# ECB Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [ECB Bancorp, Inc.](/companies/ecbk.md) (CIK 1914605)
- Form: 10-Q
- Filed: 2022-08-12
- Accepted by EDGAR: Aug 12, 2022, 09:08 ET
- Period: 2022-06-30
- Accession: 0000950170-22-017025
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1914605/000095017022017025/ecbk-20220630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1914605/000095017022017025/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $730.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $1.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | $325.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-01-01 to 2022-06-30 | $820.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | $1.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | $2.8m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | $1.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $119.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Total assets | at 2022-06-30 | $782.0m | us-gaap:Assets |
| Total liabilities | at 2022-06-30 | $701.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-06-30 | $80.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,895 characters.

### General

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended June 30, 2022 and 2021 is intended to assist in understanding the financial condition and results of operations of the Bank. 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:

- statements of our goals, intentions and expectations;
- statements regarding our business plans, prospects, growth and operating strategies;
- statements regarding the quality of our loan portfolio; and
- 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:

- conditions relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown 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 loan and lease 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, 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;
- the inability of third-party providers to perform as expected;
- a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
- our ability to manage market risk, credit risk and operational risk;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- 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;
- the risk of adverse changes in business conditions due to geo-political tensions;
- our ability to attract and retain key employees; and
- 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 Prospectus dated May 13, 2022, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on May 20, 2022, and as supplemented on June 21, 2022.

### Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.

### Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when it is believed the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in the Company’s judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio. The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available.

### Comparison of Financial Condition at June 30, 2022 and December 31, 2021

***Total Assets.*** Total assets increased $115.5 million, or 17.3%, to $782.0 million at June 30, 2022 from $666.5 million at December 31, 2021. The increase was primarily the result of increases in loans and held-to-maturity securities.

***Cash and Cash Equivalents.*** Cash and cash equivalents increased $2.0 million, or 3.8%, to $55.0 million at June 30, 2022 from $53.0 million at December 31, 2021.

***Securities Held to Maturity.*** Securities held to maturity increased $4.1 million, or 6.3%, to $69.7 million at June 30, 2022 from $65.6 million at December 31, 2021, primarily due to purchases of securities of $9.8 million partially offset by principal repayments of $5.6 million.

***Loans.*** Net loans increased $106.8 million, or 20.7%, to $624.0 million at June 30, 2022 from $517.1 million at December 31, 2021. The largest increases in our loan portfolio were in multi-family, one- to four-family residential, commercial real estate and construction loans. Multi-family real estate loans increased $47.1 million, or 79.2%, from December 31, 2021 to June 30, 2022. One- to four-family residential real estate loans increased $34.9 million, or 13.4%, from December 31, 2021 to June 30, 2022. Commercial real estate loans increased $17.7 million, or 17.7%, from December 31, 2021 to June 30, 2022. Construction loans increased $7.9 million, or 11.2%, from December 31, 2021 to June 30, 2022. In addition, to help manage interest rate risk and generate non-interest income, we sell certain one- to four-family residential mortgage loans into the secondary market on a servicing-released basis. During the six months ended June 30, 2022, we sold $3.6 million in loans and recognized gains of $68,000.

***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 decreased $265,000, or 1.9%, to $13.9 million at June 30, 2022 from $14.1 million at December 31, 2021. The decrease was due to death benefits receivable of $905,000, which included a reduction of our cash surrender value of $465,000 and $440,000 in gains. Partially offsetting the decrease to cash surrender value, we recognized $200,000 from the increase in cash surrender value of our bank-owned life insurance portfolio during the six months ended June 30, 2022.

***Deposits.*** Deposits increased $91.7 million, or 16.0%, to $663.4 million at June 30, 2022 from $571.7 million at December 31, 2021. This increase was primarily the result of an increase in interest bearing demand deposits of $74.5 million. Interest bearing demand deposits included $75.5 million of subscription funds from prospective investors in our initial public offering prior to the closing of the offering. Core deposits (defined as all deposits other than certificates of deposit), excluding the $75.5 million in interest bearing demand deposits related to the offering, increased $18.0 million, or 5.2%, to $362.9 million at June 30, 2022 from $344.9 million at December 31, 2021. This increase was primarily a result of a $12.5 million, or 6.8%, increase in money market accounts to $195.8 million at June 30, 2022 from $183.2 million at December 31, 2021. At June 30, 2022 and December 31, 2021, we had $19.9 million of brokered deposits.

***Federal Home Loan Bank Advances.*** Advances from the Federal Home Loan Bank increased $21.5 million, or 238.6%, to $30.5 million at June 30, 2022 from $9.0 million at December 31, 2021. The increase in advances was due to a new New England Fund advance of $1.5 million being used to fund an affordable housing initiative as well as $20.0 million advance to support loan growth.

***Equity.*** Total equity increased $2.8 million, or 3.6%, to $80.0 million at June 30, 2022 from $77.3 million at December 31, 2021, primarily due to net income of $2.8 million for the six months ended June 30, 2022.

### Comparison of Operating Results for the Three Months Ended June 30, 2022 and June 30, 2021

***Net Income.*** Net income was $1.4 million for the three months ended June 30, 2022, compared to net income of $1.4 million for the three months ended June 30, 2021.

***Interest and Dividend Income.*** Interest and dividend income increased $518,000, or 9.3%, to $6.1 million for the three months ended June 30, 2022 from $5.6 million for the three months ended June 30, 2021. The increase was due to a $360,000 increase in interest and fees on loans, an $80,000 increase in interest and dividends on securities and a $78,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $79.3 million in the average balance of the loan portfolio to $571.5 million for the three months ended June 30, 2022 from $492.2 million for the three months ended June 30, 2021. Partially offsetting this, the weighted average yield for the loan portfolio decreased 35 basis points to 3.98% for the three months ended June 30, 2022 from 4.33% for the three months ended June 30, 2021, primarily due to lower market interest rates and $169,000 in prepayment penalties recognized for the three months ended June 30, 2021 as compared to $1,000 recognized for the three months ended June 30, 2022. In addition, Paycheck Protection Program ("PPP") loans contributed an additional $45,000 and $83,000 in net fees for the three months ended June 30, 2022 and 2021, respectively. PPP loans at June 30, 2022 totaled $878,000 compared to $3.4 million at December 31, 2021.The increase in interest and dividends on securities was due to both an increase of $9.0 million in the average balance of the investment security portfolio to $75.3 million for the three months ended June 30, 2022 from $66.3 million for the three months ended June 30, 2021 as well as an increase in the yield on securities to 1.67% for the three months ended June 30, 2022 from 1.48% for the three months ended June 30, 2021. The increase in other interest income was due to an increase in the yield on short term investments and federal funds sold to 0.86% for the three months ended June 30, 2022 from 0.09% for the three months ended June 30, 2021.

Average interest-earning assets increased $83.5 million, to $687.7 million for the three months ended June 30, 2022 from $604.2 million for the three months ended June 30, 2021. The yield on interest earning-assets decreased 15 basis points to 3.55% for the three months ended June 30, 2022 from 3.70% for the three months ended June 30, 2021.

***Interest Expense.*** Total interest expense decreased $231,000, or 24.0%, to $730,000 for the three months ended June 30, 2022 from $961,000 for the three months ended June 30, 2021. Interest expense on deposit accounts decreased $281,000, or 30.3%, to $647,000 for the three months ended June 30, 2022 from $928,000 for the three months ended June 30, 2021, due to a decrease in the weighted average rate on interest-bearing deposits to 0.50% for the three months ended June 30, 2022 from 0.82% for the three months ended June 30, 2021, which more than offset an increase in the average balance of interest-bearing deposits of $60.8 million, or 13.4%, to $515.2 million for the three months ended June 30, 2022 from $454.4 million for the three months ended June 30, 2021.

***Net Interest and Dividend Income.*** Net interest and dividend income increased $749,000, or 16.2%, to $5.4 million for the three months ended June 30, 2022 from $4.6 million for the three months ended June 30, 2021, primarily due to a $7.9 million increase in the average balance of net interest-earning assets during the three months ended June 30, 2022, together with an increase in the interest rate spread to 3.01% for the three months ended June 30, 2022 from 2.88% for the three months ended June 30, 2021. The increase in the interest rate spread was primarily due to a decrease in the weighted average rate paid on interest-bearing liabilities to 0.54% for the three months ended June 30, 2022 from 0.82% for the three months ended June 30, 2021. The net interest margin increased to 3.12% for the three months ended June 30, 2022 from 3.06% for the three months ended June 30, 2021.

***Provision for Loan and Lease Losses.*** Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $754,000 was recorded for the three months ended June 30, 2022, compared to a provision of $90,000 for the three months ended June 30, 2021. The $664,000, or 737.8%, increase in the provision was primarily due to loan portfolio growth.

***Noninterest Income.*** Noninterest income increased $427,000, or 162.4%, to $690,000 for the three months ended June 30, 2022 from $263,000 for the three months ended June 30, 2021. The increase was driven by $440,000 of gains recognized into income from life insurance policy death benefits, partially offset by a decrease in net gains on sales of loans of $64,000. The table below sets forth our noninterest income for three months ended June 30, 2022 and 2021:

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2022 | 2021 | Change Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Customer service fees | $112 | $91 | $21 | 23.1% |
| Income from bank-owned life insurance | 539 | 75 | 464 | 618.7 |
| Net gain on sales of loans | 23 | 87 | (64) | (73.6) |
| Other | 16 | 10 | 6 | 60.0 |
| Total noninterest income | $690 | $263 | $427 | 162.4% |

***Noninterest Expense.*** Noninterest expense increased $725,000, or 25.4%, to $3.6 million for the three months ended June 30, 2022 from $2.9 million for the three months ended June 30, 2021, mainly driven by increases in salary and employee benefits. Salary and employee benefit expenses increased $523,000, or 29.6%, resulting primarily from additional employees and normal salary increases. Included within salaries and employee benefits is a benefit of $241,000 recorded to reflect a reduction in the liability related to our withdrawal from our defined benefit plan. In addition, during the three months ended June 30, 2022, we recorded expense of $166,000 related to our Survivor Benefit Plan. The recent hires of several executive officers and other seasoned bankers should allow us to implement our growth strategy and will continue to increase our compensation and benefits expense in 2022 and thereafter, which will increase our noninterest expense.

The table below sets forth our noninterest expense for the three months ended June 30, 2022 and 2021:

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2022 | 2021 | Change Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $2,291 | $1,768 | $523 | 29.6% |
| Director Compensation | 107 | 92 | 15 | 16.5 |
| Occupancy and equipment | 201 | 216 | (15) | (6.9) |
| Data processing | 180 | 174 | 6 | 3.4 |
| Computer software and licensing fees | 55 | 58 | (3) | 5.2 |
| Advertising and promotions | 138 | 153 | (15) | (9.8) |
| Professional fees | 194 | 79 | 115 | 145.6 |
| FDIC Assessment | 64 | 39 | 25 | 64.1 |
| Other | 351 | 277 | 74 | 26.7 |
| Total noninterest expense | $3,581 | $2,856 | $725 | 25.4% |

26

***Income Tax Expense.*** Income tax expense decreased $191,000, or 37.0%, to $325,000 for the three months ended June 30, 2022 from $516,000 for the three months ended June 30, 2021. The effective tax rate was 18.9% and 26.7% for the three months ended June 30, 2022 and 2021, respectively. The reduction was driven by the non-taxable bank owned life insurance death benefits recognized during the three months ended June 30, 2022.

***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.

*(Dollars in thousands)*

| Interest-earning assets: | For the Three Months Ended June 30, 2022 Average Outstanding Balance | Interest | Yield/ Rate(5) | 2021 Average Outstanding Balance | Interest | Yield/ Rate(5) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total loans | $571,505 | $5,678 | 3.98% | $492,169 | $5,318 | 4.33% |
| Securities (1) | 75,261 | 314 | 1.67 | 66,252 | 244 | 1.48 |
| Short term investments and federal funds sold | 40,624 | 87 | 0.86 | 45,749 | 10 | 0.09 |
| Interest bearing deposits | 300 | 1 | 0.71 | - | — | 0.00 |
| Total interest-earning assets | 687,690 | 6,080 | 3.55% | 604,170 | 5,572 | 3.70% |
| Non-interest-earning assets | 28,042 |  |  | 21,833 |  |  |
| Total assets | $715,732 |  |  | $626,003 |  |  |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Regular savings accounts | 52,836 | 8 | 0.06% | 46,114 | 8 | 0.07% |
| Checking accounts | 41,137 | 7 | 0.07 | 25,034 | 14 | 0.22 |
| Money market accounts | 198,936 | 170 | 0.34 | 159,197 | 129 | 0.33 |
| Certificates of deposit | 222,340 | 462 | 0.83 | 224,064 | 777 | 1.39 |
| Total interest-bearing deposits | 515,249 | 647 | 0.50 | 454,409 | 928 | 0.82 |
| Federal Home Loan Bank advances | 27,618 | 83 | 1.21 | 12,846 | 33 | 1.03 |
| Total interest-bearing liabilities | 542,867 | 730 | 0.54% | 467,255 | 961 | 0.82% |
| Non-interest-bearing demand deposits | 85,592 |  |  | 78,723 |  |  |
| Non-interest-bearing liabilities | 7,726 |  |  | 5,073 |  |  |
| Total liabilities | 636,185 |  |  | 551,051 |  |  |
| Stockholders' Equity | 79,547 |  |  | 74,952 |  |  |
| Total liabilities and stockholders' equity | $715,732 |  |  | $626,003 |  |  |
| Net interest income |  | $5,350 |  |  | $4,611 |  |
| Net interest rate spread (2) |  |  | 3.01% |  |  | 2.87% |
| Net interest-earning assets (3) | $144,823 |  |  | $136,915 |  |  |
| Net interest margin (4) |  |  | 3.12% |  |  | 3.06% |
| Average interest-earning assets to interest- bearing liabilities |  |  | 126.68% |  |  | 129.30% |

(1) Excludes interest and dividends on cost method investments of $16,000 and $6,000 for the three months ended June 30, 2022 and June 30, 2021, 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.

*(In thousands)*

| Interest-earning assets: | Three Months Ended June 30, 2022 vs. 2021 Increase (Decrease) Due to Volume | Rate | Total Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Loans | $811 | $(451) | $360 |
| Securities | 34 | 36 | 70 |
| Short term investments and Federal funds sold | (1) | 78 | 77 |
| Interest bearing deposits | 1 | - | 1 |
| Total interest-earning assets | $845 | $(337) | $508 |
| **Interest-bearing liabilities:** |  |  |  |
| Interest-bearing demand deposits | $1 | $(1) | $- |
| Regular savings and other deposits | 1 | (8) | (7) |
| Money market deposits | 34 | 7 | 41 |
| Certificates of deposit | (6) | (309) | (315) |
| Total deposits | 30 | (311) | (281) |
| Advances from the Federal Home Loan Bank | 44 | 6 | 50 |
| Other interest-bearing liabilities |  |  |  |
| Total interest-bearing liabilities | $74 | $(305) | $(231) |
| Change in net interest income | $771 | $(32) | $739 |

### Comparison of Operating Results for the Six Months Ended June 30, 2022 and June 30, 2021

***Net Income.*** Net income was $2.8 million for the six months ended June 30, 2022, compared to net income of $2.7 million for the six months ended June 30, 2021, an increase of $72,000, or 2.7%. The increase was primarily due to a $1.3 million increase in net interest and dividend income and a $387,000 increase in noninterest income, partially offset in part by a $695,000 increase in provision for loan losses and a $1.1 million increase in non-interest expense.

***Interest and Dividend Income.*** Interest and dividend income increased $710,000, or 6.5%, to $11.7 million for the six months ended June 30, 2022 from $11.0 million for the six months ended June 30, 2021, primarily due to a $459,000 increase in interest and fees on loans, $166,000 increase in interest and dividends on securities and an $85,000 increase in other interest income. The increase in interest and fees on loans was primarily due to an increase of $63.2 million in the average balance of the loan portfolio to $549.4 million for the six months ended June 30, 2022 from $486.3 million for the six months ended June 30, 2021. The weighted average yield for the loan portfolio decreased 33 basis points to 4.02% for the six months ended June 30, 2022 from 4.35% for the six months ended June 30, 2021, primarily due to lower market interest rates. PPP loans contributed an additional $103,000 and $202,000 in net fees for the six months ended June 30, 2022 and 2021, respectively. PPP loans at June 30, 2022 totaled $878,000 compared to $3.4 million at December 31, 2021.The increase in interest and dividends on securities was driven primarily by an increase of $9.8 million in the average balance of the investment security portfolio to $73.7 million for the six months ended June 30, 2022 from $63.8 million for the six months ended June 30, 2021 as well as $32,000 in income recognized on cost method investments. The increase in other interest income was due to an increase in the yield on short term investments and federal funds sold to 0.50% for the six months ended June 30, 2022 from 0.08% for the six months ended June 30, 2021.

Average interest-earning assets increased $69.9 million, to $665.1 million for the six months ended June 30, 2022 from $595.2 million for the six months ended June 30, 2021. The yield on interest-earning assets decreased 19 basis points to 3.53% for the six months ended June 30, 2022 from 3.72% for the six months ended June 30, 2021.

***Interest Expense.*** Total interest expense decreased $614,000, or 30.2%, to $1.4 million for the six months ended June 30, 2022 from $2.0 million for the six months ended June 30, 2021. Interest expense on deposit accounts decreased $652,000, or 33.3%, to $1.3 million for the six months ended June 30, 2022 from $2.0 million for the six months ended June 30, 2021, due to a decrease in the weighted average rate on interest-bearing deposits to 0.52% for the six months ended June 30, 2022 from 0.88% for the six months ended June 30, 2021, which more than offset an increase in the average balance of interest-bearing deposits of $54.2 million, or 12.1%, to $503.9 million for the six months ended June 30, 2022 from $449.7 million for the six months ended June 30, 2021.

***Net Interest and Dividend Income.*** Net interest and dividend income increased $1.3 million, or 14.8%, to $10.3 million for the six months ended June 30, 2022 from $9.0 million for the six months ended June 30, 2021, primarily due to a $13.0 million increase in the average balance of net interest-earning assets during the six months ended June 30, 2022, together with an increase in the interest rate spread to 2.98% for the six months ended June 30, 2022 from 2.84% for the six months ended June 30, 2021. The increase in the interest rate spread was primarily due to a decrease in the weighted average rate paid on interest-bearing liabilities to 0.55% for the six months ended June 30, 2022 from 0.88% for the six months ended June 30, 2021. The net interest margin increased to 3.10% for the six months ended June 30, 2022 from 3.03% for the six months ended June 30, 2021.

***Provision for Loan and Lease Losses.*** Based on management’s analysis of the adequacy of the allowance for loan losses, a provision of $875,000 was recorded for the six months ended June 30, 2022, compared to a provision of $180,000 for the six months ended June 30, 2021. The $695,000, or 386.1%, increase in the provision was primarily due to loan portfolio growth.

***Noninterest Income.*** Noninterest income increased $387,000, or 69.9%, to $941,000 for the six months ended June 30, 2022 from $554,000 for the six months ended June 30, 2021. The increase was driven by $440,000 of gains recognized into income from life insurance policy death benefits. A $139,000 decrease in net gains on sales of loans was due to the current interest rate environment and lower originations of saleable loans. The table below sets forth our noninterest income for six months ended June 30, 2022 and 2021:

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2022 | 2021 | Change Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Customer service fees | $212 | $192 | $20 | 10.4% |
| Income from bank-owned life insurance | 640 | 139 | 501 | 360.4 |
| Net gain on sales of loans | 68 | 207 | (139) | (67.1) |
| Other | 21 | 16 | 5 | 31.3 |
| Total noninterest income | $941 | $554 | $387 | 69.9% |

***Noninterest Expense.*** Noninterest expense increased $1.1 million, or 19.7%, to $6.8 million for the six months ended June 30, 2022 from $5.6 million for the six months ended June 30, 2021, driven by increases in salary and employee benefits. Salary and employee benefit expenses increased $835,000, or 24.2%, resulting primarily from additional employees and normal salary increases. Included within salaries and employee benefits is a benefit of $582,000 recorded to reflect a reduction in the liability related to our withdrawal from our defined benefit plan. The reduction was primarily driven by increases in interest rates since December 31, 2021, which caused defined benefit plan discount rates to rise. In addition, during the six months ended June 30, 2022, we recorded expense of $166,000 related to our Survivor Benefit Plan. The recent hires of several executive officers and other seasoned bankers should allow us to implement our growth strategy and will continue to increase our compensation and benefits expense in 2022 and thereafter, which will increase our noninterest expense.

The table below sets forth our noninterest expense for the six months ended June 30, 2022 and 2021:

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2022 | 2021 | Change Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $4,280 | $3,445 | $835 | 24.2% |
| Director Compensation | 214 | 183 | 31 | 16.9 |
| Occupancy and equipment | 384 | 404 | (20) | (5.0) |
| Data processing | 350 | 343 | 7 | 2.0 |
| Computer software and licensing fees | 101 | 150 | (49) | (32.7) |
| Advertising and promotions | 275 | 335 | (60) | (17.9) |
| Professional fees | 359 | 189 | 170 | 89.9 |
| FDIC Assessment | 109 | 78 | 31 | 39.7 |
| Other | 682 | 516 | 166 | 32.2 |
| Total noninterest expense | $6,754 | $5,643 | $1,111 | 19.7% |

29

***Income Tax Expense.*** Income tax expense decreased $167,000, or 16.9%, to $820,000 for the six months ended June 30, 2022 from $987,000 for the six months ended June 30, 2021. The effective tax rate was 22.8% and 26.7% for the six months ended June 30, 2022 and 2021, respectively. The reduction was driven by the non taxable bank owned life insurance death benefits recognized during the six months ended June 30, 2022.

***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.

*(Dollars in thousands)*

| Interest-earning assets: | For the Six Months Ended June 30, 2022 Average Outstanding Balance | Interest | Yield/ Rate(5) | 2021 Average Outstanding Balance | Interest | Yield/ Rate(5) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total loans | $549,439 | $10,941 | 4.02% | $486,250 | $10,482 | 4.35% |
| Securities (1) | 73,657 | 608 | 1.66 | 63,838 | 484 | 1.53 |
| Short term investments and federal funds sold | 41,868 | 103 | 0.50 | 45,116 | 19 | 0.08 |
| Interest bearing deposits | 176 | 1 | 0.71 | - | — | 0.00 |
| Total interest-earning assets | 665,140 | 11,653 | 3.53% | 595,204 | 10,985 | 3.72% |
| Non-interest-earning assets | 27,110 |  |  | 20,778 |  |  |
| Total assets | $692,250 |  |  | $615,982 |  |  |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Regular savings accounts | 51,955 | 15 | 0.06% | 44,902 | 18 | 0.08% |
| Checking accounts | 34,203 | 18 | 0.11 | 24,301 | 30 | 0.25 |
| Money market accounts | 193,112 | 301 | 0.31 | 156,493 | 300 | 0.39 |
| Certificates of deposit | 224,620 | 973 | 0.87 | 223,981 | 1,611 | 1.45 |
| Total interest-bearing deposits | 503,890 | 1,307 | 0.52 | 449,677 | 1,959 | 0.88 |
| Federal Home Loan Bank advances | 18,483 | 113 | 1.23 | 15,773 | 75 | 0.96 |
| Total interest-bearing liabilities | 522,373 | 1,420 | 0.55% | 465,450 | 2,034 | 0.88% |
| Non-interest-bearing demand deposits | 83,201 |  |  | 71,292 |  |  |
| Non-interest-bearing liabilities | 7,908 |  |  | 4,945 |  |  |
| Total liabilities | 613,482 |  |  | 541,687 |  |  |
| Stockholders' Equity | 78,768 |  |  | 74,295 |  |  |
| Total liabilities and stockholders' equity | $692,250 |  |  | $615,982 |  |  |
| Net interest income |  | $10,233 |  |  | $8,951 |  |
| Net interest rate spread (2) |  |  | 2.98% |  |  | 2.84% |
| Net interest-earning assets (3) | $142,767 |  |  | $129,754 |  |  |
| Net interest margin (4) |  |  | 3.10% |  |  | 3.03% |
| Average interest-earning assets to interest- bearing liabilities |  |  | 127.33% |  |  | 127.88% |

(1) Excludes interest and dividends on cost method investments of $54,000 and $12,000 for the six months ended June 30, 2022 and June 30, 2021, 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

30

***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 year 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.

*(In thousands)*

| Interest-earning assets: | Six Months Ended June 30, 2022 vs. 2021 Increase (Decrease) Due to Volume | Rate | Total Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Loans | $1,297 | $(838) | $459 |
| Securities | 78 | 46 | 124 |
| Short term investments and Federal funds sold | (1) | 85 | 84 |
| Interest bearing deposits | 1 | - | 1 |
| Total interest-earning assets | $1,375 | $(707) | $668 |
| **Interest-bearing liabilities:** |  |  |  |
| Interest-bearing demand deposits | $3 | $(6) | $(3) |
| Regular savings and other deposits | 9 | (21) | (12) |
| Money market deposits | 63 | (62) | 1 |
| Certificates of deposit | 5 | (643) | (638) |
| Total deposits | 80 | (732) | (652) |
| Advances from the Federal Home Loan Bank | 14 | 24 | 38 |
| Other interest-bearing liabilities |  |  |  |
| Total interest-bearing liabilities | $94 | $(708) | $(614) |
| Change in net interest income | $1,281 | $1 | $1,282 |

### 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 securities. We are also able to borrow from the Federal Home Loan Bank of Boston and the Atlantic Community Bankers Bank. At June 30, 2022, we had outstanding advances of $30.5 million from the Federal Home Loan Bank. At June 30, 2022, we had unused borrowing capacity of $118.1 million with the Federal Home Loan Bank and $10.0 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, 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.

At June 30, 2022, we had $54.5 million in loan commitments outstanding. In addition to commitments to originate loans, we had $52.8 million in unused lines of credit to borrowers and $53.9 million in unadvanced construction loans.

Certificates of deposit due within one year of June 30, 2022 totaled $138.6 million, or 20.9%, 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 June 30, 2023, 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 June 30, 2022.

Our primary investing activity is originating loans. During the six months ended June 30, 2022 and the year ended December 31, 2021, we funded $208.2 million and $254.6 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts, and to a lesser extent, both FHLB advances and brokered deposits. We experienced net increases in deposits of $91.7 million and $80.3 million for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, the level of brokered time deposits was $19.9 million and $19.9 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.

For additional information, see the consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 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 monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At June 30, 2022, 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 10 of the notes to consolidated financial statements.

The net proceeds from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the offering are used for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the offering, which will increase our net interest-earning assets and net interest income.

### 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.

## Controls and procedures

As filed, 868 characters.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Aug 12, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-017025. Last ingested by Listed: Nov 6, 2026, 14:08 ET. No prices; not investment advice.