, we would expect that the rates on our deposits and borrowings would reprice upwards faster than the rates on our long-term loans and investments, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income. If interest rates rise, we expect that our economic value of equity 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 Company’s economic value of equity analysis as of June 30, 2024 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Company would experience a 19.7% decrease in economic value of equity versus the Board approved limit of 20.0%. At the same date, our analysis estimated that, in the event of an instantaneous 200 basis point decrease in interest rates, the Company would experience a 10.0% 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. 51 Item 4. Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. As of June 30, 2024, the Company conducted an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024 for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in SEC rules and forms. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management. Changes in Internal Controls over Financial Reporting . During the quarter ended June 30, 2024, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 52 PART II – OTHE R INFORMATION Item 1. Legal Proceedings Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At June 30, 2024, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows. Item 1A. Ri sk Factors Not applicable, as First Seacoast Bancorp, Inc. is a “smaller reporting company.” Item 2. Unregistered Sales of Equit y Securities and Use of Proceeds The following table summarizes the Company’s repurchases of its outstanding shares of common stock during the quarter ended June 30, 2024: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that may Yet Be Purchased Under the Plans or Programs April 1, 2024 - April 30, 2024 — $ — — NA May 1, 2024 - May 31, 2024 158,107 9.15 158,107 349,600 June 1, 2024 - June 30, 2024 77,612 9.06 77,612 271,988 Total 235,719 235,719 On April 11, 2024, the board of directors of the Company authorized a stock repurchase program for the repurchase of up to 507,707 shares of common stock, representing approximately 10% of shares currently outstanding, which became effective on May 14, 2024. The Company conducts repurchases through open market purchases, including by means of a trading plan adopted under SEC Rule 10b5-1, or in privately negotiated transactions, subject to market conditions and other factors. There is no guarantee as to the number of shares that the Company may ultimately repurchase. The program will expire 12 months after the effective date, regardless of whether all shares will have been repurchased. The Company may suspend or discontinue the program at any time. The Company holds repurchased shares in its treasury. There were no sales of unregistered securities during the quarter ended June 30, 2024. Item 3. Defaults Upon Se nior Securities None. Item 4. Mine Saf ety Disclosures Not applicable. Item 5. Other Information During the three months ended June 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K). 53 Item 6. E xhibits Exhibit Number Description 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 The following materials for the quarter ended June 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income (Loss), (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements 104 Cover Page Interactive Data Files (embedded within Inline XBRL document) 54 SIGNA TURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST SEACOAST BANCORP, INC. Date: August 9, 2024 /s/ James R. Brannen James R. Brannen President and Chief Executive Officer Date: August 9, 2024 /s/ Richard M. Donovan Richard M. Donovan Executive Vice President and Chief Financial Officer 55