Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial 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 September 30, 2025 and consolidated results of operations for the three and nine months ended September 30, 2025 and 2024. 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, 2024, filed on March 21, 2025 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:

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:

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, 2024.

Comparison of Financial Condition at September 30, 2025 (unaudited) and December 31, 2024

Total Assets. Total assets were $609.6 million as of September 30, 2025, an increase of $28.8 million, or 5.0%, compared to total assets of $580.8 million at December 31, 2024. The increase was due primarily to a $12.5 million increase in cash and due from banks and a $22.3 million increase in securities available-for-sale, offset by a $5.5 million decrease in net loans.

Cash and Due From Banks. Cash and due from banks increased $12.5 million, or 175.7%, to $19.6 million at September 30, 2025 from $7.1 million at December 31, 2024. This increase primarily resulted from a $27.3 million increase in total deposits and mortgagors' escrow accounts and a $5.5 million decrease in net loans, offset by $20.0 million of net purchases of securities available-for-sale during the nine months ended September 30, 2025.

Available-for-Sale Securities. Available-for-sale securities increased by $22.3 million, or 18.6%, to $142.5 million at September 30, 2025 from $120.2 million at December 31, 2024. This increase was primarily due to investment purchases totaling $32.1 million and a $2.7 million decrease in net unrealized losses within the portfolio, offset by $12.1 million of proceeds from maturities and principal payments during the nine months ended September 30, 2025. 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 September 30, 2025.

The following table sets forth the amortized cost and average yield of our debt securities, by type and contractual maturity:

Net Loans. Net loans decreased $5.5 million, or 1.3%, to $430.0 million at September 30, 2025 from $435.5 million at December 31, 2024. During the nine months ended September 30, 2025, we collected $9.2 million of loan principal, net of new loan originations, and purchased $2.3 million of participation interests in commercial and industrial loans through our membership in a national community bank loan program and $1.3 million of consumer loans secured by manufactured housing properties. As of September 30, 2025 and December 31, 2024, the portfolio of purchased loans had an outstanding principal balance of $37.0 million and $34.3 million, respectively, and were performing in accordance with their original repayment terms at each date.

One- to four-family residential mortgage loans decreased $4.1 million, or 1.5%, to $271.1 million at September 30, 2025 from $275.2 million at December 31, 2024. Commercial real estate mortgage loans increased $1.2 million, or 1.4%, to $87.2 million at September 30, 2025 from $86.0 million at December 31, 2024. Multi-family loans decreased $1.1 million, or 18.3%, to $4.7 million at September 30, 2025 from $5.8 million at December 31, 2024. Commercial and industrial loans increased $971,000, or 4.1%, to $24.7 million at September 30, 2025 from $23.7 million at December 31, 2024. Acquisition, development, and land loans decreased $2.9 million, or 19.3%, to $12.1 million at September 30, 2025 from $14.9 million at December 31, 2024. Home equity loans and lines of credit increased $540,000, or 2.6%, to $21.4 million at September 30, 2025 from $20.9 million at December 31, 2024. Consumer loans were $12.4 million at September 30, 2025 and December 31, 2024.

Our strategy to grow the balance sheet continues to be through originations and, to a lesser extent, purchases of commercial loan participations, 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 interest margin and manage interest rate risk. We also continue to sell 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 was $3.5 million at September 30, 2025 and December 31, 2024 based upon ASU 2016-13 and its credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost, including loans, 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. The ASU requires the measurement of all expected credit losses for loans held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, the ASU requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied at prior reporting dates are still permitted, though the inputs to those techniques have changed to reflect the full amount of expected credit losses. We have selected the Weighted Average Remaining Maturity Model ("WARM" or

"CECL model"), for the loss calculation of each of our 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.

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 September 30, 2025 and December 31, 2024, the aggregate amount of uninsured deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, was estimated not to exceed $111.9 million, or 23.3% of total deposits, and $112.2 million, or 24.7% 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 coverage. 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 September 30, 2025 our "reciprocal" CDARS® and ICS deposits were $-0- and $9.1 million, respectively. At December 31, 2024, our "reciprocal" CDARS® and ICS deposits were $-0- and $6.0 million, respectively.

Deposits increased $25.8 million, or 5.7%, to $480.0 million at September 30, 2025 from $454.2 million at December 31, 2024 primarily as a result of a $5.2 million increase in commercial deposits and a $20.6 million increase in retail deposits. Core deposits (defined as deposits other than time deposits) increased $4.6 million, or 1.5%, to $323.1 million at September 30, 2025 from $318.5 million at December 31, 2024. As of September 30, 2025, savings deposits decreased $987,000, money market deposits decreased $1.4 million, NOW and demand deposit accounts increased $7.1 million and time deposits increased $21.2 million. The increase in time deposits included an $11.8 million increase in brokered deposits which consisted of $24.3 million of new brokered deposits used to fund the purchase of securities available-for-sale in a leveraged investment transaction completed in May 2025 offset by $12.5 million of brokered deposits called by the Company in September 2025. There were $75.0 million and $63.1 million of brokered deposits included in time deposits at September 30, 2025 and December 31, 2024, respectively.

Additionally, there were $22.0 million and $22.1 million of brokered deposits included in savings deposits at September 30, 2025 and December 31, 2024, respectively. Deposits from related parties totaled $12.6 million and $11.6 million at September 30, 2025 and December 31, 2024, respectively.

Borrowings. Total borrowings from the FHLB decreased $520,000, or 1.0%, to $51.7 million at September 30, 2025 from $52.3 million at December 31, 2024.

Total Stockholders' Equity. Total stockholders' equity increased $1.1 million, or 1.8%, to $63.2 million at September 30, 2025 from $62.1 million at December 31, 2024. This increase was due primarily to other comprehensive income of $2.0 million related to net changes in unrealized holding losses in the available-for-sale securities portfolio as a result of decreases in market interest rates during the nine months ended September 30, 2025 and the recognition of $834,000 of previously unearned compensation offset by a net loss of $758,000 for the nine months ended September 30, 2025 and $935,000 of common stock repurchases.

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 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 $194,000 and $-0- at September 30, 2025 and December 31, 2024, respectively. At September 30, 2025, non-performing loans consisted of a residential mortgage loan with an outstanding balance of $65,000 and an estimated collateral market value of $275,000, a consumer loan secured by a manufactured housing property with an outstanding balance of $117,000 and an estimated collateral market value of $124,000 and an unsecured consumer loan with an outstanding balance of $12,000. At September 30, 2025 and December 31, 2024, we had no foreclosed assets.

Comparison of Operating Results for the Three Months Ended September 30, 2025 and September 30, 2024

Net Income (Loss). Net income was $390,000 for the three months ended September 30, 2025, compared to net income of $44,000 for the three months ended September 30, 2024, an increase of $346,000. The increase was due primarily to a $465,000 increase in net interest and dividend income and a $180,000 increase in non-interest income offset by an increase in non-interest expenses of $268,000 during the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

Interest and Dividend Income. Total interest and dividend income increased $344,000, or 5.3%, to $6.9 million for the three months ended September 30, 2025 compared to $6.6 million for the three months ended September 30, 2024 due primarily to an increase in interest and dividend income on investments.

Average interest-earning assets increased $18.7 million, to $593.3 million for the three months ended September 30, 2025 from $574.6 million for the three months ended September 30, 2024. The weighted average annualized yield on interest earning-assets increased to 4.65% for the three months ended September 30, 2025 from 4.56% for the three months ended September 30, 2024 primarily due to an increase in market interest rates. The weighted average annualized yield for the loan portfolio increased to 4.72% for the three months ended September 30, 2025 from 4.67% for the three months ended September 30, 2024 due primarily to an increase in market interest rates. The weighted average annualized yield for all other interest-earning assets increased to 4.46% for the three months ended September 30, 2025 from 4.22% for the three months ended September 30, 2024 due primarily to an increase in market interest rates.

Interest Expense. Total interest expense decreased $121,000, or 3.4%, to $3.4 million for the three months ended September 30, 2025 from $3.6 million for the three months ended September 30, 2024. Interest expense on deposits increased $113,000, or 4.2%, to $2.8 million for the three months ended September 30, 2025 from $2.7 million for the three months ended September 30, 2024. The average balance of interest-bearing deposits increased $39.0 million, or 10.4%, to $414.8 million for the three months ended September 30, 2025 from $375.8 million for the three months ended September 30, 2024 primarily as a result of an increase in the average balance of time deposits. The weighted average annualized rate of interest-bearing deposits decreased to 2.72% for the three months ended September 30, 2025 from 2.88% for the three months ended September 30, 2024 primarily as a result of a decrease in market interest rates.

Interest expense on borrowings decreased $234,000 to $623,000, or 27.3%, for the three months ended September 30, 2025 from $857,000 for the three months ended September 30, 2024 primarily due to a decrease in the average balance of borrowings. The average balance of borrowings decreased $19.4 million, or 26.8%, to $53.0 million for the three months ended September 30, 2025 from $72.4 million for the three months ended September 30, 2024. The weighted average annualized rate of borrowings decreased to 4.70% for the three months ended September 30, 2025 from 4.73% for the three months ended September 30, 2024.

Net Interest and Dividend Income. Net interest and dividend income increased $465,000, or 15.6%, to $3.4 million for the three months ended September 30, 2025 from $3.0 million for the three months ended September 30, 2024. This increase was due to an increase of $18.7 million, or 3.3%, in the average balance of interest-earning assets, consisting primarily of an increase in the average balance of taxable debt securities offset by a decrease in the average balance of non-taxable debt securities during the three months ended September 30, 2025, offset by a $19.8 million, or 4.4%, increase in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of time deposits offset by a decrease in the average balance of borrowings. Annualized net interest margin increased to 2.32% for the three months ended September 30, 2025 from 2.08% for the three months ended September 30, 2024 due primarily to an increase in net interest income offset by an increase in the average balance of interest-earning assets.

Provision (Release) for Credit Losses. Based on management's analysis of the ACL, a $3,000 provision for credit losses was recorded for the three months ended September 30, 2025, compared to a $16,000 provision for credit losses for the three months ended September 30, 2024. The provision for credit losses for the three months ended September 30, 2025 consisted of a $-0- provision for credit losses on loans and a $3,000 provision for credit losses on off-balance sheet credit exposures. The provision for credit losses for the three months ended September 30, 2024 consisted of a $20,000 provision for credit losses on loans and a $(4,000) release of credit losses for off-balance sheet credit exposures.

Non-Interest Income. Non-interest income increased $180,000, or 49.5%, to $544,000 for the three months ended September 30, 2025 compared to $364,000 for the three months ended September 30, 2024. The increase in non-interest income during the three months ended September 30, 2025 was due primarily to a $95,000 increase in customer service fees and an $88,000 increase in gain on sale of loans. During the three months ended September 30, 2025 a commercial and industrial loan originated under the Small Business Administration7(a) Guarantee program was sold. The 75% guarantee portion of the loan was sold, on a servicing-retained basis, at a gain of $102,000.

Non-Interest Expense. Non-interest expense increased $268,000, or 6.8%, to $4.2 million for the three months ended September 30, 2025 from $3.9 million for the three months ended September 30, 2024. The increase was primarily due to an $89,000, or 4.1%, increase in salaries and employee benefits, a $73,000, or 44.5%, increase in equity compensation, a $57,000, or 16.6%, increase in data processing and a $55,000, or 67.1%, increase in deposit insurance fees. The increase in salaries and employee benefits

was due to normal salary increases. The increase in equity compensation expense was due to the incentive and non-statutory stock options granted in December 2024.

Income Taxes. Income tax benefit decreased $44,000, or 6.9%, to $596,000 for the three months ended September 30, 2025 from $640,000 for the three months ended September 30, 2024. The effective tax rate was (289.3)% and (107.4)% for the three months ended September 30, 2025 and 2024, respectively. The income tax benefit and effective tax rate for the three months ended September 30, 2025 was greater than statutory federal and state rates due primarily to a $499,000 reduction of the deferred tax asset valuation allowance as of September 30, 2025 resulting from the change in accumulated other comprehensive income during the three months ended September 30, 2025. The income tax benefit and effective tax rate for the three months ended September 30, 2024 was greater than statutory federal and state rates due primarily to the reduction of $802,000 of the deferred tax asset valuation allowance as of September 30, 2024 resulting from the change in accumulated other comprehensive income during the three months ended September 30, 2024, offset by a $742,000 decrease in loss before income tax benefit.

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.

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.

Comparison of Operating Results for the Nine Months Ended September 30, 2025 and September 30, 2024

Net Income (Loss). Net loss was $758,000 for the nine months ended September 30, 2025, compared to net income of $895,000 for the nine months ended September 30, 2024, a decrease of $1.7 million. The decrease was due primarily to a decrease in non-interest income of $2.2 million and a $969,000 increase in non-interest expenses offset by a $1.1 million increase in net interest and dividend income after provision (release) for credit losses and an increase in income tax benefit of $437,000 during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

Interest and Dividend Income. Total interest and dividend income increased $1.2 million, or 6.1%, to $20.0 million for the nine months ended September 30, 2025 compared to $18.9 million for the nine months ended September 30, 2024. The increase was due to a $524,000 increase in interest and dividend income on investments and a $627,000 increase in interest and fees on loans.

Average interest-earning assets increased $16.7 million, to $582.8 million for the nine months ended September 30, 2025 from $566.1 million for the nine months ended September 30, 2024. The weighted average annualized yield on interest earning-assets increased to 4.59% for the nine months ended September 30, 2025 from 4.45% for the nine months ended September 30, 2024 primarily due to an increase in market interest rates. The weighted average annualized yield for the loan portfolio increased to 4.66% for the nine months ended September 30, 2025 from 4.52% for the nine months ended September 30, 2024 due primarily to an increase in market interest rates. The weighted average annualized yield for all other interest-earning assets increased to 4.38% for the nine months ended September 30, 2025 from 4.25% for the nine months ended September 30, 2024 due primarily to an increase in market interest rates.

Interest Expense. Total interest expense decreased $6,000, or 0.1%, to $10.0 million for the nine months ended September 30, 2025 and 2024. Interest expense on deposits increased $1.1 million, or 15.7%, to $8.0 million for the nine months ended September 30, 2025 from $6.9 million for the nine months ended September 30, 2024. The average balance of interest-bearing deposits increased $48.2 million, or 13.6%, to $402.4 million for the nine months ended September 30, 2025 from $354.2 million for the nine months ended September 30, 2024 primarily as a result of an increase in the average balances of savings and time deposits offset by a decrease in the average balance of money market deposits. The weighted average annualized rate of interest-bearing deposits increased to 2.66% for the nine months ended September 30, 2025 from 2.61% for the nine months ended September 30, 2024 primarily as a result of an increase in market interest rates.

Interest expense on borrowings decreased $1.1 million, or 35.7%, to $2.0 million for the nine months ended September 30, 2025 from $3.1 million for the nine months ended September 30, 2024 primarily due to a decrease in the average balance of borrowings and a decrease in market interest rates. The average balance of borrowings decreased $29.8 million, or 34.4%, to $56.7 million for the nine months ended September 30, 2025 from $86.5 million for the nine months ended September 30, 2024. The weighted average annualized rate of borrowings decreased to 4.64% for the nine months ended September 30, 2025 from 4.73% for the nine months ended September 30, 2024 due to a decrease in market interest rates.

Net Interest and Dividend Income. Net interest and dividend income increased $1.2 million, or 13.0%, to $10.1 million for the nine months ended September 30, 2025 from $8.9 million for the nine months ended September 30, 2024. The increase was due to a $16.7 million, or 3.0%, increase in the average balance of interest-earning assets, consisting primarily of an increase in the average balance of taxable debt securities offset by a decrease in the average balance of non-taxable debt securities, offset by an $18.6 million, or 4.2%, increase in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balances of savings and time deposits offset by a decrease in the average balances of money market deposits and borrowings during the nine months ended September 30, 2025. Annualized net interest margin increased to 2.30% for the nine months ended September 30, 2025 from 2.10% for the nine months ended September 30, 2024 due primarily to an increase in net interest income offset by an increase in the average balance of interest-earning assets.

Provision (Release) for Credit Losses. Based on management's analysis of the ACL, a $50,000 provision for credit losses was recorded for the nine months ended September 30, 2025, compared to a $(20,000) release of credit losses for the nine months ended September 30, 2024. The provision for credit losses for the nine months ended September 30, 2025 consisted of a $30,000 provision for credit losses on loans and a $20,000 provision for credit losses on off-balance sheet credit exposures. The release of credit losses for the nine months ended September 30, 2024 consisted of a $80,000 provision for credit losses on loans and a $(100,000) release of credit losses on off-balance sheet credit exposures.

Non-Interest Income. Non-interest income decreased $2.2 million, or 62.1%, to $1.4 million for the nine months ended September 30, 2025 compared to $3.6 million for the nine months ended September 30, 2024. The decrease was due primarily to a one-time $2.5 million gain on the sale of land and buildings recognized during the nine months ended September 30, 2024 offset by a $215,000 increase in customer service fees and an $89,000 increase in gain on sale of loans during the nine months ended September 30, 2025.

Non-Interest Expense. Non-interest expense increased $969,000, or 8.3%, to $12.7 million for the nine months ended September 30, 2025 from $11.8 million for the nine months ended September 30, 2024. The increase was primarily due to a $293,000 increase in salaries and employee benefits, a $213,000 increase in equity compensation expense, a $353,000 increase in occupancy expense and a $188,000 increase in data processing offset by a $61,000 decrease in equipment expense and a $56,000 decrease in professional fees and assessments. The increase in salaries and employee benefits was due to normal salary increases. The increase in equity compensation expense was due to the incentive and non-statutory stock options granted in December 2024. The increase in occupancy expense was due primarily to the increase in lease expense associated with the sale-leaseback transaction completed on June 11, 2024.

Income Taxes. Income tax benefit increased $437,000, or 248.3%, to a benefit of $613,000 for the nine months ended September 30, 2025 from a benefit of $176,000 for the nine months ended September 30, 2024. The effective tax rate was (44.7)% and (24.5)% for the nine months ended September 30, 2025 and 2024, respectively. The income tax benefit and effective tax rate for the nine months ended September 30, 2025 was greater than statutory federal and state rates due primarily to a $725,000 reduction of the deferred tax asset valuation allowance as of September 30, 2025 resulting from the change in accumulated other comprehensive income during the nine months ended September 30, 2025.

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.

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.

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 September 30, 2025 and December 31, 2024, 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 $111.9 million, or 23.3% of total deposits, and $112.2 million, or 24.7% 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 September 30, 2025 and December 31, 2024, we had $51.7 million and $52.3 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $98.7 million and $94.0 million, respectively.

At September 30, 2025 and December 31, 2024, the Bank had an overnight line of credit with the FHLB for up to $3.0 million. The Bank has a secured credit facility with the FRB - BIC Program. The Bank's unused available borrowing capacity at the FRB was $37.6 million and $-0- at September 30, 2025 and December 31, 2024, respectively. Additionally, at September 30, 2025 and December 31, 2024, the Bank had a $2.0 million unsecured Fed Funds borrowing line of credit with a correspondent bank. At September 30, 2025 and December 31, 2024, there were no outstanding balances under any of these additional credit facilities.

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.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided (used) by operating activities was $1.1 million and $(1.2) million for the nine months ended September 30, 2025 and 2024, 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, principal collections on loans and proceeds from the sale, maturity and principal payments on securities available-for-sale, was $14.4 million and $10.1 million for the nine months ended September 30, 2025 and 2024, respectively. Net cash provided by financing activities, consisting primarily of activity in deposit accounts and FHLB advances offset by treasury stock purchases, was $25.8 million and $21.7 million for the nine months ended September 30, 2025 and 2024, 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 September 30, 2025. 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 September 30, 2025, the Company (on an unconsolidated basis) had liquid assets of $16.1 million.

At September 30, 2025, 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.