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

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

General

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may," "should," "indicate," "would," "believe," "contemplate," "continue," "intend," "target" and words of similar meaning. These forward-looking statements include, but are not limited to:

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statements of our goals, intentions and expectations;

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statements regarding our business plans, prospects, growth and operating strategies;

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statements regarding the quality of our loan portfolio; and

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estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations 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:

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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;

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our ability to access cost-effective funding;

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fluctuations in real estate values and both residential and commercial real estate market conditions;

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demand for loans and deposits in our market area;

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our ability to implement and change our business strategies;

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competition among depository and other financial institutions;

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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;

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adverse changes in the securities or secondary mortgage markets;

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changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

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changes in the quality or composition of our loan or investment portfolios;

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technological changes that may be more difficult or expensive than expected;

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the inability of third-party providers to perform as expected;

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a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

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our ability to manage market risk, credit risk and operational risk;

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our ability to enter new markets successfully and capitalize on growth opportunities;

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changes in consumer spending, borrowing and savings habits;

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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;

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the risk of adverse changes in business conditions due to geo-political tensions;

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our ability to attract and retain key employees; and

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changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in ECB Bancorp, Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2025.

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 estimates. 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.

Allowance for Credit Losses

The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment.

The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Management's judgment is required for the selection and application of these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts.

Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually assessed, the Company uses either a discounted cash flow ("DCF") approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Changes in these judgments and assumptions could be due to a number of circumstances which may have a direct impact on the provision for credit losses and may result in changes to the amount of allowance. The allowance for credit losses is increased by the provision for credit losses and by recoveries of loans previously charged off. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Securities Valuation

We classify our investments in debt securities as either held-to-maturity or available-for-sale. Securities classified as held-to maturity are recorded at amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from one or more third-party services. This service's fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows.

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

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

Total Assets. Total assets were $1.55 billion at September 30, 2025, as compared to $1.42 billion at December 31, 2024, or an increase of $134.5 million, or 9.5%.

Cash and Cash Equivalents. Cash and cash equivalents were $102.6 million at September 30, 2025, as compared to $157.6 million at December 31, 2024, or a decrease of $55.0 million, or 34.9%. The decrease in cash and cash equivalents was driven by growth in both loans and investments that in aggregate, was greater than our growth in deposits and borrowings.

Interest Bearing Time Deposits. Interest bearing time deposits were $8.0 million at September 30, 2025, as compared to $100,000 at December 31, 2024, or an increase of $7.9 million. This increase was due to purchases of new interest bearing time deposits.

Investment Securities Available for Sale. Investments in securities available for sale were $31.0 million at September 30, 2025, as compared to $6.6 million at December 31, 2024, or an increase of $24.5 million, or 372.6%. This increase was due to purchases of new securities.

Investment Securities Held to Maturity. Investments in securities held to maturity were $58.5 million at September 30, 2025, as compared to $73.2 million at December 31, 2024, or a $14.7 million, or 20.1%, decrease. This decrease was due to maturities and principal paydowns of securities.

Loans. Total gross loans were $1.32 billion at September 30, 2025, as compared to $1.15 billion at December 31, 2024, or an increase of $170.5 million, or 14.9%.

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Commercial real estate loans increased $82.6 million, or 36%, to $311.5 million at September 30, 2025 from $229.0 million at December 31, 2024.

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Multi-family real estate loans increased $63.4 million, or 18.4%, to $407.4 million at September 30, 2025 from $344.0 million at December 31, 2024.

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Residential real estate loans increased $31.2 million, or 7.4%, to $454.1 million at September 30, 2025, from $422.8 million at December 31, 2024.

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Home equity lines of credit increased $717,000, or 1.6%, to $45.9 million at September 30, 2025, from $45.2 million at December 31, 2024.

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Consumer loans increased $713,000, or 505.7%, to $854,000 at September 30, 2025, from $141,000 at December 31, 2024.

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Construction loans decreased $2.5 million, or 2.7%, to $88.4 million at September 30, 2025 from $90.9 million at December 31, 2024.

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Commercial loans decreased $5.6 million, or 40.8%, to $8.2 million at September 30, 2025 from $13.8 million at December 31, 2024.

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $11.1 million and $10.0 million at September 30, 2025 and December 31, 2024, respectively. Accordingly, the increase in the FHLB stock is due to increased borrowings.

Bank-owned Life Insurance.We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $354,000, or 2.4%, to $15.3 million at September 30, 2025 from $14.9 million at December 31, 2024. The increase was due to an increase of $354,000 in the cash surrender value of our bank-owned life insurance portfolio during the nine months ended September 30, 2025.

Deposits. Total deposits were $1.11 billion at September 30, 2025, as compared to $998.5 million at December 31, 2024, or an increase of $110.1 million, or 11.0%.

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Certificates of deposit increased $93.9 million, or 15.5%, to $699.4 million at September 30, 2025 from $605.5 million at December 31, 2024.

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Money market deposit accounts increased $32.5 million, or 17.6%, to $217.1 million at September 30, 2025 from $184.6 million at December 31, 2024.

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Demand deposit accounts decreased $199,000, or 0.2%, to $84.8 million at September 30, 2025 from $85.0 million at December 31, 2024.

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Interest bearing checking accounts decreased $2.4 million, or 11.6%, to $18.2 million at September 30, 2025 from $20.5 million at December 31, 2024.

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Savings accounts decreased $13.7 million, or 13.4%, to $89.2 million at September 30, 2025 from $102.9 million at December 31, 2024.

Core deposits (defined as all deposits other than certificates of deposit) increased $16.2 million, or 4.1%, to $409.2 million at September 30, 2025 from $393.0 million at December 31, 2024.

Federal Home Loan Bank Advances. FHLB advances increased $25.8 million, or 11.0%, to $259.8 million at September 30, 2025 from $234.0 million at December 31, 2024. The increase in FHLB advances was used primarily to fund loan growth.

Shareholders' Equity. Total shareholders' equity increased $1.0 million, or 0.6%, to $169.3 million as of September 30, 2025 from $168.3 million as of December 31, 2024. This increase is primarily the result of earnings of $5.2 million. Partially offsetting the increase from earnings were decreases in additional paid-in capital ("APIC") and accumulated other comprehensive income ("AOCI") of $3.0 million and $1.4 million, respectively. The decrease in APIC was driven by $4.1 million in shares repurchased under our share repurchase plan, partially offset by an increase in APIC of $1.1 million related to stock-based compensation and ESOP shares committed to be released. The decrease in AOCI was driven by a decrease in the fair value of cash flow hedges. Our book value per share increased by $0.68 to $19.18 at September 30, 2025 from $18.50 at December 31, 2024.

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

Net Income. We recorded net income of $2.4 million for the three months ended September 30, 2025, compared to net income of $1.1 million for the three months ended September 30, 2024, or an increase of $1.3 million, or 115.3% in net income.

Interest and Dividend Income. Interest and dividend income increased $3.3 million, or 19.0%, to $20.4 million for the three months ended September 30, 2025 from $17.2 million for the three months ended September 30, 2024. This increase was driven by a $3.3 million increase in interest and fees on loans and a $229,000 increase in interest and dividends on investment securities, partially offset by a $297,000 decrease in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $181.6 million in the average balance of the loan portfolio to $1.30 billion for the three months ended September 30, 2025 from $1.12 billion for the three months ended September 30, 2024, as well as an increase in the average yield of 26 basis points to 5.53% during the three months ended September 30, 2025 from 5.27% during the three months ended September 30, 2024. The yield for the three months ended September 30, 2025 benefited primarily from new loans with higher rates. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 88 basis points to 3.88% during the three months ended September 30, 2025 from 3.00% during the three months ended September 30, 2024 as well as an increase of $6.7 million in the average balance of the investment portfolio to $86.4 million for the three months ended September 30, 2025 from $79.7 million for the three months ended September 30, 2024. The decrease in interest income on short term investments was driven by a decrease in the yield on short term investments of 101 basis points to 4.40% during the three months ended September 30, 2025 from 5.41% during the three months ended September 30, 2024 as well as a decrease of $1.8 million in the average balance of short term investments to $108.7 million for the three months ended September 30, 2025 from $110.5 million for the three months ended September 30, 2024.

Average interest-earning assets increased $188.9 million to $1.50 billion for the three months ended September 30, 2025 from $1.31 billion for the three months ended September 30, 2024. The yield on interest-earning assets increased 21 basis points to 5.35% for the three months ended September 30, 2025 from 5.14% for the three months ended September 30, 2024.

Interest Expense. Total interest expense increased $1.1 million, or 10.1%, to $12.0 million for the three months ended September 30, 2025 from $10.9 million for the three months ended September 30, 2024. Interest expense on deposit accounts increased $753,000, or 8.6%, to $9.5 million for the three months ended September 30, 2025 from $8.8 million for the three months ended September 30, 2024, due to an increase in the average balance of interest-bearing deposits of $144.0 million, or 16.4%, to $1.02 billion for the three months ended September 30, 2025 from $879.2 million for the three months ended September 30, 2024, partially offset by a decrease in the cost of interest bearing deposits of 28 basis points to 3.70% for the three months ended September 30, 2025 from 3.98% for the three months ended September 30, 2024. Interest expense on FHLB advances increased $344,000, or 16.6%, to $2.4 million for the three months ended September 30, 2025 from $2.1 million for the three months ended September 30, 2024, due to an increase in the average balance of FHLB advances of $35.4 million, or 17.0%, to $243.7 million for the three months ended September 30, 2025 from $208.2 million for the three months ended September 30, 2024, partially offset by a decrease in the cost of FHLB advances of 2 basis points to 3.93% for the three months ended September 30, 2025 from 3.95% for the three months ended September 30, 2024.

Net Interest and Dividend Income. Net interest and dividend income increased $2.2 million, or 34.4%, to $8.5 million for the three months ended September 30, 2025 from $6.3 million for the three months ended September 30, 2024. This increase was driven by increases in the average balance and yields on loans as well as a decrease in the cost of interest bearing liabilities. The resulting net interest margin expanded by 34 basis points to 2.19% for the three months ended September 30, 2025 as compared to 1.85% for the three months ended September 30, 2024.

Provision for Credit Losses. The provision for credit losses was $183,000 for the quarter ended September 30, 2025 as compared to $46,000 for the quarter ended September 30, 2024. The increase in the provision for credit losses was driven by greater loan growth in the quarter ended September 30, 2025 than in the quarter ended September 30, 2024.

Noninterest Income. Noninterest income was $341,000 for the three months ended September 30, 2025, as compared to $304,000 for the three months ended September 30, 2024, or an increase of $37,000, or 12.2%. The table below sets forth our noninterest income for three months ended September 30, 2025 and 2024:

		Three Months Ended
		September 30,								Change
		2025				2024				Amount				Percent
		(Dollars in thousands)
Customer service fees		$	147			$	142			$	5				3.5	%
Income from bank-owned life insurance			121				119				2				1.7
Net gain on sales of loans			55				27				28				103.7
Other income			18				16				2				12.5
Total noninterest income		$	341			$	304			$	37				12.2	%

Noninterest Expense. Noninterest expense was $5.4 million for the three months ended September 30, 2025 as compared to $5.0 million for the three months ended September 30, 2024, or an increase of $347,000, or 6.9%. The table below sets forth our noninterest expense for three months ended September 30, 2025 and 2024:

		Three Months Ended
		September 30,								Change
		2025				2024				Amount				Percent
		(Dollars in thousands)
Salaries and employee benefits		$	3,373			$	3,202			$	171				5.3	%
Director compensation			204				209				(5	)			(2.4	)
Occupancy and equipment			254				250				4				1.6
Data processing			331				288				43				14.9
Computer software and licensing fees			116				109				7				6.4
Advertising and promotions			172				159				13				8.2
Professional fees			298				240				58				24.2
FDIC deposit insurance			237				189				48				25.4
Other expense			373				365				8				2.2
Total noninterest expense		$	5,358			$	5,011			$	347				6.9	%

Income Tax Expense. Income tax expense increased $412,000, or 101.7%, to $817,000 for the three months ended September 30, 2025 from $405,000 for the three months ended September 30, 2024. The effective tax rate was 25.1% and 26.3% for the three months ended September 30, 2025 and 2024, respectively.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Average balances are daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

		For the Three Months Ended September 30,
		2025												2024
		Average												Average
		Outstanding								Yield/				Outstanding								Yield/
		Balance				Interest				Rate(5)				Balance				Interest				Rate(5)
		(Dollars in thousands)
Interest-earning assets:
Total loans		$	1,302,904			$	18,153				5.53	%		$	1,121,335			$	14,849				5.27	%
Securities (1)			86,398				844				3.88				79,700				601				3.00
Short term investments			108,653				1,204				4.40				110,497				1,501				5.41
Interest-bearing time deposits			2,548				28				4.36				115				2				5.45
Total interest-earning assets			1,500,503				20,229				5.35	%			1,311,647				16,953				5.14	%
Non-interest-earning assets			39,057												33,278
Total assets		$	1,539,560											$	1,344,925
Interest-bearing liabilities:
Checking accounts			18,226				4				0.09	%			18,301				3				0.07	%
Savings accounts			91,144				481				2.09				108,303				764				2.81
Money market accounts			217,543				1,846				3.37				160,517				1,467				3.64
Certificates of deposit			696,263				7,217				4.11				592,074				6,561				4.41
Total interest-bearing deposits			1,023,176				9,548				3.70				879,195				8,795				3.98
Federal Home Loan Bank advances			243,673				2,413				3.93				208,239				2,069				3.95
Total interest-bearing liabilities			1,266,849				11,961				3.75	%			1,087,434				10,864				3.97	%
Non-interest-bearing demand deposits			89,252												77,801
Non-interest-bearing liabilities			14,165												12,528
Total liabilities			1,370,266												1,177,763
Shareholders' Equity			169,294												167,162
Total liabilities and shareholders' equity		$	1,539,560											$	1,344,925
Net interest income						$	8,268											$	6,089
Net interest rate spread (2)											1.60	%											1.17	%
Net interest-earning assets (3)		$	233,654											$	224,213
Net interest margin (4)											2.19	%											1.85	%
Average interest-earning assets to interest-bearing liabilities			118.44	%											120.62	%

(1) Excludes interest and dividends on cost method investments of $188,000 and $202,000 for the three months ended September 30, 2025 and 2024, respectively.

(2) 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.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

(5) Annualized

Rate/Volume Analysis. The following tables present 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 period 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. There were no out-of-period items or adjustments required to be excluded from the table below.

		Three Months Ended September 30, 2025 vs. 2024
		Increase (Decrease) Due to								Total Increase
		Volume				Rate				(Decrease)
		(In thousands)
Interest-earning assets:
Loans		$	2,533			$	771			$	3,304
Securities			54				189				243
Short term investments			(24	)			(273	)			(297	)
Interest-bearing time deposits			27				(1	)			26
Total interest-earning assets		$	2,590			$	686			$	3,276
Interest-bearing liabilities:
Checking accounts		$	-			$	1			$	1
Savings accounts			(109	)			(174	)			(283	)
Money market accounts			494				(115	)			379
Certificates of deposit			1,115				(459	)			656
Total interest-bearing deposits			1,500				(747	)			753
Federal Home Loan Bank advances			356				(12	)			344
Total interest-bearing liabilities		$	1,856			$	(759	)		$	1,097
Change in net interest income		$	734			$	1,445			$	2,179

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

Net Income. We recorded net income of $5.2 million for the nine months ended September 30, 2025, compared to net income of $2.5 million for the nine months ended September 30, 2024, an increase of $2.6 million, or 103.4% in net income.

Interest and Dividend Income. Interest and dividend income increased $7.9 million, or 16.1%, to $57.1 million for the nine months ended September 30, 2025 from $49.2 million for the nine months ended September 30, 2024. This increase was driven by a $7.7 million increase in interest and fees on loans and a $533,000 increase in interest and dividends on investment securities, partially offset by a $344,000 decrease in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $143.4 million in the average balance of the loan portfolio to $1.24 billion for the nine months ended September 30, 2025 from $1.09 billion for the nine months ended September 30, 2024, as well as an increase in the average yield of 24 basis points to 5.43% during the nine months ended September 30, 2025 from 5.19% during the nine months ended September 30, 2024. The yield for the nine months ended September 30, 2025 benefited primarily from new loans with higher rates. The increase in interest and dividend income on investment securities was driven by an increase in the yield on securities of 78 basis points to 3.66% during the nine months ended September 30, 2025 from 2.88% during the nine months ended September 30, 2024. The decrease in interest income on short term investments was driven by a decrease in the yield on short term investments of 103 basis points to 4.42% during the nine months ended September 30, 2025 from 5.45% during the nine months ended September 30, 2024, partially offset by an increase of $14.9 million in the average balance of short term investments to $123.1 million for the nine months ended September 30, 2025 from $108.2 million for the nine months ended September 30, 2024.

Average interest-earning assets increased $164.3 million to $1.44 billion for the nine months ended September 30, 2025 from $1.28 billion for the nine months ended September 30, 2024. The yield on interest-earning assets increased 17 basis points to 5.24% for the nine months ended September 30, 2025 from 5.07% for the nine months ended September 30, 2024.

Interest Expense. Total interest expense increased $3.3 million, or 10.8%, to $34.4 million for the nine months ended September 30, 2025 from $31.0 million for the nine months ended September 30, 2024. Interest expense on deposit accounts increased $3.1 million, or 12.5%, to $27.5 million for the nine months ended September 30, 2025 from $24.5 million for the nine months ended September 30, 2024, due to an increase in the average balance of interest-bearing deposits of $143.1 million, or 17.1%, to $982.6 million for the nine months ended September 30, 2025 from $839.4 million for the nine months ended September 30, 2024, partially offset by a decrease in the cost of interest bearing deposits of 15 basis points to 3.75% for the nine months ended September 30, 2025 from 3.90% for the nine months ended September 30, 2024. Interest expense on FHLB advances increased $297,000, or 4.5%, to $6.8 million for the nine months ended September 30, 2025 from $6.6 million for the nine months ended September 30, 2024, due to an increase the average balance of FHLB advances of $12.9 million, or 5.9%, to $232.4 million for the nine months ended September 30, 2025 from $219.5 million for the nine months ended September 30, 2024, partially offset by a decrease in the cost of FHLB advances of 5 basis points to 3.94% for the nine months ended September 30, 2025 from 3.99% for the nine months ended September 30, 2024.

Net Interest and Dividend Income. Net interest and dividend income increased $4.6 million, or 25.0%, to $22.8 million for the nine months ended September 30, 2025 from $18.2 million for the nine months ended September 30, 2024. This increase was primarily due to increases in the average balance and yields on loans and investment securities as well as a decrease in the cost of interest bearing liabilities. The resulting net interest margin expanded by 23 basis points to 2.06% for the nine months ended September 30, 2025 as compared to 1.83% for the nine months ended September 30, 2024.

Provision for Credit Losses. Based on management's analysis of the adequacy of the allowance for credit losses, the provision for credit losses was $1.3 million for the nine months ended September 30, 2025, as compared to $485,000 for the nine months ended September 30, 2024. The increase in the provision for credit losses was driven by greater loan growth in the nine months ended September 30, 2025 than in the nine months ended September 30, 2024.

Noninterest Income. Noninterest income was $966,000 for the nine months ended September 30, 2025, as compared to $898,000 for the nine months ended September 30, 2024, or an increase of $68,000, or 7.6%. The table below sets forth our noninterest income for nine months ended September 30, 2025 and 2024:

		Nine Months Ended
		September 30,								Change
		2025				2024				Amount				Percent
		(Dollars in thousands)
Customer service fees		$	441			$	426			$	15				3.5	%
Income from bank-owned life insurance			354				353				1				0.3
Net gain on sales of loans			98				80				18				22.5
Other income			73				39				34				87.2
Total noninterest income		$	966			$	898			$	68				7.6	%

Noninterest Expense. Noninterest expense was $15.5 million for the nine months ended September 30, 2025 and $15.2 million for the nine months ended September 30, 2024. During the nine months ended September 30, 2025, the Company recognized $236,000 in Employee Retention Tax Credits (ERTC) in the form of refunds of certain federal employment taxes that are authorized and established under the CARES Act. The amount was recorded as a reduction to salaries and employee benefits expenses. The table below sets forth our noninterest expense for the nine months ended September 30, 2025 and 2024:

		Nine Months Ended
		September 30,								Change
		2025				2024				Amount				Percent
		(Dollars in thousands)
Salaries and employee benefits		$	9,645			$	9,643			$	2				0.0	%
Director compensation			593				626				(33	)			(5.3	)
Occupancy and equipment			796				788				8				1.0
Data processing			956				883				73				8.3
Computer software and licensing fees			330				318				12				3.8
Advertising and promotions			493				396				97				24.5
Professional fees			872				831				41				4.9
FDIC deposit insurance			638				561				77				13.7
Other expense			1,223				1,140				83				7.3
Total noninterest expense		$	15,546			$	15,186			$	360				2.4	%

Income Tax Expense. Income tax expense increased $829,000, or 93.5%, to $1.7 million for the nine months ended September 30, 2025 from $887,000 for the nine months ended September 30, 2024. The effective tax rate was 24.9% and 25.8% for the nine months ended September 30, 2025 and 2024, respectively.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Average balances are daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

		For the Nine Months Ended September 30,
		2025												2024
		Average												Average
		Outstanding								Yield/				Outstanding								Yield/
		Balance				Interest				Rate(5)				Balance				Interest				Rate(5)
		(Dollars in thousands)
Interest-earning assets:
Total loans		$	1,235,613			$	50,158				5.43	%		$	1,092,216			$	42,468				5.19	%
Securities (1)			85,141				2,328				3.66				79,974				1,722				2.88
Short term investments			123,099				4,074				4.42				108,233				4,418				5.45
Interest-bearing time deposits			905				30				4.43				39				2				5.40
Total interest-earning assets			1,444,758				56,590				5.24	%			1,280,462				48,610				5.07	%
Non-interest-earning assets			38,460												33,962
Total assets		$	1,483,218											$	1,314,424
Interest-bearing liabilities:
Checking accounts			18,516				12				0.09	%			18,904				11				0.08	%
Savings accounts			94,154				1,474				2.09				114,655				2,426				2.83
Money market accounts			205,323				5,169				3.37				152,526				4,114				3.60
Certificates of deposit			664,558				20,874				4.20				553,329				17,928				4.33
Total interest-bearing deposits			982,551				27,529				3.75				839,414				24,479				3.90
Federal Home Loan Bank advances			232,384				6,847				3.94				219,474				6,550				3.99
Total interest-bearing liabilities			1,214,935				34,376				3.78	%			1,058,888				31,029				3.91	%
Non-interest-bearing demand deposits			84,818												76,610
Non-interest-bearing liabilities			14,138												12,202
Total liabilities			1,313,891												1,147,700
Shareholders' Equity			169,327												166,724
Total liabilities and shareholders' equity		$	1,483,218											$	1,314,424
Net interest income						$	22,214											$	17,581
Net interest rate spread (2)											1.45	%											1.16	%
Net interest-earning assets (3)		$	229,823											$	221,574
Net interest margin (4)											2.06	%											1.83	%
Average interest-earning assets to interest-bearing liabilities			118.92	%											120.93	%

(1) Excludes interest and dividends on cost method investments of $551,000 and $624,000 for the nine months ended September 30, 2025 and 2024, respectively.

(2) 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.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

(5) Annualized

Rate/Volume Analysis. The following tables present 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 period 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. There were no out-of-period items or adjustments required to be excluded from the table below.

		Nine Months Ended September 30, 2025 vs. 2024
		Increase (Decrease) Due to								Total Increase
		Volume				Rate				(Decrease)
		(In thousands)
Interest-earning assets:
Loans		$	5,728			$	1,962			$	7,690
Securities			117				489				606
Short term investments			556				(900	)			(344	)
Interest-bearing time deposits			28				-				28
Total interest-earning assets		$	6,429			$	1,551			$	7,980
Interest-bearing liabilities:
Checking accounts		$	-			$	1			$	1
Savings accounts			(388	)			(564	)			(952	)
Money market accounts			1,341				(286	)			1,055
Certificates of deposit			3,493				(547	)			2,946
Total interest-bearing deposits			4,446				(1,396	)			3,050
Federal Home Loan Bank advances			376				(79	)			297
Total interest-bearing liabilities		$	4,822			$	(1,475	)		$	3,347
Change in net interest income		$	1,607			$	3,026			$	4,633

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. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of loans and securities. We are also able to borrow from the Federal Home Loan Bank of Boston, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At September 30, 2025, we had outstanding advances of $259.8 million from the Federal Home Loan Bank. At September 30, 2025, we had unused borrowing capacity of $424.5 million with the Federal Home Loan Bank, $66.6 million with the Federal Reserve Bank and $15.0 million with the Atlantic Community Bankers Bank.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing 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.

At September 30, 2025, we had $42.2 million in loan commitments outstanding. In addition to commitments to originate loans, we had $90.4 million in unused lines of credit to borrowers and $55.1 million in unadvanced construction loans.

Non brokered certificates of deposit due within one year of September 30, 2025 totaled $428.9 million, or 38.7%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2026, or on our savings and money market accounts.

We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2025.

Our primary investing activity is originating loans. During the nine months ended September 30, 2025 and the year ended December 31, 2024, we originated $226.7 million and $160.4 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $110.1 million and $130.3 million for the nine months ended September 30, 2025 and the year ended December 31, 2024, respectively. At September 30, 2025 and December 31, 2024, the level of brokered time deposits was $133.9 million and $125.6 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. At September 30, 2025 and December 31, 2024, the level of FHLB advances was $259.8 million and $234.0 million, respectively.

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

We are committed to maintaining a strong liquidity position. We continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At September 30, 2025, Everett Co-operative Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 9 of the notes to consolidated financial statements.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Form 10-Q have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.